Modified limited liability

The literature on corporate liability consists of a number of attempts to fashion a statutory exception to limited liability principles in cases of tortious wrongdoing. A common characteristic of the scholarly writings is their reliance upon a conception of control as a key to shareholder liability.[1] However, it is submitted that the focus upon control as a basis for shareholder liability is mistaken, for a number of important reasons. First, any statutory threshold of control might be difficult to define. However it is defined, there will be attempts to evade legal designation as a controlling party. Second, a parent company does not always exercise a high level of control over its subsidiaries. Although such control is often assumed in the literature,[2] in many cases business history tells a different story. Especially in the case of multinational companies, it seems that attempts at exerting a high degree of control over subsidiaries frequently have failed. Thus, Jones documented the history of Unilever and its subsidiaries and found that Unilever exerted minimal control over the operations of its major African subsidiary UAC during the lifetime of that company.[3] Jones found the following facts about the relationship between parent and subsidiary:

From its formation until the mid-1980s UAC operated as a virtually independent company with minimum control by Unilever… UAC retained its own autonomous board, and … an arm’s length agreement was reached between UAC and Unilever. Under the terms of this agreement, UAC had some priority as a supplier of Unilever raw materials, but not a monopoly… The lack of integration of UAC into Unilever was curious, but not exceptional…[4]

Again, although IBM was found to have exercised a high degree of control over its US operations, this was not the case with foreign subsidiaries. ‘National companies were autonomous, staffed largely by nationals, and with little coordination between them’. This only changed from the mid-1960s.[5] Chandler also found that parent companies in branded, packaged goods did not exercise great control over their foreign subsidiaries: ‘Because coordination of purchasing, production, and marketing was achieved most effectively at local levels, there was little need for tight home-office control over management in these subsidiaries. They operated autonomously, gently supervised by the executives of the parent company’s international division’

[1] See, eg, N Mendelson, ‘A Control-Based Approach to Shareholder Liability for Corporate Torts’ (2002) 102 Colum LR 1203; J Crowe, ‘Does Control Make a Difference? The Moral Foundations of Shareholder Liability for Corporate Wrongs’ (2012) 75 MLR 159. See also H Anderson, ‘Piercing the Veil on Corporate Groups in Australia: The Case for Reform’ (2009) 33 MULR 333 (argument in favour of the application of directors’ duties to parent companies).

[2] Eg, Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 567, 572 and 577 (Rogers A-JA, in the latter case assuming ‘complete dominion and control’); Abogados de accidentes ;JE Antunes, Liability of Corporate Groups: Autonomy and Control in Parent-Subsidiary Relationships in US, German and EU Law (1994), 5; H Anderson, ‘Piercing the Veil on Corporate Groups in Australia: The Case for Reform’ (2009) 33 MULR 333, 336 and 353-4.

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