(iii) Woolfson Rule (or facade test)
There is ''one well-recognised'' exception to the rule prohibiting the piercing of the ''corporate veil''. It is appropriate to pierce the veil of company only where special circumstances exist indicating that it is a mere facade concealing the true facts.[12] The House of Lords, to some extent, criticized Lord Denning MR''s economic entity approach and advanced the rule which has been followed by many influential cases.[13]
As we can see from the wording, ''only'' reflects the tendency of courts to restrict the scope of application of lifting theory and follow the Salomon rule, unless the requirements below are complied with to make it possible within the facade test.
1) ''Where a facade is alleged, the motive of the perpetrator may be highly material.''[14] In Acatos & Hutcheson plc v Watson (1995), it was permissible for A & H to purchase its own shares irrespective of the ''rule in Trevor v Whitworth'', according to Lightman LJ, for the inexistence of an intention to set up A Ltd deliberately and especially for the share transaction and the practical indirect outcome of purchase. It is contended, therefore, the motive with which an associated company was formed, usually manifested by the private pre-incorporation arrangement, articles and memorandum of especially formed company or ordinary business scope, was a matter of fact of a crucially influential nature. It was stressed by Slade LJ in Cape Industries that the arrangements involving CPC were not shown to involve actual or potential illegality nor were they intended to deprive anyone of their existing rights[15]; therefore (along with other reasons of course), the subsidiary CPC was not a fa?ade.
2) There must be some improprieties before the corporate veil can be pierced.[16] In Ord v Belhaven Pubs Ltd, the affirmation of the Salomon doctrine was delivered for ''in present case, no impropriety is alleged.''[17]
Using the corporate form for the purpose of fraud can be regarded as an impropriety.[18] Deliberate evasion of an existing obligation can be regarded as an impropriety[19]: Followed in Jones v Lipman [1962] where the defendant, having sold land by contract to the plaintiff, conveyed the land to a company specially set-up and effectively controlled by him in order for the evasion of specific performance. As we can expect, specific performance was ordered by Russell J against both the perpetrating company and its subsidiary.
