The "agency" ground is submitted by Slade L.J. for neglecting the separate legal personality of a company.¹ This ground is applied to exceptional cases where a subsidiary is completely controlled by its parent company to an extent that the subsidiary cannot be considered to be conducting its own business separately from the parent company. The circumstances in which a plaintiff can successfully bring a claim based on the agency ground are very limited, as pointed out by Slade L.J. in Adams.²

Merely conducting business as a "single economic unit" will not establish an agency relationship between a parent company and its subsidiary.³ An example of a case where a subsidiary was deemed to be the agent of its parent is Smith, Stone and Knight v Birmingham Corp, where the parent treated the subsidiary as an internal department of its own business after purchasing it as an unincorporated entity.⁴ With regard to Smith, Stone and Knight v Birmingham Corp, the parent company initially bought the subsidiary as an unincorporated business and treated it as if it was just another department of the parent company after registration. The parent company had complete access to the subsidiary's books and allowed the subsidiary to use its premises for free.⁵ The subsidiary only had one manager and no other staff. The only indication of the subsidiary's independence was its name on the business premises and stationery. The Court of Appeal concluded that the subsidiary was, in reality, operating as a part of the parent company's business and allowed the parent company to claim compensation for the compulsory acquisition of the subsidiary's premises.⁶

References

1. Marc Moore ‘"A temple built on faulty foundations": piercing the corporate veil and the legacy of Salomon v Salomon’ J.B.L.180-203 (March, 2006), accessed 13 May 2023
2. Adams v Cape Industries plc [1990] Ch 433
3. Rian Matthews, “Clarification of the doctrine of piercing the corporate veil’ J.I.B.28(12). 516-520 ( 2013), accessed 21 May 2023
4. Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the City of Birmingham [1939] 4 All E.R. 116
5. Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the City of Birmingham [1939] 4 All E.R. 116
6. Marc Moore ‘"A temple built on faulty foundations": piercing the corporate veil and the legacy of Salomon v Salomon’ J.B.L.180-203 (March, 2006), accessed 13 May 2023