Select for FOCUS™ or Delivery

Copyright (c) 2004 State Bar of Texas
The Corporate Counsel Review
May, 2004
23 Corp. Couns. Rev. 15
LENGTH: 10100 words

ARTICLE: U.S. Corporate Liability For Torts Of (Foreign) Subsidiaries

NAME: By Eric Allen Engle*

BIO:
 
* Eric Engle holds a J.D. from St. Louis University, a Diplom d'Etudes Approfondies from l'Universite Paris II, (Fiscalite, Mention) another D.E.A. from Paris X, Nanterre (Theorie du Droit) as well as an LL.M. in Europaisches Recht from the Universitat Bremen where he works as a researcher and teacher at the Zentrum fur Europaische Rechtspolitik. He is currently pursuing a doctorate in human rights law and an M.Sc. in Computer Science. He has a personal homepage at http://lexnet.bravepages.com.

SUMMARY:
... Can a U.S. corporation be liable for the acts of its third world subsidiary or its third world sub-contractor? A cursory examination might yield the wrong impression: It is true that U.S. law is generally presumed to have no extraterritorial effect. ... These include (in decreasing likelihood of success): theories based on actual or constructive fraud, theories of agency (principal and agent, master and servant, respondeat superior ), joint and several liability, strict liability, imputed negligence (vicarious liability ) - under a theory of respondeat superior or under a theory of vicarious liability and finally and most confusingly by "piercing the corporate veil". ... Theoretically, liability could be chained: a subsidiary could be held liable by respondeat superior for the negligent act or injury to its employee - and this negligence could in turn be imputed via agency to the U.S. parent corporation. ... Imputed negligence for acts of a corporate subsidiary or subcontractor is similar to strict products liability and respondeat superior: The law is willing to extract wrongful profits from any company in the stream of commerce profiting from labor law violations and externalisation of costs via piercing the corporate veil. ... PIERCING THE CORPORATE VEIL IN THE E.U.: LIABILITY OF A PARENT COMPANY IN THE E.U. FOR THE TORTIOUS ACT OF A SUBSIDIARY ... To impute the tort to the parent company the court must first "pierce the corporate veil" and look at the ownership and control of the subsidiary by the parent. ...  

TEXT:
 [*17] 

INTRODUCTION
 
Can a U.S. corporation be liable for the acts of its third world subsidiary or its third world sub-contractor? A cursory examination might yield the wrong impression: It is true that U.S. law is generally presumed to have no extraterritorial effect. ¹ Thus, U.S. corporations overseas are not ordinarily bound by U.S. labor or environmental law standards. ² Further, procedural obstacles such as forum non conveniens ³ or even the existence of subject matter jurisdiction also often block transnational litigation. But a lawyer who contented themselves with a superficial analysis might be one day be surprised unpleasantly: Though U.S. laws are presumed to have no extraterritorial effect, that presumption can be overcome by specific evidence of congressional intent to the contrary. ⁴ U.S. corporations can be directly liable for some wrongful acts abroad which  [*18]  are illegal under U.S. law ⁵ such as violations of securities and exchange commission rules ⁶ and the the Sherman Anti-trust Act. ⁷ Furthermore, U.S. corporations can have the liability of their subsidiaries imputed to them via principles of agency such as respondeat superior. And of course some torts will themselves be transnational. The quick answer "no liability" is not always the correct answer. Corporate liability for subsidiaries is not merely esoteric or theoretical: globalisation, NAFTA ⁸ and the resulting outsourcing of jobs to Mexico make head-office liability for branch-plants a very real legal issue. ⁹

