clr/1987/1987_3_1057.pdf

(8)— Cars hired withoutadriver—The said section provides for thelifting oftheveilofalegal entityfor aspecified purpose, butoncetheveilisso lifted, thereisnothingto preventtheorgan concernedfrom looking attherealities ofthe situation Administrative Law — General pnnciples — Hierarchical recourse provided by statute—Powers of theorgan dealing with sucharecourse— Itcantakeany decision thatthesubordinate body could reasonably take—Test applicable mordertodeterminethevalidity of theexercise of thediscretion of theorgan dealing withsuch ahierarchical recourse The appellant Minister dismissed respondents' hierarchical recourse against therefusal oftheLicensing Authonty togranttothemlicencesfor cars hired without a dnver (Z cars),on the ground that both respondents «are related with KEMTAXILTDtowhich 8«Z»licences have been granted after thepartialacceptanceof itsrecourse underNo 24/67/2427» As aresult the respondents filed arecourse for annulment and aJudge of thisCourtannulledtheaforesaid decision oftheMinisteron theground that theveilofIncorporationofthe Companiesconcernedwas wrongly lifted 20 Hencethisappeal. Held,allowingthe appeal

(1)TheruleInSalomonν Salomon[1897]AC 22 is not absolute, butItis subject to exceptions The separateness ofa companyfromitsshareholders was emphasized by thisCourtIn Michaetkies v.Cavrlelides{1980) 1C LR 244, but.asithasbeen heldin 8dwAo/Cyprus 1057

(1987)Republicv. KEMTAXI LTD (Holdings) Ltd ν TheRepublic

(1985)3 CLR 1883,inapropercasethere may be exceptions totherule inSalomon case InSiraia Tours Ltd ν The Republic

(1985)3 C LR 2560 a case identical with the present case it was heldthatsection5

(8)ofLaw9/82liftstheveilofincorporationforthepurpose of ascertainingthegoodcharacterof the«persons having theresponsibility of the enterpnse of such legal entity», but once the veil is lifted for the said purpose,theretsnothingtopreventtheauthontyfromexaminingtherealities behindtheveilofincorporation

(2)Inthelightofthecaselaw theappellantinthiscasewas entitledtopierce theveil of incorporationandexamine the«realities of thesituation» 5 10

(3)Anadministrative organ entrustedtodealwithahierarchicalrecourseis entitledtotakeany decision thatthesubordinatebody couldreasonably take in the first instance (Tsouhftas ν The Republic

(1983)3 C L R 426 approved) Thetest by which thisCourt as an administrative Court, Judges the decisionsof such anorganiswhether,inviewof theprovisions ofthelaw 1 5 and the matenalbefore it,itwas reasonably open toittotake thedecision it took Appealallowed Noorder as tocosts 20 Casesreferredto Salomon ν Salomon [1897) AC 22, Merchandise Transport Ltd ν BnOshTransport Commission [1962] 2 Q B 173, DHN ν London Boroughof Tower Hamlets (1976] 3 All ΕR 462, Michaehdes ν Gavnehdes

(1980)1CLR 244, 25 Bank of Cyprus (Holdings)ν TheRepublic

(1985)3 CLR 1883, Strata ToursUmited ν TheRepublic

(1985)3 C L R 2560, Tsouloftasv The/?epub/jc

(1983)3CLR 426, Georghiadesv TheRepublic

(1982)3 C LR 16, Araouzosv TheffepuWic

(1968)3C LR 287 Appeal. Appealagainstthejudgmentof aJudge oftheSupreme Court ofCyprus(Sawides, J) given onthe28thApnl,1986(Revisional 1058 30 3 C.L.R. Republicv.KEMTAXILTD Jurisdiction Case No. 476/83)* whereby the decision of the appellant given on a hierarchical recourseto him from a decision of the Licensing Authority by virtue of which applicants were refused the granting of licences to own and manage «Z» cars was 5 annulled. M. Tsiappa(Mrs.), forthe appellant. L Papaphilippou, forthe respondent. Cur.adv. vult. A.LOIZOUJ.:Thejudgment of thisCourtwillbe delivered by 10 Loris,J. LORISJ.: The present appeal isdirected against the judgment of a Judge of this Court annulling the decision of the Ministerof Communications and Works dated 14.9.83 given on a hierarchical recourse to him from a decision of the Licensing 15 Authority whereby applicants were refused the granting of licencestoownand managecars(hiredwithoutdriver)commonly known as«Z»cars. The main ground of appeal revolves on the issue of lifting the veilof a corporation. Itistrue thatinSalomon v.Salomon [1897) 20 A.C.22itwaslaiddown thata limited company isa legalentity, separate and distinct from itsshareholders. InEngland, Courtslikethe Legislature,haverefused totreatthe principle of separateness of a company from itsshareholders as absolute. Exceptions have been recognised although going 25 through the authorities itisdifficult togroup them as referable to anydistinct exceptional rule. The topic is expounded at length in Palmer's Company Law 22nd ed. at pp 160-163 and in Gower's Modem Company Law 3rd ed. atpages 189-217. 30 Summing uptheposition withrespectto«liftingtheveil»under express statutory provisions, Gower's Modem Company Law (supra)atp.200statesthefollowing:«Itwilltherefore beseen that ina number of important respectsthe legislature hasrenttheveil woven bytheSalomon case.Particularlyisthissointhesphereof 35 taxation and in the steps which have been taken towards the recognition of enterprise-entity ratherthan corporate entity....» •Reportedin

