Piercing the Corporate Veil: Shareholder Liability for Corporate Torts

Date01 June 2001
AuthorWan-Q Pak,Lucas Bergkamp
Publication Date01 June 2001
Lucas Bergkamp*
Wan-Q Pak**
8 MJ 2 (2001) 167
Piercing the Corporate Veil: Shareholder Liability for
Corporate Torts
Limited liability is one of the fundamental principles of modern corporate law. A
corporation is a legal entity distinct from the directors and shareholders, and, like the
directors and shareholders, has its own assets and liabilities. Shareholders’s limited
liability, however, is not absolute. In some situations, their limited liability is set aside.
Where shareholders are liable for the debts of a corporation, we say that the corporate
veil is pierced. Industrial accidents and large scale environmental disasters,1 such as the
1999 cyanide spill at the Aural gold mine near Baia Mare in Romania,2 have revived the
interest in veil piercing to reach additional deep pockets to finance environmental
* Hunton & Williams, Brussels.
** Counsel, Korea Telecom, Seoul, Korea.
1. Accidents that have raised piercing issues include the industrial accident at a Union Carbide plant in
Bhopal, India (Indian victims sued the parent company in the US and India, see In re Union Carbide
Corporation gas plant disaster at Bhopal, India in December, 1984, United States Court of Appeals,
Second Circuit, January 14, 1987, TMA 92/2, 46. Mehta et al. v. Union of India et al., Supreme Court
of India, December 20, 1986, TMA 92/2, 48; Union Carbide Corporation v. Union of India et al.,
Supreme Court of India, May 4, 1989, TMA 92/2, 49; Union Carbide Corporation v. Union of India,
Supreme Court of India, October 3, 1991, TMA 92/2, 54), the Amoco Cadiz oil spill (see In Re oil spill
by the ‘Amoco Cadiz’ off the Coast of France on March 10, 1978, MDL Docket N° 376 N.D.III, 1984
American Maritime Cases, 2123-2199), the industrial accident at Seveso, Italy, which prompted the EC
to adopt emergency planning and response legislation, and the Exxon Valdez oil spill (see In re the
Exxon Valdez Ala. Native Class v. Exxon Corp. 104 F.3d 1196 (9th Cir. 1997)).
2. Near Baia Mare in Romania, in the winter of 1999, water containing high concentrations of cyanide
spilled into a river. This accident happened at the Aurul gold mine, where cyanide is used for gold
extraction. Due to heavy snowfall, a dam of a basin holding the cyanide-containing water broke, and
cyanide washed into the river killing fish and contaminating the water. Contaminated water reached the
river Tisza and then the Duna, threatening damage to the environment in neighbouring countries,
including Hungary. The mine from where the spill originated was owned 50% by Esmaralda, an
Australian company, 45% by the Rumanian state, and 5% by other Rumanian mine operators. Hungary
threatened to initiate legal proceedings against the Aurul gold mine, the Rumanian state (for failure to
warn), and Esmaralda (under a piercing theory). For a report of the Baia Mare Task Force established
after the accident to assess the damage in the region, see http://www.cian.hu/doc/hotspots.htm and
Piercing the Corporate Veil: Shareholder Liability for Corporate Torts
168 8 MJ 2 (2001)
remediation and restoration.3 In line with this trend, in one of the drafts of the White
Paper on environmental liability, officials of the Commission of the European
Communities (EC) floated the idea of making parent companies or other shareholders
liable for the environmental liabilities incurred by the corporations of which they hold
the stock.4 In the final draft White Paper this idea was dropped, but it will likely come
up again in the legislative process that is supposed to lead to an EC-wide environmental
liability regime. Theories of vicarious liability are not new to liability law; in many
jurisdictions, employers, for instance, are fully liable for the torts committed by their
employees. But a shareholder is not an employer, and the concept of shareholder
liability is a relatively new phenomenon in the area of environmental liability. The
Commission staffers’ proposal raises questions about the desirability of this approach,
the rationale of limited liability, and the justifications of shareholder liability in general
and for environmental liabilities in particular.
This article discusses the concept of veil piercing and explores its scope, rationale,
justification and limits. It focuses on a corporation’s extra-contractual or tort liability,
and refers in particular to environmental liability. We first discuss what veil piercing is
not. Several legal doctrines resemble veil piercing in that they may also lead to
shareholder liability. However, they are distinct from veil piercing, and should be
distinguished from it. We then focus on what veil piercing is, and discuss the grounds
on which courts pierce, and should or should not pierce, the corporate veil and impose
liability for corporate debts on shareholders. The third part analyzes the rationale and
justification of limited liability. A proper understanding of limited liability and its
functions is essential to understanding the implications of veil piercing. In the next part,
we turn to the question whether a rule of unlimited shareholder liability, as floated by
the Commission staffers, should be part of civil liability law. Unlimited shareholder
liability is closely related to veil piercing and can be viewed as institutionalized or
generalized veil piercing. The final part sets forth some conclusions.
§ 1. Veil Piercing Distinguished
Veil piercing should be distinguished from other concepts that may lead to liability of
directors and officers or shareholders. Some of these concepts overlap with veil
piercing, while other doctrines are clearly separate from veil piercing and have little or
nothing in common with it.
First, director and officer liability is typically predicated on specific statutory
obligations imposed on directors and officers (e.g. with respect to the corporate
3. In the US, veil piercing is also often argued in cases involving product liability or personal injury. For
a cross-border case involving a claim by a Namibian employee against the UK parent of a Namibian
mining company see Connelly v. RTZ Corporation PLC et al., [1997] 4 All ER 335.
4. S. Poli, ‘Shaping the EC Regime on Liability for Environmental Damages: Progress or
Disillusionment?’, 8 European Environmental Law Review (1999), 299-309, 304.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT