Liability deficit problem of multinational corporate groups : a proposal for legislative and judicial reform
University of British Columbia
Master of Laws - LLM
Multinational corporate groups are now the world’s dominant economic institution. In the common law jurisdictions analyzed in this thesis, (the U.K., the U.S. and Canada) legal regulation has not kept pace with regulating the intragroup liability of corporate groups. This thesis focuses on the circumstances under which a subsidiary’s tortious liability should be attributed to the parent company. Through a comparative examination of the case law in the three-subject jurisdiction, this thesis investigates the common law’s attempt to set aside the principles of limited liability and separate corporate personality in order to hold a parent company responsible for its subsidiary’s liability. My multi-jurisdictional comparative analysis of the judicial approaches to allocating tortious liability vertically in corporate groups concludes that while veil piercing remedy is inconsistent in many ways with the economic realities of how parent and subsidiary companies are related, strong policy considerations nonetheless still support its use. Yet, this approach still does not fully address the liability deficit problem characteristic of corporate groups which the common law has been attempting to address through incremental adjustment. This, thesis, therefore calls for legislative correction of the liability deficit problem by making the following recommendations for reform: Parent companies should be required by law to assume the tortious liability of their wholly-owned or controlled subsidiaries, and that corporate groups should maintain intragroup liability insurance coverage where proceeds are payable to tort victims who suffer harm. The legislative proposal is not a bright-line rule in that where the subsidiary company is not wholly-owned but controlled, the courts will be responsible for making a decision as whether or not to set aside the two fundamental principles of corporate law in order to hold a parent company liable. Since the courts will still be responsible for deciding whether to pierce the parent’s veil, there is always the potential risk of judicial discretion to be exercised by the courts. In exercising that discretion, this thesis suggests that the courts should abandon the normal presumption of non-liability in favour of parent companies and adopt the economic reality test when faced with veil piercing inquiry involving partly-owned/controlled subsidiaries.
Attribution-NonCommercial-NoDerivatives 4.0 International
Law, Peter A. Allard School of