A Research Analysis on Tort Claims and Finding Solutions

The rationale of the House of Lords in Salomon was that so lengthy as all of the appropriate formalities were observed by the corporations and persons involved, the new business "was a several and independent corporation" (27). It "is at law a different person altogether from the subscribers . . . the business is not in law the agent of the subscribers nor trustee for them . . . Nor are the subscribers, as members liable, in any shape or form, except to the extent and in the manner provided by the Act" (Companies Act 1862). The Lords concluded that the Act permitted the creation of limited liability corporations so as to facilitate the creation of wealth beyond the reach of the creditors of insolvent corporations. In other words, an person could not place himself immune from liability for his debts, except by filing for bankruptcy, but a business could, up to the amount of its minimum capital and the Commons so intended. Lord McNaghten mentioned at p. 51 that "among the principal reasons which induce folks to form personalized organizations . . . a single is their need to avoid the risk of bankruptcy, and the increased facility afforded for borrowing money."

Subsequent situation holdings have largely been consistent with that of Salomon, except exactly where the discretion of the courts has been limited by statute, such as by sec.

In Acatos and Hutcheson Plc v. Watson [1994) (Ch.D.) Chancery Division, a situation involving the validity of a corporate reorganization, several and more restrictive regular than the 1 in Creasey was announced. The corporate veil could only be pierced where there was no sound commercial reason for the transaction in question and those who dealt with the business were thereby disadvantaged.

In those cases, the courts have adhered rigorously to form. As it noted in Adams v. Cape Industries PLC [1990] Ch 433, C.A. (discussed below), the key point in the courts' unwillingness to pierce the corporate veil was whether "the corporate forms applicable to [the business whose veil may possibly have been pierced] as a separate legal entity were observed" (474). The penchant of the courts for ignoring underlying economic realities in favor of a highly formalistic method was expressed by Lord Goff in Bank of Tokyo Ltd. v. Karou [1987] A.C. 45 as follows: "economically . . . they [the firms in question] were one. But we are concerned not with economics but with law."

In other cases, the effect of the English court's method is to deny remedies to men and women with legitimate tort claims. The leading case is Adams. Cape Industries, an English company, was engaged world-wide in the business of mining and promotion asbestos. It operated in foreign countries including the United States through subsidiaries but as component of an integrated global complex in which the English parent holding company, Cape Industries, set policy. Cape and its U.S. subsidiaries, N.A.A.C, a Texas advertising subsidiary and Capasco, a wholly owned English subsidiary, were declared liable for more than $5 million by a Federal court in Texas.

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