Lifting of Corporate Veil in Tort Cases in Pursuit of Justice
Lifting of Corporate Veil in Tort Cases in Pursuit of Justice
Introduction
Limited liability has been the prevailing rule for corporations for more than a century. It creates incentives for excessive risk-taking by allowing companies to avoid the full costs of their activities. Strict application of this rule in all cases would lead to inflexibility and injustice, particularly in tort cases. Therefore, as suggested by Stephen Griffin—“in the interests of justice and to prevent subsidiary companies being used as convenient risk takers for their parent…the [corporate] veil must not become immovable.”[1] On the other hand, basing justice as the sole ground for veil lifting would undermine commercial certainty. The facts of each case should be taken into account to strike a balance between certainty and justice. This paper, focusing on the group companies context, attempts to argue for a lower threshold in veil lifting regarding tort cases to pursue justice and to introduce general principles in which court should lift the veil to ensure sufficient certainty.
Veil Lifting in Tort Cases
The Salomon principle[2]states that a company is a legal person separate from its members. In contrast, the doctrine of veil lifting refers to the possibility of looking behind the company structure to make the shareholders personally liable. It is settled in China Ocean Shipping Co v Mitrans Shipping Co Ltd[3] that using a corporate structure to evade existing legal obligations is objectionable whereas using the same to avoid the incurring of future legal obligations in the first place is not. The court held that its power to lift veil could only be exercised in the former situation. Unfortunately, strict application of this case would lead to injustice as tort liabilities almost always arise after incorporation. As a result, tort victims could never lift the veil and defendant companies are always immune to tortious liability due to the corporate structure.
In Adams v Cape
Introduction
Limited liability has been the prevailing rule for corporations for more than a century. It creates incentives for excessive risk-taking by allowing companies to avoid the full costs of their activities. Strict application of this rule in all cases would lead to inflexibility and injustice, particularly in tort cases. Therefore, as suggested by Stephen Griffin—“in the interests of justice and to prevent subsidiary companies being used as convenient risk takers for their parent…the [corporate] veil must not become immovable.”[1] On the other hand, basing justice as the sole ground for veil lifting would undermine commercial certainty. The facts of each case should be taken into account to strike a balance between certainty and justice. This paper, focusing on the group companies context, attempts to argue for a lower threshold in veil lifting regarding tort cases to pursue justice and to introduce general principles in which court should lift the veil to ensure sufficient certainty.
Veil Lifting in Tort Cases
The Salomon principle[2]states that a company is a legal person separate from its members. In contrast, the doctrine of veil lifting refers to the possibility of looking behind the company structure to make the shareholders personally liable. It is settled in China Ocean Shipping Co v Mitrans Shipping Co Ltd[3] that using a corporate structure to evade existing legal obligations is objectionable whereas using the same to avoid the incurring of future legal obligations in the first place is not. The court held that its power to lift veil could only be exercised in the former situation. Unfortunately, strict application of this case would lead to injustice as tort liabilities almost always arise after incorporation. As a result, tort victims could never lift the veil and defendant companies are always immune to tortious liability due to the corporate structure.
In Adams v Cape
Bibliography: Abhinav Ashwin, “Tortious liability of company in winding up: an analysis”, Comp. Law. 2005, 26(6), 163-179 Angelo Capuano, The realist’s guide to piercing the corporate veil: Lessons from Hong Kong and Singapore, Australian Journal of Corporate Law, Vol Henry Hansmann & Reinier Krakkman, “Towards Unlimited Shareholder Liability for Corporate Torts” 100 Yale Law Journal 1879, 1894-1909 P.T Phillip Lipton, “Tort Liability of Corporate Groups: Grappling with the Dead Hand of Salomon”, Keeping Good Companies 57(4), 213-219, 2005 Stephen Griffin, “Holding companies and subsidiaries - the corporate veil” Comp [6] [1897] AC 22 [7] Phillip Lipton, “Tort Liability of Corporate Groups: Grappling with the Dead Hand of Salomon”, Keeping Good Companies 57(4), 213-219, 2005 [8] Abhinav Ashwin, “Tortious liability of company in winding up: an analysis”, Comp. Law. 2005, 26(6), 163-179 [9] Henry Hansmann & Reinier Krakkman, “Towards Unlimited Shareholder Liability for Corporate Torts” 100 Yale Law Journal 1879, 1894-1909 [10] Angelo Capuano, The realist’s guide to piercing the corporate veil: Lessons from Hong Kong and Singapore, Australian Journal of Corporate Law, Vol. 23, No. 1, 2009 [11]P.T [12] Henry Hansmann & Reinier Krakkman, “Towards Unlimited Shareholder Liability for Corporate Torts” 100 Yale Law Journal 1879, 1894-1909, at p1921