Lifting of Corporate Veil in Tort Cases in Pursuit of Justice Essay Sample free essay sample

Limited liability has been the prevailing regulation for corporations for more than a century. It creates inducements for inordinate risk-taking by leting companies to avoid the full costs of their activities. Strict application of this regulation in all instances would take to inflexibleness and unfairness. peculiarly in civil wrong instances. Therefore. as suggested by Stephen Griffin—â€Å"in the involvements of justness and to forestall subordinate companies being used as convenient hazard takers for their parent†¦the [ corporate ] head covering must non go immoveable. † [ 1 ] On the other manus. establishing justness as the exclusive land for head covering lifting would sabotage commercial certainty. The facts of each instance should be taken into history to strike a balance between certainty and justness. This paper. concentrating on the group companies context. efforts to reason for a lower threshold in head covering raising sing civil wrong instances to pro secute justness and to present general rules in which tribunal should raise the head covering to guarantee sufficient certainty. Veil Lifting in Tort Cases The Salomon rule [ 2 ] provinces that a company is a legal individual separate from its members. In contrast. the philosophy of head covering raising refers to the possibility of looking behind the company construction to do the stockholders personally apt. It is settled in China Ocean Shipping Co V Mitrans Shipping Co Ltd [ 3 ] that utilizing a corporate construction to hedge existing legal duties is obnoxious whereas utilizing the same to avoid the incurring of future legal duties in the first topographic point is non. The tribunal held that its power to raise head covering could merely be exercised in the former state of affairs. Unfortunately. rigorous application of this instance would take to injustice as civil wrong liabilities about ever arise after incorporation. As a consequence. civil wrong victims could neer raise the head covering and suspect companies are ever immune to tortious liability due to the corporate construction. In Adams v Cape Industries plc [ 4 ] . in which tortious liability is involved. the tribunal purely applied the rule in China Ocean [ 5 ] . It held that head covering is non lifted and so the parent company is non apt for the civil wrong committed by its wholly-owned subordinate. The civil wrong victims in this instance were left with no compensation as the subordinate was liquidated and head covering was non lifted to do the financially healthy parent company apt. Arguments for Veil Lifting in Pursuit of Justice If the above instances are purely followed. the consequence is to switch the effects of high hazard tortious actions from the suspect companies to the guiltless civil wrong victims. which is evidently unfair. It is worth-noting that the Salomon instance [ 6 ] was decided over a century ago. At that clip. it was non widespread commercial pattern for big companies to run by agencies of many subordinates and civil wrong jurisprudence was really much undeveloped comparison with its signifier a century subsequently. The interaction with civil wrong jurisprudence would non hold been considered at all when the instance was decided. Where civil wrong and corporate jurisprudence rules are in struggle. as above mentioned. tribunals normally resolve the affair with mention to corporate jurisprudence rules. When considered in the context of modern-day public policy. it has been criticized that the respect to the Salomon rule in relation to tort liability of corporate groups appears misconceived. [ 7 ] Therefore. the Salomon rule should sometimes be disregard and head covering should be lifted in civil wrong instances due to the undermentioned grounds. Involuntary VictimsVery frequently. oppositions against head covering raising argue that civil wrong victims should non have discriminatory intervention over other unbarred contractual creditors. Therefore. even in civil wrong instances. the rigorous attack of the China Ocean instance should be applied. as in other instances affecting contractual claims. However. they may hold overlooked a important difference between civil wrong victims and contractual creditors. Tort victims are normally nonvoluntary and guiltless 1s who do non possess the information or the agencies to safeguard themselves against hazard of insolvency of the suspect company. as opposed to contractual creditors. who can ever take the parties to the contract. deal in settling the footings with the suspect company and may besides take protective stairss such as deriving warrants and security to guard against the possibility that the defendant company may be unable to run into its contractual debt. [ 8 ] Avoidance of Excessively Risky BehaviourThe prevalence of amalgamations and acquisitions motion today has converted many big corporations into extremely leveraged houses. In order to maximise hard currency flow. these houses have a strong inducement for inordinate risk-taking activities. which drastically increase the exposure to tort liability. Carcinogens in the workplace. environmental injuries to the surrounding and risky merchandises are all beginnings of monolithic tortious liability. [ 9 ] Very frequently. concern houses would reorganise their construction to work limited liability to hedge civil wrong claims. such as intentionally puting risky activities in under-funded subordinates. However. concern moralss is a outstanding modern-day construct and issue in commercial context. In footings of public policy and public involvement. it is of paramount importance to discourage companies from taking overly hazardous activities. which cause personal hurt to guiltless victims. Tort Victims and Business on Unequal FootingTort victims are those who may endure physical hurt or injury. On the other manus. parent companies of its suspect subordinates merely suffer commercial losingss in the relevant tortious claims. Yet. the parent could hold control over its subordinates and stockholders had the opportunity to measure the hazard of the company. They besides portion the net income of an endeavor and so they should be capable to its loss and presume its hazard as good. In apportioning the load of loss. it is necessary to equilibrate the involvements of the guiltless civil wrong