This article attempts to outline the pitfalls for U.S. corporations doing business in the third world through subsidiaries and subcontractors. A U.S. corporation can be attacked for its subsidiaries' acts on several theories. These include (in decreasing likelihood of success): theories based on actual or constructive fraud, ¹⁰ theories of agency (principal and agent, master and servant, respondeat superior ¹¹), joint and several liability, ¹² strict liability, ¹³ imputed negligence ¹⁴ (vicarious liability ¹⁵) - under a theory of respondeat superior or under a theory of vicarious liability  [*19]  and finally and most confusingly by "piercing the corporate veil". ¹⁶ Though "piercing the corporate veil" is the most frequent attack it is also the most doctrinally confused and thus the least likely to succeed - but mainly because it is generally not well plead by plaintiffs. In fact, most claims made by victims of torts fail to inculpate parent corporations not because the courts are reluctant to compensate defendants, nor because courts are concerned about over-compensating defendants: judges regularly find cause to reduce the damages awarded by juries in cases of corporate liability for subsidiary's torts and just as regularly pierce corporate veils, particularly in cases of personal injury. When attacks on corporations fail this is usually because plaintiff's lawyers misunderstand or misapply the various theories of liability.

Any defence based on an opponent making a mistake is necessarily weak. The consequences of liability can be disastrous to the corporation. So corporate counsel interested in defending their clients - and in real reform to the expensive and inefficient tort system ¹⁷ - should carefully consider the various ttheories presented here so as to properly advise their clients as to what the law permits, what the law might tolerate, and what the law will not tolerate. Prudent lawyers counsel clients against committing acts in "the grey zone". Given the number and strength of potential attacks on corporate defendants this advice is all the more pertinent: personal injuries in the United States can, even after judicial rectification, still mount in the hundreds of thousands of dollars and exceed the company's insurance coverage. Factual complexity and legal ambiguity explain why companies that think they can outsource their problems should not blithely assume they escape liability by resorting to legal formalism.

 [*20] 

A. Practical Scenarios:
 
There are two core scenarios of liability this paper addresses. The first case is the liability of a first world parent company for its third world subsidiary. The second case is the liability of the first world company for subcontracting (outsourcing). In both cases the parent company or its directors, officers, employees and even shareholders could be held liable for tortious acts of their subsidiary or even sub-contractor. Such negligence may either be imputed or direct. Theoretically, liability could be chained: a subsidiary could be held liable by respondeat superior for the negligent act or injury to its employee - and this negligence could in turn be imputed via agency to the U.S. parent corporation. That theory is basically sound in substance, but would obviously meet with serious procedural obstacles, notably forum non-conveniens ¹⁸ and possibly also jurisidictional questions. ¹⁹ These jurisdictional obstacles are not discussed here as they are addressed by the author elsewhere. ²⁰ These procedural obstacles while serious are not insurmountable. Here however we confine our analysis to substantive law.

Both respondeat superior and strict products liability are examples of imputed torts. The law is willing to impose liability in cases of employee torts committed in the scope of employment. ²¹ This is because, though the employer may not have been actually negligent they are in the position to control the employee's behavior. Similarly, the law imposes strict liability for defectively designed or manufactured products on any  [*21]  merchant in the stream of commerce. ²² The merchant held liable for the defective product they sold may not have been in fact negligent: a distributor of a product does not necessarily have the expertise required to recognize hidden design or manufacturing defects in a product. However the merchant is in a position to know who actually is negligent and thus to seek indemnisation - unlike the tort victim who may not be able to identify the negligent tortfeasor due to "conspiracies of silence". Again, reasons of information and control explain why negligence is imputed.

Imputed negligence for acts of a corporate subsidiary or subcontractor is similar to strict products liability and respondeat superior: The law is willing to extract wrongful profits from any company in the stream of commerce ²³ profiting from labor law violations and externalisation of costs via piercing the corporate veil. ²⁴ Where does the court draw the line? What are the limits of liability? To understand these questions a brief historical exposition is necessary.

