RESURRECTING MRS SALOMON · Salomon is in sharp contrast to the fragile legal personality possessed...

RESURRECTING MRS SALOMON

Peta Spender*

It was never intended that the company to be constituted should consist of onesubstantial person and six mere dummies.1

INTRO,DUCTION

The robust affirmation of separate corporate personality by the House of Lords inSalomon is in sharp contrast to the fragile legal personality possessed by Mrs Salomonin 1897. In corporate law discourse Salomon v Salomon & Co Ltd2 is portrayed as the firstcase about the "one person company". The case has given rise to considerable debateabout the recognition of corporate personality where the corporation is the alter ego ofa human person. In fact the portrayal of A. Salomon & Co Ltd as the alter ego of AronSalomon is misleading because the company was a family company. The subscribers tothe memorandum, described by Lopes LJ in the above quote as "six mere dummies"were Aron Salomon's wife and five children who were active participants in thecompany.

In this article I propose to revisit the Salomon decision and subsequent debate byfocussing upon one of the outsiders to the Salomon narrative, Aron Salomon's wifeMrs Schoontje Salomon. I will examine the legal personality of married women in 1897(exemplified by Mrs Salomon); trace the development of their legal personality from1897 and finally examine the effect of the development upon the family companytoday.

The article will proceed as follows: Part 1 will retrieve the context of the Salomonlitigation by examining the participation of the Salomon family in Part 1.1 and moregenerally Victorian family capitalism in Part 1.2. Part 1.3 discusses the characterisationof the family in the Salomon judgments and argues that the judges and subsequentcritics of the decision shared the representation of the family as "mere dummies" forthe following reasons:

1. The judges and critics have assumed a commonality of interests of familymembers which is subsumed in the interest of Aron Salomon as the family patriarch.This is an example of familial ideology where the family is assumed to share common

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BA LLB (NSW), LLM (Syd), Senior Lecturer, Faculty of Law, Australian NationalUniversity. The author wishes to thank Matthew Haslem who prepared the appendix andprovided research assistance, as well as Juliet Behrens, Robyn Carroll and ChristosMantziaris for their comments on earlier drafts. I claim maternity of all remaining errors.Broderip v Salomon [1895] 2 Ch 323 at 341 per Lopes LJ.[1897] AC 22.

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goals which supersede the egoistic goals of individual members. This reasoning leadsto the selection of Aron Solomon (and to a lesser extent the company) as the centralactor or legal subject.

2. In 1897 the legal personality of certain family members such as SchoontjeSalomon was so fragile that any rights or liabilities which they might claim or resistwere invisible to the courts which heard the dispute.

The remainder the article will explore wider themes which underpinned theconstruction of the dispute by the courts in the Salomon case. Part 2.1 looks at thegeneral nature of legal personality, which is defined as a jural construction consigningcertain rights and liabilities to specific individuals. Access to property is an importantelement of this jural construction. Family and kinship are ancient systems for theallocation of property whereas the corporation is a relative newcomer. Nevertheless,women needed to attain legal personality in order to assert rights within the allocativesystems established by both the family and corporations law. In Part 2.2, theattainment of married women's legal personality will be documented, moving from thelegal personality conferred upon Mrs Salomon in 18973 to that possessed by marriedwomen in New South Wales today.4 This development will be examined within theframework of self-ownership which constitutes the married woman as legal subject.5

Part 3 will consider the consequence of the transition which is documented in Part2.2. Married women are now constituted as legal subjects and may assert propertyrights within and against the family company. In particular, Part 3 will examine theeffect of this dev~lopmentupon the case law of the family company in two situations:where the "new" married woman seeks to extricate herself from the joint enterprise inPart 3.1 and where the joint enterprise is intact but a conflict arises between the familyand creditors for corporate assets in Part 3.2.

Part 4 examines the analytical tools which are applied to family companies toresolve conflicts between stakeholders. First it will be argued that the dominanttheoretical paradigm in corporations law (the nexus of contracts theory) cannotadequately explain the family company. An alternative paradigm based on dutybearing privileges is explored. This paradigm is demonstrated by the cases involving

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Due to space limitations, I will focus upon the legal personality of Mrs Salomon, althoughan analysis of the exclusion of the children's participation would make an importantindependent study. See, for example, M King and C Piper, How the Law Thinks AboutChildren (1990).Almost nothing is known of Mrs Salomon so it has been necessary to extrapolate some ofthe details of her life. This is a device which has been used in literature by authors such asTom Stoppard who borrowed two characters from Shakespeare's Hamlet in his playRosencrantz and Guildenstern are Dead and Jean Rhys who wrote of the early life of Berthefrom Jane Eyre in her book, The Wide Sargasso Sea. The extrapolation has allowed MrsSalomon to exemplify married women in the context of the family companies during theVictorian period and in the subsequent hundred years. She will therefore evolve acrosstime and move across space from England to New South Wales.Unfortunately the analysis does not allow consideration of the role of single womenbecause it gives rise to quite different legal considerations. However this would also be acompelling independent study. For example, Nenadic examines the relatively highincidence of female sibling firms which were formed in the dressmaking and millinerytrade between "spinster sisters" in Victorian England. See S Nenadic, "The Small FamilyFirm in Victorian Britain" in G Jones and M Rose (eds), Family Capitalism (1993) at 94-95.

1999 Resurrecting Mrs Salomon 219

the extension of the directorial duty to creditors and in certain circumstances to thefamily. Finally it will be observed that although conflict between creditors and thefamily for corporate assets has become more common, the analytical tools applied tothis conflict are obtuse. This is partly explicable by the confusion caused by the newlegal personality of married women and the dual axes of autonomy and relativitywhich it confers upon her as legal subject.

PART 1: 1897-THE CONTEXT

1.1 The Salomon familySchoontje Salomon was the wife of Aron Salomon and mother of his seven children. Inthe case reports of the Salomon litigation she is an enigmatic figure. She is notmentioned by name, unlike some of her sons. Her only noteworthy act was that ofsubscribing to the memorandum of A. Salomon & Co Ltd. Articles on the case over thelast 100 years reveal very little about her life although we can speculate a little basedon the information which is available about Aron Salomon.

Aron was born in 1837 or 1838 and came from Velbert in Prussia. He came toEngland in his early twenties, in the late 1850s, probably around 1859. There is a goodchance that Aron and Schoontje married in England because their first child was bornaround 1862.6 It was also around 1862 that Aron set up the family business. By 1873Schoontje had six children; Emanuel, 11 years; Salomon 9; David 7; Sophie 4; Moritz 2and Bertha 8 months who were all residing with her and Aron. Another son, Asher,was born later.7

The family's income was derived from an export and wholesale boot and shoemanufacturing business. Business was initially conducted under the firm name of "A.Salomon & Co" in Whitechapel. Beginning with little or no capital, the business hadgradually been built up into a thriving business, consisting of several factories.

In July 1892, when A. Salomon & Co Ltd was created and registered, Aron Salomonwas wealthy.8 The subscribers to the memorandum of the newly created companywere Aron and Schoontje Salomon, four sons and one daughter. The four sons wereaged 30, 28, 26 and 21 years old at this time and had worked continuously in thebusiness. The eldest son, Emanuel, had worked in the firm for nearly twenty years andwas "practically the manager".9 Aron's daughter was 23 years old, although it isunclear whether she was employed by the firm. Mrs Salomon had lent some of herown money to the company after the business started experiencing difficulties.10

The decision to incorporate the business was arrived at under pressure from thesons who wanted a share in the concern. Despite their continuous involvement in thebusiness, they were more like employees than partners and they were dissatisfied with

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I am assuming that the first child Emanuel was born soon after the marriage.G Rubin, "Aron Salomon and His Circle" in J Adams, Essays for Clive Schmittoff (1983) 99 at102.Lord Macnaghten estimated that if the business had been disposed of as a going concern in1892, at least £10,000 would have been received: [1897] AC at 48. However, by the time theHouse of Lords delivered its decision on 16 November 1896 Aron was a pauper.Ibid.Ibid at 49.


this arrangement. "They troubled me", said Aron, "all the while".11 Rubin described theconflict engendered by this intergenerational transfer of ownership as follows:

Aron was, through and through, a family man who could never reconcile himself to thedesire for independence ... evinced by his children. In effect he tied them too closely, andfor too long, to his own business activities.12

