Part 2

Sponsored by

Veil piercing within the corporate group cuts across the categories already considered. Each of the grounds of fraud, sham and agency might provide a basis for piercing the corporate veil within the group. The degree of control exerted by the parent company over the subsidiary has been treated as a crucial factor in determining liability, although not decisive in itself.[1] But the reality is that the kind of close control that has been influential in finding liability in cases involving relatively modest corporate groups,[2] is less likely to be present in cases of involving companies of real size and scale which give rise to the kinds of mass tort problems with which this article is concerned. Even where it is present, control has not been seen as a legitimate basis for veil-piercing.[3]

The asbestos cases, to be considered below, might be seen as exceptional in this respect, courts having on a number of occasions found evidence of parental decision-making and control as regards the operation of subsidiary companies. But these cases have complications of their own. Thus, in CSR v Young,[4] the New South Wales Court of Appeal found that the subsidiary company Australian Blue Asbestos Ltd had appointed its parent company CSR as its agentto enter into transactions on its behalf in management of its business and in the sale and distribution of its products. So, although control was present, this was pursuant to a kind of inverted agency agreement. Decision-making by the parent for the subsidiary was at the behest of the subsidiary and, moreover, was subject to terminationby the subsidiary.[5] And it was not an unusual case. Nominating the parent as agent reflects a desire to avoid duplication of major management roles in companies below the parent. Arrangements of this kind are to be found even amongst the largest of corporate groups.[6] In such circumstances, agency theory tells us that the subsidiary is liable and the agent (the parent company) ‘drops out’.

Continue reading “Part 2”