CATHERINE LEE V.

LEE’S AIR FARMING LIMITED

COMPANY LAW

NAME: SHUBHAM PATEL

DIV: D
ROLL NO: 202
AY: 2021-22
 As per Companies Act, 2013 Separate legal entity means that a
company which is registered under this act as Non-profit organization,
private limited company, public company , government company and chit
fund company shall have legal identity of its own and will have rights under
law and will treated as separate entity from its shareholder. It can own
property in its own name and can enter into contracts with other person and
can represent itself in court of law through its representative.
Separate legal entity also act as veil between company and its member.
Which means that assets of the company shall be used only for the objective
of the company as set in Memorandum of association and its liabilities
should be paid by itself and not from personal asset of the member of the
company.

FACTS OF THE CASE

In 1954 the appellant’s husband, Geoffrey Woodhouse Lee formed the
company named LEE’S AIR FARMING LTD. for the purpose of
carrying on the business of aerial top-dressing with 3000 thousand share
of 1euro each forming share capital of the company and out of which 2999
shares were owned by Lee himself.

According to the articles of the company Lee was the sole director of the
company. He exercised unrestricted power to control the affairs of the
company and made all the decision relating to contracts of the company.
Company entered into various contract with insurance agencies for insurance
of its employees and few premiums of the policies were paid through
company’s bank account for the personal policies taken by Lee in its own
name but it was debited in the account of lee in company’s book.

The company also employed Lee as the chief pilot of the company at a
salary of pounds 1500 per annum. In March, 1956, Lee died while piloting
the aircraft during the course of aerial top-dressing. Lee’s wife who is
appellant claimed pounds 2430 as compensation on behalf of herself and her
four infant children and she also claimed for funeral expenses as worker
compensation under New Zealand Workers’ Compensation Act, 1922 as she
claimed that Lee during work as employee of the company.

Mrs. Lee’s claim for compensation was initially rejected by the New
Zealand High Court stating that the governing director and the worker
cannot be the same person. The court stated that since the person giving
orders and person taking orders are the same person, Mr. Lee cannot be
regarded as an employee.

ISSUES
The question which was raised for the opinion was whether at the time of the
accident the deceased was employed by the respondent company as a
“worker” with the meaning of the Workers’ Compensation Act, 1922 and its
amendments.

Whether the employer and employee can be the same person?

JUDGEMENT

The Privy Council advised that Mrs Lee was entitled to compensation, since
it was perfectly possible for Mr Lee to have a contract with the company he
owned. The company was a separate legal person. 

It was never suggested (nor in their Lordships’ view could it reasonably

have been suggested) that the company was a sham or a mere simulacrum. It
is well established that the mere fact that someone is a director of a company
is no impediment to his entering into a contract to serve the company. If,
then, it be accepted that the respondent company was a legal entity their
Lordships see no reason to challenge the validity of any contractual
obligations which were created between the company and the deceased.

It is said that the deceased could not both be under the duty of giving orders
and also be under the duty of obeying them. But this approach does not give
effect to the circumstance that it would be the company and not the deceased
that would be giving the orders. Control would remain with the company
whoever might be the agent of the company to exercise.

There appears to be no greater difficulty in holding that a man acting in one

capacity can give orders to himself in another capacity than there is in
holding that a man acting in one capacity can make a contract with himself
in another capacity.(One man acting in 2 capacities)

The company and the deceased were separate legal entities. The company
had the right to decide what contracts for aerial top-dressing it would enter
into. The deceased res the agent of the company in making the necessary
decisions. Any profits earned would belong to the company and not to the
deceased.

If the company entered into a contract with a farmer then it lay within its
right and power to direct its chief pilot to perform certain operations. The
right to control existed even though it would be for the deceased in his
capacity as agent for the company to decide what orders to give. The right to
control existed in the company and an application of the principles of
Salomon's case (supra) demonstrates that the company was distinct from the
deceased.