DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 1 WLR 8...

Facts

• DHN Food Distributors Ltd was the parent company operating its business from land owned by its wholly owned subsidiary.
• The local authority, Tower Hamlets LBC, compulsorily acquired the land owned by DHN’s subsidiary.
• DHN sought compensation not only for the value of the land but also for disruption to its business operations.
• The Land Tribunal initially denied DHN’s claim for business interruption compensation, reasoning that DHN had no direct interest in the subsidiary’s land.
• The matter was appealed to the Court of Appeal.

Issues

1. Whether the parent company, DHN, could claim compensation for loss arising from the compulsory acquisition of land owned by its subsidiary.
2. Whether the corporate veil could be pierced to permit the parent to enforce the rights of the subsidiary.
3. Whether companies within a corporate group could be treated as a single economic entity for legal purposes.

Decision

• The Court of Appeal held that the corporate veil could be pierced, allowing DHN to recover compensation for business losses arising from the acquisition.
• Lord Denning MR led the majority in finding that DHN and its subsidiary operated as a single economic entity.
• The Court treated the group as one entity for the purpose of compensation, overturning the Land Tribunal’s decision.
• The reasoning was based on the reality of the business arrangement, not just the strict legal structure.

Legal Principles

• The principle of corporate personality recognizes a company as a separate legal entity, distinct from its members or parent.
• Courts may, in rare circumstances, look beyond separate corporate personality (“pierce the corporate veil”) where a group operates as a single economic entity.
• DHN established, temporarily, the possibility of parent companies claiming for losses suffered by subsidiaries in a group context.
• This precedent was subsequently rejected by the House of Lords in Woolfson v Strathclyde Regional Council, reaffirming the rule of separate legal personality.
• The rule in Foss v Harbottle further emphasizes that only the company itself, not its shareholders or parent, may seek remedies for wrongs done to it.
• Only in limited, specific situations—such as those clearly sanctioned by law—may courts disregard corporate separateness.

Conclusion

The decision in DHN Food Distributors Ltd v Tower Hamlets LBC marked a significant, though temporary, departure from strict corporate personality by allowing compensation claims across a group structure; however, this approach was later decisively rejected, restoring the orthodox principle that each company remains a separate legal entity except in narrowly defined circumstances.