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NAME: VINAYAK SADASHIV HANDE
CLASS: SY B.A.F
DIVISION: A
ROLL NO: 5461
SUBJECT: Business Law
TOPIC: Lee vs. Lee Air Farming Limited, 1960
SUBMITTED TO: MRS. POONAM MAM

INTRODUCTION
The case of Lee v Lee Air Farming Ltd. revolves around the principle
of Separate Entity regarding the Company Law established in the
landmark case of Salomon v. Salomon & Co Ltd also known as the
Salomon Principle. It is also an important case for UK Company Law
and Indian Companies Act, 2013. Separate Entity is the basis of
modern capitalism and enhanced the law regulating and generating
immense social and economic wealth. It is the pillar of the Company
law and applied globally. The objective of this case comment is to
analyse the implications of the above-mentioned principle and to
distinguish between the subject of duality invested in a single person
as regards to the employer and employee relationship. This concept is
seen as impossibility in most of the cases but when tested logically
and legally it comes across as a different perspective.
Companies act, 2013 mentions following features of a company incorporated

under the act:
1. Separate Legal Entity
2. Perpetual Succession
3. Limited Liability
4. Common Seal
5. Separate property
As per Companies Act, 2013 Separate legal entity means that a company which
is registered under this act as Non-profit organization, private limited company,
public company , government company and chit fund company shall have legal
identity of its own and will have rights under law and will treated as separate
entity from its shareholder. It can own property in its own name and can enter
into contracts with other person and can represent itself in court of law through
its representative.
Separate legal entity also act as veil between company and its member. Which
means that assets of the company shall be used only for the objective of the
company as set in Memorandum of association and its liabilities should be paid
by itself and not from personal asset of the member of the company.
FACTS
Geoffrey Lee, the deceased formed a company in 1954 through
Christchurch accountants working in Canterbury, New Zealand. The
company was formed to conduct the business of aerial top-dressing
which meant the spraying of fertilisers from the air on the farms. He
had the majority shares i.e. 2999 shares of 1 pound each out of the
3000 shares except the one share owned by his wife as the nominee.
He was the sole governing director of the Lee Air Farming Ltd.
(respondent company) and was employed as the chief pilot according
to Article 33 of the Articles of Association at a salary arranged by
him. One day during the course of his duty of aerial top dressing he
died in a plane crash. Mrs Catherine Lee, the appellant claimed 2430
pounds under the Worker’s Compensation Act, 1922 on the context
that her husband died while carrying out an employee duty, that means
whether he is a worker or not under this New Zealand legislation.
The New Zealand Court of Appeals held that an employer cannot be a
worker, and that the two offices are incompatible and impossible to
exist together. But the Privy Council said that a man in his dual
capacity can hold the responsibility of both the offices and applying
the separate entity principle the deceased and the respondent company
were separate legal entities. Therefore Mr. Lee was working in the
capacity of a servant and had made himself a contract of employment
on behalf of the company.
Issues
1. Whether the principle of Separate Entity applicable or not?

2. Whether Mrs. Lee (appellant) liable to claim compensation under
the Worker’s Compensation Act, 1922?
Judgement
The case went for appeal before the New Zealand’s Court of
Appeal to decide whether the deceased was employed by the
respondent company as “worker” under the Worker’s
Compensation Act, 1922. The decision came in negative and the
judgment said that the deceased was the sole governing director
for life vested with full control over the company, yet there can
be a contract of employment between the director and that of
company but in this case the company only had a single person
with authority and he cannot be the one giving orders and
obeying them. Therefore, in such a matter both the offices
cannot exist together in a single person and are incompatible.
Also the Court of Appeal decided that the position of the director
precluded the deceased from being an employee of the
respondent company, therefore he cannot be servant or worker
of the company.
The appellant appealed then in the Privy Council where the
Lordships took into view the precedent set by the Salomon v
Salomon case which decided that a person can work in dual
capacities and yet the company and its single owner or
shareholder will be separate legal entities. Similarly in this case
there was a contractual relationship between Mr. Lee and the
respondent company as soon as the company was incorporated
and it cannot be invalidated due to the circumstance of the
deceased being the majority shareholder and controlling force in
the company. It shall be unclear that what position he might be
enacting while performing his duties when he died but it was
being done at the request of the farmers whose contractual
rights and obligations were with the respondent company. Also
merely the position of the deceased cannot undermine the fact
that a contractual relationship can only be established between
two individual legal entities which has already been proved.
Thus, the appellant was able to receive the compensation as
there was a contract of service between the company and the
worker
CASE ANALYSIS
According to my opinion after studying the case thoroughly it seems
that the court has decided the case fairly, taking into consideration all
the aspects and with a logical view based upon the landmark principle
in the history of Company law. Also, the differentiation between a
worker and an employer was quite technical but legally the contract is
the basis of any role or relationship and here it was evident that there
was a contract of service even though his role at the time of death was
not clear but still he was an agent of the company and can take
decisions on behalf of the company. It was his duty to perform those
contracts because how will the company get things done if it were not
for a living person who could carry them out on company’s behalf.
The court’s decision was based on separate entity principle which

