What was Lee v Lee's Air Farming Ltd case?

Answer 1

Mr Lee was a pilot who operated a crop dusting business. Mr Lee formed the corporation, Lee's Air Farming Ltd. Its main business was aerial spraying. He was the director and owned most of the shares(he held 2999 of the company's 3000 shares). As director of the corporation, he hired himself as an employee of the corporation. As one of the administrative tasks in setting up the company, he acted as its agent in setting up insurance, including workers' compensation insurance. The corporation's plane crashed while Mr Lee was flying it as part of his work, and he was killed on the job.

His widow, the plaintiff, attempted to collect what was rightfully due to a widow of a man killed on the job. The actual defendant was the insurance company.

The main question in the case was whether a person could be both a director and major shareholder of a corporation, on the one hand, and also an employee of the corporation, on the other.

Previous cases, beginning with the Salomon case, had confirmed that a corporation has an existence separate and apart from its shareholders and directors. The exceptions to that principle are gathered under the rubric, 'Piercing the Corporate Veil.' Where a corporation is a mere sham, the law can cut through the veil of corporate legitimacy, and reach into it for the shareholders and directors.

The Lee's Air Farming case confirmed the Salomon principle. Lee's Air Farming Ltd. was not a mere sham. It was a legitimate corporation, established for legitimate purposes, and had carried on a legitimate business. His employment by the corporation was well-documented, through government records of tax deductions, workmens' compensation contributions, etc., and was not something his widow had attempted to piece together after the fact of his death. There was no reason in law why a person could not perform corporate functions and employee functions within the same corporation. it was held that 'L' was a separate person distinct from tha company hence compensation was due to the widow

** Click the link below for the Privy Council's full decision in the case.