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Published online by Cambridge University Press: 24 January 2025
Life (at least for company lawyers) without Salomon's case seems inconceivable. It is generally seen as a landmark decision. Every British and Australian company law textbook refers to it as a key case in the development of company law. The story of Salomon's case is, in fact, so well ingrained in our sensibilities that we all “know” (or at least think we do) the story of the unravelling of modern company law and the crucial role the decision by the House of Lords in Salomon v Salomon & Co Ltd plays in that story. We know the script so well that questioning the iconic status of Salomon's case would seem to be a ludicrous exercise. Despite the seeming futility of such an exercise it is the intention of this paper to suggest that re-examining some of our unquestioned assumptions may lead to some useful insights into the development of “modern” company law, and by inference, into a number of the problems (both theoretical and practical) facing contemporary corporations law academics and practitioners.
The author would like to thank the organisers of the special Salomon Centenary Conference at ANU Law School in September, 1997 for a stimulating and exciting forum within which to try out one's strange ideas on an unsuspecting audience. The author would also like to acknowledge the generosity of Dr Simon Ville of the School of Economic History at A.N.U. in reading and commenting on the current paper in draft form.
1 [1897] AC 22.
2 Kahn-Freund, o, “Some Reflections on Company Law Reform”, (1944) 44 Mod LR 44Google Scholar.
3 In his recent path-breaking examination of Australian history Paul Carter had cause to make the following observations in respect to the limitations of narrative history:
[In narrative history] it is not the historian who stages events, weaving them together to form a plot, but History itself. History is the playwright, coordinating facts into a coherent sequence: the historian narrating what happened is merely a copyist or amanuensis. He is a spectator like anybody else and, whatever he may think of the performance, he does not question the stage conventions ... In a theatre of its own design, history's drama unfolds; the historian is an impartial onlooker, simply repeating what happened ... Such history is a fabric woven of self-reinforcing illusions. But above all, one illusion sustains it. This is the illusion of the theatre and, more exactly, the unquestioned convention of the all-seeing spectator ... This kind of history, which reduces space to a stage, that pays attention to events unfolding in time alone, might be called imperial history. The governor erects a tent here rather than there; the soldier blazes a trial in that direction rather than this: but, rather than focus on the intentional world of historical individuals ... empirical history of this kind has as its focus facts which, in a sense, come after the event. The primary object is not to understand or to interpret: it is to legitimate ...,such a logic demonstrates the emergence of order from chaos. (P Carter, Road to Botany Bay, (1987) at xv-xvi).
4 The issue of the “factity” of another aspect of the narrative of modem company law, the iconic role of the Companies Act 1862 (UK), has been questioned by Shannon, one of the group of London Economics School based historians who re-wrote the history of modem company law in the 1930s:
A text-book myth would give place of honour to the Companies Act of 1862... The Act of 1862 was a consolidating and extending Act which brought no new important principles,and although an outburst of company promoting took place in the cheap money market which happened to follow it, its superiority over the Act of of 1856 was more legal than economic ... Neither The Economist or The Bankers' Magazine gave it editorial comment and Herepath's Railway Journal gave it only a few lines. (Shannon, H A, “The First Five Thousand Companies” (1932) 2(3) Economic History 396 at 399)Google Scholar.
5 Rix, M, An Economic Analysis of Existing English Legislation Concerning the Limited Liability Company (1936Google Scholar) unpublished M.Sc (Econ) thesis, University of London.
6 Stokes, M, “Company Law and Legal Theory” in W Twining (ed), Legal Theory and the Common Law (1986) 155Google Scholar.
7 S Ville, “Judging Salomon: Corporate Personality and the Growth of British Capitalism in a Comparative Perspective” this volume at 214-215
8 For example, Rielle v Reid (1899) 26 OAR 54, the first Canadian case in a superior court to cite Salomon's case. Though perhaps a more interesting aspect of this case is the holding by the court that even the formation of a company in circumstances where the predecessor incorporated business was insolvent was permissible-not necessarily a proposition that Salomon's case stands for, particularly in circumstances where the formation of the new entity is fraudulently intentioned to defeat the claims of creditors.
