John Redmond - Individuals may not be able to hide behind the sanctity of the 'corporate veil' for much longer, but these are early days to anticipate a change to the status quo
Lawyers often talk about "the corporate veil". It's not so much a veil as a suit of armour protecting individuals from liability when things go wrong. If you or I enter into a contract and make a mess of things, we get sued. If we lose, the house is on the line. If we have done the deal as a limited company, the company gets sued and may go bust, but the house is safe and we go on to form another company to do another deal. That can be rather annoying, to say the least, to the person on the other end of the transaction who is unable to recover.

Hyundai Engineering and Construction has just had a go at ripping through the corporate veil, in somewhat exotic circumstances.

His Royal Highness Prince Jefri Bolkiah is the brother of the Sultan of Brunei and used to be minister of finance in Brunei. He is also the proud owner of a 160 m yacht that was, in 1996, in need of a marina in which it could be parked. Sorry, moored. He and his son were the only directors and shareholders of a company called Amadeo Development Corporation.

Amadeo entered into a contract with Hyundai for the construction of a marina at Jerudong, in Brunei, for Brunei $208m (about £83m). Construction proceeded, but there were payment problems. Amadeo was in serious financial trouble and in May 1999, it was decided that the company would go into liquidation. Hyundai promptly determined the contract. It reckoned that it was owed some £31m.

The chances of getting paid were slim. Amadeo's statement of affairs in the liquidation suggested that it owed Prince Jefri B$5bn, and other creditors, including Hyundai, B$1bn.

Hyundai then started wondering where it might go to look for payment other than the liquidator. In particular, it began to look in the direction of Prince Jefri himself. It started a legal action against him in London on the basis that the company had been acting as his agent, so that the construction contract was really made with him personally. Alternatively, Hyundai argued that the company was merely a facade, and that it had no true identity independent of the Prince.

According to Hyundai's statement of claim, there seemed little reason for Amadeo to enter into the contract in the first place. The company didn't own the site of the marina, it said, and therefore was not going to own it when it was eventually built.

Hyundai started a legal action on the basis that the company had been acting as Prince Jefri’s agent, so the contract was really made with him personally

Prince Jefri took a real interest in the job, Hyundai went on. The design of the works had to be personally approved by him. He insisted that the price had to be personally approved by him as well. He provided all the finance, and the only person authorised to sign cheques to pay Hyundai was the Prince's private and confidential secretary.

The Prince then went on the attack. He issued an application for an order striking out the claim on the basis that it was bound to fail. He said the pleading did not disclose sufficient facts to support the allegation being made, that the alleged agency was inconsistent with the terms of the construction contract, that the contract had been executed as a deed (which would prevent any undisclosed agency) and that, because Hyundai had proved in the liquidation, it could not now claim from anyone else.

The case was heard in the Chancery Court by the Vice-Chancellor in March. He dismissed the "facade" argument on the basis that Amadeo had been involved in several substantial construction contracts other than the marina, and so did have a real identity of its own.

But he was not prepared to dismiss the argument that the company had been acting as agent for the Prince. Insufficient facts had been pleaded to prove the existence of an agency relationship, but there was enough there to mean that the judge at the trial of the case might decide on the balance of probability that the company was acting as agent. Much would depend on the arguments and evidence raised at trial.

The argument that the terms of the construction contract (based on ICE Design and Construct) were inconsistent with agency failed. The employer was defined in the contract but that did not mean that the employer was not acting as agent for someone else.

That left the argument that Hyundai had elected to claim in the liquidation and now could not have a pop at anyone else. That failed as well.