Single economic entity subsidiary

The court declined to pierce the veil of incorporation. It was a legitimate use of the corporate form to
use a subsidiary to insulate the remainder of the group from tort liability. There was no evidence to
justify a finding of agency or facade.
There is an exception to the general rule, that steps which would not have been regarded by the
domestic law of the foreign court as a submission to the jurisdiction ought not to be so regarded
here, notwithstanding that if they had been steps taken in an English Court they might have
constituted a submission to jurisdiction.
The Court of Appeal unanimously rejected that Cape should be part of a single economic unit, that
the subsidiaries were a faade and that any agency relationship existed on the facts. Slade LJ (for
Mustill LJ and Ralph Gibson LJ) began by noting that to the layman at least the distinction between
the case where a company itself trades in a foreign country and the case where it trades in a foreign
country through a subsidiary, whose activities it has full power to control, may seem a slender
one. He approved Sir Godfrays argument save in cases which turn on the wording of particular
statutes or contracts, the court is not free to disregard the principle of Salomon merely because it
considers that justice so requires. On the test of the mere faade, it was emphasised that the
motive was relevant whenever such a sham or cloak is alleged, as in Jones v Lipman.
A company must be set up to avoid existing obligations, not future and hypothetical obligations not
yet arisen. The court held that one of Cape's subsidiaries (a special purpose vehicle incorporated
in Liechtenstein) was in fact a faade, but on the facts, it was not a material subsidiary such as to
attribute liability to Cape. Cases like Holdsworth, Scottish Coop and DHN were distinguishable on
the basis of particular words on the relevant statutory provisions. It noted that DHN was doubted
in Woolfson.

Mr. Morison submitted that the court will lift the corporate veil where a
Whether or not such a course deserves moral approval, there was not
group (and correspondingly the risk of enforcement of that liability) will
of A.M.C. to which special considerations apply) to expect that the cou

The court separately had to consider whether Cape had established a presence within the United
States, such that the English court should recognise the jurisdiction of the United States over Cape,
and enforce a US judgment against it (one of the criticisms made of the decision by US lawyers is
that the Court of Appeal fundamentally misunderstood the nature of the federal system in the US, but
that misunderstanding does not affect the general principles laid down by the court). The Court of
Appeal held that for a company to have a presence in the foreign jurisdiction, both of the following
must be established:
1. the company has its own fixed place of business (a branch office) in the jurisdiction from
which it has carried on its own business for more than a minimal time.
2. the company's business is transacted from that fixed place of business.
On the facts, the Court of Appeal held that Cape had no fixed place of business in the US such that
recognition should not be given to the US judgment awarded against it.

Lorrin Esme Osman - the fallen banker takes BMF secret to the grave In the eyes of the world,
former Bumiputera Malaysia Finance chairman Lorrain Esme Osman, who died in exile in
London on Monday was an unknown banker until the day, one of his auditors, Jalil
Ibrahim,turned up murdered in July 1983 in a banana grove in Hong Kong. Lorrain, 79 and a
Eurasian from Penang and an ex-Christian, eventually took the initial rap and pleaded guilty in
London in 1993 under a plea bargain to a charge of financial negligence in giving unsecured
loans to the tune of RM 2.5 billion in the 1980s to George Tan, a Sarawakian who headed the
Carrian Group of Companies until it collapsed like a house of cards. Even now RM 2.5billion is
a huge sum to embezzle and take out of the country without any involvement of top government
leaders. The Malaysian financial system makes this virtually impossible, and more likely than
not, such deals are transacted on behalf of the top politicos of the day. It is a sad reflection that
nearly 30 years on, and Lorrain finally passed on, the wheels of corruption are still busily rolling
in Malaysia. The system has not changed but instead grown dramatically much worse. Most
glaring is the Scorpene submarines graft scandal involving Prime Minister Najib Razak and
spanning three countries, Malaysia-France-Mongolia. Malaysians should indeed take a moment