1.2 A description of Victorian family capitalismIn many respects A. Salomon & Co Ltd represents an archetypal form of business forVictorian England. Some commentators have argued that family firms were the modelsof desirable business organisation in the 19th century and were at the heart of Britisheconomic success, although the same firm subsequently became a drag on innovationand was one of the culprits responsible for undermining the British economy in the20th century.13 The sole entrepreneur was often re~arded in negative terms inVictorian England, as revealed by the fiction of the time. 4 By contrast the family:

provided the entrepreneur with one of the best available vehicles for reducing transactioncosts through improved "intermediation" on the basis of family reEutation ... and throughthe "internalisation" of markets within a network of family firms.1

The British economy in the 19th century was also characterised by a high mortality rateof firms and their constant replacement by others.16 Nenadic's study of family firms inBritain and Scotland between 1861 and 1891 indicates that the majority of these firmsrelied heavily on the family to provide capital, cheap and reliable labour, andpremises. The experiences of these firms were largely dictated by the experiences of theindividual owner and his or her immediate family because the business relied on closepersonal management and a high level of informal input from wives and children.17The majority of these firms had a short lifespan, generally one generation, due to ahighly competitive and unstable economic environment and the contingencies of dailylife such as illness. Chronic ill-health or death would often be catastrophic. Forexample, when Samuel Forrester, a law and general printer in Edinburgh, wassequestered for bankruptcy in 1865 after four years of trading, the principal causes offailure were found to be the costs incurred and the neglect arising from the illness andeventual death of Mrs Forrester.1S

In one respect, Salomon & Co Ltd differs from the typical Victorian family firm inthat it was larger than average.19 It engaged more employees than most family firmsand had several premises, but the family managed the business with no intervention

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171819

Ibid at 48.G Rubin, above n 7 at 101.A D Chandler Jr, Scale and Scope: The Dynamics ofIndustrial Capitalism (1990) at 14-46.For example, Charles Dickens' Little DoTTit.5 Nenadic, above n 5 at 89.P L Payne, "Family Business in Britain: An Historical and Analytical Survey" in A Okochiand 5 Yasuoka (eds), Family Business in the Era of Industrial Growth, cited in R Church, "TheFamily Firm in Industrial Capitalism: International Perspectives on Hypotheses andHistory" in G Jones and M Rose (eds), Family Capitalism, above n 5.5 Nenadic, above n 5 at 91.Ibid.5 Nenadic, ibid, gives the example of a Scottish firm of R M Cameron which had branchesin Glasgow and Edinburgh which was "larger than most". Upon sequestration in 1882, itsassets were valued at £3,715 and its liabilities were in excess of £7,000.

Resurrecting Mrs Salomon 221

by non-owning managers. Although we know that the sons worked in the business, wedo not know the full extent of the familial participation in the business.

1.3 Characterisations of the family in Salomon v Salomon & Co LtdThe Salomon judgments and subsequent commentary have been entirely predicatedupon the characterisation of A. Salomon & Co Ltd as a one person company. Forexample, Ford, Austin and Ramsay argue that the acceptance of the one personcompany by the House of Lords in Salomon reduced the associative element in thedefinition of a compan~ by not requiring a group of persons looking out for their ownindependent interests. 0 Scattered through the Salomon judgments are statementswhich clearly demonstrate that although the judges were presented with a groupwhich had fulfilled the statutory requirements to form a company under theCompanies Act 1862 (UK) they did not regard the group as possessing that associativeelement. At first instance, in the Court of Appeal and finally in the House of Lords, itwas assumed by the judges that no family member could hold an interest which wasindependent from Mr Salomon. No factual determinations were made about therelationships or interests or involvement in the company21 of the six so-called dummymembers. Consider the statements of judges in the Court of Appeal:Lopes LJ:

The Act contemplated the incorporation of seven independent bona fide members, whohad a mind and a will of their own, and were not mere puppets of an individual who,adopting the machinery of the Act, carried on his business in the same w~ as before,when he was a sole trader. To legalise such a transaction would be a scandal.

KayL]:The statutes were intended to allow seven or more persons bona fide associated for thepurpose of trade to limit their liability under certain conditions and to become acorporation. But they were not intended to legalise a pretended association for thepurpose of enabling an individual to carry on his own business with limited liability inthe name of a joint stock company.23

Each of these quotes underscores the interpretation of A. Salomon & Co Ltd as a oneperson company. Accordingly, the Court of Appeal found that the company was anagent or alias of Aron Salomon. There is no doubt that even a naive interpretation ofthe sale of business (which was effected with the incorporation) raises the question ofcreditor fraud, given that six shareholders in the company were each allotted one shareand Aron received 20,000. However, as Ville observes, care was taken in the House ofLords to establish that Salomon's business had a long prior history and was solvent atthe time of incorporation, which was designed to facilitate the inter-generational

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H A JFord, R P Austin and I M Ramsay, Ford's Principles ofCorporations Law (8th ed 1997) at104. Other examples of this characterisation are as follows: P Redmond, Companies andSecurities Law: Commentary and Materials (1992) at 165: "For many years Aron Salomon hadtraded on his own account" and R Tomasic and S Bottomley who punned: "For some 30years Aron Salomon had run a business as a leather merchant and boot manufacturer - hewas truly a 'sole' trader", Corporations Law in Australia (1995) at 34.Apart from the reference about Emanuel acting "practically as manager" by LordMacnaghten, above n 2 at 48.Broderip v Salomon [1895] 2 Ch 323 at 341.Ibid at 345.

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transfer of ownership.24 The House of Lords in a "literal"25 interpretation of therequirements for incorporation under the Companies Act 1862 (UK), overturned theCourt of Appeal decision and found that A. Salomon & Co Ltd conducted business inits own right and not as agent nor as trustee of its controller or controllers.

So why has Salomon I 5 case entered corporate law discourse as a case involving a"one person company"? There are several suggestions as to why the participation of thefamily has been overlooked or denied. The first pragmatic suggestion is that thepleadings of the plaintiff liquidator focussed on the alleged control of Aron Salomon.According to this argument, certain epistemologies are created for and by the courtsfor the purpose of resolving the dispute before them.26 However, this analysis issuperficial because it does not explain why certain epistemologies predominate. Amore convincing explanation is that the Salomon judgments and subsequentcommentary have effected a selective decontextualisation of the dispute. This hasallowed discourse based on the public element of the dispute to flourish whilstexcluding a description of its private substratum, that is, the set of participant relationswhich underlay the entity to which the law afforded personality.27

Prior to the Salomon decision there was a vigorous public debate about fulfilment ofthe seven members requirement in the statute. For example, Ireland quotes severalsources such as the Bramwell Committee (1886) and the Davey Committee (1895)which expressed concern about the use of "dummies" to make up the numbers.28 Thedummies were variously described as relations, clerks and children. So a transpositionoccurred as the active participants in A. Salomon & Co Ltd became mere dummies infurtherance of this public debate.

This transposition was aided by familial ideology and the legal construction ofAron Salomon as subject. Familial ideology constructs the family in a way whichassumes a commonality of interests of family members which is subsumed in theinterest of the patriarch. The family is assumed to share common goals whichsupersede the egoistic goals of individual members of the family.29

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5 Ville, "Judging Salomon: Corporate Personality and the Growth of British Capitalism in aComparative Perspective", this volume at 211.Paul Finn, Opening Remarks, this volume, at 173.As stated by Michael Bayles, "Principles for Legal Procedure" in D Galligan (ed), Procedure(1992) at 40: "Unlike pure science, the law does not aim at the truth, the whole truth andnothing but the truth. That would be too expensive and often irrelevant to the purpose ofdispute resolution".See generally, C Mantziaris, "The Dual View, Theory of Corporation and the AboriginalCorporation" this volume at 283.P W Ireland, "The Rise of the Limited Liability Company" (1984) 12 International Journal ofthe Sociology of Law 239 at 252. Ireland concludes that, despite the possibilities perceived bysome, it was neither intended nor anticipated that the 1856-62 Acts or the company legalform would be used by "private" partnerships or sole traders. McQueen in an articlepublished in this volume at 181 ("Life Without Salomon") challenges this interpretation.K O'Donovan, Family Law Matters, (1993) at 31. Familial ideology is commonly encounteredin modem judgements especially where there is a contest between the family and corporatecreditors. See for example, P Spender, "Family Companies and Women's ProprietaryEntitlements" (1997) Australian Journal of Family Law 196 (hereafter "Family Companies") at203-204 and P Spender, "Exploring the Corporations Law Using a Gender Analysis" (1996)3 Canberra Law RevietO 82.