B. Historical Perspective
 
How are we to understand these strange tendencies in the law? By contextualising the positive law through legal theory and history we can understand apparently contradictory tendencies in the law. The history of modern negligence law is marked by the progressive abandonment of the enlightenment principle of the rational, free moral agent as the definitive legal  [*22]  subject. This person supposedly was or could be free to negotiate any and all transactions with other actors who were also presumed to be freely bargaining individuals. This theory of the individual legal subject was radically different from feudalism. It did however correspond somewhat to the yeoman society of the late feudalism and even early capitalism. But that model of the legal subject obviously no longer corresponds to the reality of late capitalism, with its nameless, faceless and all-powerful corporations and continental governments. Legal scholarship has not been blind to these facts: the law has recognized that the enlightenment homo economicus was in fact never an accurate description and that the reality of industrial relations of mass production meant that the enlightenment archetype of the free citizen, even if true at a certain time or at least among some sectors of late feudal Europe was soon amalgamated and crushed into alienable and alienated consumer-producers with very little real freedom of negotiation. This can be seen most notably in products liability and also in compulsory insurance systems.

In tort law this historical fact played itself out in the gradual rejection of enlightenment legal doctrines and their replacement by an understanding of the individual as just about inevitably socially constrained. This redefinition of the role of the individual in society led to the rise of a variety of strict liability regimes which no longer look to fault as the primary basis of liability. Legal formalism with its precision and rigidity has been rejected in favor of ambiguous contextual balancing tests. ²⁵ Consequently, for example, manufacturers of defectively designed or produced merchandise - including the licensors and franchisors thereof - can be held strictly liable at any poinnt in the stream of commerce - even outside the U.S. - without showing negligence. ²⁶ This is in fact a reappearance of negligence per se - a legal formalism which supposedly had been abandoned. Similarly, employers have over time been increasingly held liable for the torts of their employees (for example, the abandonment  [*23]  of the fellow servant rule, wherein the tort of a fellow servant as to another co-worker would not be imputed to the employer).

Regardless of doctrinal inconsistencies one fact is certain: Industrial society just about guarantees a large number of grave accidents due to mechanisation. Long hours, low pay and dangerous machinery translates into death and disfigurement at the workplace. But, since capitalist society was richer than feudal society some of the riches produced were used to improve work-place safety. The irony of capitalist production is industrial society, with its greater dangers and risks to machine workers than feudal society also has greater resources: Recognizing the need for social stability it admits some limited reforms to maintain the system qua system.

The decline of the individual as atomistic legal subject was accompanied by a loosening of the concept of causation. Causality is less strictly regarded today than in the enlightenment. This is most clearly seen in cases of toxic torts: there probabalistic proofs are allowed. Thus, where two tortfeasors exclusively produce a given product which caused the damage each would be responsable according to their market share. Similarly, the rejection of the "all or nothing rule" (any negligence on the part of the plaintiff no matter how slight operated as a total bar to the plaintiff's claim) in cases of contributory negligence in favor of "comparative negligence" (a plaintiff X% negligent would only recover 100% minus X% of their damages) is another example of the decline of formalism and greater tolerance of systemic uncertainty in the interest of a more exact result in the specific case at bar.

These are far from the only examples where the rationalist categorical enlightenment view of the law has been implicitly rejected. Legal uncertainty has also increased through the pervasive adoption of interest balancing tests and the rejection of bright line tests. Another example of the departure from the principle of individual responsibility for definite acts - appropriate in a feudal society, and impossible in an industrialized world - as is the rise of social insurance generally. Insurance is clearly the more economical remedy to the problem of externalities because it avoids the transaction costs and uncertainties of trial and windfall judgements.

In light of these facts the litany of complaints from industry as to the injustice and anti-economic action of tort regulation is easier to understand. However, corporations struggling for tort  [*24]  reform should recognize that their arguments will be taken more seriously as they focus on general compulsory insurance as a cheaper way to protect against wrongs than the "crap-shoot" of jury trials. When corporations argue that no one should be responsible for the accidents which are just about inevitable in industrial society they lose credibility. In contrast it is true that as a regulatory system tort law is expensive. It is also true that punitve damages encourage frivolous litigation and result in windfall gains to plaintiffs. A compulsory insurance system, like those found in most all European countries, would avoid windfall punitive damages benefits to tort victims and could be combined with a scheme of fines in case of wrongful conduct thus reducing not only litigation burdens but also tax burdens and perhaps even be nearly self financing.

