DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976]

DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976]

DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852 is a UK company law case where, on the basis that a company should be compensated for loss of its business under a compulsory acquisition order, a group was recognised as a single economic entity. It stands as a liberal example of when UK courts may lift the veil of incorporation of a company.

DHN imported groceries and provision and had a cash-and-carry grocery business. Its premises were owned by its subsidiary called Bronze. Another wholly owned subsidiary, DHN Food Transport Ltd, owned the vehicles. In 1970, Tower Hamlets London Borough Council compulsorily acquired the premises to build houses. Compensation was paid to Bronze, DHN's subsidiary, for the land, but DHN sought compensation for the loss of its business.

The Court of Appeal held that DHN and Bronze were part of a single economic entity. Lord Denning MR's judgment stated that if the firm and its property had been in one ownership, compensation would have been payable for the value of the land and disturbance due to business closure. The court concluded that DHN, as the parent company, was entitled to compensation for the loss of business, lifting the corporate veil.

DHN argued it had an equitable interest in the land, suggesting a resulting trust situation. The court, however, was not fully convinced. DHN asserted an irrevocable license based on the complex conveyancing transactions. The court accepted that DHN, being the parent company, had a sufficient interest in the land to qualify for compensation for disturbance. The court considered lifting the corporate veil, treating the group of three companies as one economic entity. The court emphasised the control exercised by DHN over its subsidiaries and the economic reality of the situation. It ruled that DHN was entitled to claim compensation without going through a conveyancing device.

The court rejected the technical argument put forth by the acquiring authority. Despite admitting that the group could have structured the ownership differently, the court emphasised the economic reality and the unjust denial of compensation due to technicalities in company law.

In conclusion, the court allowed the appeal, recognising the economic unity of the group and lifting the corporate veil. This case serves as a notable example of the court's willingness to look beyond the strict legal forms of ownership to achieve a just outcome, especially in cases involving the compensation for loss of business under compulsory acquisition orders.
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