Lee v Lee's Air Farming Ltd

Facts

Geoffrey Lee formed an aerial crop-spraying company in which he held all but one of the shares and was sole governing director, while also employed as its chief and only pilot at a salary. He was killed in a flying accident in the course of the company's business, and his widow claimed compensation as the dependant of a 'worker' under the Workers' Compensation Act. The insurer resisted, arguing Lee could not be a servant of a company he wholly controlled.

Issues

• Whether a person who is the sole effective owner and governing director of a company can also be a 'worker' or employee of that same company.
• Whether the company and Lee were so identified that no genuine employer-employee contract could exist between them.

Arguments

The insurer argued that as sole shareholder and governing director Lee was in substance the company itself, so he could not give orders to and take orders from himself, and there was no master-servant relationship. The widow argued the company was a distinct legal person under Salomon, fully capable of employing Lee, so he was a worker entitled to compensation.

Held

The Privy Council held for the widow, applying Salomon. The company was a separate legal entity distinct from Lee, and there was no logical impossibility in Lee acting in one capacity as the company's controlling agent giving instructions and in another capacity as its employee receiving them. A valid contract of service could and did exist between the company and Lee, so he was a 'worker' within the Act. The fact that Lee controlled the company did not erase the distinct personalities of company and man.

Ratio decidendi

Because a company is a legal person separate from its members, it can enter into a binding contract of employment with a person who is also its controlling shareholder and director; the two capacities are distinct in law.

Significance

A leading reinforcement and practical extension of Salomon, frequently cited to show the rigour with which separate personality is respected even for one-person-controlled companies; widely relied on in Indian and Commonwealth company-law texts and judgments.

Related