Jones v Lipman

Facts

• Lipman agreed to sell his property to Jones
• Before completion, Lipman incorporated a company and transferred the property to it
• Lipman was the controlling shareholder and director of the company
• The purpose of the transfer was to defeat Jones's right to specific performance
• Jones sought specific performance against both Lipman and the company
• Lipman argued that specific performance was impossible because he no longer owned the property

Issues

1. Whether specific performance can be ordered against a company that was not party to the original contract
2. Whether the corporate veil can be lifted where a company is used as a device to avoid an equitable remedy

Held

• Russell J held that the company was nothing but a device and a sham, created to evade Lipman's contractual obligations. The corporate veil was lifted and specific performance was ordered against both Lipman and the company. The court would not permit the interposition of a company to defeat equitable remedies.
• The judge emphasized that the vendor and the company were one for the purpose of the fraudulent scheme, and that equity looks to substance rather than form.

Ratio Decidendi

Where a person creates or uses a company as a device to evade a legal obligation or defeat an equitable remedy such as specific performance, the court will lift the corporate veil and treat the company as the alter ego of the controller. Equity will not permit the separate legal entity doctrine to be used as a mask for fraud.