Before the case of Adams v Cape Industries Ltd, the courts encountered two conflicting decisions in relation to the application of the Salomon principle. One of these decisions was made in the case of DHN Food Distributors v Tower Hamlets London Borough Council, where the company's trading premises were compulsorily acquired.¹ However, since the premises were owned by a wholly owned subsidiary of the company, the local authority relied on the Salomon principle to argue that the business of the owner had not been disrupted.² The Court of Appeal, led by Lord Denning, held that it had the right to consider the actual circumstances and disregard the separate legal entities within a group. As a result, the company, despite not being the actual owner, was able to claim compensation for the loss of trade.

On the other side, the House of Lords delivered a contrasting ruling in the case of Woolfson v Strathclyde Regional Council.³ Like DHN, Woolfson involved the compulsory acquisition of trading premises by a local authority and a claim for business loss by the trading company, despite not owning the premises itself. However, Woolfson distinguished itself from DHN Food Distributors based on the fact that the claimant company only partially owned the property-owning company, rather than wholly owning it. Lord Keith, among others, speculated whether the Court of Appeal in DHN Food Distributors had improperly applied the guiding principle that the corporate veil can only be pierced when special circumstances indicate that it is a mere facade concealing the true situation.⁴

However, as Woolfson originated in Scotland, where a separate legal system operates, it remained uncertain whether the case established a binding precedent for English courts. Lord Denning's supporters in the Court of Appeal disregarded Woolfson in subsequent cases, maintaining that the court should pierce the corporate veil whenever justice requires it.⁵ This laid the groundwork for the Adams case several years later, which was decided after Denning's retirement when his influence on the law had significantly diminished.

References

1. DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852
2. Rian Matthews, “Clarification of the doctrine of piercing the corporate veil” J.I.B.28(12). 516-520 (2013), accessed 21 May 2023
3. Woolfson v Strathclyde Regional Council [1978] UKHL 5
4. Ibid
5. Rian Matthews, “Clarification of the doctrine of piercing the corporate veil” J.I.B.28(12). 516-520 (2013), accessed 21 May 2023