9 Ireland, P, “The Rise of the Limited Liability Company” (1984) 12 International Journal of the Sociology of Law 239Google Scholar.
10 Hansard,3rd series, vol.140, 1/2/1856, col 113.
11 P Ireland, above n 9 at 243-244.
12 Cox, E, The New Law and Practice of Joint Stock Companies, (1856), i-xx; see also the serialization of Cox's manual in the Law Times (1856)Google Scholar.
13 As we have seen above Ireland contends in his analysis of the legislation that both the parliamentary draftsman responsible for the legislation, Henry Thring, and Robert Lowe were opposed to the extension of the legislation to smaller enterprises: P Ireland, above n 9 at243-244.
14 Hansard,3rd series, vol. 142, 26/5/1856, cols.642-643.
15 Hansard,3rd series, vol.140, 1/2/1856, col.129.
16 Report of the Select Committee into the Operation of the Companies Acts 1862 and 1867, B.P.P. VIII, 1877, 425.
17 R A, Bryer, “The Mercantile Laws Commission of 1854 and the political economy of limited liability”, (1997) 1 Economic History Review 44Google Scholar.
18 Times, (1865) cited in Hunt, B C, The Development of the Business Corporation in England 1800-1867, (1936) 145-146CrossRefGoogle Scholar.
19 Law Times, 25/3/1858, 14.
20 Dickens, C, Little Dorrit, (1980 reprint)Google Scholar.
21 For an extended discussion of Dickens moral purpose(s) in the novel and their relationship to notions of “liberal guilt” see: D Born, The Birth of Liberal Guilt in the English Novel (1995) at 29-30; 40-42. For another approach to the moral concerns of Victorians in regard to the growing depersonalisation of business see B Weiss, The Hell of the English: Bankruptcy and the Victorian Novel (1986).
22 A reference to Samuel Smiles (1812-1904) who was one of the most influential critics of business life in the Victorian era and whose book, Self Help (1859), was one of the largest selling texts of the nineteenth century. Smiles argued that in business,"character” was everything. According to Smiles it was a moral failing of the largest order to sacrifice “character” in order simply to be successful. Smiles was aghast at many of the developments of the later Victorian era, especially the growing impersonality of business and the consequent moral decay which he perceived as a consequence of the extension of companies into all walks of business life.
23 See the reponses to Salomon's actions in the Boot Trade Journal as cited by Rubin, G, “Aron Salomon and His Circle” inJ Adams (ed), Essays for Clive Schmittoff (1983) 99Google Scholar.
24 Ibid.
25 Feltes, N, “Community and the Limits of Liability in Two Mid-Victorian Novels”, (1974)June Victorian Studies 355Google Scholar.
26 Anon, ., Counsel to Ladies and Easy-going Men on Their Business Investments and Cautions Against the Lures ofWily Financiers and Unprincipled Promoters (1892) 41Google Scholar.
27 Shannon, HA, “The Limited Companies of 1866-1883” (1932) 4 The Economic History Review,1st series, 303Google Scholar.
28 This prosecution is unreported. It is referred to in Peek v Gurney {1871) 13 Eq 79.
29 Retorting to Lowe's claim when he introduced the 1856 legislation that individual vigilance
was the only sure method of regulation, the Master of the Rolls, Lord Romilly, and the Vice Chancellor, Page Wood, stated to the 1867 Select Committee that “it is not sufficient to say that because a man is a foolish person, therefore he must be allowed to ruin himself in his own way”. (Select Committee on the Operation of the Limited Liability Act, B.P.P. 1867 (329) X, Q.1394).
30 Hunt, B C, The Development of the Business Corporation in England 1800-1867 (1936) of the 1867 Select Committees deliberations in this regard, 153-159Google Scholar.
31 Evidence of George Latham Browne, Esq., Select Committee on the Operation of the Limited Liability Act (1867).
32 Evidence of Rt. Hon. John Lord Romilly, Select Committee on the Operation of the Limited liability act (1867)Q.1325;1328.
33 Evidence of Swinton Boult, Select Committee on the Operation of the Limited Liability Act (1867)Q.1693; 1707; 1711-1712.
