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4 Juta's Bus. L. 51 (1996)
Piercing the Corporate Veil

handle is hein.journals/jutbusil4 and id is 51 raw text is: VOL 4 PART 2 Howard Sher Piercing the corporate veil The independent legal personality of compa- nies Our law recognizes that on the incorporation of a company it acquires an independent legal person- ality and exists apart from its members. As a distinct legal entity, the company acquires its own rights and incurs its own duties and obligations. Corporate obligations remain the liability of the company, not the shareholders, directors, or offic- ers who own or act for the company. Incorporation of a company, then, gives rise to the so-called corporate veil. It falls between the com- pany as a separate entity and its members in such a way that it hides them from the view of outsiders looking at the company. Our courts have pre- served the inviolability of the corporate veil. In certain circumstances, however, a court may justifiably disregard the separate personality of a company so as to fix liability elsewhere for what appear to be acts of the company. In these situations the courts often refer to the 'lifting' or 'piercing' of the corporate veil. As a result, per- sonal liability attaches to someone who misuses the independent corporate personality. Until recently the courts have failed to formulate a single coherent principle on which they could base their decisions to disregard the separate legal personality of a company. Instead, they have chosen to rely on a number of separate unrelated categories of conduct to justify these decisions. But recently, in Cape Pacific Ltd v Lubner Control- ling Investments (Pty) Ltd & others 1995 (4) SA 790 (A), the Appellate Division moved away from this approach. The facts of the case were complex and gave rise to assorted litigation. Lubner (L) owned shares in Findon Investments (Pty) Ltd (Findon). This fact guaranteed him personal occupation of a flat in Clifton. When he became a non-resident for exchange-control pur- poses in 1976, the Findon shares were transferred to Lubner Controlling Investments (Ply) Ltd (LCI), which held them on his behalf as a matter of convenience. LCI was owned by four trusts (cre- ated by L's father for the benefit of L's children) through two companies. One of them, Gerald Lubner Family Trust (Pty) Ltd (GLI), owned all the shares in LCI. L was never a director or shareholder of either company, nor was he a director of LCI; its sole director was S. In 1979 L owned all the issued shares in GLI. L and S were at all material times the directors of GLI. It was clear on the facts that L exercised complete control over LCI in respect of the Findon shares. Cape Pacific Ltd (CP) claimed that LCI had sold the Findon shares to it in February 1979. This was denied by LCI. CP successfully sued LCI for delivery of these shares; this was the original action. In the trial court, Friedman J gave judgment in CP's favour on 4 August 1987. In March 1989 the Appellate Division dismissed LCI's appeal against the judgment of the trial court. In the meantime it turned out that in the second half of 1979 LCI had purported to sell the shares in question to GLI. CP had become aware of this in June 1980 but did not seek to join GLI in its pending action against LCI and claim delivery of the Findon shares from GLI on the basis of the doctrine of notice; it was common cause that when the present action was instituted, this claim had prescribed - because the period set in the Prescription Act 68 of 1969 had lapsed, the claim could no longer be pursued. LCI failed to comply with the court order to deliver the shares to CP. CP then brought an application against various parties, including LCI, to have them declared as beipg in contempt of court for failing to deliver the shares. This application failed. ISSN 1021 - 7061

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