Having sketched the theoretical questions and reform proposals, this article now turns to the liability of a parent company for acts of its subsidiary or for acts of its sub-contractors particularly where the sub-contractor or subsidiary is overseas. Potential defendants are shareholders, directors, officers and employees of the parent company. The tortious act is committed by the subsidiary/subcontractor or its employee.

I. IMPUTED LIABILITY
 
Part of the confusion in the field of imputed or direct liability of a corporation for the acts of its subsidiary is due to a confusion of direct and imputed liability. By keying on this distinction we can avoid a confusion. A shorthand description may help: in a case of imputed liability there is only one tort with two or more tortfeasors. In cases of direct liability there is only one tortfeasor - the parent corporation.

The rationale of imputed liability is that the tortious act of one person (legal or natural) will be attributed to another person (legal or natural) because of the control exercised by the one over the other. The legal theories of imputed liability are respondeat superior and agency. However we shall see that agency principles also appear in the issue of piercing the corporate veil. But piercing the corporate veil is not a form of imputed liability! This type of doctrinal confusion is inherent in the current structure of veil-piercing. We now examine the various legal theories to expose this confusion, its sources, and possible solutions.

 [*25] 

A. Respondeat Superior
 
Arguments based on respondeat superior seek to impute liability to the parent the company for the act of its employee. They include "chaining" arguments wherein the employees wrongful act is attributed to the employer corporation (generally a subsidiary) which in turn is imputed to the parent company under any of the various theories.

Briefly, to be liable for the act of the employee the plaintiff must prove ²⁷ that the employee acted within the scope of their employ at the time of the injury. Employers are not liable for the acts of the employee which are independent, self-serving acts and in no way facilitate or promote the employer's business. ²⁸ Thus acts of abuse by supervisors of employees motivated by subjective negative emotions of the employee are not within the scope of employment and will not be imputed to the employer. ²⁹ However, the scope of employment not by formal description but by actual practice and custom. ³⁰ Thus conduct may be determined to be within the scope of employment due to implicit authorization ³¹ and can even including employees' acts which conflict with commands of the employer ³² where those acts further the purposes of the employer. ³³ Thus employers can be liable under a theory of respondeat superior for the acts of security personnel in their employ. ³⁴

B. Liability Based on a Theory of Agency
 
A second form of imputed liability relies on principles of agency: namely that the principal exercised such a degree of control over the act of the agent that the court can fairly impute the agent's wrongful act to the principal.

 [*26]  Arguing that the subsidiary corporation is acting as the agent of the parent corporation is probably the strongest argument the plaintiff can make. In most cases where this argument is made and where there are grave personal injuries the court is willing to impute negligence to the parent company - especially where the subsidiary is thinly capitalized or appears to have been formed precisely to avoid liability. In contrast, courts are extremely reluctant to pierce the corporate viel in cases of purely pecuniary losses, namely where the creditors of a bankrupt corporation seek to reach the personal assets of the shareholders of the corporation. ³⁵ This is for the obvious reason that general financial liability of shareholders for all debts of a corporation would discourage investment in stocks with deleterious economic consequences. ³⁶ In contrast, courts are willing to pierce the corporate viel in cases of negligence resulting in personal injury. There negligence is imputed to the principal for the act of the agent. ³⁷ This imputation of negligence from one actor in a corporate group to another is based on the same rationale which justifies the imputed negligence of the master for their servant: the principal directed the agent to undertake the wrongful act or at least delegated them the necessary power to do the wrongful act. Thus both the agent and principal are jointly and severally liable for the act's wrongful consequences. However we shall also see that agency principles underlie one theory of piercing the corporate veil - and thus can also be the basis of a form of direct liability. Naturally the result is doctrinal confusion.

