DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY,

VIZAG

CORPORATE LAW-1
CASE ANALYSIS

FACULTY: PROF. DR. DAYANANDA MURTHY

NAME: VISHAL JAIN

ROLL NO: 2015137
SEMESTER: VII
SECTION: B
 DAIMLER CO. LTD.
V.
CONTINENTAL TYRE AND RUBBER (GB) LTD.
[1916] 2 A.C. 307

FACTS

The respondent company was incorporated under the Companies Act on March 29, 1905, with
a total of 25,000 shares, and had its registered office in London. It was formed for the purpose
of selling in the United Kingdom motor car tyres made in Germany by a company incorporated
in that country under German law. At the date of the writ the German company held 23,398
shares in the respondent company, and the remaining shares, except one, were held by subjects
of the German Empire. The one share was registered in the name of Mr. Wolter, the secretary
of the company, who was born in Germany, but resided in this country and in 1910 became a
naturalized subject of the Crown. All the directors were subjects of the German Empire, and
three of the four directors were resident in Germany when war was declared; the fourth, who
had previously resided in England, left this country for Germany on the outbreak of the war.

After the outbreak of the war between England and Germany an action was commenced in the
name of the English company by specially indorsed writ, issued by the company's solicitors on
the instructions of the secretary, for payment of a trade debt.

The company’s concern was that making such a payment might contravene a common law
offence of trading with the enemy as well as a proclamation issued under Sec. 1(2) Trading
with the Enemy Act 1914.
 PROCEDURAL HISTORY

COURT OF FIRST INSTANCE

At first instance, Scrutton J. approved the decision that the contracts were valid and gave
summary judgment without proceeding to trial.

COURT OF APPEAL

Lord Reading CJ, Cozens-Hardy LJ, Phillimore LJ, Pickford LJ and Kennedy LJ, affirmed the
decision too, holding there would be no offence. They held the company did not change its
character because of the outbreak of war. They said it, “remains an English company regardless
of the residence of its shareholders or directors either before or after the declaration of war.”

As a result of the decision of the Court of first Instance and the affirmation of the same by the
Court of Appeal, there lay an appeal before the House of Lords.

ISSUE

The main question is: Whether the character of a company’s corporators is relevant to
determine the character of a company? Is the company capable of acquiring an enemy
character?
 HOLDING (RATIO)

Lord Parker (on behalf of all the Lords) said,

“I do not think, however, that it is a necessary corollary of this reasoning [Salomon] to say that
the character of its corporators must be irrelevant to the character of the company; and this is
crucial, for the rule against trading with the enemy depends upon enemy character.”

Just like a natural person can have enemy character though born in the UK, so can a legal
person.

“I think that the analogy is to be found in control, an idea which, if not very familiar in law, is
of capital importance and is very well understood in commerce and finance. The acts of a
company’s organs, its directors, managers, secretary, and so forth, functioning within the scope
of their authority, are the company’s acts and may invest it definitely with enemy character…
it must at least be prima facie relevant… Certainly I have found no authority to the contrary.”

The court said that the actions and characters of the members of the company are capable of
changing the nature of a company and a company is capable of acquiring enemy character on
the basis of the characters of its members.

DECISION

The House of Lords held that though the Continental Tyre and Rubber (Great Britain) Co. was
incorporated in England, its effective control and management was in the hands of Germans
and, therefore, the company had acquired enemy character.
 SYNTHESIS

According to the Halsbury’s Laws of England, nationality and domicile of a company is the
place of its enlistment. A company though incorporated in one nation may in any case be
viewed as having enemy character if the de facto control of its affairs are in an adversary nation
or are under the control of adversaries.

In the case of State Trading Corporation of India Ltd. and Ors. v. The Commercial Tax Officer,
Visakhapatnam and Ors1, the Supreme Court held that the persons operating a company are
regarded as its cerebrum and where the mind functions the corporation is said to function. The
rights of a corporation during the time of peace include all such as is permitted by the local
laws, for example, owning of property, conducting business and such and this extends to
foreign corporations too dependent on comity of nations. At the time of war, law of nationality
becomes appropriate to decide the enemy/adversary character of the company.

The Daimler case likewise plainly iterated that putting aside the topic of residence of a
corporation, it isn't all in all correct to state that the legal entity of a corporation can be totally
related to that of its shareholders and their nationality does not turn into its nationality.

It is likewise imperative to take note of that a corporation fused in a country does not lose its
nationality only on the grounds that it is under enemy control. In so far as nationality is provided
to a juristic individual, it is resolved in a basic way by laws of the nation from which its identity
is determined.

In this way, at the season of war, nationality does not fill in as a criteria to decide the foe
character of a corporation. This cloak of nationality is punctured to establish that of the ones in
de facto control of its undertakings.

1
1963 AIR 1811, 1964 SCR (4) 89