protects the interests of the individual members and shareholders of
the company having limited liability and also highlights the company’s
individual responsibility. In this case it helped the deceased’s wife to
claim compensation because he was declared as worker and the
respondent company had insurances for the workers as an obligation
under the provisions of Worker’s Compensation Amendment Act,
1950.
Though the separate entity principle are weak in protecting the

interests of the creditors of the company and some company’s use it as
a means of abuse through the creation of subsidiaries to avoid debt but
this can be avoided through the corporate veil principle where courts
have intervened to impose legal liability on the members and the
directors through piercing the veil. But in this case there was no need
to so do since the company was not a sham and was incorporated
correctly under the Company Act, 1862 and the contracts signed
between Mr. Lee and the respondent company are valid.
There is a case which can be illustrated to draw a comparison between

the respondent company and its sole governing director to prove the
validity of transactions between them.
 Inland Revenue Commerce v. Sansom . Sansom sold his business

to a going a private company John Sansom Ltd. and became the
sole governing director of the same with 2499 shares of 10
pounds each and full control over the business and its affairs.
The company could lend money to the persons as it seems fit
under the head loans and advances in the balance and these
advances were made to Sansom without interest therefore, it was
concluded that this money is not a loan rather an income to him
and he is liable for super tax on it. But after the investigation by
the commissioner it was found that the company was a separate
legal entity and it was not carrying out business as an agent of
Sansom and it could give loan to him.
This case illustrates the circumstances under which a person can

possess dual roles.
 Fowler v. Commercial Timber Co. Ltd. the plaintiff was the

managing director of the defendant company and the company
was not earning profits so it was decided to wind up the
company. This was a voluntary decision take by the directors and
the plaintiff as it was desirable. But the liquidators gave him a
notice that his services were no longer required against which
claimed damages for the wrongful dismissal and damages for
breach of contract. Here he held the capacity of the managing
director claiming damages for breach of contract and as a
shareholder and director of the company who takes decision of
winding up for the interest of the business.
From the above-mentioned instances it is clear that there exists a

master-servant relationship between the respondent company and the
deceased and there is no such impossibility of dual roles in law
otherwise also.
Conclusion
The outcomes of the case are very clear and the principles used to
come to the judgements are fair in all states. Thought the separate
entity has its own shortcomings but they are very well managed with
their statutory exceptions and sometimes even the courts look beyond
the provisions of law and give exceptional judgments. But in this case,
the rules mentioned had a solid backing and were proved to be fit
logically and evidentially in all respects without twisting the law, and
the Salomon case example is itself strong and without any exceptions.
Therefore it is very well considered to be consistent with the current
laws and amendments along with satisfying the foundation of the
company law. It is a good law solving major company disputes thus
helping with the modern economic and corporate developments all
over the world .
This judgement is a very important with respect to U.K company law and Indian
Companies act as it lays the precedent that Company is separate legal entity and
it can enter into contract with its own member as both are separate legal entity.
Concept of separate legal entity was first introduced I Salmon vs Salmon co. ltd.
Separate legal entity is a double-sided sword as it can be used in bad faith also
by interested stake holder to hide behind corporate veil that it provides between
the company and its member.
There has been case law where concept of separate legal entity has been refused
by court as in the case of Gilford Motor Co V Horne where court lifted the
corporate veil and treated the respondent and his company as one entity to
assure the validity of the contract that appellant had with respondent. Also in
case of insolvency the concept of separate legal entity doesn’t apply and
company and its member are treated as one entity.

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NAME: VINAYAK SADASHIV HANDE

TOPIC: Lee vs. Lee Air Farming Limited, 1960

SUBMITTED TO: MRS. POONAM MAM

Companies act, 2013 mentions following features of a company incorporated

1. Whether the principle of Separate Entity applicable or not?

The court’s decision was based on separate entity principle which

Though the separate entity principle are weak in protecting the

There is a case which can be illustrated to draw a comparison between

 Inland Revenue Commerce v. Sansom . Sansom sold his business

This case illustrates the circumstances under which a person can

 Fowler v. Commercial Timber Co. Ltd. the plaintiff was the

From the above-mentioned instances it is clear that there exists a

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