Citation:
Link to case on WorldLII (reference).
Rule of thumb: What happens if an organisation has been set up as a sham to avoid liability? Where an organisation is a sham to avoid liability then this organisation is deemed to be a sham & is not to be recognised in the eyes of the law.
Judgment:
The Court in this case confirmed that where someone sets up a company purely to attempt to avoid civil liabilities then this is an exception to the separate personality rule called the ‘attempt to avoid the eye of equity’ principle. The facts of this case were that Lipman entered a contract with Jones to purchase a house. After Lipman had entered the contract, he no longer wished to go through with it for sentimental reasons. Jones then tried to sue Lipman and seek the remedy of specific implement from the Court to force Lipman to sell it to him. Lipman then transferred the house to a company he had set up – and had the owner of the deeds changed at the property register to the name of the company – claiming that he had never had the house any more to sell it. Lipman then argued in Court that he did not have the house to sell as a company had it which was a separate personality. The Court held that Lipman did still have the house and that the company he had set up was set up purely just to try and avoid going through with this pre-existing conveyancing contract, meaning that it was not recognised as a separate entity by the Court and it was recognised that the company was just Lipman himself. Lipman was forced to sell the house to Jones, ‘The defendant company is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity’, Russell J
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.