Ord & Anor v Belhaven Pubs Ltd

Order 15 rule 7(2) of the Rules of the Supreme Court permits substitution where an existing interest or liability has been assigned, transmitted or devolved. It cannot be used to impose a new liability on a shareholder or associated company.

A company’s financial weakness and the fact that companies in a group operate as an economic unit do not justify disregarding separate corporate personality. Piercing the corporate veil requires special circumstances, such as a facade concealing the true facts or relevant impropriety. A group may organise its affairs through separate companies while preserving their distinct legal identities.

The Court of Appeal held that Creasey v Breachwood Motors Ltd was wrongly decided and should no longer be treated as authoritative.

The plaintiffs leased a public house from the defendant company and brought claims alleging misrepresentation and breach of warranty. They also withheld rent, prompting a counterclaim.

After the defendant company suffered financial difficulties and transferred assets within its corporate group, the plaintiffs applied under Order 15 rule 7(2) to substitute the defendant’s holding company, or another group company, as defendant. The High Court ordered substitution, treating the group as having disregarded separate corporate identities.

The holding company appealed. The central issues were whether the rule permitted substitution to secure enforcement against a shareholder and whether the corporate veil could be lifted without alleged fraud, impropriety or sham conduct.

1. Appeal allowed. The order substituting the holding company was set aside. The action was to continue against the original defendant company.
2. Order 15 rule 7(2) is consequential. It addresses a change already produced by assignment, transmission, devolution, death, bankruptcy, merger or comparable succession. It does not create a new liability or permit a claimant to substitute a shareholder for the company originally liable.
3. The plaintiffs’ proposed claim against the shareholder was substantively a new cause of action. If pursued, the proper course was to apply to join the company and amend the pleadings, subject to any limitation issues.
4. The evidence disclosed ordinary group restructuring, with transfers at book value or for consideration that relieved rather than worsened the defendant company’s financial position. There was no evidence of asset stripping, under-value transfers, fraud, impropriety, sham, facade or breach of insolvency or company-law duties.
5. The economic-unit approach was inconsistent with separate corporate personality and limited liability. The legal distinction between parent and subsidiary could not be ignored merely because the parent was financially interested or the subsidiary could not pay.
6. The Court of Appeal treated Creasey v Breachwood Motors Ltd as an erroneous application of veil-piercing principles and an improper use of the substitution rule. It should no longer be treated as authoritative.
7. Lord Justice Brooke and Sir John Balcombe agreed. Sir John Balcombe added that, if impropriety in the restructuring had been established, section 423 of the Insolvency Act 1986 provided an appropriate remedy.

• Court of Appeal (Civil Division): allowed the appeal, set aside the High Court substitution order, and ordered that the proceedings continue against the original defendant.
• High Court: Her Honour Judge Alton, sitting as a Deputy High Court Judge, ordered substitution of the holding company as defendant and granted leave to appeal.