to reflect on this or another 30 years might pass, with the jury having no choice but to point out
that corruption has worsened even more. If that happens, Malaysia would surely be in
receivership and this is another reason why its citizens should wake up now and tackle the
scourge of corruption with strong action. The wheels of time truly wait for no one, as Lorrain
will attest to. Trail that led right up to the PM When Jalil was found, the only thing linking him
to Malaysia was a coin caught in the lining of his trousers. He had no wallet or ID of any kind on
him but a colleague had apparently reported him missing 24 hours earlier. The Hong Kong Police
got their hands on Jalils personal diaries and some letters which revealed that he had stumbled
on something big by way of financial irregularities at BMF. One Hong Kong Independent
Commission Against Corruption (ICAC) officer asked Lorrain: You have been fighting all this
while for the benefit of others. Isnt it time to do something for your own benefit? So a deal was
concluded. As Lorrain would not plead guilty to corruption and certainly not to all the 43
charges, the Hong Kong prosecutors suggested the one single charge of financial negligence,
which Lorrain finally accepted. Lorrain, who had fled to London in 1983 to avoid being
extradited to Hong Kong, spent two months in Stanley Prison in the British crown colony before
being released. He had in fact already served six months at the Lai Chi Kok Detention Centre
while awaiting trial, and another four months for remission. The ICAC submitted over 30,000
pages of evidence against Lorrain to the British High Court, the Court of Appeals and finally to
the House of Lords. The Carrian Case is the longest criminal case in Hong Kong judiciary
history spanning over 17 years at a cost of HK$210 million and with over 4 million pages of
exhibit. Lorrains guilty plea closed the file on a long-running case. He continued to claim
innocence upon his release and was dismissive of Jalil but nevertheless conceded, rather
disingenuously, that there was a lack of supervision and oversight at BMF under his watch. He
ostensibly never returned to Malaysia where the suspicion is that he was protecting the other
culprits involved in the BMF financial scandal. The trail, its widely believed, led right up to the
Prime Minister, who was then Mahathir Mohamad. Siphoning money George Tan, the story goes,
was just a conduit to siphon money out of BMF. No proof was ever produced anywhere that the
massive loans taken from BMF were entirely for the purpose of doing business. Instead, blame
was placed on the collapse of the Hong Kong property market for the loans going sour. Between
Dec 6, 1985 when he was arrested at his London home on a provisional extradition warrant from
Hong Kong until he was jailed for two months in 1993, Lorrain fought a long and costly legal
battle for 90 months from Brixton Prison to remain in London. He took on the Home Office and
complained to the European Commission of Human Rights. He launched several habeas corpus
applications and judicial reviews, appealed to the House of Lords several times and put in several
bail applications. Meanwhile, the public lost all hope of ever seeing other culprits behind bars,
Lorrain, Tan and smalltime businessman Mak Fook Than convicted of Jalils murder and
three other BMF directors aside. Maks lengthy 24-paged statement about his ministerial
business trip to Hong Kong went missing during the trial. During his interrogation by the Hong
Kong police, Mak claimed that he was in Hong Kong at the behest of a senior Malaysian
Minister to collect some money from a Malaysian national residing in Hong Kong. He denied
having said so after the disappearance of his 24-paged statement. Lorrain had in one public
interview in London hinted at the possibility that Jalil was being blackmailed by Mak who
wanted more. Thats akin to saying that the blackmailer wanted the goose that was laying the

golden eggs, dead. In fact, investigations into the Jalil murder revealed that Lorrain was
holidaying in Hong Kong at the same time that the BMF auditor met his grisly end. Another
favourite theory floated by Lorrain in public was that someone wanted to embarrass the
Malaysian Government and thought that one way would be to do in Jalil, presumably the
banana stretch in Hong Kong being equally embarrassing. He was once reported as saying he
suspected a Russian diplomat who was caught spying in Malaysia and sent home. But by that
stage, one could be forgiven for expecting Lorrain to claim that the Ku Klux Kan, the Mafia,
Mossad and the CIA were all suspects in Jalils murder. But whichever individual or group that
financed his exile in London and all the expensive trials and court appeals are another mystery
that perhaps only some senior top leaders in the Malaysian government with privileged
information
will
ever
know