Gilford Motor Co Ltd v Horne [1933] Ch 935 is a UK company law case concerning piercing the corporate veil

Piercing the corporate veil

Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it...

. It gives an example of when courts will treat shareholders and a company as one, in a situation where a company is used as an instrument of fraud.

Facts

Mr EB Horne was formerly a managing director of the Gilford Motor Co Ltd. He agreed in writing (clause 9) to not solicit customers of the company when he left employment. Then he was fired. He set up his own business and undercut their prices. Then he got legal advice saying that he was probably acting in breach of contract. So he set up a company, JM Horne & Co Ltd, in which his wife and a friend called Mr Howard were the sole shareholders and directors. It took over Horne’s business and continued. He sent out fliers saying,
The company had no such agreement with Gilford Motor about not competing, however Gilford Motor brought an action alleging that the company was used as an instrument of fraud to conceal Mr Horne's illegitimate actions.

High Court

Farwell J held that the covenant that Mr Horne would not compete was broken. ‘I cannot help felling quite convinced that at any rate one of the reasons for the creation of that company was the fear of Mr Horne that he might commit breaches of the covenant in carrying on the business…’ But because the covenant was too wide and against public policy (restraint of trade?) he refused to enforce it. Gilford Motor appealed

Court of Appeal

Lord Hanworth MR granted an injunction. ‘I am quite satisfied that this company was formed as a device, a stratagem, in order to mask the effect carrying on of a business of Mr EB Horne. The purpose of it was to enable him, under what is a cloak or sham, to engage in business which, on consideration of the agreement…’ was one the former employers would object to.

Lawrence LJ and Romer LJ concurred.