(1986)3CLR.703 1059 A.LolzoaJ. Republicv.KEMTAXILTD

(1987)Dealing with judicial interpretation of the same subject Palmer's Company Law (supra) lists down briefly instances in which modem company law disregards the principle that the company isan independent legal entity.Atpage 162underserial No. 9 the following arestated inter alia:«TheCourtshave further 5 shown themselves willing to 'lift the veil' where the device of incorporation is used for some illegal or improper-purpose. So, where a transport company sought to obtain licences for its vehicles, which itwas unlikelyto obtain ifitmade application on its own behalf, by causing the application to be made by a 10 subsidiary company towhich the vehicleswere tobe transferred, the court refused to treat parent and subsidiary as independent bodies, and decided the application on the basis that they were one commercial unit (Merchandise Transport Ltd., v. British TransportCommission [1962]2Q.B. 173). 15 Itwas stressed in the aforesaid case of Merchandise Transport Ltd., v. British TransportCommission (Supra)at pp 206 and 207 ofthereport,that«wherethecharacterofacompany,orthenature ofthepersonswhocontrolit,isarelevantfeature thecourtwillgo behind the mere statusof the company as a legal entity, and will 20 consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doinganything withouthuman assistance.» The above dicta were cited verbatim with approval inthe case of DHN v. London Borough of Tower Hamlets [1976]3 AllE.R. 25 462atp.469whereitwasheldthat«theCourtwasentitledtolook attherealitiesof thesituation and topiercethecorporateveil». The position in Cyprus as regards the lifting of the veil of corporation may be summed up as follows: The separateness of the company from its shareholders was emphasized by our Supreme Court inthecaseof Michaelidesv.Gavrielides

(1980)1 C.L.R. 244 (Rent Control Case), whereby it was stressed that a limited company is a legal entity separate and distinct from its shareholders affirming thusthe principle laid down in Salomon's case(Supra). Intherecent caseofBank ofCyprus (Holdings)v.The Republic

(1985)3C.L.R. 1883,decidedbytheFullBenchofthisCourt,the following are stated at page 1889: «The case of Michaelides v. Gavrielides

(1980)1C.L.R. 244,a rentcontrolcase,left no room forliftingtheveilofcorporation under anycircumstances.Weare 40 1060 3C L R . Republicv. KEMTAXILTD A.LolzooJ. of theview thatnotwithstanding what was stated in Michaelides case, in a proper case there may be exceptions to the .rule in Salomon case.» InStrata Tours Limited v. TheRepublic

(1985)3 C.L.R. 2560, 5 an identical case to the one under present appeal, I had the opportunity tostate the following: 10 15 20 «Itisabundantly clearfrom thewording ofsub-section 8,set out above, thatwhen the applicant for a licence to own and manage «car hired without a driver»is a legal entity -andthe applicant inthe present recourse being a Company Ltd.,isa legal entity «τα έχοντα την ευθύνην των επιχειρήσεων τούτου π ρ ό σ ω π α »(thepersons having theresponsibility of the enterprise of such legal entity) must satisfy the Licensing Authority that they are of good character on the basis of a certificate issued by the Chief of Police wherein it will be certified thattheywere notconvicted for thelasttwo years for anyone of the offences referred toinsub-section

(8)of s. 5of Law 9/82. Having given to this sub-section my best consideration,I hold the view that its wording tantamount^to substantially 'lifting the veil' of the company at least for the purpose of ascertaining the good character of the persons having the responsibility of the enterprise of such legal entity.'» But once the veil isbeing lifted for the above purpose, there is 25 nothing to prevent the appropriate Authority from examining whether the applicant company and KEM TAXI LTD were in substance and in fact «one commercial unit» and whether the device of incorporationwas being used for the improper purpose -tosay theleast - of acquiring morelicences forself driven carsin 30 view of the fact the KEM TAXILtdhad already 95 such licences. (Merchandise Transport Ltd. v. British Transport Commission [1962] 2 Q.B. 173 atp. 206 and 207). The wording of s. 5

