Gilford Motor Co Ltd v Horne [1933] Ch 935

Facts

• Gilford Motor Company employed Mr. Horne as managing director under a contract containing a restrictive covenant barring him from soliciting the company's customers or competing after his employment ended.
• After leaving the company, Mr. Horne established J.M. Horne & Co Ltd.
• J.M. Horne & Co Ltd directly competed with Gilford Motor Company and solicited its former clients, despite the restrictive covenant.
• Evidence showed that Mr. Horne controlled J.M. Horne & Co Ltd and used it as a vehicle to circumvent his contractual obligations.
• Gilford Motor Company brought legal action, arguing Mr. Horne used the company as a device to avoid his employment contract restrictions.

Issues

1. Whether the corporate veil of J.M. Horne & Co Ltd could be disregarded because the company was being used as a sham to evade Mr. Horne's restrictive covenant.
2. Whether Mr. Horne should be restrained from using the company to breach his contractual obligations to Gilford Motor Company.

Decision

• The Court of Appeal found in favor of Gilford Motor Company.
• The court determined that J.M. Horne & Co Ltd was a mere façade created by Mr. Horne specifically to evade the restrictive covenant in his contract.
• An injunction was granted against both Mr. Horne and J.M. Horne & Co Ltd, preventing further breach of the restrictive covenant.
• The court held that the company was not a legitimate independent entity in this context but an instrument for evasion of personal contractual obligations.

Legal Principles

• The courts may pierce or disregard the corporate veil where a company is used as a sham or façade to avoid legal duties or perpetrate fraud.
• Separate legal personality, as established in Salomon v A Salomon & Co Ltd [1897] AC 22, is not absolute, and does not protect improper or dishonest misuse of the company structure.
• The “sham” or “façade” exception requires clear intention to use the company to circumvent pre-existing individual obligations.
• Gilford is distinguished from cases like VTB Capital plc v Nutritek International Corp [2013] UKSC 5, where the corporate veil was not pierced to add a controller as a contracting party, and is cited alongside Jones v Lipman [1962] 1 WLR 832 as a specific instance of proper disregard of the corporate veil.

Conclusion

Gilford Motor Co Ltd v Horne established that the courts may look beyond the separate legal personality of a company where it is used as a device to avoid personal contractual obligations, demonstrating that legal protection of the corporate form does not extend to its misuse for improper purposes.