II. DIRECT LIABILITY

A. Joint and Several Liability
 
Where the parent corporation and its subsidiary together commit a tort they can of course be held jointly and severally  [*27]  liable under the ordinary rules of tort law. In such a case the corporate form is not ignored: each corporation is jointly and severally liable for the wrongful act.

B. Fraud
 
The fraudulent acts of a parent corporation whether effected through or independantly of the subsidiary corporation are of course an independent basis of liability and thus can be the foundation of direct liability. However, just as principles of agency can be the basis for piercing the corporate veil so also can the corporate veil be pierced under a theory of fraud. Since the substantive fraud is relatively simple doctrinally we reserve discussion of the theory of fraud as a basis for piercing the corporate veil for later in the paper just as the discussion of the agency theory of veil piercing is also discussed infra.

C. Piercing the Corporate Veil - Theories of Veil Piercing
 
Piercing the corporate veil is an exceptional remedy ³⁸ equitable in nature. ³⁹ Courts are reluctant to ignore the corporate form because that would discourage investment in corporations. and thus must meet the usual procedural requirements of any equity case. Whether the corporate veil should be pierced is a question of fact. ⁴⁰

Direct liability may also be imposed on the corporation by decision of the court. Essentially, the court chooses to disregard the separate legal existence of the subsidiary effectively voiding its legal existence. As a result, the parent company is directly liable for the acts of the subsidiary. This legal operation is known by the term "piercing the corporate veil". However the doctrine of corporate veil piercing is extremely confused both in theory and in practice. Part of this confusion results from the fact that several different legal questions are all subsumed in the question whether the veil should be pierced. For example, the separate existence of the subsidiary may be ignored as to taxation questions, as to the debts of the corporation (which  [*28]  then are passed on to the shareholders!) or as to the torts and contracts of the subsidiary. In fact, several different questions are all subsumed under the heading "piercing the corporate veil." Namely: who is liable? Directors? Officers? Employees? Shareholders? Of course a descending scale of liability from those who exercise the most de facto control over the company (directors and officers) to those who exercise the least de facto authority (employees and shareholders) would be logical as a functional determinant of whether to ignore the corporate fiction. Such, along with the question whether the injury is bodily or merely proprietary, may even be a rough guide to actual court practice. However the law does not - officially - take that perspective. Veil piercing also does not consciously address the questions: to whom is liability owed (customers, employees, shareholders), and what duty is owed? (A duty under contract, or tort?). Thus the multiple tests and doctrinal confusion appear to be the result of a failure to frame the question systematically. Since a systematic formal approach has not been taken up by the courts this article does not propose one - it would have no legal authority on which to stand. However such a systemization of this field of law would be desirable to dispell the needless confusions in law which result in legal uncertainty, increased transaction costs, and anomalous and unequal decisions. Here we will be looking at two questions: The liability of a corporation for the torts of its subsidiary with particular regard to the liability of the parent corporation to the employees of the (overseas) subsidiary.

This much is clear: Parent corporations generally have no duty to control the acts of their subsidiaries. ⁴¹ However, this general rule can be overcome by piercing the corporate veil and treating the two entities as one. ⁴² There are several different theories which can be the basis of an argument that the corporations existence should be ignored which we now examine.

 [*29] 

1. The alter ego theory ⁴³
 
The alter-ego theory imposes direct liability on the parent on the theory that the two enterprises are in fact one. ⁴⁴ The alter ego theory of piercing does not require a showing of fraud. ⁴⁵

2. The identity theory ⁴⁶
 
Under the identity theory the unity of interest and ownership of the parent and subsidiary is so great that the subsidiary company is considered to legally have never existed or to have ceased to exist. ⁴⁷ The person seeking to deny the corporate existence of the subsidiary must:

"show that there was such a unity of interest and ownership that the independence of the corporation had in effect ceased or had never begun, [such that] an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise." ⁴⁸

3. The instrumentality theory ⁴⁹
 
Under the instrumentality theory the corporate veil is pierced where the dominant corporation essentially so dominated the subsidiary corporation that the latter became a mere instrument of its will. The test for piercing the corporate veil raises factors balanced in other tests for veil piercing. It has been summarized by the court as follows:

"The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to  [*30]  the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff's legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of." ⁵⁰

Like all piercing cases, this is a theory of direct liability, not imputed liability, for the law simply does not recognize the existence of the dominated company. Thus liability could not be imputed.

