Keywords: Breakfast Beans and Lee's Air Farming

If you're wondering what the two things are that bring more people who don't know me to this blog than anything else, it's:

• my good old recipe for breakfast beans (5 of the last 100 hits) and
• my illustration for the case of Lee v. Lee's Air Farming Ltd (4 of the last 100).

I feel good about the Breakfast Beans recipe. It's easy and tasty. And a good big quantity.

For the Lee's Air Farming people I feel badly. They're probably law students like me, trying to find more than the few sentences about the case in some inadequate text book.

One place that will help future corporate lawyers is this page.

Also, I've got two textbooks for Business Organizations (let's not go there though) and I've got a scanner. So purely for study purposes here are a summary of the facts and the excerpts of the decision from my casebook. (Greetings, Commonwealth friends, hope this helps.)

Lee v. Lee's Air Farming Ltd. (1960) [1961] A.C. 12 (New Zealand P.C.)

The appellant's husband formed the respondent company for the purpose of carrying on the business of aerial top dressing. He held all the issued shares of the company with the exception of one. He was appointed governing director of the company for life and, pursuant to the company's articles of association, was appointed chief pilot of the company at a salary arranged by him. Article 33 also provided that in respect of such employment the relationship of master and servant should exist between him and the company.

The husband was killed while piloting the company's aircraft in the course of aerial top dressing. His widow, the appellant, claimed compensation under the New Zealand Workmen's Compensation Act, 1922. On a case stated for its opinion on a question of law, the New Zealand Court of Appeal held that since the deceased was the governing director in whom was vested the full government and control of the company, he could not also be a servant of the company. The widow appealed.

LORD MORRIS: ... The substantial question which arises is, as their Lordships think, whether the deceased was a "worker" within the meaning of the Workers' Compensation Act, 1922, and its amendments. Was he a person who had entered into or worked under a contract of service with an employer? The Court of Appeal thought that his special position as governing director precluded him from being a servant of the company. On this view it is difficult to know what his status and position was when he was performing the arduous and skilful duties of piloting an aeroplane which belonged to the company and when he was carrying out the operation of top-dressing farm lands from the air. He was paid wages for so doing. The company kept a wages book in which these were recorded. The work that was being done was being done at the request of farmers whose contractual rights and obligations were with the company alone. It cannot be suggested that when engaged in the activities above referred to the deceased was discharging his duties as governing director. Their Lordships find it impossible to resist the conclusion that the active aerial operations were performed because the deceased was in some contractual relationship with the company. That relationship came about because the deceased as one legal person was willing to work for and to make a contract with the company which was another legal entity. A contractual relationship could only exist on the basis that there was consensus between two contracting parties. It was never suggested (nor in their Lordships' view could it reasonably have been suggested) that the company was a sham or a mere simulacrum. It is well established that the mere fact that someone is a director of a company is no impediment to his entering into a contract to serve the company. If, then, it be accepted that the respondent company was a legal entity their Lordships see no reason to challenge the validity of any contractual obligations which were created between the company and the deceased ...

Nor in their Lordships' view were any contractual obligations invalidated by the circumstance that the deceased was sole governing director in whom was vested the full government and control of the company. Always assuming that the company was not a sham then the capacity of the company to make a contract with the deceased could not be impugned merely because the deceased was the agent of the company in its negotiation. The deceased might have made a firm contract to serve the company for a fixed period of years. If within such period he had retired from the office of governing director and other directors had been appointed his contract would not have been affected. The circumstance that in his capacity as a shareholder he could control the course of events would not in itself affect the validity of his contractual relationship with the company. When, therefore, it is said that "one of his first acts was to appoint himself the only pilot of the company," it must be recognised that the appointment was made by the company, and that it was none the less a valid appointment because it was the deceased himself who acted as the agent of the company in arranging it. In their Lordships' view it is a logical consequence of the decision in Salomon's case that one person may function in dual capacities. There is no reason, therefore, to deny the possibility of a contractual relationship being created as between the deceased and the company. If this stage is reached then their Lordships see no reason why the range of possible contractual relationships should not include a contract for services, and if the deceased as agent for the company could negotiate a contract for services as between the company and himself there is no reason why a contract of service could not also be negotiated. It is said that therein lies the difficulty, because it is said that the deceased could not both be under the duty of giving orders and also be under the duty of obeying them. But this approach does not give effect to the circumstance that it would be the company and not the deceased that would be giving the orders. Control would remain with the company whoever might be the agent of the company to exercise it. The fact that so long as the deceased continued to be governing director, with amplitude of powers, it would be for him to act as the agent of the company to give the orders does not alter the fact that the company and the deceased were two separate and distinct legal persons. If the deceased had a contract of service with the company then the company had a right of control. The manner of its exercise would not affect or diminish the right to its exercise. But the existence of a right to control cannot be denied if once the reality of the legal existence of the company is recognised. Just as the company and the deceased were separate legal entities so as to permit of contractual relations being established between them, so also were they separate legal entities so as to enable the company to give an order to the deceased ...

Appeal allowed