COMPANY LAW CASES

LEE v/s LEE AIR FARMING LTD.

Group 3:

Mandar Gadkari (12)

Omkar Gokhale (14)
Rhea Mansukhani (31)
Deepika Punjabi (42)
Jeetu Sachdev (46)

THE CASE

Mr Lee was a pilot who operated a crop dusting business. Mr Lee formed the corporation,
Lee's Air Farming Ltd. Its main business was aerial spraying. He was the director and owned
most of the shares(he held 2999 of the company's 3000 shares). As director of the
corporation, he hired himself as an employee of the corporation. As one of the
administrative tasks in setting up the company, he acted as its agent in setting up insurance,
including workers' compensation insurance. The corporation's plane crashed while Mr Lee
was flying it as part of his work, and he was killed on the job. The appellant's husband
formed the respondent company for the purpose of carrying on the business of aerial top
dressing. He held all the issued shares of the company with the exception of one. He was
appointed governing director of the company for life and, pursuant to the company's
articles of association, was appointed chief pilot of the company at a salary arranged by him.
Article 33 also provided that in respect of such employment the relationship of master and
servant should exist between him and the company. The husband was killed while piloting
the company's aircraft in the course of aerial top dressing. His widow, the appellant, claimed
compensation under the New Zealand Workmen's Compensation Act, 1922. On a case
stated for its opinion on a question of law, the New Zealand Court of Appeal held that since
the deceased was the governing director in whom was vested the full government and
control of the company, he could not also be a servant of the company. The widow
appealed. His widow, the plaintiff, attempted to collect what was rightfully due to a widow
of a man killed on the job. The main question in the case was whether a person could be
both a director and major shareholder of a corporation, on the one hand, and also an
employee of the corporation, on the other.

THE ARGUMENTS

Previous cases, beginning with the Salomon case, had confirmed that a corporation has an
existence separate and apart from its shareholders and directors. Lee's Air Farming Ltd. was
not a mere sham. It was a legitimate corporation, established for legitimate purposes, and
had carried on a legitimate business. His employment by the corporation was well-
documented, through government records of tax deductions, workmens' compensation
contributions, etc., and was not something his widow had attempted to piece together after
the fact of his death. There was no reason in law why a person could not perform corporate
functions and employee functions within the same corporation. it was held that 'Lee' was a
separate person distinct from the company

The second substantial question was, whether the deceased was a "worker" within the
meaning of the Workers' Compensation Act, 1922, and its amendments.It was seen tht
when he died he was performing the arduous and skilful duties of piloting an aeroplane
which belonged to the company and when he was carrying out the operation of top-
dressing farm lands from the air. He was paid wages for so doing. The company kept a
wages book in which these were recorded. The work that was being done was being done at
the request of farmers whose contractual rights and obligations were with the company
alone. It cannot be suggested that when engaged in the activities above referred to the
deceased was discharging his duties as governing director. The deceased as one legal person
was willing to work for and to make a contract with the company which was another legal
entity. A contractual relationship could only exist on the basis that there was consensus
between two contracting parties.

Also, no contractual obligations were invalidated by the circumstance that the deceased was
sole governing director in whom was vested the full government and control of the
company. There was no reason to deny the possibility of a contractual relationship being
created as between the deceased and the company. The deceased as agent for the company
could negotiate a contract for services as between the company and himself there was no
reason why a contract of service could not also be negotiated. Just as the company and the
deceased were separate legal entities so as to permit of contractual relations being
established between them, so also were they separate legal entities so as to enable the
company to give an order to the deceased.

THE JUDGEMENT

The judge thus ruled in favour of the widow and upheld her right to claim the requisite
compensation for her family, from her husband’s company, as per the company policies and
the Worker’s Compensation Act, 1922.