LEE V. LEE’S AIR FARMING, LTD. (1960) 3 ALL E.R. 420

 LEE V. LEE’S AIR FARMING, LTD. (1960) 3 ALL E.R. 420

 

FACTS

• The appellant’s husband, L., formed the respondent company for the purpose of carrying on the business of aerial top-dressing. L. was allotted 2,999 shares. Later on he was appointed governing director of the respondent company and pursuant to art. 33 of the articles of association were employed as chief pilot of the company at a salary arranged by him.
• Article 33 provided that in respect of such employment the rules of law applicable to the relationship of master and servant should apply between the company and him.
• In his capacity as governing director and controlling shareholder, L. exercised full and unrestricted control of the affairs of the respondent company and made all decisions relating to contracts for aerial top dressings.
• The respondent company owned an aircraft equipped for top-dressing and L. was a duly qualified pilot. In March 1956, L. was killed while piloting the aircraft during the course of aerial topdressing.
• The appellant claimed compensation under the New Zealand Workers’ Compensation Act (hereinafter referred to as ‘the Act’), 1922, 3 (1), under which, if personal injury by accident arising out of and in the course of any employment to which the Act applied was caused to a worker, the employer was liable to pay compensation.
• By s. 2 of that Act, “worker” was defined as “any person who has entered into or works under a contract of service…with an employer, whether by way of manual labour, clerical work, or otherwise, and whether remunerated by wages, salary, or otherwise”.

ISSUES

• Whether Mrs. Lee, as the widow of Mr. Lee, was entitled to claim workers' compensation under New Zealand law?
• Whether the position of the deceased as sole governing director made it impossible for him to be the servant of the respondent company in the capacity of chief pilot of that company?

HELD

1. was a “worker” within the meaning of s. 2 and the appellant was entitled to compensation under the Act, since L.’s special position as governing director and principal shareholder did not preclude him from making on the company’s behalf a contract of employment with himself, nor preclude him from entering into, or working in the capacity of servant under, a contract of service with the company.

• The case was initially heard in New Zealand, where the Court of Appeal held that Mr. Lee was indeed an employee of the company at the time of his death. This decision made Mrs. Lee eligible for workers' compensation.
• However, the matter was appealed to the Privy Council in the United Kingdom, which delivered the final judgement. The Privy Council, in a unanimous decision, upheld the lower court's ruling that Mr. Lee was, in fact, an employee of the company at the time of his death.
• Lord Reid, delivering the leading judgement, emphasised that the mere fact that Mr. Lee was a director and shareholder did not automatically preclude him from also being an employee. He noted that it is possible for an individual to have multiple roles within a company, including that of an employee.
• The respondent company and the deceased were separate legal entities. The respondent company had the right to decide what contracts for aerial top dressing it would enter into. The deceased was the agent of the respondent company in making the necessary decisions. Any profits earned would belong to the respondent company and not to the deceased.

 

COMMENTARY

“The position that the directors occupy in a corporate enterprise is not easy to explain. They are professional men hired by the company to direct its affairs. Yet they are not the servants of the company. They are rather the officers of the company. "A director is not a servant of any master. He cannot be described as a servant of the company or of anyone. A director is in fact a director or controller of the company's affairs. He is not a servant. A director may, however, work as an employee in a different capacity. Where the total number of directors and shareholders consent to the misuse of the company's money, they can be prosecuted for theft because the consent of the whole number may not be the consent of the company. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the courts to identify a company with its members. There are situations where the court will lift the veil of incorporation in order to examine the 'realities' which lay behind. Sometimes this is expressly authorised by statute ... and sometimes the court will lift of its own volition.”