Daimler Co. Ltd V. Continental Tyre & Rubber Co (Great Britain) Ltd [1916] 2 AC 307. Case brief by Johnson Yesaya.

 

Title and Citation

 

Daimler Co. Ltd V. Continental Tyre & Rubber Co (Great Britain) Ltd [1916] 2 AC 307.

 

 

Facts of the Case

 

Daimler Co. Ltd v. Continental Tyre & Rubber Co. Ltd[1] is a UK case law which brought into attention two concepts of corporate law which are, “control” and “enemy character of a company”.  Both Daimler and Continental Tyres were UK companies with different objects where by Continental Tyres was incorporated in England to sale tires which were made by a German company while Daimler was a motor manufacturer located in London. Continental Tyres had 25,000 issued shares whereby majority of its shares were possessed by Germans except one shareholder who was born in German and had become a naturalized became British citizen. All directors of the company were Germans residing in German except a secretary who was of English origin.

In a course of business, Continental Tyre & Rubber Co. Ltd supplied tires to Daimler Co. Ltd but Daimler rejected to pay on a ground that making payments to Continental Tyres will amount to violation of Section 1(2) of Trading with The Enemy Act[2] and commission of common law offence of trading with an enemy country. It is a matter of law that, shareholders are treated as owners of the company hence Continental Tyre was treated as a Germany company because it was owned by Germans who had ownership of more than 51% of the shares of the company hence trading with the company was literarily trading with an enemy company because it was a time of first world war where Great Britain and German were in armed conflict.[3]

Continental Tyre & Rubber Co. Ltd brought an action against Daimler Co. Ltd to recover loss suffered. The basic concepts discussed in this case were “control” and “enemy character of a company”, together with “lifting-up of corporate vail in emergency situations such as war.

Issues

i.             Whether the character of a company’s corporators is relevant to determine the character of the company; is the company capable of acquiring enemy character?

ii.            Whether the company was an enemy company and that payment of the debt would be trading with enemy?

iii.        Whether Daimler Ltd was entitled to refuse the payment because the respondent company was controlled by enemy?

Decisions and Opinions

On the issue whether the character of a company’s corporators is relevant to determine the character of the company, the court held that, it is a general principle that a company is an artificial person with a separate personality from its members, but in some case, the characters of a company’s corporators is relevant to determine the character of the company hence the characters and actions of the members of the corporation are capable of changing the nature of a company and a company may acquire enemy character on the basis of the characters of its members. The court established a principle that, characters of members of company are immaterial when it comes to determining nature of a company during peaceful times, but characters of members are so important to determine nature of a company during outbreak of war.[4]

On the issue whether the company was an enemy company and that payment of the debt would be trading with enemy, the House of Lords held that, despite the fact that Continental Tyre & Rubber Co. Ltd was incorporated in England under laws of England, its effective control was in hands of Germans hence the company had acquired the enemy character and trading with the company would be trading with an enemy. The court continued to say, the ownership of a company can be determined basing on who owns many shares in the company, Continental Tyre & Rubber Co. Ltd had 25,000 issued shares, 99% of shares were owned by Germans and only one share was owned by a non-German, this company was automatically foreign company and had to be treated as an enemy company in that situation.[5]

On the issue whether Daimler Ltd was entitled to refuse the payment because the respondent company was controlled by enemy, the court held that, Daimler was entitled to refuse to pay Continental Tyre because the company acquired enemy character on the basis of the characters of its members.

Legal rules discussed in the case and its relevance to Corporate Law Topics

This common law precedent established a principle that, “control” and “character of members of a company” are good ingredients in determining the nature of a company especially during outbreak of war. Also, corporate veil lacks meaning during outbreak of war because they must be lifted to allow determination of characters of members of the company. The legal rules discussed in this case law falls under several topics of corporate law such as “Lifting-up of corporate vail”, “capital and financing of the company”, and “management and membership of a company”.

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[1] Daimler Co. Ltd V. Continental Tyre & Rubber Co (Great Britain) Ltd [1916] 2 AC 307.

[2] Trading with The Enemy Act of 1914

[3] Simple study, “Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307”, available at https://simplestudying.com/daimler-co-ltd-v-continental-tyre-and-rubber-co accessed November 30, 2022

[4] Notes for free, “corporate case brief”, available at http://notesforfree.com/2018/01/24/corporate-case-brief-daimler-co-ltd-v-continental-tyre-rubber-co-ltd/ (accessed November 30, 2022.

[5] Ibid