The comments of Lord Macnaghten in the House of Lords are illustrative:In order to form a company limited by shares, the Act requires that a memorandum ofassociation should be signed by seven persons, who are each to take one share at least. Ifthose conditions are complied with, what can it matter whether the signatories arerelations or strangers? There is nothing in the Act requiring that the subscribers to thememorandum should be independent or unconnected, or that they or anyone of themshould take a substantial interest in the undertaking, or that they should have a mind andwill of their own.3D

Upon this construction the family is passive; either as a device for manipulating thelegislative requirements or as a mindless group which provided the numbers for thedelivery of separate legal personality to the corporation.

Similarly, the choice of Aron Salomon as legal subject excluded the consideration ofhis children and Schoontje Salomon. The exclusion of women from legal subjecthood isdescribed by Naffine as follows:

Consistently, women have been constructed in a fashion thought to reflect their naturalplace in the social order. Their traditional role is not as legal subject but as helpmate tothe man of law. Their place is not the competitive public terrain of law but the privatesphere of the home. Here their duties are to serve the domestic and emotional needs oftheir husbands, to assume responsibility for children, to provide love and stability, toleave the man of law nourished and free to pursue his own interest in the marketplace.31

The neglect of Mrs Salomon as legal subject in 1897 is correlated to her lack of legalpersonality. The next part of this article will explore legal personality in more detail.Part 2.1 will examine the general nature of legal personality and Part 2.2 documentsthe development of the married woman's legal personality, exemplified from time totime by Mrs Salomon.

PART 2: MRS SALOMON AND THE DEVELOPMENT OF THE LEGALPERSONALITY OF MARRIED WOMEN

2.1 The nature of legal personalityThe concept of "person" in legal discourse refers to an individual with legal attributes.In earlier history, the term was referable to the mask worn by Greek and Roman actorswhich represented the "type" or "character" appearing in the play.32 According toStoljar, the concept of legal personality merely indicates a person's ensemble of legalrights and duties.33 However, this ensemble of rights and duties signifies bothautonomy and relativity.

As it is taught in law schools, legal personality is monolithic. The analysis ofSalomon's case which is conventionally undertaken in company law coursesemphasises autonomy by focussing upon the "separateness" of corporate personalityrather than the content of that personality. When legal personality signifies autonomy

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[1897] AC 22 at 50-51.N Naffine, Law and the Sexes (1990) at 23.S Stoljar, Groups and Entitie, (1973) at 5; P W Duff, Personality in Roman Private Law (1938) at3.S Stoljar, ibid.


it encompasses powers of sovereignty. It also constitutes the civil citizen34 and morebroadly the legal subject.35

However the elements of legal personality differ from one subject to another andtherefore legal personality also signifies relativity. Sometimes relativity is manifestedin the rights conferred upon particular legal subjects.36 At other times the relativityrefers to legal incapacity, for example rights that must be exercised in a particular waydue to illness or incapacity in a human subject or due to agency relationships in acorporation.37 The concept will also shift across time for the same legal subject38 andwill give rise to epistemological questions about the autonomy conferred by aparticular legal personality within particular contexts.39

Consequently, the notion of the legal person is a jural construction which consignsdefined rights at particular times to specific individuals. Intertwined with this juralconstruction is the notion of property. Generally speaking in the social sciences"property" is based on the idea of "private ownership" which confers on the individualthe right to use and dispose. Property is therefore constructed as valued goods orobjects which can be transferred between legally constructed individuals.40 However,in law, an exploration of the term "property" reveals similar themes to legal

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N Fraser and L Gordon, "Civil Citizenship Against Social Citizenship" in B vanSteen~rgen(ed), The Condition ofCitizenship (1994) at 97-98.As stated by N Naffine "this rational autonomous instrumental self ... forms the publicsubject of Western law", in N Naffine, "Sexing the Subject (of Law)" in M Thornton (ed),Public and Private (1995) at 22.For example, human subjects may plead the privilege against self incrimination whereascorporations may not: Environmental Protection Authority v Caltex (1993) 178 CLR 477.Corporations Law: Part 2B.2.For example, the development of married women's personality which is discussed in Part2.2 of this article. For a history of corporate personality, see S Corcoran, "Does acorporation have a sex?" in N Naffine (ed), sexing the subject oflaw (1997) at 215-232.For example, some historians argue that women were relatively autonomous during theAnglo-Saxon period, enjoying many of the attributes of legal personality. S Berns argues:

While it could not be said that men and women were legally or socially equal in SaxonEngland, women apparently did possess significant rights, including the right to ownand dispose of property, the right to terminate a marriage by divorce and, at least insome cases, custody of the children should the marriage fail. Their legal personhoodremained essentially intact.

S Berns, "Women in English Legal History: Subject (almost), Object (irrevocably), Person(not quite)" (1993) 12 University of Tasmania Law Review 26 at 28-29. See also JMcNamaraand S Wemple, "Sanctity and Power: The Dual Pursuit of Medieval Women" inR Bridenthal and C Koonz (eds), Becoming Visible: Women in European History (1977) at 104;and C Fell, Women in Anglo-Saxon England (1984) at 89-90. Others argue that this view isexcessively optimistic and is dependent upon one's perception of the particular propertyrights involved. Muller points out:

It would be just as logical for ... historians to praise the development of the state forliberating men, who could as a result own private property and become wealthy,whereas in tribal society they couldn't really own anything as an individual.

V Muller, "The Formation of the State and the Oppression of Women: Some TheoreticalConsiderations and a Case Study in England and Wales" (1977) 9 Review of Radical PoliticalEconomy 18.R Hirshon, Women and Property-Women as Property (1984) at 2.


personality. Property is regarded as a means of asserting the autonomy of theindividua1.41 According to Reich:

Property draws a circle around the activities of each private individual... propertyperforms the function of maintaining independence, dignity ... by creating zones withinwhich the majority has to yield to the owner.42

In discussing this view, Davies proposes that the essence of property is the presence ofcontrol over a domain within which the sovereign or owner is supreme. 43

But relativity is also inherent in the notion of property. Gray defines property as apower-relation constituted by legally sanctioned control over access to the benefits ofexcludable resources.44 As a consequence, systems of allocating property have had aprofound effect upon the development of legal personality of particular subjects. Inrelation to married women, cross-cultural studies indicate that property as aconceptual category creates linkages through the public and domestic spheres by itsallocative mechanisms, particularly by marriage and inheritance.45 The regulation ofmarriage formation and dissolution, parental authority and the legitimacy of childrenhave also been closely related to property.46

In the next section I will discuss the development of married women's personalityover the last 100 years. This aspect of the discussion focuses upon the development ofautonomy. In Part 3 the relativity of the concept will be highlighted as contestsbetween the new married woman and the family company are played out. Throughoutthe analysis, the concept of property is ubiquitous but problematic due to theconvergence of the familial and corporate allocative systems in the family company.

2.2 The formation of the legal personality of married womenThe gap between the 1890s and 1990s can be bridged by documenting a dramatictransformation which occurred in that period: the development of legal personality ofmarried women. For the purpose of this narrative I will focus on Schoontje Salomon.As the Salomons were married prior to the passage of the Married Women's PropertyAct 1882 (UK), it is likely that an~ property which Mrs Salomon had broujht to themarriage or acquired before 18834 was subject to the doctrine of coverture. BecauseAron Salomon began his business around this time with "little or no capital", we canassume that Mrs Salomon did not have access to trust settlements to evade theoperation of coverture.

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N Naffine, "The Legal Structure of Self-Ownership: Or the Possessed Man and the WomanPossessed" (1998) 23 Journal ofLaw and Society 193 at 197.C Reich, "The New Property" (1964) 73 Yale Law Journal 733 at 771.M Davies, "Feminist Appropriations: Law Property and Personality" (1994) Social and LegalStudies 365 at 377.K Gray, "Property in Thin Air" (1991) Cambridge Law Journal 252 at 295.Inheritance is the transfer of property (either as a set of rights or as access to use) down thegenerations through time, while marriage payments (dowry and bridewealth) are thetransfer of property or wealth across kinship groups. See V Stolke, "Women's Labours: TheNaturalisation of Social Inequality and Women's Subordination" in KYoung, C Wolkowitzand R McCullagh (eds), OfMarriage and the Market (1981) at 5.M Glendon, The New Family and the New Property (1981) at 102-3.The Married Women's Property Act commenced operation in 1883.The doctrine of coverture is discussed in the text accompanying footnotes 52 and 53.

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The following configuration of the legal personality of married women is basedupon the concept of "self-ownership" used by Geddes and Lueck to describe thedevelopment of women's rights.49 They characterise the modem property rightsstructure to human beings as a system in which all adult agents are self-owners.50

"Women's rights" are defined as decision choices held by women vis-a-vis those heldby men; they can alternatively be viewed as the absence of gender-based restrictionson choices. Geddes and Lueck's view of the rights of women include the following:• common law rights which encompass rights to own property, to contract, tort rights

and the right to divorce at will• rights to bodily integrity where women have access to abortion and contraception,

can obtain custody of their children; where women possess these rights, rape bytheir husbands will be a criminal offence

• political rights where women can vote, hold office, attend jury duty and bemembers of the armed forces

• human capital rights where women can retain their own earnings, have access toeducation, enter the professions, unionise and enter the clergy.51

This configuration has a wide ambit but this ensemble of rights not only grants legalcapacity to married women to act as independent economic agents, it also mitigates thesubordination of their will to that of their husbands. The following analysis willcomment upon particular aspects of self-ownership which permit married women toassert claims against a corporation or its controllers. However, by focussing upon theseparticular rights, there is no suggestion that these rights are more important thanothers in the attainment of married women's agency.

The developments which have enabled married women to attain separate legalpersonality in New South Wales during the last one hundred years are tabled in theAppendix. The formation of legal personality is complex, so the milestonessummarised in the Appendix necessarily refer to developments prior to 1897.

PropertyAs stated above, Mrs Salomon would have been subject to the doctrine of coverture52

upon her marriage to Aron Salomon some years earlier. Under the law of coverture,marriage was regarded as effecting a unity benveen husband and wife. Therefore theproperty that a woman possessed or was entitled to at the time of her marriage andany property she acquired or became entitled to after her marriage came under herhusband's control. If a woman who had accepted a proposal of marriage sought todispose of any of her property without the consent of her future husband, thedisposition could be set aside as a legal fraud. Moreover, any will made by a singlewoman disposing of her property ,vas revoked by marriage and her testamentary

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R Geddes and D Lueck, "Self-Ownership and the Rights of Women", Unpublished Paperpresented at the ANU, 22 August 19%.Ibid at 3. The concept of self-ownership as applied to women has been subjected tocriticism. See, for example, N Naffine, above n 41, and Davies, above n 42. I accept thesecriticisms insofar as the term connotes autonomy for women.R Geddes and D Lueck, above n 49 at 12-13.S Staves, Married Women's Separate Property in England, 1660-1833 (1990) at 4.


capacity during marriage was severely limited. Finally, husband and wife could notmake a gift to each other after marriage.53

The Court of Chancery allowed the creation of a separate category of property, theso-called separate estate of married women. Although at law, married women couldnot own property, in equity property could be settled upon her for her use under themanagement of a trustee who was responsible to the court for the carrying out of theterms of the trust. The separate property created by the trust would be protected by theCourt of Chancery against a woman's husband and all other persons according to thewishes of the donor. This separate property in equity only existed during the woman'smarriage, for its existence was due to the need to protect it against her husband'scommon law rights.54 These settlements were only available to very privilegedwomen. As A V Dicey put it

There came ... to be ... one law for the rich and another for the poor. The daughters of therich enjoyed for the most part, the considerable protection of equi!$' the daughters of thepoor suffered under the severity and injustice of the common law.

It is highly unlikely that Mrs Salomon could have availed herself of such anarrangement.56

Up until 1833, women had access to property through the medium of dower.Dower was a settlement on the bride by her husband's descent group. Although dowerhad a long and rich history,57 by the time of its abolition, the common law rerognised awidow's right to a one third share in her husband's land holdings.58 Such a rightmitigated the effect of primogeniture, in which property was transmitted automaticallyupon the death of the father to the eldest son. Under the dower system, the widow'sright obtained whether or not a surviving child capable of inheriting the land had beenborn during the marriage, although during the marriage she could not alienate dowerproperty outside the family without the consent of her husband.59 The abolition ofdower fully entrenched coverture.

The doctrine of coverture was abolished by the Married Women's Property Act1882 (UK). Section 1 of the Act stated:

A married woman shall, in accordance with the provisions of this Act, be capable ofacquiring, holding, and disposing by will or otherwise, of any real or personal property,in the same manner as if she were a femme sole, without the intervention of any trustee.

The Married Women's Property Act 1882 (UK) applied to women who were married atthe time and to women who would subsequently marry. However, the Act did nothave a retrospective operation. Section 5 stated:

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L Holcombe, Wives and Property (1983) at 18.Ibid at 39.A V Dicey, Lectures on the Relation between Law and Public Opinion in England During theNineteenth Century (1920) at 383.The legal fees alone which were required to draw up a marriage settlement were generallyin excess of £100. According to one estimate such marriage settlements applied to only onetenth of the marriages in the UK at the time. L Holcombe, above n 53 at 46.M Murray, The Law of the Father? (1995) at 67 states that dowry was a product and aninstrument of stratification. It was used by families to restrict the likelihood of daughtersmarrying too far "down" or "out".L Holcombe, above n 53 at 21.M Murray, above n 57 at 64-66.


Every woman married before the commencement of this Act shall be entitled to have andto hold and to dispose of in manner aforesaid as her separate property all real andpersonal property, her title to which whether vested or contingent, and whether inpossession, reversion or remainder, shall accrue after the commencement of this Act,including any wages, earnings, money and property so gained or acquired by her asaforesaid, (emphasis added).

As discussed above, it is likely that any property which Mrs Salomon had bought tothe marriage or acquired before 1883 was subject to the doctrine of coverture. Acommentary to the 1882 Act indicated that:

[Section 5] does not affect any property which may have come to a married womanbefore 1st January 1883 and the question of whether such property is to be regarded asseparate will not depend in any way upon this Act, but must be decided as if this Act hadnot been passed.6O

Clearly, however, the Act did enable Mrs Salomon to contract and to sue in tort.Moreover she did regain the right to acquire and dispose of property; a right which sheprobably exercised with the loan to the company after 1892. However, married womenwere unable to sue their spouses until interspousal immunity was abolished inAustralia by s 119 of the Family Law Act 1975 (Cth). Moreover, although marriedwomen had the right to separate property conferred by the Married Women's PropertyAct, for most of the century that followed, ownership of property was establishedaccording to the name in which the assets were held. Although equitable doctrineswere developed to protect women in some cases (for example in disputes involving thematrimonial home) the practice of putting property in the names of both spouses(signalling joint ownership) is a relatively recent phenomenon.

DivorceBefore 1857 it was not possible to obtain an absolute divorce in England except byprivate Act of parliament. This procedure had been devised in the 17th century for thebenefit of aristocrats with unfaithful wives on the basis that female adultery wouldproduce "spurious issue" and thereby corrupt the inheritance of the large entailedestates.61 However, the private Acts were only granted about two or three times a yearand were very expensive to obtain.62 Although this dynastic concept of divorce wasbeing diluted by the 1850s as middle class men obtained divorces, "the crucial linkbetween adultery, legitimacy of children and property remained and ensured that theremedy was reserved for men".63 Golder and Kirkby state:

It was only in the later years of this system that parliament, perhaps softened byprevailing ideologies of femininity, was prepared to free a few women from husbandswho had compounded adultery with "unforgivable" acts like incest.64

In England pressure to reform the law led to the passage of the Divorce andMatrimonial Causes Act 1857 (UK) which established a court with power to grantabsolute divorces and judicial separation. The grounds for divorce displayed a distinctdouble standard in that a man could get a divorce merely by proof of the wife's

60616263

64

A MacMorran, The Married Woman's Property Act 1882 (1883) at 37-38.L Stone, The Road to Divorce: England 1530-1987 (1990) at 309-322.SParker, P Parkinson and J Behrens, Australian Family Law in Context (1994) at 86.H Golder and 0 Kirkby, "Marriage and divorce law before the Family Law Act 1975" ino Kirkby (ed), Sex, Power and Justice (1995) at 157.Ibid.


