## Facts

- A British motor-car manufacturer (Daimler) bought tyres under pre-war arrangements from an English-incorporated company (Continental) formed to sell tyres manufactured in Germany.
- After the United Kingdom entered World War I against Germany (Aug. 4, 1914), Daimler refused to pay three accepted bills of exchange, asserting payment could constitute unlawful trading with the enemy.
- Continental had a registered office in London, but nearly all shares were held by German residents or a German company, and all directors were German citizens residing in Germany; one share was held by a naturalized British subject who served as secretary.
- Continental sued in Oct. 1914 to recover about £5,605 due on the bills (including related charges).
- Daimler argued (1) Continental was effectively enemy-controlled and thus an “enemy” for wartime trading prohibitions, and (2) Continental’s secretary lacked authority to sue because enemy-alien directors were incapacitated from managing the company during hostilities.
- Lower courts entered and affirmed summary judgment for Continental, reasoning English incorporation fixed the company’s status regardless of shareholders’ or directors’ residence.
- Daimler appealed to the House of Lords.

## Issues

1. Whether an English-incorporated company may be treated as having enemy character during wartime when its ownership and management are effectively controlled by enemy nationals resident in enemy territory.
2. Whether a company with such enemy character may sue in an English court during hostilities to recover a trade debt where payment would amount to prohibited trading with the enemy.
3. Whether summary judgment was improper given disputes about enemy character and the secretary’s authority to commence proceedings and provide a valid discharge.

## Decision

- The House of Lords allowed the appeal and set aside the summary judgment for Continental.
- The court held that, for the purpose of wartime prohibitions on trading with the enemy, Continental could be treated as having enemy character because it was controlled by enemy nationals.
- Because enforcing the debt would result in payment effectively controlled by enemy persons, Continental could not maintain the action during hostilities.
- The doubts about enemy character and the secretary’s authority made summary judgment inappropriate; the action could not succeed during war in these circumstances.

## Legal Principles

- Separate corporate personality is a general rule, but in wartime “trading with the enemy” law may require looking to the company’s effective control and management rather than place of incorporation alone.
- A corporation may be treated as an enemy when those who control it (e.g., directors/shareholders with decisive power) are enemy nationals resident in enemy territory, such that payment to the corporation would, in substance, benefit the enemy.
- Courts will not assist enforcement of transactions whose performance would constitute prohibited trading with the enemy under common law and wartime legislation and proclamations.
- Where enemy control and wartime incapacity of those directing the company cast serious doubt on authority to sue and on legality of payment, summary judgment is not appropriate.

## Conclusion

The House of Lords held that an English-incorporated company could be treated as an enemy during wartime when effective ownership and control rested with enemy nationals, barring it from suing to recover a trade debt whose payment would amount to trading with the enemy.


Daimler Co. v. Continental Tyre & Rubber Co. (Great Britain) Ltd., [1916] 2 A.C. 307 (H.L.)