When The Corporate Veil Should Not Be Pierced

Originally published in the November/December 2009 issue of Canadian Lawyer Magazine.

The "separate entities" principle established over 100 years ago by the House of Lords in Salomon has widely been recognised as one of the fundamental principles of English law. This principle holds that a company is a distinct legal person, different altogether from its shareholders, and which must be treated like any other independent person with its own rights and liabilities. The corporate veil, it was held, may only be pierced in very rare and exceptional circumstances, namely, if the company was formed for an unlawful purpose or a fraud was committed. Regrettably, in the past couple of decades, a "just and equitable" test has insidiously crept into the jurisprudence and been occasionally (but wrongly) applied in determining when to pierce the veil. The result has been the injection of uncertainty into the law and a weakening of the principle, which for over a century has