Part 2

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 agent to 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 termination by 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’.

[1] Premier Building and Consulting Pty Ltd (recs apptd) v Spotless Group Ltd (2007) 64 ACSR 114, 186-92 (Byrne J); Repatriation Commission v Harrison (1997) 78 FCR 442, 447 (Tamberlin J); Hadoplane Pty Ltd v Edward Rushton Pty Ltd [1996] 1 Qd R 156, 162, 164 and 167; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 577 (Rogers AJA); Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267, 274 (Full Court); Dalco v Federal Commissioner of Taxation (1988) 82 ALR 669, 682; Companies and Securities Advisory Committee, Corporate Groups Final Report (2000), 17.

[2] Eg, Spreag v Paeson Pty Ltd (1990) 94 ALR 679. See IM Ramsay and D Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19 C&SLJ 250, 263.

[3] J Harris and A Hargovan, ‘Cutting the Gordian knot of corporate law: Revisiting veil piercing in corporate groups’ (2011) 26 Aust J Corp L 39, esp 49-50.

[4] (1998) Aust Torts Reports ¶81-468, 64,952-3.

[5] (1998) Aust Torts Reports ¶81-468, 64,952-3.

[6] Eg Commissioner of Taxation v BHP Billiton Finance Ltd [2010] 182 FCR 526, [14] (findings of fact).

The question on, lifting the corporate veil

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In recent times, has been frequently pleaded in cases where claimants have sought to create liability in a parent company or other shareholders. Under this doctrine, a court ostensibly has the power to disregard the separate legal personality of the company and create liability in wrongdoing shareholders. Given that Corporations Act 2001 (Cth) s 516 creates limited liability for the shareholders in a company, a question arises as to the basis upon which courts have created an exception to this provision that appears contrary to its intention. The truth appears to be that veil piercing doctrine involves a surprising disregard of the statute.[1] Unless empowered to do so by legislation, it is arguable that judges cannot ignore the separate legal personality of the company created by registration under the Corporations Act 2001

[1] See Dimbleby & Sons Ltd v National Union of Journalists [1984] 1 WLR 427, 435, where Lord Diplock stated that ‘one would expect that any parliamentary intention to pierce the corporate veil would be expressed in clear and unequivocal language’. With respect, this must be correct.