34 William Gladstone, in introducing the 1844 legislation stated to the House of Commons: “Publicity is all that is necessary. Show up roguery and it is harmless” (Hansard, 3rd series vol. 75 (1844) col. 277)
35 Lowe remarked in regard to the capacity of the restrictive provisions of the 1844 Act
providing effective protections for the public that “it is quite impossible by any legislation that we can devise really to protect the public in matters which they are fully able to protect themselves”. Hansard, 3rd series, vol. 139, 1/2/1856, col. 121. He remarked,however, later in his speech that the only way in which the legislature could legitimately interfere in the operation of such enterprises was by requiring “the greatest publicity to the affairs of such companies, that everyone may know on what grounds he is dealing” (Ibid, col. 131). The legislation of 1856 of course provides no such means by which activities of joint stock companies (eg the balance sheet) might be publicised.
36 Evidence of George Latham Browne, Esq., Select Committee the Operation of the Limited Liability Act (1867) Q.1233
37 Ibid at1264-1265.
38 Ibid at 1279-1281.
39 Comish, WR and Clark, D de N., Law and Society in England 1750-1950 (1989) 258Google Scholar.
40 M Rix, above n 4 at 10. However, compare Rix's assertion with the position advanced by G Todd, “Some Aspects of Joint Stock Companies 1844-1900” (1932) 4 Economic History Review, 1st series, 46 at 63-64 who states that a number of witnesses before the Select Committee considered the effects of the Acts were almost wholly good. Even though Todd acknowledges that a number of other witnesses regarded the growing incidence of fraud in commerce as related to the introduction of limited liability incorporation he considers this as of marginal interest as:
[T]he problem of fraud cured itself in the next ten years. when the limitation of liability became effective...a better and more efficient classes of entrepreneurs grew up. As a result the standard of commercial morality was raised and fraud decreased (at 64).
41 PL Cottrell, Industrial Finance at 61.
42 Levi, M, The Phantom Capitalists (1981) at 159Google Scholar.
43 Evidence of John Lord Romilly, Select Committee on the Operation of the Limited Liability Act (1867) Q.1325.
44 However note the discussion of the decision and subsequent developments in M Rix, above n 5 at 60-61:
The mere fact that private companies existed-and without being challenged-long before they were recognised by law is sufficient indication that the legal recognition of private companies was not a pressing need (what may have been wanted, however, and what was never granted was legislation expressly designed to adapt the principle of limited liability to small business. The separate recognition of private companies was not then due to any dire necessity; such companies already existed in large numbers, when threatened legislation intended to apply to all companies registering under the Acts, called forth such a protest from businesses considering they had a right to act secretly, that the definition of private companies was asked for so as to escape the liabilities proposed by the new legislation.
45 Richmond, L and Stockford, B, Company Archives: The Survey of the Records of 1000 of the First Registered Companies in England and Wales (1986)Google Scholar.
46 The Annual Register (1866) at 187.
47 L Richmond and B Stockford, above n 45 at x-xi.
48 For example, P Ireland, above n 9; and O Kahn Freund, above n 1.
49 Table 2. Compare with survival rates for Scottish companies in P Payne, The Early Scottish Limited Liability Companies 1856-1895: An Historical and Analytical Survey (1980) which has been reformulated into tabular form in R Mc Queen,Company Law in Great Britian and the Australian Colonies 1854-1920: Towards a Social History,PhD thesis, Griffith University (1996)Appendix Two.
50 This Table is taken from R Mc Queen, above n 49. Full details of the sample upon which the table is based can be found in Appendix One of the thesis.
51 This unknown has not been included in computing means.
52 P Payne, above n 49.
53 Shannon, HA, “The Limited Companies of 1866-1883” (1932) 4 Economic History Review, 1st series 290 at 302CrossRefGoogle Scholar.
54 Evidence of Mr. Church, Select Committee on Limited Liability Acts (1867) Q.1555-1558.
55 E Jones, Accountancy and the British Economy: The Evolution of Ernst and Whinney 1840-1980 (1981) at 54. See also the comments of De Paula cited in Kitchen, J and Parker, RH, Accounting Thought and Education: Six Pioneers (1984) at 3Google Scholar.
56 M Levi, above n 42 at 1-2.
57 P Payne, above n 49 at 105 fn 4.