Part D The formation and constitution of business organisations 12: Corporations and legal personality 187The following is a more recent case on separate legal personality which confirms the previous case law is
still valid.MacDonald v Costello 2011
The facts: Mr and Mrs Costello entered into an agreement with MacDonald (a firm of builders) to develop
land which they owned. For tax purposes, the Costellos used a special purpose vehicle (Oakwood
Residential Limited) to finance the work and the contract was between Oakwood and MacDonald.
Oakwood had been used in previous dealings between the parties. Oakwood failed to pay some invoices
when there was disagreement about the work which had been done. MacDonald was awarded a payment
order against Oakwood and an award in restitution against the Costellos personally for unjust enrichment.
The Costellos appealed the award for unjust enrichment.
Decision: Although the Costellos had been enriched by the work done by MacDonald, it was decided that
the award against them should not be upheld. They were not party to the contract and, as shareholders of
Oakwood, they were protected by the veil of incorporation.5.1 Veil of incorporation
Incorporation 'veils' members from outsiders' view but this veil may be lifted in some circumstances, so
creditors and others can seek redress directly from members. The veil may be lifted: by statute to enforce
the law; to prevent the evasion of obligations; and in certain situations where companies trade as a group.Because a company has separate legal personality from the people who own or run it (the members/
shareholders/directors), people can look at a company and not know who or what owns or runs it.
The fact that members are 'hidden' in this way is sometimes referred to as the 'veil of incorporation'.
Literally, the members are 'veiled' from view.6 Ignoring separate personality
It is sometimes necessary by law to look at who the owners of a company are. This is referred to as
'lifting the veil'.Separate personality can be ignored to:
Identify the company with its members and/or directors.
Treat a group of companies as a single commercial entity (if a company is owned by another
company).
The more important of these two reasons is the first one, although the second reason can sometimes be
more complex. The main instances for lifting the veil are to enforce the law, prevent evasion of
obligations and in some group situations. However, with the establishment of the concept of corporate
manslaughter it is likely that directors will increasingly face prosecution and custodial sentences where
they are found personally accountable for a death where the death can be connected with how they ran
their business. The veil of incorporation will no longer protect them: R v OLL Ltd 1994.6.1 Lifting the veil by statute to enforce the law
Lifting of the veil is permitted under a number of statutes to enforce the law.6.1.1 Liability for trading without trading certificate
A public company must obtain a trading certificate from the Registrar before it may commence to trade.
Failure to do so leads to personal liability of the directors for any loss or damage suffered by a third party
resulting from a transaction made in contravention of the trading certificate requirement. They are also
liable for a fine.FAST FORWARD
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