The chances of successfully enforcing the contractual agreement between Casino Ltd. and its employees depends upon the issues raised, the rules and subsequent applications that could be established by the trade union against Casino Ltd. -------------------------------------------------
1. Whether Casino Ltd. (the parent company) and Caterers Ltd. (its wholly-owned subsidiary company) are considered as separate legal entities. Additionally, whether the concept of corporate veil applies to the corporate groups (between Casino Ltd and Caterers Ltd). 2. Is it possible to lift or pierce the corporate veil of corporate groups on the basis that: (a) there is an implied agency relationship between the companies in the group? (b) the subsidiary company is incorporated to avoid a contractual obligation? 3. Has the company breached Section 596 of the Corporations Act? -------------------------------------------------
1. The Salomon case establishes that an incorporated company is a separate legal entity from its participants, namely founders, shareholders, directors, employees and agents. Consequently, a company could enter into contracts in its own rights and possess assets and liabilities distinct from its members. In legal terminology, this rule is referred to as the ‘corporate veil’. According to the Walker case at 6 per Justice Mason, a corporate group is “a number of companies associated by common or interlocking shareholdings, allied to unified control or capacity to control.” Accordingly, Lord Justice Roskill in Albazeo case observed: “… each company in a group of companies … is a separate legal entity possessed of separate legal rights and liabilities … the existence of those principles . … is impossible to deny, ignore or disobey ...” 2. (a) When an agency relationship exists in the corporate groups, the corporate veil could be pierced. Piercing the corporate veil is a judicially imposed exception to the separate legal entity principle of a company in which the actions of the corporations and the shareholders will be treated as one. Based on the SSK case, there are six mandatory criteria to be fulfilled to successfully infer the existence of agency relationship between corporate groups. These criteria are: 1) Were the profits treated as profits of the parent?
2) Were the persons conducting the business appointed by the parent? 3) Was the parent the head and brain of the trading venture? 4) Did the parent govern the venture; decide what should be done and what capital should be used? 5) Did the parent make profits by its skill and direction? 6) Was the parent in effectual and constant control?
It is important to note that in the Bird Cameron case, Justice Besanko stated that the first criteria of the 6 point test formulated in SSK case above identifies issue that is important in determining the existence of an agency relationship, but he rejected the other five criteria on the basis that “…too much emphasis on the other five criteria relates to control and control of itself cannot be a decisive indicator of agency …” Instead, four matters are identified for determining the existence of agency relationship: 1. The entity which owned the business
2. The entity which controlled the operation and management of the subsidiary 3. The entity which received the profits of the business conducted by the subsidiary 4. The reason or reasons for the proposal whereby the subsidiary came to conduct the general practice, and, in particular, were they good commercial reasons?
(b) Using the case precedent ALHMWU, a company that is incorporated to avoid an existing contractual obligation may have its corporate veil lifted.
3. CA s596AA states that the purpose of the Act is to protect the entitlement of company’s employees from agreements that are entered into with the intention of defeating the recovery of those entitlements....