Re Darby, ex p Brougham
Promoters who used a company they controlled as a vehicle for a fraud could be made to account for their secret profits, as the company was merely their alias.
Facts
Mr Darby and Mr Gyde were undischarged bankrupts with convictions for fraud. They formed a company, City of London Investment Corporation, which they controlled, and through which they promoted another company to buy a licence to work a quarry. The licence was sold to the new company at a large profit, which was received by City of London Investment Corporation and paid to Mr Darby and Mr Gyde. When the new company was wound up, its liquidator sought to recover the secret profit from Mr Darby's estate.
Legal principle
Phillimore J held that Mr Darby's estate was liable to account for the profit. The company used by Mr Darby and Mr Gyde was merely an alias for them, set up to conceal their identity and their profit, so they were treated as the real promoters, owing fiduciary duties to the new company. The profit they had made in breach of those duties had to be accounted for. The case is an early example of the courts looking through a company used to perpetrate a fraud.
Related cases on separate legal personality and the corporate veil
- Adams v Cape Industries plc [1990] Ch 433
- Chandler v Cape plc [2012] EWCA Civ 525, [2012] 1 WLR 3111
- DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852
- Gilford Motor Co Ltd v Horne [1933] Ch 935
- Jones v Lipman [1962] 1 WLR 832
- Lee v Lee's Air Farming Ltd [1961] AC 12
- Macaura v Northern Assurance Co Ltd [1925] AC 619
- Okpabi v Royal Dutch Shell plc [2021] UKSC 3, [2021] 1 WLR 1294
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