adultery. However, for a wife to get a divorce she had to show that the adultery wasaggravated by incest, bigamy, raE,e, sodomy, bestiality, cruelty or desertion for twoyears without reasonable excuse. 5 Judicial separation was available upon the singleground of adultery, cruelty or desertion. This remedy became known as the "woman'sremedy" because an officially separated woman could escape coverture. Uponseparation the married woman regained the right to sue in contract and could keepany money she subsequently obtained. The legislation also offered another muchcheaper remedy for a deserted wife who could apply to the local magistrate for anorder protecting her earnings against her husband and his creditors. So although thisremedy did not enable deserted women to remarry, at least they were able to supportthemselves by their own means.66

It was this regime which would have applied to Mrs Salomon in 1897, a regimewhich did little to avail women of independence if their relationships had brokendown. As regards the situation in the colonies, the new English Act was sent to eachAustralian governor with instructions to recommend legislation in each parliament.The new Act created great interest especially in Victoria and New South Wales wheredesertion had become a major problem as men left their wives to rush to thegoldfields.67 New South Wales had legislated in 1840 to enable deserted women to suetheir partners for maintenance but the measures were inadequate because of difficultyof enforcement. Moreover, the woman who supported herself had no defence againstthe prodigal husband who returned at intervals to take over her earnings.68 From 1881to 1892 in New South Wales and Victoria the grounds for divorce were extended fromthe restrictions which persisted under English law unti11923. Under the colonial Actsthe grounds for divorce were extended to "simple adultery" of the husband, habitualdrunkenness and assault. The extension was enthusiastically received by colonialwomen:

[T]he pattern was clear and similar in both communities: wives quickly took advantage ofdivorce extension and, although the unusually high proportion of female petitioners inthe 1890s levelled off in the new century, women were still responsible for the majority ofdivorce petitions.69

This state regime continued until the Commonwealth entered the matrimonial causesfield in 1959, with the Matrimonial Causes Act 1959 (Cth). The system was fault basedand reasonably restrictive until the Family Law Act 1975 (Cth) introduced no faultdivorce based on separation for one year.

CustodyThe nineteenth century laws concerning custody illustrate Glendon's thesis that thevery concept of legitimate birth is a function of the definition of legal marriage, whosesignificance varies in turn with the importance of property.70

65

6667686970

Divorce and Matrimonial Causes Act 1857 (UK) s 27, discussed in SParker, P Parkinsonand J Behrens, above n 62 at 87. See also, A Homes, "The Double Standard in EnglishDivorce Laws, 1857-1923" (1995) Law and Social Inquiry 601.H Golder and D Kirkby, above n 63 at 157-158.Ibid at 158.Ibid.Ibid at 161.M Glendon, above n 46 at 103.

230 Federal Law Revie-w Volume 27

In the mid-nineteenth century the courts decided disputes about custody ofchildren principally on the basis of parental rights. Technically, equity courts exercisedtheir custody jurisdiction on the basis of the welfare of children, but in practice equityfollowed the law.71 At common law, a father was the sole guardian, and therebyenjoyed the right to sole physical custody of his legitimate children. The common lawcourts would strictly uphold this right in proceedings bought by the father, evenagainst the child's mother. A mother on the other hand, had a right to custody only ofher illegitimate children, which could similarly be upheld by the writ of habeas corpus.

In 1839, the Infants Custody Act (UK) granted married women the right to bring anaction in equity for custody of children under the age of seven years, although noorder could be made in favour of a woman against whom adultery had beenestablished in judicial proceedings. In 1873, the age of the children was extended tosixteen years and the adultery bar was removed. However, the equity court stillexercised its discretion by reference to the wishes of the father alone. It was held in ReAgar-Ellis72 that the father alone should decide issues of custody or more broadly whatwas in the "best interests of the child" or "for the benefit of the child". Bowen LJ statedthat:

It is not the benefit of the infant as conceived by the court, but it must be the benefit of theinfant having regard to the natural law which points out that the father knows far betteras a rule what is good for his children than a court of justice can.73

The vigorous lobbying following this case led the English parliament in 1886 to passthe Guardianship of Infants Act (UK) which under section 5 required the court to haveregard to the welfare of the child and the wishes and conduct of both parents inmaking decisions about custody.

So by the time of the Salomon decision in 1897, Mrs Salomon had won the right toseek the custody of her children. However, her colonial sisters lagged behind in thisrespect.

The Infants Custody Act 1839 (UK) was adopted in New South Wales in 1854. In1894 the New South Wales parliament passed the Custody Act 1894 (NSW) which setout the grounds upon which a father's common law right to guardianship could be setaside. Women had to prove that the father had abandoned, deserted or neglected thechild in order to convince the court in its discretion to refuse to enforce his right ofcustody. Alternatively, the mother could prove that the child's tender age or state ofhealth rendered it expedient for the child to remain in the care of the mother.

It was not until 1934 that the equivalent to the Guardianship of Infants Act (UK)was passed in New South Wales. Although Dickey states that the spirit of s 5 of thatAct (which required the court to have regard to the welfare of children rather thanparental rights) was adopted by the local courts well before local legislation wasenacted to that effect, there was still considerable consternation about particularexercises of judicial discretion. For example, in 1924 the Supreme Court refusedcustody solely on the ground that the applicant was a working woman.74 Furtherlobbying took place in New South Wales after this case which culminated in the

71727374

A Dickey, Family Law (1990) at 319.(1883) 24 Ch 0 317Ibid at 337.Ellis, Supreme Court of NSW, Harvey J, 8 April 1924 unreported.


passage of the Guardianship of Infants Act 1934 (NSW) which mirrored the provisionsof the Imperial Act of 1886. By 1934, married women in both England and New SouthWales had equal standing to seek custody of their children, a right which is critical totheir willingness and capacity to act independently of their male spouse.

Therefore the legal personality of Mrs Salomon has evolved in the last 100 years.She can hold property, sue and contract in her own name, seek the custody of herchildren and legally extricate herself from a marriage with relative ease. In thefollowing section of this paper, I will examine the effect of this dramatic transformationin married women's legal agency upon the family company.

PART 3: THE "NEW" MARRIED WOMAN AND THE FAMILY COMPANY

Married women are now constituted as legal subjects and may assert prope~ty rightsagainst and within the family com~any. This development has created a separatestakeholder in the fa~ company. In Australia the typical family company is stillsmall and closely-held. 6 It has many of the characteristics of the Victorian familycompany, although clearly the uncertainty and disruption caused by illness and deathhas been alleviated by insurance. The family company still relies on significant inputfrom the family by its provision of cheap and reliable labour and capital.

This Part will examine the effect of the new stakeholder upon the case law of thefamily company. Sometimes that stakeholder is the woman herself when she seeks tosever the joint enterprise. At other times the stakeholder can be characterised as thefamily where the joint enterprise is still intact but a competition arises between thefamily and creditors, especially upon an insolvency. The latter dispute mirrors thecontest in Salomon itself and the former dispute demonstrates a consequence of therecognition of corporate personality in that case.77

3.1 Severing the joint enterprise-the married woman versus the corporation[A corporation] has neither body, parts or passions. It cannot bear weapons nor serve inwar. It can be neither loyal nor disloyal. It cannot compass treason. It can be neither

75

76

77

This assertion demands a definition of "stake" which includes nonshareholder interests. AsDallas states: "the transaction cost theorist measures stake in terms of asset specificity; theagency cost theorist in terms of the marginal product of the nonshareholder constituenciescontributing to the corporation and the power (or political) coalition theorist by thedependence of nonshareholder constituencies upon the corporation". See L Dallas,"Working Toward a New Paradigm" in L Mitchell (ed), Progressive Corporate Law (1995) at49.This conclusion is based on a survey of 5000 businesses commissioned by Price Waterhouseand the Commonwealth Bank, referred to in "Succession troubles ahead" (1995) 11 CompanyDirector No 6 at 20. The report found that 47% of the family businesses have 2 shareholders,32.6% have between 3 and 5, 9.2% have between 6 and 10 and the remaining 4.4% havemore than 10 shareholders, ranging from 11 to 7500. The report also found that familyowned businesses account for 83% of all businesses and employ approximately 50% of theprivate sector workforce. Of that 83%, 79.9% are private companies.The arguments raised in Part 3 are fully traversed in P Spender, "Family Companies" aboven29.

