Cox v Hickman
Cox v Hickman (1860) 8 HLC 268
Court:
House of Lords (UK)
Facts of the Case:
Mr. Cox and Mr. Hickman were involved in a business arrangement.
Cox had lent money and entered into agreements with a company formed by Hickman.
The question arose as to whether the company’s separate legal personality could be disregarded to hold the individuals personally liable on certain agreements.
The dispute centered on whether the agreements were genuine contracts with the company or merely shams to hide the real parties' liabilities.
Legal Issue:
When can the corporate veil be lifted to look behind the company and hold the individuals responsible?
Are the agreements genuine contracts with the company, or collusive devices to evade existing liabilities?
Judgment:
The House of Lords ruled that the corporate veil could only be lifted in cases of fraud, sham, or improper conduct.
Simply because individuals control a company or use it as an intermediary does not justify ignoring the company’s separate personality.
The contracts were held to be valid with the company; the individuals could not be personally bound.
The court emphasized the importance of respecting the separate legal personality of the company as established in Salomon v Salomon.
Legal Principles Established:
1. Separate Legal Personality:
A company is a distinct legal person from its shareholders or controllers.
This principle protects shareholders from personal liability for the company’s debts.
2. When to Lift the Corporate Veil:
The veil can only be pierced in exceptional circumstances such as:
Fraud or dishonesty,
The company being a mere façade or sham concealing the true facts,
To prevent injustice or evasion of legal obligations.
3. Contracts with the Company:
Contracts entered into by a company are binding on the company itself, not the shareholders personally, unless personal guarantees or fraud exist.
Supporting Case Law:
1. Salomon v A Salomon & Co Ltd (1897) AC 22
Established the fundamental principle of corporate personality.
2. Gilford Motor Co Ltd v Horne [1933] Ch 935
An example of veil lifting where the company was a sham to evade contractual restrictions.
3. Jones v Lipman [1962] 1 WLR 832
Further example where the company was used as a device to avoid a contract, justifying veil piercing.
Summary:
Cox v Hickman reinforced the idea that courts must respect the corporate veil and the separate personality of a company.
Veil lifting is an exceptional remedy, only justified where the company is used for fraud or evasion of law.
The case laid the groundwork for the cautious approach courts take when deciding whether to look behind the corporate structure.
It remains a foundational case in company law for understanding limits on personal liability and the circumstances to disregard corporate personality.
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