Group companies: common ownership, separate legal identities
Updated: 23 hours ago
In Forthwell Ltd v Pontegadea UK Ltd, the Supreme Court recently highlighted a key well-established principle that a wholly owned subsidiary in a corporate group remains a separate legal person.
Forthwell leased premises from which its subsidiary, Lynnet, operated a restaurant. Lynnet was not a party to the lease. When the restaurant could not reopen following damage to the premises, Forthwell sought to recover Lynnet's lost trading profits.
The dispute arose under Scots law, but the Court confirmed the same principle applies under English law - a contracting party cannot ordinarily recover loss suffered solely by a separate group company. It rejected Forthwell's argument that it could recover damages for Lynnet's losses and account to Lynnet for them.
For owners and directors of corporate groups, the key practical point is to align the contract with the commercial reality. Where several group companies are involved, the legal structure and drafting need to be considered carefully to ensure that the appropriate group entity has the intended enforceable rights.
Where possible and practical, make each relevant group entity a party. Otherwise, consider expressly conferring rights under the Contracts (Rights of Third Parties) Act 1999 on the relevant non-party group entities.
A corporate group can divide operational and legal risks, but common ownership does not override the separate legal personality of member entities.
If your business operates through a group of companies, Via Legalis can review existing contracts or advise on new ones to help ensure the right group entities have the intended contractual rights.
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