Lee v Lee's Air Farming Ltd [1960] UKPC 33
Citation: Lee v Lee's Air Farming Ltd [1960] UKPC 33
Rule of thumb 1: Can the owner/director of a company enter a contract with themselves? Yes, even if a person owns 100% of the shares in a company they are still a different person as a matter of law from the company. The Court confirmed the general principle that even if someone is a 100% owner/director of a company they can still enter a contract with themselves as an individual – this case confirmed that someone effectively sending an email from the company email account to their own personal account to enter into a contract with themselves is a valid contract and not a sham, as bizarre as it may prima facie seem at first this is not an exception to the separate personality rule.
Rule of thumb 2: What happens if a director of a company gets an insurance policy in their own name rather than the name of the company? The policy is not valid and the company is not insured.
Judgment:
The Court confirmed the general principle that even if someone is a 100% owner/director of a company they can still enter a contract with themselves as an individual – this case confirmed that someone effectively sending an email from the company email account to their own personal account to enter into a contract with themselves is a valid contract and not a sham, as bizarre as it may prima facie seem at first this is not an exception to the separate personality rule. The facts of this case were that Lee was a pilot and he set used to spread fertiliser from the air using his plane. Lee entered an agreement with himself where he became an employee director. Lee was then killed in the course of doing his duty for what appeared to be potential health and safety breaches (that Mr Lee himself may not necessarily have been responsible for). The company tried to argue that a director could not enter what was essentially an employment contract with itself – Lee could not be both ‘the master and servant’ and the Court of Appeal upheld this, but the Privy Council overturned this. The Court held that Lee had not entered a contract with himself – rather that Lee had entered a contract with the company, and they were not creating an exception to the separate personality rule in this case. The Court held that Lee had a valid contract of employment with the company. There was therefore nothing to stop Mrs Lee, Mr Lee’s widow, from raising a potential ‘accident at work’ personally injury claim against the company, ‘It was never suggested (nor in their Lordships’ view could it reasonably have been suggested) that the company was a sham or a mere simulacrum. It is well established that the mere fact that someone is a director of a company is no impediment to his entering into a contract to serve the company. If, then, it be accepted that the respondent company was a legal entity their Lordships see no reason to challenge the validity of any contractual obligations which were created between the company and the deceased... It is said that the deceased could not both be under the duty of giving orders and also be under the duty of obeying them. But this approach does not give effect to the circumstance that it would be the company and not the deceased that would be giving the orders. Control would remain with the company whoever might be the agent of the company to exercise... There appears to be no great difficulty in holding that a man acting in one capacity can make a contract with himself in another capacity. The company and the deceased were separate legal entities...’ . Lord Morris
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