232 Federal LauJ Review Volume 27

friend nor enemy. Apart from its corporators, it can have neither thoughts, wishes, orintentions, for it has not mind other than the minds of the corporators.78

Where there is a dispute between members of a family company, there is a danger thatparticipation by the corporation as an entity in its own right will enhance or extend therights of controllers of the company. This problem arises squarely in the context ofproperty disputes consequent upon divorce because controllers may attempt to use thefamily company and/or trusts to manipulate their financial position.79

The Family Court's power to pierce the corporate veil arises generally under s 79 ofthe Family Law Act 1975 (Cth) because it has a wide discretion under that provision todecide whether an asset or liability forms part of the family property which will bedivided pursuant to a property settlement consequent upon divorce. The basic thrustof s 79 is that the Family Court can make orders in relation to property where it is justand equitable to do so, taking into account the factors listed in s 79(4).80 "Property" iswidely defined in s 4 of the Family Law Act to mean "property to which those partiesare, or that party is ... entitled whether in possession or reversion".

78

79

80

Continental Tyre and Rubber Co (GB) Ltd v Daimler Co Ltd [1915] 1 KB 893 at 916 per BuckleyLJ.This is a technique of some antiquity. Goodhart referred to the practice which arose in NewYork prior to the abolition of dower in 1930. The wife's entitlement to dower was oftencircumvented by the creation of one-man companies to hold real property belonging to thehusband. This enabled disposal of the husband's real property on the eve of the marriage.See A Goodhart, "On the Nature of Legal Persons" (1938) 44 Law Quarterly Review 494 at517.Section 79(4) of the Family Law Act 1975 (Cth) states as follows:(4) In considering what order (if any) should be made under this section in proceedingswith respect to any property of the parties to a marriage or either of them, the court shalltake into account:

(a) the financial contribution made directly or indirectly by or on behalf of a party to themarriage or a child of the marriage to the acquisition, conservation or improvement ofany of the property of the parties to the marriage or either of them, or otherwise inrelation to any of that last-mentioned property, whether or not that last-mentionedproperty has, since the making of the contribution, ceased to be the property of theparties to the marriage or either of them;(b) the contribution (other than a financial contribution) made directly or indirectly byor on behalf of a party to the marriage or a child of the marriage to the acquisition,conservation or improvement of any of the property of the parties to the marriage oreither of them, or otherwise in relation to any of that last-mentioned property, whetheror not that last-mentioned property has, since the making of the contribution, ceased tobe the property of the parties to the marriage or either of them;(c) the contribution made by a party to the marriage to the welfare of the familyconstituted by the parties to the marriage and any children of the marriage, includingany contribution made in the capacity of homemaker or parent;(d) the effect of any proposed order upon the earning capacity of either party to themarriage;(e) the matters referred to in subsection 75 (2) so far as they are relevant;(f) any other order made under this Act affecting a party to the marriage or a child ofthe marriage; and(g) any child support under the Child Support (Assessment) Act 1989 that a party to themarriage has provided, or is to provide, for a child of the marriage.


Where the title to domestic property is held or controlled by the male spouse,future rights of the wife to a division of property under s 79 will be readillJ defeated bythird party claims which must be determined before the division occurs. 1 Under s 85of the Family Law Act the Family Court can set aside instruments or dispositionswhich are made in order to defeat an existing or anticipated property order which islikely to defeat that order, regardless of the intention of the participants.

The problem is that the High Court has mandated that these powers must beexercised subject to the interests of third parties in the property; the family companyby virtue of its separate legal personality is treated as a third party. The claim of thefamily company often arises in tandem with a trust where the family company istrustee. The controller is a director of the trustee company. The High Court held inAscot Investments v Harper82 that the Family Law Act did not apply to third parties soas to alter their rights. Thus the Family Court was obliged to deal with the property ofthe parties to the marriage as it found it. If it should be held by a company, then therights and obligations of the company were fixed under the general law. In particularthe Family Court could not override the legal rights contained in the articles. The onlycircumstances in which the company's assets will be regarded as those of a party willbe if the company is a mere puppet or sham, so it is analogous to the tests under thecorporations law for piercing the corporate veil. Several recent cases indicate that theFamily Court has used this opportunity robustly to pierce the corporate veil.83 Thesturdy comments of Evatt CJ and Nygh J are an example:

It is not open to a party to assert on the one hand that the assets acquired in a family trustare not his and at the time deal with them as if they are. There is no doubt that for generalpurposes Mr Barry Stein considers the business known as Barry Stein Nissan to be his,whatever arrangement he may have made for taxation purposes. It is a regrettable factthat frequently spouses, usually husbands, come to this court asserting on the one handthat assets placed in the wife's name do not really belong to her but to the husband,having been placed there for taxation purposes, and asserting at the same time that assetsstanding in the name of a third party, such as a trustee, do not really belong to thehusband.

In our view, the company Bayarin Pty Ltd is a mere puppet of the husband. So far as theTrust is concerned, the husband has, since the interests of the Tomlin family were boughtout, the power to apply the income and property of the trust for his own benefit.84

Unhappily, preliminary determinations about what constitutes the pool of propertywhich may be divided by the Family Court are made by the commercial courts.85 If thefamily company is a third party, its property will not form the pool of family property,as discussed above. By comparison with the Family Court the approach of thecommercial courts to lifting the corporate veil has been tentative. The general approach

81

8283

8485

P Parkinson, "Property Rights and Third Party Creditors-The Scope and Limitations ofEquitable Doctrines" (1997) 11 Australian Journal Family Law 100.(1981) 33 ALR 631.In the Marriage of Turnbull (1991) FLC 92-258, Moran v Moran (1995) FLC 92-559, In theMarriage of Stein (1986) FLC 91-779, In the Marriage of Collins (1987) FLC 91-800, In theMarriage ofDavidson (1991) FLC 92-207.In the Marriage ofStein (1986) FLC 91-779 at 75,674.The term "commercial courts" is employed here to distinguish forums where the dispute islitigated as a corporate law dispute rather than a family dispute. The expression mainlyrefers to the State and Territory Supreme Courts and the Federal Court.

234 Federal Law RevieuJ Volume 27

is that the separate identity of the company must be upheld. In cases which comewithin particular categories, the veil will be lifted, for example if the company is usedto perpetrate fraud or an agency is found to exist,86 but there is no general principlewhich explains these categories. Perhaps as a consequence, the commercial courts tendto preserve se~arate personality even in the face of compelling reasons to lift thecorporate veil.

The case of R v Ross-Jones; Ex Parte Green88 illustrates the divergent approaches ofthe Family Court and the commercial courts. In that case the High Court commentedunfavourably upon the robust approach utilised by the Family Court. In the earliercase of In the Marriage of Harris; Re Banaco Ply Ltd (No. 2)89 the husband and wife hadseparated and the wife and children continued to live in the matrimonial home. Thishome was owned by a group of companies which were controlled by the husband'smother. After cohabitation ended, the companies sought to evict the wife and childrenand the wife applied for an injunction to restrain the eviction until her pendingapplication for maintenance could be heard. It was found by the Full Family Court thatthe Ascot Investments principle was mitigated where the third parties were not reallystrangers to the parties to the marriage, but were closely associated with them. By theprovision of accommodation during co-habitation, the companies had assumed aresponsibility to the family, and it was proper that the provision of accommodationcontinue until the maintenance proceedings concluded.90

On appeal to the High Court, it was held that no distinction can be drawn betweenthe position of third parties who are strangers to the married parties and those whohave some relationship or association with one of them.91 Gibbs CJ (with whom MasonJ agreed), considered that "[t]he judgments in ... Harris; Re Banaco Ply Ltd (No.2)should not be regarded as authoritative".92

Thus, Mrs Salomon now has a significant power to make claims on the assets of thefamily company. But she must contend with the privileging of corporate personality bycommercial courts.

3.2 The joint enterprise intact-competition between the family and creditors asstakeholdersIn the discussion of the Salomon case above, an important issue was thecharacterisation of the family by the judges who heard the case. Each judge had greatdifficulty in accepting that the group forming the company had been properlyconstituted by the family. Part of the reasoning behind this was that there were noindependent persons within the alliance which was to be badged with the new legalpersonality.

