|Trustor AB v Smallbone (No 2)|
|Court||High Court (Chancery Division)|
|Decided||16 March 2001|
|Citation(s)|| EWHC 703 (Ch),  2 BCLC 436,  BCC 795,  1 WLR 1177|
Trustor AB v Smallbone (No 2)  EWHC 703(Ch) is a UK company law case concerning piercing the corporate veil.
Mr Smallbone had been the managing director of Trustor AB, and it was claimed that in breach of fiduciary duty he transferred money to a company that he owned and controlled. Trustor AB applied to treat receipt of the assets of that company as the same as the assets of Mr Smallbone. It argued that Smallbone's company was a sham to help breaches of duty, it had been involved in improper acts and the interests of justice demanded the result. The case against Mr Smallbone was eventually dropped by Trustor AB as there was no breach of fiduciary duty.
Sir Andrew Morritt VC held that there was enough evidence to lift the veil on the basis that it was a "mere facade". He noted the tension between Adams v Cape Industries plc and later cases and stated that impropriety is not enough to pierce the veil, but the court is entitled to do so where a company is used ‘as a device or façade to conceal the true facts and the liability of the responsible individuals.’
18. Liability arising from the knowing receipt of trust property stems from the speech of Lord Selborne in Barnes v Addy (1874) LR 9 Ch App 244, 251 that"strangers are not to be made constructive trustees merely because they act as agents of trustees in transactions within their legal powers....unless these agents receive and become chargeable for part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design of the trustees."
In White & Tudor's Leading Cases in Equity 9th Ed. Vol 2 p.595 in relation to that passage from the speech of Lord Selborne the Editors quote with approval from the judgment of Kekewich J in Re Barney  2 Ch. 265, 273 that there is no liability "unless he has the trust property vested in him, or so far under his control that he can require it should be vested in him".
22. The second proposition also appears to me to be too widely stated unless used in conjunction with the first. Companies are often involved in improprieties. Indeed there was some suggestion to that effect in Salomon v A Salomon & Co Ltd  AC 22. But it would make undue inroads into the principle of Salomon's case if an impropriety not linked to the use of the company structure to avoid or conceal liability for that impropriety was enough.
23. In my judgment the court is entitled to “pierce the corporate veil” and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s). On the facts of this case it is unnecessary to decide whether the dictum of Kekewich J in In re Barney  2 Ch 265, 273 referred to in paragraph 18, is applicable where the recipient is a wholly owned corporate body. The dictum suggests that complete control of the actual recipient may be enough. But this was not said in relation to a limited company and predates the decision of the House of Lords in Salomon v A Salomon & Co Ltd  AC 22.
Trustee is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any person who holds property, authority, or a position of trust or responsibility to transfer the title of ownership to the person named as the new owner, in a trust instrument, called a beneficiary. A trustee can also refer to a person who is allowed to do certain tasks but not able to gain income, although that is untrue. Although in the strictest sense of the term a trustee is the holder of property on behalf of a beneficiary, the more expansive sense encompasses persons who serve, for example, on the board of trustees of an institution that operates for a charity, for the benefit of the general public, or a person in the local government.
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for example, a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to another party, who, for example, has entrusted funds to the fiduciary for safekeeping or investment. Likewise, financial advisers, financial planners, and asset managers, including managers of pension plans, endowments, and other tax-exempt assets, are considered fiduciaries under applicable statutes and laws. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice, or protection is sought in some matter. In such a relation, good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.
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Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owed. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil.
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Adams v Cape Industries plc  Ch 433 is a UK company law case on separate legal personality and limited liability of shareholders. The case also addressed long-standing issues under the English conflict of laws as to when a company would be resident in a foreign jurisdiction such that the English courts would recognise the foreign court's jurisdiction over the company. It has in effect been superseded by Lungowe v Vedanta Resources plc, which held that a parent company could be liable for the actions of a subsidiary on ordinary principles of tort law.
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