The next section will examine the post-Adams era to demonstrate whether the courts are still faithful to the Salomon principle or whether there are any signs of activism, as there were in the time of Lord Denning.

(C) Post Adams Era and the Problems of the Company Law Approach

Since Adams, there have been a number of cases where the courts seem to suggest a more realistic approach to group liability, which bears resemblance to Lord Denning’s views on the original notion of single economic entity.65 For example, the decision in Chandler v Cape Plc66 revealed that there has been some development in the area of group tortuous liability. In this case, the Court of Appeal applied a new test to extend the parent company’s liability to cover a personal injury which occurred at the subsidiary level.67 In this judgment, the Court adopted a test of control, fairness and reliance, which required all three conditions to be fulfilled in order to extend liability from the subsidiary to the parent company.68

However, the test raises other issues. First, the notion of control is ambiguous, as in some cases the degree of control may vary from one corporation to another. Moreover, the court did not elucidate the amount of control that may be considered relevant.69 The court did not clarify which type of evidence and what factors are sufficient to prove that the parent company controls the subsidiaries. It is thus a matter of speculation for the courts as to what factors it would consider in order to hold a parent company liable for the debt of its

65DHN Food Distribs Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852.

66Chandler v Cape Plc [2012] EWCA Civ 525, [2012] 1 WLR 311.

67Martin Petrin, ‘Assumption of Responsibility in Corporate Groups: Chandler v Cape Plc’ (2013) 76 Modern Law Review 589, 611; Paul Eccles, ‘Liability of Parent Companies and the Actions of Their Subsidiaries’

(Shoosmiths, 4 May 2012) <http://www.shoosmiths.co.uk/client-resources/legal-updates/Liability-of-parent- companies-and-the-actions-of-their-subsidiaries-1498.aspx> accessed 4 August 2015; Derek French, Christopher Mayson and Christopher Ryan, Mayson, French & Ryan Company Law (31st edn, Oxford University Press 2014-2015) 144.

68Ewan Gaughey, ‘Donoghue v Salomon in the High Court’ (2011) 4 Journal of Personal Injury Law 249.

69Chandler v Cape Plc [2011] EWHC 951 (QB) at 49; Duygu Damar, ‘Negligence and the Corporate Veil:

Parent Companies Duty of Care to Their Subsidiaries Employees’ (2014) Lloyd’s Maritime and Commercial

Law Quarterly 454.

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subsidiary. This implies that there is lack of certainty as to when the court will hold a parent company liable for the debts of its subsidiary, thereby posing a challenge to the relationship between the parent and subsidiary companies.70 Similarly, it is difficult for interested parties such as creditors to demonstrate that a parent company exercises complete control over the subsidiaries because creditors are not usually involved in the day-to-day operations of the company, and they may not have sufficient information to prove such control.71

The second condition is fairness, which requires that the court ensure that it is fair to hold a parent company liable for the mistakes of its subsidiaries. However, the concept of fairness is broad and vague and can be subject to various interpretations by the courts. Justice, as a legal basis for lifting the veil in company law, has been refused in the past for being a vague and broad concept.72 Therefore, it is not persuasive to introduce the notion of fairness as legal grounds to extend the liability of a subsidiary to its parent company.73

The last condition is reliance, whereby the interested party is expected to demonstrate reasonable reliance on the parent company. Under this condition, the assumption is that there is no connection between the parent company and its subsidiaries, and the interested parties must demonstrate to the court that the latter rely on the parent company, for instance, by showing that the parent company has a general practice of intervening in its subsidiaries’ operations.74 This is not only difficult to prove but will also produce different outcomes depending on the evidence that the interested parties bring before the court in each case.

70Petrin (n 67) 615.

71Cassidy v Ministry of Health [1951] 2 KB 343 at 360; David Milman, ‘Groups of Companies: the Path

Towards Discrete Regulation’ in David Milman, Regulating Enterprise Law and Business Organisations in the UK (Hart Publishing 1999) 222 point out, there are various tests that can be used to show that company is controlled by other companies, the first test is the control of a majority of voting rights or control of a majority of the board, or the fact of a dominant influence exercised by virtue of provisions in the constitution or by contract.

72VTB Capital Plc v Nuttritek International Corp [2013] UKSC 5, [2013] 2 WLR 398.

73Petrin (n 67) 616; David Kershaw, Company Law in Context (2ndedn, Oxford University Press 2012) 46-77.

74Chandler v Cape Plc (n 69) 80.

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Consequently, in Chandler there was an indication of a slight change from the propositions of

Adams, but this movement is still slow and uncertain; thus, the Salomon principle still prevails.

To conclude, the analysis demonstrates that the limited liability and corporate legal personality principles, initially designed for individual companies, also apply to MCGs. As it was revealed, even in the case of MCGs, each company is treated separately and not as a single economic unit. Although the separate legal personality principle applies to MCGs, there is no unifying standard to determine when the corporate veil will be lifted and what factors to consider in lifting the veil of MCGs in order to extend the liability of a subsidiary to its parent company. This is because the courts will always consider each case on its merits to ascertain whether the facts of the case justify the lifting of the corporate veil, and how much weight a particular piece of evidence bears in the final outcome would depend on the views of the judges.75Also, the criteria that the courts have applied on whether to treat an MCG as one entity, such as justice, agency and other criteria, are uncertain and ambiguous. Therefore, it is difficult to anticipate when and in which circumstances the court will disregard the separate legal personality of the insolvent corporate group and what factors the courts will consider. Invariably, this results in legal uncertainty, particularly in relation to the cross-border insolvency of MCGs, because, as demonstrated in the cases above, the court will determine the issue of lifting the veil on a case by case basis.

In the next part, a critical review of the conflict of laws perspectives is provided. This is because the foregoing analysis revealed that company law principles are not very useful in addressing the problems involved in the insolvency of MCGs, particularly with regard to promoting legal certainty. Therefore, it is likely that these problems can be addressed through

75 Karasz (n 55) 25.

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