86

87

8889909192

Gilford Motor Co Ltd v Horne [1933] Ch 935; Smith, Stone & Knight Ltd v BirminghamCorporation [1939] 4 All ER 116.Briggs v James Hardie & Co Pty Ltd (1989) 7 ACLC 841; Walker v Wimborne (1976) 137 CLR 1;Industrial Equity v Blackburn (1977) 137 CLR 567.(1984) 156 CLR 185.(1981) FLC 91-100.A Dickey, above n 71 at 696.R v Ross-Jones; Ex Parte Green (1984) 156 CLR 185 at 202.Ibid at 203.


Current norms dictate that this reasoning is no longer valid and it is inappropriateto assume that there are no independent interests existing within the family company.However, there is still significant hesitation in judicial decision-making about allianceswithin the family company. I have characterised it elsewhere as the tension betweenthe norms of domestic harmony and business certainty. "Domestic harmony" refers tojudicial assumptions about the commonality of interests in spousal relationships.Where third party business interests are involved these assumptions make it difficultfor women to prove that their claim to the property is independent and not subsumedby that of their spouse. Judges may assume or suspect that the interests of the domesticparties are aligned where there is conflict with third party business interests.93

One facet of domestic harmony is the concern that the family is acting as the cacheof corporate assets, unjustly diverting them away from creditors. Ironically, theattainment of legal personality by married women has provided a further means toachieve this diversion because under the doctrine of coverture it was not possible for amarried woman to be the transferee of property or the recipient of gifts.

Despite these impediments, some recent cases have shown a judicial receptivity toclaims emanating from the family.94 As yet, there is no unifying doctrine whichexplains the circumstances in which the family claim will be upheld. Nevertheless thecases do demonstrate that the family does have a stake in the family company. Thequestion is how will the law accommodate the enhanced bargaining of the familyrelative to creditors?95 Attempting to answer this question leads to furtherreconsideration of the juristic relationships which exist within the family company andthe extent to which they can be accommodated into theories of the corporation.

PART 4: THE FAMILY COMPANY AND MODERN CORPORATE LAWTHEORY

The nexus of contracts theoryIn exploring the substratum of the family company the major question which arises iswhether the presence of the family qualifies either the legal category of "corporation"or the theories of the corporation. The dominant theory of the corporation in the 1990sis that it is a nexus of contracts. This analysis regards the corporation as a standard setof terms which are provided by the state in order to reduce the costs of administering a

9394

95

P Spender, "Family Companies", above n 29 at 203.In this context I am referring to claims emanating from the family as an independentstakeholder rather than claims made by the married woman. See, for example, BNZ v Fiberi(1994) 12 ACLC 48; Hannes v MJH Ply Ltd (1992) 10 ACLC 400; Andco Nominees v Lestato PlyLtd (1995) 13 ACLC 823; Standard Chartered Bank ofAustralia v Antico (1995) 13 ACLC 1381 at1473.This situation generally arises upon a corporate insolvency, but the same policy questionemerge in relation to bankruptcy. See A Dickey, "A Question of Priorities: Wives orUnsecured Creditors?" (1992) 6 Australian Journal of Family Law 229, and JusticeLindenmayer's paper bearing the same name, "A Question of Priorities: ~ives orUnsecured Creditors?" (1992) 6 Australian Journal of Family Law 239; J Lindenmayer andP Doolan, "When Bankruptcy and Family Law Collide" (1994) 8 Australian Journal of FamilyLaw 111.

236 Federal Law RevieuJ Volume 27

web of ongoing contracts between corporate participants.96 Although the nexus ofcontracts theory might readily explain property allocations made by contract in thefamily company qua company there is considerable doubt whether familial propertyallocations made within the family company might similarly be analysed.

In his investigation of legal groups, Stoljar argued that the small or nuclear family isthe great instance of a non-corporate yet eminently legal group. He observed that thefamily exists as both a natural group by virtue of the voluntary association of theparents and the bonds of affection that unite its members in a home. But the family isalso a discrete economic unit because its members generally live together and shareresources such as food and shelter. Stoljar considered that the law of status makes thefamily into a strong and cohesive group because the legal incidents of the familycannot be altered; they must endure as long as the members occupy a certain status,such as "parent", "spouse" or "child".97 However, the legal incidents of familialrelationships have a residual character because it is only where these bonds breakdown that an~ help is required from status rules to enforce the family's economicrequirements. 8

The description of the rules which delimit the legal category of the family as "statusrules" may be obtuse. Nevertheless the term may be used to distinguish familyrelationships from contractual relationships where the parties negotiate terms. Twoimmediate problems arise when the "nexus of contracts" analysis is applied to thefamily company. The first problem is the feasibility of characterising the major alliancein a family-a marriage-as a contract. Posner observes:

despite the economic resemblance between marriage and business partnership, themarital relationship is not ... an unalloyed example of free market principles.99

Posner indicates that there are certain features of marriage which "seem at once oddand incompatible with one another" which mark off marriage law from contract law.Some of the features discussed by Posner apply to Australian marriage. For examplethe sanction for breach of a marriage contract is more severe than a commercialcontract because a spouse might be obliged to continue to support the other for anextended period. 100

The second problem about the "nexus of contracts" analysis is the operation ofaltruism in families. The nexus of contracts theory assumes that contracting parties willbehave according to self-interest. As Nenadic notes:

96 This concept has its origins in R Coase, "The Nature of the Firm" (1937) 4 Economica 386 andwas elaborated by M Jensen and W Meckling, "Theory of the Firm: Managerial Behaviour,Agency Costs and Ownership Structure" (1976) 3 Journal ofFinancial Economics 305.

97 S Stoljar, above n 32 at 11.98 Ibid.99 R Posner, Economic Analysis ofLaw (1986) at 130.100 Ibid.


Other than religion, the family is the only institution in common existence that operatesaccording to rules that are non-market defined. As a system of governance, the familywill conventionally place a high value on loyalty, trust and altruism. There are finelybalanced systems of incentive and reward, and careful monitoring of behaviour withinthe family and relative to outsiders.101

Selfishness in market transactions has been assumed since Adam Smith stated that "itis not from the benevolence of the butcher, brewer, or the baker, that we expect ourdinner, but from regard to their own self-interest."102 By contrast, altruism is generallyrecognised to be important within a family. Becker argues that altruism is less efficientin the market place and more efficient in the familyI03 and develops the Rotten KidTheorem to explain how selfish members of a family are induced to act as if they werealtruistic.104 According to this theorem, selfish members of a family are induced by theautomatic responses of the altruistic members to incorporate the interests of altruisticmembers into their behaviour. Otherwise selfish members would be harmed by selfishbehaviour, because the time and other resources spent on them by altruistic memberswould be reduced.

One danger of using the nexus of contract model in relation to family companies isthat we can never be sure whether it reflects the intentions of the corporators, but agraver danger is that the model assumes voluntarism between participants. Thepresence of voluntarism within an altruistic association can create paradoxes. But thepresence of altruism also raises the question of duties which will be discussed next.

The duty bearing privileges theoryThe modern family company, like any species of corporation in Australia, has the dualprivileges of limited liability and favourable tax treatment. However, it also continuesto enjoy cheap labour and capital provided by the family.

According to Drahos, instrumental privileges are linked to instrumental duties. Ifthe purpose in creating the privilege is to fulfil some approved goal then it should alsofollow that the privilege holder is subject to duties not to exercise the privilege in away which defeats the purpose for which the privilege was granted in the first place.Drahos states:

The intuitive idea is that the holder of power has that power limited in ways that areconsistent with the object for which that power was given.... The duties exist as a meansto promote the satisfaction of the goal that is the target of the privilege.l05

The decision in Salomon was pivotal in shifting the risk of business failure to creditorsby approving limited liability of the private company.106 Nevertheless since thedecision, in many varied and subtle ways, the law has begun a rescue process andimposed many duties upon corporators to deflect the impact of limited liability upon

101102103104105106

S Nenadic, above n 5 at 89.A Smith, An Inquiry into the Nature and Causes of the Wealth ofNations (1937) at 14.G Becker, A Treatise on the Family (1991) at 277.Ibid at 344.P Drahos, A Philosophy ofIntellectual Property (1996) at 220-221.P W Ireland, above n 28 at 255; J Ziegel, "Creditors as Corporate Stakeholders: The QuietRevolution-an Anglo-Canadian Perspective" (1993) 43 University of Toronto Law Journal511 at 512.


creditors.l07 One example is the extension of the fiduciary duty of directors to creditorswhere the company is insolvent or nearly insolvent.lOS Thus using the Drahos analysis,the privilege of limited liability ,conferred upon the corporators is subject to the dutynot to defeat the interests of creditors.

There is no general duty for directors of a family company to act in the interests ofthe family. Nevertheless, there have been similar extensions to the directorial fiduciaryduty which benefit the family. One important example is the decision in Coleman vMyerslO9 which has been cited as authority for the proposition that directors can insome circumstances owe a duty to individual shareholders, but equally bears aninterpretation that the duty was owed to the family. Consider the language of two ofthe judges in the New Zealand Court of Appeal. First, Casey J:

I have no doubt that in this tightly-held family company, both directors owed a fiduciaryduty to the appellants and to the other shareholders. It must have been clear to Mr ADMyers particularly that they were reposing trust and confidence in him. ... I have nodoubt that Sir Kenneth Myers was in everyone's eyes the head of the family group ... whothey respected and trusted to look after their personal interests in the management of thecompany.110

Then Cooke J:Broadly, the facts giving rise to the duty are the family character of this company; thepositions of father and son in the company and in the family; their high degree of insideknowledge; the way in which they went about the takeover and the persuasion of theshareholders.111

There have been two recent decisions of the New South Wales Supreme Court whichagain used the "duty owed to individual shareholder" rationale.112

Although it may be argued that the notion of duty bearing privilege is in thesubtext of these decisions, these considerations only scratch the surface of the widerproblem caused by conflict between creditors and the family for corporate assets. Thisconflict has become more common over the last 100 years and despite the best effortsof the legislature and the courts the analytical tools applied to this conflict are obtuse.This is partIy explicable by the confusion caused by the new legal personality ofmarried women and the dual axes of autonomy and relativity (or dependence) which itconfers upon her as legal subject.

The autonomy axis is illustrated by the English case of WinJaoorth v Edward BaronDevelopment Co Ltd.113 In that case the husband and wife were directors of a company

107lOS

109110111112

113

JZiegel, ibid at 103.Walker v Wimborne (1976) 137 CLR 1; Kinsela v Russell Kinsela (1986) 4 NSWLR 722; Nicholsonv Permakraft (NZ) Ltd (1985) 3 ACLC 453.[1977] 2 NZLR 225.Ibid at 371.Ibid at 330.In Glavanics v Brunninghausen (1996) 19 ACSR 204, Bryson Jfound that a director may owea fiduciary duty directly to an individual shareholder where the director is buying orselling shares to that shareholder. His Honour held that this result was based upon lithefundamental ethical rules of right and wrong" (at 219). In Mesenberg v Cord IndustrialRecruiters Ply Ltd (1996) 14 ACLC 519, Young J found that the Glavanics case had shownthat where a two-person quasi-partnership company was in its death throes, its directorsowed duties to each other as well as to the company.[1987] 1 All ER 114.


which owned the family home. The company's bank account was overdrawn by £8,000.Some months later, without the wife's knowledge or consent the husband caused thecompany to mortgage the property to the appellant by forging the wife's signature.When the company became insolvent the wife claimed an equitable interest in thehome which took priority to that of the appellant. It was held by the House of Lordsthat the company owed a duty to its creditors, past and present. The husband wasclearly responsible for the insolvency of the company but because the wife had notexercised her powers as director properly, equity would not allow the company tohold part of its property on trust for the wife to the detriment of creditors. This is ableak case, relying on the same fictitious consent and spurious standards of conductwhich were the hallmarks of the Australian passive directors cases.114

The relativity axis is illustrated by the recent decision of Garcia v National Bank ofAustralial15 where the High Court relied upon the principle in Yerkey v Jonesl16 to findthat Ms Garcia, who was a director of the family company and had voluntarily signeda guarantee should not have to honour it because she did not understand what she wassigning. The majority judgment was at pains to explain that the rationale of Yerkey wasnot to be found in notions based on the subservience or inferior economic position ofwomen, rather the trust and confidence that they repose in their husbands.117

However, one newspaper reported:For the present at least, Australian women in 1998 are, apparently, as financially naiveand as susceptible to emotional pressure from their husbands as they were when theHigh Court handed down its decision in Yerkey v Jones in 1939. Undoubtedly this is truein many families. But equally it must be seen as nonsense in many others.118

Arguably the Winkworth formulation of married women's legal personality relied tooheavily on autonomy whereas Garcia relied too heavily on relativity and dependence.However, the challenge in devising analytical tools to deal with disputes betweenstakeholders in the family company is to develop a coherent body of doctrine which isnot ad hoc nor essentialist.119 The autonomy and relativity axes of legal personality areinescapable once essentialism is rejected. Most importantly there must be a recognitionthat reformulation of legal personality within the family company is symbiotic, so thatshifts in the nature of the legal personality of married women will impinge upon thecorporate personality. As stated by Corcoran:

As our understanding of human personality deepens, our legal definitions of corporatepersonality have undergone subtle but important shifts.120

114

115116117118119

120

For example Metal Manufacturers Ltd v Lewis (1986) 4 ACLC 739; Statewide Tobacco Services vMorley (1990) 2 ACSR 405; Group Four Industries v Brosnan (1991) 9 ACLC 1181. For furtherdiscussion, see JDodds Streeton, "Feminist Perspectives on the Law of Insolvency", AspectsofReal Property and Insolvency Law, Adelaide Law Review, Research Paper No 6 (1994).[1998] HCA 48 (6 August 1998)(1939) 63 CLR 649.[1998] HCA 48 (6 August 1998) at paras 20-22.R Campbell, "Women can still trust their husbands", Canberra Times 12 August 1998 at 11.Essentialism in feminist writing refers to the view that females (or males) have an essentialnature (eg nurturing and caring versus aggressive and seHish) as opposed to differing by avariety of features bought about by social forces. Essentialism has also influenced corporatelaw theory: see C Mantziaris above n 27 at 285-289.S Corcoran, above n 38 at 218.

240

CONCLUSION

Federal Law Review Volume 27

The case of Salomon v Salomon & Co Ltd was the first significant recognition by the lawof a company owned by a family. Yet the participation of the family was ignored. AronSalomon was identified as the only human legal subject and the issue for considerationby the Court of Appeal, House of Lords and one hundred years of legal scholars waswhether legal personality could be conferred upon the "one person company".

The reasoning of the courts in the Salomon litigation was aided by certainconstructions of the family, in particular familial ideology which posits that theinterests of the family are coextensive with its patriarch. Moreover, the lack of legalpersonality of Mrs Salomon allowed the court to define the corporate stakeholdersnarrowly.

During the last 100 years there has been a dramatic shift in that Mrs Salomon hasgained legal personality and can claim corporate assets. Her capacity to do so is stilldependent upon the countervailing strength of corporate personality. However, theissue which remains is the confusion in corporate law about the nature of theassociation in the family. This confusion may have intensified as courts attempt toreconcile autonomy and dependence in the legal personality of married women.

Although Mrs Salomon has emerged from the role of "mere dummy", she willcontinue to confound and annoy corporate lawyers, but at least now she cannot beignored.


APPENDIX

Development of married women's rights by category in New South Wales-1788 topresent.

Common Law Rights:Own property No No Yes Yes Yes Yes YesContract No No No Yes Yes Yes YesTort No No No Yes Yes Yes YesDivorce at Will No No No No No Yes YesRights to Bodily Integrity:Rape by Husband a No No No No No No YesCrime

Abortion NoAccess to Contraception NoChild Custody NoPolitical Rights:Vote No No No Yes YesHold Office No No No Yes YesJury Duty No No No No NoArmed Service No No No No NoHuman Capital Rights:Own Earnings No NoEqual Pay No NoUniversity Education No NoEnter Professions No NoEnter Clergy No No

Key to Historical Periods1788 = Colonisation and Early Settlement1820 =1860 Wool and Gold1860 =1900 Colonial Self-Government and the New Society1901 =1920 Early Federation of the Commonwealth1920 =1939 Inter War Period1940 =1980 WWII and Post War Period

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RESURRECTING MRS SALOMON · Salomon is in sharp contrast to the fragile legal personality possessed...

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