Tutorial Questions for Week 4:

Separate Legal Personality and Piercing of Corporate Veil

Question 1

Peter Lai commenced a business of manufacturing and distributing orange juice on Hong Kong
Island. The trade name of the company is Orange Juice HK (OJHK). OJHK was formed in June
2020. Prior to this, Peter was one of three directors in Fresh Juice Ltd (FJL). FJL manufactured
and distributed orange juice in the New Territories. On leaving the company, Peter sold his shares
in FJL to the other two shareholders cum directors, Anna and Bob. Clause 5 of the agreement
executed by Peter, Anna, Bob and FJL provides as follows:

Peter agrees that for a period of three years from the date of this agreement, he will not engage in
business that involves:
(a) Manufacturing orange juice in New Territories and Shenzhen; and
(b) Distributing orange juice to wholesalers, retailers or selling to any customers, where
distribution or sale takes place in the Territory or Shenzhen.
Peter will not breach this clause if he carries on a business outside the New Territories and Shen
Zhen.

On 1 August 2020 Peter incorporated Sweet Apple Ltd (SAL) to take over the business of OJHK.

Peter needs your advice on two matters. First, he says that two friends, Cecil and David, have
proposed the following deal. A company, Orange Crush Ltd (OCL) will be formed. Cecil and
David will be shareholders and directors. SAL will supply orange juice to OCL. OCL will then
distribute the orange juice to in the New Territories and Shen Zhen. Peter wants to know whether
he can participate in the deal. (You may assume that clause 5 in the above agreement will not be
regarded by the courts as unenforceable restraint of trade clauses).

Second, he says that he has learnt from Messrs Lee & Leung, a solicitors’ firm, which acts for the
estate of Christopher Chung that expert evidence suggests that Christopher Chung died after
drinking a certain quantity of juice produced by SAL. Expert evidence also suggests that orange
juice produced by SAL during the second week of August 2020 contained a poisonous substance
used in manufacturing the juice. Peter tells you that SAL has transferred all its assets to a company
that he formed on 15 September 2020 called Cunning and Greedy Ltd.

Assuming that SAL would be liable to Christopher Chung’s estate, advise Peter as to
whether theestate will be able to sue Cunning and Greedy.