victims and on the other manus. the parent companies or the stockholders. As a consequence. the best via media is to apportion the hazard to the parent companies as it would be unfair if they merely benefit from the overly hazardous behavior at the disbursal of consumer. employee. environment and society as a whole. Steering Principles Justifying Veil RaisingIt is neither argued that head covering of every civil wrong instance must be lifted nor that justness should be the individual land for all head coverings raising instances. Justice should be taken into history but the reconciliation should besides be guided by general rules to guarantee sufficient certainty. which are important in commercial context. Therefore. there are two chief evidences which justify the lifting of corporate head covering in civil wrong instances. First is the grade of control and second is the cognition of the victims. ControlIt is suggested that utilizing a corporate stenosis freakishly. viz. to hedge tortious liability. together with control would be sufficient to raise the head covering. [ 10 ] In any event. the Salomon Principle should neer be intended to be used as a agency of insulating beds of corporate group administration from liability. In the context of group companies. the parent is non an single stockholder. with small or no involvement in the running of the subordinate as if it were no more than a portfolio and inactive stockholder. It may be unfair to keep an single liable for action beyond their control. However. the parent is the existent director of the subordinate. It is a direct investor and it controls and should be. in a existent concern sense. responsible for that which it controls. [ 11 ] When the civil wrong victims are left without compensation due to the insolvency of a entirely owned subordinate. its parent evidently satisfies the demand of control and it makes good sense for liability to be imposed upon it. Knowledge of Tort VictimsOne may dispute that civil wrong claimants are non ever nonvoluntary victims for they may hold an bing contractual relationship with the house prior to the hurt. such as workplace hurts against employees and merchandises liability against clients. Indeed. the consequence of the equilibrating exercising between the parent and the civil wrong victims may good be different if the civil wrong victims are able. prior to the hurt. to measure and to the full cognizant the hazards they take in covering with the suspect company but still voluntarily presume the hazards. Therefore. cognition of civil wrong victims sing the hazards in covering with the house become another important factor to find whether head covering should be lifted or non. The critical inquiry is whether the victim can moderately be understood to hold contracted with the house in significant consciousness of the hazards of hurt involved. [ 12 ] If so. the liability should be considered contractual and head coverings should non be lifted. Otherwise. the victims should be considered nonvoluntary and guiltless 1s. The parent should non be afforded the protection of the Salomon Principle and therefore. head covering should be lifted in this respect. Reasoning Remarks—a Balancing ExerciseTo reason. this paper suggests that a rigorous application of the Salomon Principle in all instances would take to injustice. A figure of statements for head covering raising sing tortious claim were put frontward. Although both certainty and justness are important to our legal system. it is impossible to accomplish complete certainty and perfect justness at the same clip. Sometimes. to a certain extent. justness may hold to give manner to certainty and frailty versa. After all. it is ever a reconciliation exercising to accomplish the optimum consequence when more than one party is affected. as between the civil wrong victims and the parent companies. Thereby. two factors. which are non-exhaustive. were besides introduced in this paper to function as general guidelines which may be taken into history in make up ones minding whether to raise the head covering or non. viz. degree of control of the parents and the cognition of the victims sin g the hazards involved. Bibliography Abhinav Ashwin. â€Å"Tortious liability of company in weaving up: an analysis† . Comp. Law. 2005. 26 ( 6 ) . 163-179 Angelo Capuano. The realist’s usher to piercing the corporate head covering: Lessons from Hong Kong and Singapore. Australian Journal of Corporate Law. Vol. 23. No. 1. 2009 Henry Hansmann A ; Reinier Krakkman. â€Å"Towards Unlimited Shareholder Liability for Corporate Torts† 100 Yale Law Journal 1879. 1894-1909 P. T. Muchlinski. Keeping multinationals to account: recent developments in English judicial proceeding and the Company Law Review. Comp. Law. 2002. 23 ( 6 ) . 168-179 Phillip Lipton. â€Å"Tort Liability of Corporate Groups: Coping with the Dead Hand of Salomon† . Keeping Good Companies 57 ( 4 ) . 213-219. 2005 Stephen Griffin. â€Å"Holding companies and subordinates – the corporate veil† Comp. Law. 1991. 12 ( 1 ) . 16-17 Cases Adams V Cape Industries plc [ 1990 ] Ch 433 China Ocean Shipping Co V Mitrans Shipping Co Ltd [ 1995 ] 3 HKC 123 Salomon v A Salomon A ; Co Ltd [ 1897 ] AC 22 ———————–[ 1 ] Stephen Griffin. â€Å"Holding companies and subordinates – the corporate veil† Comp. Law. 1991. 12 ( 1 ) . 16-17 [ 2 ] Salomon v A Salomon A ; Co Ltd [ 1897 ] AC 22[ 3 ] [ 1995 ] 3 HKC 123[ 4 ] [ 1990 ] Ch 433[ 5 ] [ 1995 ] 3 HKC 123 [ 6 ] [ 1897 ] AC 22[ 7 ] Phillip Lipton. â€Å"Tort Liability of Corporate Groups: Coping with the Dead Hand of Salomon† . Keeping Good Companies 57 ( 4 ) . 213-219. 2005 [ 8 ] Abhinav Ashwin. â€Å"Tortious liability of company in weaving up: an analysis† . Comp. Law. 2005. 26 ( 6 ) . 163-179 [ 9 ] Henry Hansmann A ; Reinier Krakkman. â€Å"Towards Unlimited Shareholder Liability for Corporate Torts† 100 Yale Law Journal 1879. 1894-1909 [ 10 ]Angelo Capuano. The realist’s usher to piercing the corporate head covering: Lessons from Hong Kong and Singapore. Australian Journal of Corporate Law. Vol. 23. No. 1. 2009 [ 11 ] P. T. Muchlinski. Keeping multinationals to account: recent developments in English judicial proceeding and the Company Law Review. Comp. Law. 2002. 23 ( 6 ) . 168-179 [ 12 ] Henry Hansmann A ; Reinier Krakkman. â€Å"Towards Unlimited Shareholder Liability for Corporate Torts† 100 Yale Law Journal 1879. 1894-1909. at p1921