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Home » Adams v Cape Industries plc [1990] Ch 433

Adams v Cape Industries plc [1990] Ch 433

Court: Court of Appeal

Citation: [1990] Ch 433

Legal Areas:

Company Law – Corporate Personality and Limited Liability
Conflict of Laws – Recognition and Enforcement of Foreign Judgements

Adams v Cape Industries plc [1990] Ch 433 is a landmark English case in company law and private international law. It is best known for reaffirming the principle that a company has a separate legal personality from its shareholders and parent company.

The case also clarified when English courts may recognise the jurisdiction of a foreign court for the enforcement of judgements, specifically concerning whether a company is “present” in that foreign jurisdiction. This case has remained influential but has been partially bypassed in later cases addressing tortious liability of parent companies.

Facts of Adams v Cape Industries plc Case

Cape Industries plc was a UK-incorporated company and the parent of a corporate group involved in the asbestos trade. The group included subsidiaries that mined asbestos in South Africa and shipped it to Texas in the United States. There, a marketing subsidiary named North American Asbestos Corporation (NAAC) distributed the asbestos to other companies.

A number of employees who had worked with these asbestos products in Texas developed asbestosis, a serious lung disease. They filed a claim for negligence against Cape Industries plc and its subsidiaries in a Texas court. Cape disputed the jurisdiction of the Texas court. Despite Cape’s objections, the court ruled in favour of the claimants and entered judgement against Cape for breach of a duty of care.

The employees then sought to enforce the Texas judgement in the United Kingdom. Under English conflict of laws rules, enforcement required that either Cape had consented to the jurisdiction of the Texas court or that Cape was “present” in the United States. Since there was no consent, the employees argued that Cape was present through NAAC, and that the corporate veil should be lifted to treat the two companies as one.

At first instance, Scott J held that Cape Industries plc was not present in the US, and thus the US judgement could not be enforced. The employees appealed to the Court of Appeal.

Issues

The Adams v Cape Industries plc case raised three key legal issues:

  1. Whether Cape and its subsidiaries could be treated as a single economic unit for the purpose of liability.
  2. Whether Cape’s corporate structure was a façade designed to evade liability.
  3. Whether Cape was present in the United States for the purposes of jurisdiction.

Each of these points involved consideration of whether the corporate veil could be pierced.

Adams v Cape Industries plc Judgement

The Court of Appeal in Adams v Cape Industries plc dismissed the appeal and refused to enforce the US judgement. In delivering the lead judgement, Slade LJ, with whom Mustill LJ and Ralph Gibson LJ agreed, rejected each of the three arguments made by the claimants.

Separate Legal Personality and the Single Economic Unit

The claimants argued that Cape and its subsidiaries operated as a single economic unit, and therefore Cape should be liable for the subsidiaries’ actions. However, the court strongly upheld the principle from Salomon v A Salomon & Co Ltd [1897] AC 22, affirming that a company is legally distinct from its shareholders and affiliates.

Slade LJ stated that, except where specific statutory or contractual provisions apply, the court was not free to disregard the corporate structure simply because it believed justice required it. He acknowledged that to a layperson the distinction between a company operating directly and one doing so through a subsidiary may appear minor, but legally, they are distinct entities.

The Façade Argument

The second argument was that Cape’s structure was a façade, created to shield it from liability. While the court did accept that one of Cape’s subsidiaries, a special-purpose vehicle based in Liechtenstein, was a façade, it was found not to be a material entity in the case. Therefore, the court declined to pierce the corporate veil based on this subsidiary alone.

The court reaffirmed that a company structure must be shown to exist to avoid an existing legal obligation in order to justify piercing the veil. If the structure is merely used to avoid potential or future liabilities, that is not sufficient. In this case, there was no evidence of actual or potential illegality or an attempt to deprive anyone of existing legal rights.

The judgement noted that even if the structure was used to reduce Cape’s publicity or risks, such use was not unlawful, and was within the limits of company law. Therefore, the court held that Cape was entitled to organise its affairs in this way, without facing veil-piercing consequences.

Agency Relationship

The court also considered whether NAAC acted as Cape’s agent in the United States. The claimants argued that Cape had control over NAAC and should therefore be responsible for its conduct.

However, the court found no evidence of an agency relationship. While Cape undoubtedly had influence, NAAC acted as a separate legal person, managing its own affairs. There was no contractual or legal basis to treat Cape as conducting business in the US via NAAC as an agent.

Presence in the United States

The Court of Appeal laid down a two-part test for whether a company is “present” in a foreign jurisdiction:

  1. The company must have a fixed place of business in the foreign country (such as a branch).
  2. The company must transact its own business from that location for more than a minimal period.

Applying this test, the court concluded that Cape had no fixed place of business in the US, and its business was conducted by NAAC, a separate entity. Thus, Cape was not “present” in Texas, and the Texas judgement was not enforceable in the UK.

Conclusion

Adams v Cape Industries plc [1990] Ch 433 is a cornerstone of English company law, providing one of the clearest judicial affirmations of corporate separateness and limited liability. The Court of Appeal’s refusal to pierce the corporate veil except in exceptional cases has shaped decades of legal thinking.

However, in the realm of tort liability, courts have found other paths to hold parent companies accountable, thus circumventing the strict limits imposed by this decision.

Despite its limitations in modern law, Adams v Cape Industries plc [1990] Ch 433 remains an essential case for understanding the boundaries of corporate responsibility, especially in cross-border legal disputes.