(8)coupled with thespecial facts pertaining to this case, render, in my view, the case under consideration, a 35 proper case tobe treatedas an exception totherule inSalomon's case (supra). Reverting now tothefacts of thecase underthepresent appeal: the respondents in thisappeal, filed hierarchical recourses tothe Minister of Communications and Works in accordance with the 1061 A.LolzonJ. Republicv.KEMTAXILTD

(1987)provisions of the lawapplicable atthe time.The saidrecoursesof bothrespondentsaswellasthehierarchicalrecourseofKEMTAXI Ltd., were heard togetherbythe Ministeron the 25th April1983. At the hearing of the recourse aforesaid, Mr. L. Markides appeared onbehalf ofallapplicantsandgaveevidenceinsupport 5 ofallthehierarchical recoursesstatinginteraliathatthe applicants requiredthelicencesforself-drive carsfortourists,clarifying atthe same timethatthe needsoftheapplicantsinthisconnection were «presently»servedbyKEMTAXILTD. TheMinisteronthebasisofthematerialbeforehimandbearing 10 in mind the evidence given on behalf of the applicants allowed partly the hierarchical recourse of KEMTAXI LTD., and by his decision dated the 2ndJuly 1983invited the Licensing Authority togrant8 additional «Z»licencestoit. Bya further decision dated the 14thSeptember 1983,(thesub 15 judice decision) the Minister dismissed the hierarchical recourses of the respondents relying particularly on the fact that both respondents «are related with KEM TAXI Ltd to which 8 «Z» licences have been granted after the partial acceptance of its recourse under No.24/67/2427.» 20 Wehold theviewthatinthelightoftheexpositionofthelaw,at thebeginningofthisjudgment,theappellantwasperfectly entitled topiercetheveilofincorporation oftheCompaniesconcerned,as he did,and examine «therealities ofthe situation.» There isone more point raised bythepresent appeal onwhich 25 we feel duty-bound to pronounce inspite of the reversal of the judgment in the first instance on the major issue of «piercing the veilof incorporation». The point concerns the task of the administrative organ entrusted todealwith ahierarchical recourse whichisspecifically 30 envisaged by a particular law; in the instant case the Ministerof Communications and Works in exercising the powers vested in himbys.4ofLawNo.9/82;(itmaybenotedthatthissectionwas repealed and re-enacted by s. 4 of Law No. 84/84 which is inapplicable inthepresentinstance.) 35 ThistopicwasexplicitlydealtwithbyourlearnedbrotherJudge Pikisin Tsouloftas v. TheRepublic

(1983)3 C.L.R.426 at pages 431and432;itisusefultostressheretwopointsfromthe aforesaid 1062 3C.L.R. Republicv.KEMTAXILTD A.LoizouJ. judgment.The firstpointconcernsthetaskand thecompetenceof the organ dealing with the hierarchical recourse: «Itisat least as feasible for thesuperior inhierarchy totake any decision thatthe subordinate body could reasonably take inthe first instance.» 5 The second point refers tothe testbywhich we mustjudgethe validity of the decision of the organ dealingwith the hierarchical recourse: «The test by which we must judge the validity of the decision of the Minister is the same with that applicable to the LicensingAuthority. Itisthis:Whether itwas reasonably open to 10 the Minister, inview of the provisionsof the law and the material before himtodecide ashe did.» It is therefore, clear that the Minister in dealing with a hierarchical recourse unders.4ofLaw9/82 can exercise hisown discretiononthematerialbefore him,whichmaybeconstitutedof 15 thematerialplaced before the LicensingAuthority plusanyother material placed before him including relevant oral evidence which is the present case - And provided that he exercises his discretionproperlywithintheambitofthelawhemayeitheraffirm orreverse the decision of the Licensing Authority. 20 The case of Georghiades v. The Republic

(1982)3 C.L.R. 16 and Araouzos v. The Republic

(1968)3 C.L.R. 287 cited by learned counsel for respondents have no relevance with the case under consideration. Inthose cases the competence laywith the inferior administrative organ and the hierarchically superior 25 administrativeorganshould notinterfere withthediscretionofthe competent organ. In the case of hierarchical recourse envisaged by law the issue is different: The Minister in the hierarchical recoursehascompetence,astheinferiororgan has,toexercisehis own discretion on the material placed before him acting always 30 accordingto law. And we must say that having examined the material placed before theappellant MinisterinthelightoftherelevantLaw,aswe have stated it above, we hold the view that the sub judice decision oftheappellant wasreasonably open tohim. 35 In the result the present appeal is allowed and the sub judice decision oftheappellantMinisterishereby affirmed. In view of the novelty of the main issue we have decided to makeno orderastocosts. Appeal allowed. No orderastocosts. 40 1063