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Q 5 Zone B 2009 (Separate Legal Personality)Simon and Rebecca are former employees of Rubber Plc, an International Energy Company based in London. They were recruited to work as Scientists at Rubber Plc, 10 years ago and although originally based in London they spent most of their 10 years working i...

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Q 5 Zone B 2009 (Separate Legal Personality) Simon and Rebecca are former employees of Rubber Plc, an International Energy Company based in London. They were recruited to work as Scientists at Rubber Plc, 10 years ago and although originally based in London they spent most of their 10 years working in mines in various countries in South Africa. Having recently retired because of ill health and returned to London they discovered that their health problems are related to exposure to dangerous substances in the course of employment. Having checked their employment contracts they have found that they were employed in Africa by Rubber (South Africa) Lid a wholly owned subsidiary of Rubber Plc which has gone into insolvent liquidation. They have also discovered that Rubber Plc is directly responsible for the safety policy of all its subsidiaries and that a number of directors of the two companies were the same people. Discuss the veil lifting issues that arise in the above situation

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Simon and Rebecca would want to bring an action against Rubber Plc an International agency based in London, even though they had experienced health problems because of the subsidiary company. This is so as the subsidiary company has gone insolvent and there is evidence to show that the parent company is directly responsible for the safety policy of its subsidiaries. Cases to be discussed are Salomon v Salomon, Adams v Cape, Gilford Motor v Horne, Jones v Lipman, Connely v RTZ , Lubbe v Cape.

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Simon & Rebecca would bring a cause of action against Rubber Plc ( Parent Company) of Rubber South Africa as it was directly responsible for safety regulations and also because the subsidiary company has gone insolvent. This may not succeed as the parent company may rely on Salomon v Salomon 1897 HOL ( Separate Legal Personality) Rubber Plc may argue that it is a separate entity and has no control over Rubber (Africa) by such it cannot be liable for the actions of its subsidiary. The case of Multinational Gas & Petrochemical Co Ltd v Multinational Gas & Petrochemical Services Ltd/ Adams v Cape (1996) allows the principle of Salomon v Salomon to be extended to Multinational Companies. However there are instances where the courts can lift the corporate veil, this is when there is a façade or a sham to evade contractual liabilities. Gilford Motors v Horne 1933 COA Former employee contracted not to steal its customers, he later established his own company and attracted the initial company’s customers , he relied on the defense of separate legal personality but the courts did not allow this and labelled it as a ‘ sham” devise or a mere “façade”.

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To use this authority would allow Simon and Rebecca to lift the corporate veil or façade to bring a claim against the parent company ( Rubber Plc) OTF the actions of Rubber Plc placing its subsidiaries in South Africa was to evade liability ( It is a mere façade) To prove façade, we will need BRD ( intention to deceive ) Raise and dismiss S 214 IA 1986 knows that the company was going insolvent but did not do anything to prevent it (wrongful trading) (no need intention) (Negligent offence)(BOP) Re Produce Marketing Consortium No 2 1989 Over a period of 7 years the company had slowly drifted into insolvency, there was a suggestion of wrongdoing on the part of the Directors, however it was such that they did not put the company in liquidation at the right time and thus they had to contribute £75,000 to the debts of the company. If the Directors of Rubber Plc knew that they were going insolvent and yet continued to trade then the parent company would be liable(as they had the same directors) S 213 IA 1986(Need Intention)(Criminal offence) Requires proving actual dishonesty with an intention to deceive) High standards of proof, to proof actual dishonesty according to current notions of trading among commercial men) Morphites v Bernasconi [2001] Otf the subsidiary company has entered into liquidation. If there has been wrongful trading by the directors of the company it would depend on whether there was intention or not. Peculiar, that the subsidiary will be closed down right after, Simon and Rebecca brings a claim? Can we argue that the parent company had deliberately closed down the subsidiary to avoid liability? – 213-BRD – unlikely we can establish this. Perhaps the parent company was aware that the subsidiary was going insolvent – little to save the subsidiary- 214 ( BOP ) - Parent to be responsible.

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Conelly v RTZ 1997 HOL Mr Conelly worked in a subsidiary company of RTZ in Namibia of Uranium mines later he developed health problems (cancer) wanted to sue RTZ (Parent company) in London as it owed a duty of care to its subsidiaries. Court held that the matter could not be heard in Namibia as there was an issue of complexity, cost and evidence. London was the best forum Similar facts Lord Hoffman- Dissenting Judgment “ If this was allowed every multinational company which has a parent company in the UK would want to bring a claim in the UK) The action did not succeed as it was time barred. Otf the jurisdiction of the courts should be the parent company’s jurisdiction Rubber Plc in England. Argue that even though the facts are not clear as to the responsible party , it is argued that the parent company should be responsible as they have a duty of care to regulate safety measures.

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Based on the case of Conelly v RTZ 1997 HOL, the best forum is in London, OTF the parent company is in London, the subsidiary is in S. A- the best forum to hear this case is in London Lubbe v Cape 2000 HOL There was a subsidiary company in South Africa mining asbestos which lead to injuries. Over 3000 claims were brought against the parent company in London for death and personal injury. HOL- London was the most appropriate forum as it was easier to establish evidence and had better expert evidence to substantiate claims. But here parties decided for an out of court settlement of £ 21 million. OTF the place of jurisdiction should be England as the parent company is located in England and trend of cases seem to suggest that in matters such as this England has to be the best place to try the matter.

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Adams v Cape 1996 (HOL) Cape mined and marketed asbestos had a US marketing company called NAAC. NAAC was in Texas and it was sued for personal injury over 200 claimants. A JID was given against Cape ( the parent company in London) For the Parent company to be held liable, the Parent must have had a fixed place of business in the area of the subsidiary. The Courts did not allow the claim to be in London as 1) Single Economic Entity in interpreting a statute or document The act of Cape minimizing its presence in the US for tax purposes & other liabilities, courts held “ Whilst it is immoral there was nothing illegal of it” – So there is no Single Economic Entity Otf, the parent company may argue on the same point, it may have placed its subsidiary in South Africa to evade tax. A counter argument is that the courts should look into public policy arguments as if the courts were to follow the above precedent as it leads to injustice. 2) Mere Façade/Sham devise ( explained above) 3)Day to day control ( Agency Principle) Otf argue against the above case as it does not help Simon and Rebecca’s claim, as they would not be able to bring a claim in London. The parent company was directly responsible for safety issues and had day to day control by having the same directors. ( The fact that having the same directors reflects upon control) The corporate veil should be lifted & allow Simon and Rebecca to claim against the parent company(for the interest of justice) PT Muchilinski in his article held that the principle of Salomon v Salomon 1897 only extends to Directors and company, not to multinational companies, if so it would be unjust. If we were to follow this arrangement the principle of SVS would not be applicable and the parent company( Rubber Plc) would not be able to rely on this defense. ( Academic argument ) 4) Interest of Justice Chandler v Cape – P has a DOC to S o P and S must be in the same line of business

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P ought to have known that the S will rely on the protection of P P had control over S safety measures

OTF, it is clear based on the principles of Chandler that the P has a DOC towards its subsidiary. Since the Directors are the same and since the P had control over the safety measures of the S, then we should be able to hold the P responsible. Conclusion -

Single Economic Entity Day to Day Control Mere Façade OTF 1) The parent company had been responsible for the safety control of its subsidiary 2)The fact that the same directors of the parent company were directors of the subsidiary seems to show that there is day to day control Due to the above reasoning the courts should lift the corporate veil and allow the action against the parent company, especially in light of the case of Chandler v Cape....