Lifting the veilEnemy characterHouse of Lords

Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd

[1916] 2 Appeal Cases 30719162 min read
The case in brief30-second read
Facts
Continental Tyre & Rubber Co (Great Britain) Ltd was incorporated in England. All shares except one were held by German nationals residing in Germany. All directors were German subjects.
Issue
Whether a company incorporated in England can be treated as an alien enemy based on the nationality of its controllers; whether the court can look behind the corporate personality to determine the true character of a company during wartime.
Held
The House of Lords held that while a company is prima facie a legal entity of the country of its incorporation, the court can look behind the corporate form to determine its real character in wartime. A company is to be regarded as an enemy company if its agents or persons in de facto control are alien enemies. Since all effective control was in German hands, the company was an alien enemy and could not sue in British courts.
Principle
The corporate veil may be lifted to determine the enemy character of a company during wartime by examining who controls it
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Facts

  • Continental Tyre & Rubber Co (Great Britain) Ltd was incorporated in England.
  • All shares except one were held by German nationals residing in Germany.
  • All directors were German subjects.
  • The company's secretary, who held one share, was the only British subject connected with it.
  • During World War I, the company sued Daimler Co Ltd for payment of a trade debt.
  • Daimler raised the defence that the plaintiff company was an alien enemy.

Issue

  1. Whether a company incorporated in England can be treated as an alien enemy based on the nationality of its controllers; whether the court can look behind the corporate personality to determine the true character of a company during wartime.

Held

  • The House of Lords held that while a company is prima facie a legal entity of the country of its incorporation, the court can look behind the corporate form to determine its real character in wartime. A company is to be regarded as an enemy company if its agents or persons in de facto control are alien enemies. Since all effective control was in German hands, the company was an alien enemy and could not sue in British courts.
  • Lord Parker stated that the artificial character of a persona ficta should not be allowed to obscure the real character of the persons behind it when issues of national security are at stake.

Ratio decidendi

The corporate veil may be lifted to determine the enemy character of a company during wartime. Where the persons who control a company are subjects of a nation at war with the forum state, the company takes on enemy character regardless of its place of incorporation. This is a judicial exception to the Salomon principle based on public policy and national security.

Exam use

How to use it in an answer

  • Use this case as a classic judicial exception to lifting the corporate veil on grounds of national interest and public policy. It demonstrates that the separate entity principle is not absolute and can be displaced when considerations of national security demand it.
  • Key quotable line: "A company may assume an enemy character when persons in de facto control are alien enemies."

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Citation

Daimler Co Ltd v Continental Tyre & Rubber Co (Great Britain) Ltd [1916] 2 Appeal Cases 307

Reported: House of Lords. This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.