Daimler Co., Ltd. v.

Continental Tyre and

Rubber Co. (Great Britain), Ltd., 1916 AC
307: (1916-17) All ER Rep. 191
NAME OF THE CASE: Daimler Company v. Continental Tyre and Rubber
Company

PARTIES: Appellant- Daimler Company

Respondent- Continental Tyre and Rubber Company

By : VIDHI TYAGI
BACKGROUND OF CASE:
A corporation is a separate legal body that acts as an artificial person, and
stockholders cannot be forced to pay for the company's liabilities out of their
own pockets. These principles were dominant, 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 make decisions for the company, and when there is a war
between two companies in which the shareholders' nationality is at stake, the
corporate veil is lifted. Even today, after the judgment, this case serves as a
precedent for the lifting of the corporate veil, and it will serve as a precedent in
the future as well, because dynamic conditions and situations continue to arise,
and this case will serve as precedent when the lifting of the corporate veil is
discussed briefly.

FACTS:
Continental Tyre and Rubber Company (Continental) (plaintiff) was registered
in the United Kingdom (the UK) and did business with Daimler Company
(Daimler) (defendant). Except for one secretary who was not authorized to act
on Continental's behalf and had only one share out of 25,000 in the firm, all of
Continental's directors and shareholders were German. When Germany declared
war, Daimler ceased trading with and paying Continental, believing that doing
so would violate the 1914 Trading with the Enemy Act. Continental
subsequently sued Daimler for unpaid bills. Continental was not deemed an
enemy of the king for trading purposes, according to the lower court, because all
enemy officers effectively quit their offices upon becoming foes, and
stockholders had no bearing on the calculation. The court of appeals upheld the
decision, and Daimler appealed to the House of Lords.

ISSUES:
 Whether the company was an alien company, and whether paying the loan
would be considered trading with the enemy?
 Is it possible to employ lifting the corporate veil in an emergency?

PROVISIONS:
 According to Section 102 of the 17 Companies (Consolidation) Act, 1908,
directors have the authority "(1.) to institute, conduct, defend, compound, or
abandon any legal proceedings by or against the company or its officers, or
otherwise concerning the company's affairs."
 Companies (Consolidation) Act, 1908, Section 14(1) When the
memorandum and articles are registered, they bind the company and its
members to the same extent as if each member had signed and sealed them.
 Companies (Consolidation) Act, 1908, Section 115(1) If the number of
members of a company is reduced, in the case of a private company, below two,
or in the case of any other company, below seven, and it carries on business for
more than six months while the number is so reduced, every person who is a
member of the company after those six months and is aware that it is carrying
on business with fewer than two, or seven members, as the case may be, is
liable.

HOLDING OF THE COURT:

The House of Lords granted the appeal, ruling that although if the corporation is
a separate artificial entity from its shareholders, if the shareholders or agents in
control of the firm are from an enemy country, the company will adopt a hostile
character. When everything is at peace or when it is not wartime, the court
believed that the character of individual shareholders cannot affect the character
of the company; however, when it is wartime, the agents or anyone who is
taking instructions from such shareholders who are from an enemy country is
important to consider in determining the character of the company as a whole.
The court strongly held that in this case, it is presumed that the company has an
enemy character, due to the secretary holding only one share out of 25000
shares, one of which is from England and the rest from Germany, and that the
onus is on the company to prove that the secretary was not taking orders from
other shareholders from an enemy country.
The Ratio Decindi in this case is that the court established that the actions and
character of the shareholders can influence the actions of that particular
company, and the company can acquire enemy character if shareholders from
the enemy country make decisions for the company.

CONCLUSION:
In many ways, the judgment was a watershed moment because it went beyond
the classical theory that the company is a separate legal entity and established
that sometimes, particularly during wartime when the majority of shareholders
are from an enemy country, the business's functioning may be affected
accordingly. Having transactions against the enemy company may result in
consequences at such times, and the court has correctly established that during
such times, the enemy company may act in accordance with its shareholders. If
it is not established in this manner, the transactions will be legal, but the
company will act as an enemy country, which is not what anyone 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 companies
are dynamic and their functioning is never separate from its shareholders and
can be influenced by the shareholders, as in the current case.