NAME: - BHAVESH MADAN KHILLARE

CLASS: - SY B.COM IN ACCOUNTING &

FINANCE (BAF)

ROLL NO: - 5619

DIV: - B

NAME OF THE CASE LAW: - DAIMLER

CO. LTD. VS. CONTINENTAL TYRE &
RUBBER CO. LTD. (1916)
 INTRODUCTION
During World War 1, this case came into the picture, and the countries involved
in the case were Germany, and England and these countries were enemies to each
other at the time of war. Now, before going into facts, and issue of the case, let
us understand the concept of the lifting of the corporate veil. The veil in this
concept refers to separation meaning that company and its members. Share-
holders, directors are separate and protect them from being personally liable for
the debts in the name of the company.
When a company is incorporated for a particular purpose, it is expected to be
neutral and be separate from its shareholders but during wartime, it is not so and
the shareholders might influence the decisions of the company. This particular
case deals about the same and the judgment made it clear about a lot of
controversial things and it acts as a precedent to the same issue.
While we are aware of the fact that the company is an artificial person, it cannot
work on its own; it is dependant on the members, directors, shareholders for its
working. If a company is dependent on its members for its working, then, it can
be said that a company cannot do illegal acts on its own.

BACKGROUND OF THE CASE

A company has a separate legal entity and acts as an artificial person and the
shareholders cannot be asked to pay for the company’s liability beyond their
pocket. These principles were prevailing but, in this judgment, the lifting of the
corporate veil is seen as an important thing to do because at the end of the day
shareholders take the decision for the company and when there is a war between
two companies in which the nationality of shareholders is in the war, then the
corporate veil is lifted. After the judgment, even today this case acts as a
precedent for the lifting of the corporate veil and it will act as a precedent in the
future as well because the dynamic conditions and situations keep on arising, and
this case will act as precedent when the lifting of corporate veil is discussed
shortly.
 FACTS OF THE CASE
A company was incorporated in England to sell tires in England, made in
Germany by a German company. The shareholders where all German expect one
who was born in Germany and had become a naturalized British citizen. After the
outbreak of the first world war between England and Germany, continental tire
being the German company did not pay any amount claiming that it would
amount to trading with an enemy nation thus violating trading with enemy act
1914. The secretary initiated an action against the same. The same was adjudged
in favour of the German company meaning that the company had an enemy
character. The secretary approached the house of lords against the decision of the
court of appeal.

ISSUES
1. Whether the company was an alien company and that payment of the debt
would be trading with the enemy?
2. Whether lifting the corporate veil can be used in emergencies?

JUDGEMENT
The house of lords allowed the appeal and held that though the company is a
separate artificial person from its shareholders when the shareholders or the
agents who are having the control of the company are from the enemy country,
then the company will assume an enemy character and not otherwise. The court
thought that the character of individual shareholders cannot affect the character
of the company when everything is at peace or when it is not wartime, but when
it is wartime, the agents or anyone who is taking instructions from such
shareholders who is from an enemy country is important to consider to determine
the character of the company as a whole. The court very strongly held that in this
case, it is presumed that the company to have enemy character, being the secretary
holding just 1 share out of 25000 shares who is from England and the rest being
from Germany, the court held that the onus is one the company to prove that the
secretary was not taking orders from other shareholders from an enemy country.

The Ratio decidendi, in this case, is that the court established that the action and
character of the shareholders can influence the actions of that particular
company and the company can acquire enemy character because if the
shareholders who are from the enemy country take decisions for the
company.

CONCEPTS HIGHLIGTED
This judgment established the corporate veil has to be lifted during the war and
other such emergency times between the nationality of the shareholders and the
company which will affect the nature of the company. The court in this case,
clearly said the company is presumed to be in a good state but when its
shareholders who are dominant as in this case where 24999 shares were held by
German nationals, during the wartime their decisions can be influenced by this
and the company will have an enemy character eventually. In such a situation, the
concept of the corporate veil should be lifted.

CONCLUSION
The judgment was a landmark judgment in many ways, where it went beyond the
classical theory where the company is a separate legal entity and established that
sometimes, particularly during wartime where the majority of the shareholders
are from an enemy country, the functioning of the business may be affected
accordingly. In such times, having transactions against the enemy company may
result in consequences and the court has rightly established that in such wartime,
the enemy company may act according to its shareholders. If it is not established
in this way, the transactions would be legal but in reality, the company will act as
an enemy country and that is not what anybody wants here and thus, the House
of Lords has rightly accepted the appeal and changed its decision which was a
right decision and something that shows that the companies are dynamic and its
functioning is always not separate from its shareholders and the same can be
influenced by the shareholders wherein the present case all the shares were being
held by an enemy country (Germany) except 1 share, thus it can be understood,
that the company’s activity is influenced by its shareholders who are from the
enemy country.

RELATED CASES
• Salomon v. Salomon[1] where it was held that a company is different
from its shareholders.
• Netherlands South African Ryco v. Fisher[2] where it was held that the
company’s acts are those of its servants and agents acting within the
scope of authority.
• Bank of United States v. Deveraux[3] where it was held that for certain
purposes a court must look behind the artificial persona and the
corporation and take account and be guided by the personalities of natural
persons, the corporators.
• Gramophone and Typewriter Ltd. v Stanley[4] where it was held that
where the company is incorporated does not matter and a company reside
where the business is carried on.
• Amor duct Manufacturing Co v. Defries & Co[5] where it was held mere
payment to the benefit of the corporators who are alien enemies doesn’t
restrict that company’s right to sue.

REFERENCES
• https://www.legisscriptor.com/post/daimler-co-ltd-v-continental-tyre-
rubber-co-great-britain-ltd
• https://en.wikipedia.org/wiki/Daimler_Co_Ltd_v_Continental_Tyre_and_
Rubber_Co_(GB)_Ltd
• http://notesforfree.com/2018/01/24/corporate-case-brief-daimler-co-ltd-v-
continental-tyre-rubber-co-ltd/
• http://lawofwar.org/daimler_v_continental_tyre.htm

THANK YOU