LAWS20058 Australian Commercial Law

Provide a summary of the constitution that your tribe developed in Workshop 1, Tasks 1 and 2, explaining how it addresses the requirements for Hart’s 3-part legal system.Research a legal system of a foreign country and explain how it addresses the requirements of Hart’s 3-part legal system. (If you do this question, you will need to provide a reference list).
Compare the legal system you described in Part A to the Australian legal system, showing how they are similar and how they differ. In your conclusion, state your opinion on which difference between the legal systems would have the biggest effect in practice.

We would like to discuss the Saloman v Saloman & Co Ltd  case which is more than a century old but has wide implications for the modern day commercial law for it gave the company a separate legal entity which still continues to be one of the most prominent features.

Facts & Issue

In this case, a merchant business related to manufacturing of leather boots was operated by Aron Solomon as the sole proprietor. Due to the underlying interest in the business shown by his son, Solomon decided to form a limited company under the name of Salomon & Co. Ltd.  The company at the time had the condition that such companies must have minimum seven shareholders. The result was that a company was formed with Solomon owing 20,001 out of 20,007 shares while the remainder six shares were held one each by the six family members consisting of spouse and the children.

This business was liquidated for a total sum of £39,000 including a sum of £10,000 that the company owed as a debt to Soloman. As a result, here the principal shareholder was also the main creditor. When the company underwent liquidation, it was argued by the liquidators that Soloman has committed a fraud as the validity of the debentures issued for securing of debt could not be established. Thus, the central issue was to establish if Soloman can be held responsible for the outstanding debts to creditors.

Law & Application

The central argument made by the liquidators along with creditors was that company was a sham since it was essentially an agent of the Solomon who acted as the principal. As a result, Solomon would be responsible for paying the amount due to unsecured creditors. The court endorsed the same and hence there was an appeal leading the matter in the Court of Appeal where also the  decision taken by the court was reiterated.

The Court of Appeal also advocated that it seemed that the sole motive of Soloman to form the company was to ensure that liabilities could be limited and therefore isolating himself from the claim of the creditors. However, when the case reached the House of Lords, there was reliance on 1862 Companies Act only in the literal form which led them to opine that the relevant act did not highlight independence between the majority and minority shareholders as a necessary condition for company formation. The House of Lords also advised that judiciary is not supposed to debate on the limitations of the existing statute but need to implement the various provisions of the statute.

Conclusion

Thus, this paved way to the famous Soloman principle as per which a company is a separate legal entity. This principle has led to the proliferation of the company structure which offers both theoretical and practical benefits. However, the immunity may not be extended in every circumstance and in certain conditions under common law and statute, it becomes necessary for the courts to pierce the corporate veil.