Lee v Lee's Air Farming Ltd
Rule established
A person who is the controlling shareholder and governing director of a company can also be an employee of that company
Facts
- Mr Lee incorporated Lee's Air Farming Ltd in New Zealand and held 2,999 out of 3,000 issued shares
- He was appointed sole governing director with full powers of management
- He was also employed by the company as its chief pilot at a fixed salary
- Mr Lee was killed in an aerial top-dressing accident while working as pilot
- His widow claimed workers' compensation under the Workers' Compensation Act 1922
- The company's insurer denied the claim, arguing Lee could not be both employer and employee
Issues
- Whether the controlling shareholder and governing director of a one-man company can simultaneously be a "worker" employed by that company
- Whether a valid contract of service can exist between a company and its controlling member
Held
- The Privy Council held that the company and Mr Lee were distinct legal entities following the Salomon principle. There was nothing to prevent a person from functioning in dual capacities: as the directing mind of a company and as its servant under a contract of employment. The contract of service was genuine, and Lee was a "worker" within the meaning of the compensation statute.
- The Board emphasized that the company was a separate entity capable of entering into contractual relations with any person, including its own controlling shareholder.
Ratio Decidendi
The principle of separate corporate personality extends to employment relationships: a controlling shareholder-director can enter into a valid contract of service with the company. The two capacities (master through the company and servant in personal capacity) are legally distinguishable because the company is a separate person at law.
How to use it in an exam
- Use this case to reinforce the Salomon principle in the employment context and to answer questions on whether a controlling director can claim employee benefits. It demonstrates the practical consequences of separate legal entity: the same person can stand on both sides of a contract through the corporate medium.
- Key quotable line: "The company and the deceased were separate legal entities… there was no reason to deny the reality of the contractual relationship."
Source
Source: Privy Council (New Zealand)
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.