4. Fraud as the basis for piercing the corporate veil:
 
Corporations can also be held liable for the acts of their subsidiaries where the corporation is engaging in fraud, or where the subsidary is used to perpetrate a fraud. ⁵¹ Again, this can create confusion since some corporate irregularities sufficient to justify piercing the corporate veil are also fraudulent and thus an independent basis of liability. A claim of fraud may thus be either one element in determining whether to pierce the corporate veil or an independent basis for a cause of action or both. Again, this is a fact-intensive practical inquiry which will vary from case to case: Thus the level of fraud which must be shown to justify corporate veil piercing will also vary from case to case. ⁵²

5. Piercing the corporate veil under a theory of agency ⁵³
 
One court holds that to pierce the corporate veil on a theory of agency "the corporation must be a sham and exist for no other purpose than as a vehicle for fraud." ⁵⁴ In contrast however, the Delaware Chancery court disagrees and states that "Under the agency theory, the issue of liability rests on the amount of control  [*31]  the parent corporation exercises over the actions of the subsidiary." ⁵⁵ Thus, under the agency theory, "The parent corporation will be held liable for the activities of the subsidiary only if the parent dominates those activities." ⁵⁶ This apparent split between "dominance" and "sham" (i.e. sole purpose vs. multiple purposes) is one example of the doctrinal confusion resulting from not carefully distinguishing direct liability from imputed liability. If the corporate veil is pierced, then there is no subsidiary so liability must be direct. If however liability is imputed for the parent corporation on a theory that the subsidiary corporation acted as its agent then the legal existence of the subsidiary corporation is still recognized and thus liability is imputed on a theory of agency. In the second case there is in fact no piercing of the corporate veil.

Multiple theories and practical overlap due to similar fact patterns explain the confusion in imputed and direct liability of corporate parents vis-a-vis subsidiariess. This confusion is exacerbated by courts' ignorance of the differences in the tests. The courts themselves acknowledge the confusion:

"In many instances, the courts profess to apply one such theory but in fact rely upon evidence or authorities proper to another. An example is Advance Coating Technology v. LEP Chemical (S.D.N.Y. 1992) 142 F.R.D. 91, where the court says it is addressing the plaintiffs' alter ego argument but then proceeds to rely upon what seems to be agency principles." ⁵⁷

Again, the different rules can be decoded first by asking whether the liability to be imposed is direct (liability for the act of the parent corporation itself) or imputed (vicarious liability imposed on one actor for the act of another due to the control of the second actor by the first). Confusion can also be dispelled by recognizing that each of these theories ultimately relies on a fact intensive investigation of practical realities of the case at bar. Thus it is not surprising that courts often resort to balancing tests to resolve conflicting factors. Because of theoretical confusion and practical factual overlap the only way out of the morass - short of legislative reform (the corporate veil doctrine  [*32]  is judge-made law) - seems through the use of multi-factor interest balancing tests.

6. Balancing Tests
 
Despite the doctrinal confusion and multiple theories of veil piercing, one element may be common to the tests (agency, instrumentality, alter-ego, identity): balancing of competing factors and interests to determine whether the corporate veil may be pierced. Courts do in fact - consciously ⁵⁸ or not - use multi-factor balancing tests to determine whether to pierce the corporate veil. Balancing tests are the hallmark of contemporary legal decision making: they consider several different factors in their context: No one fact in isolation will result in a court choosing to disregard the corporate fiction. Instead, courts must look to the totality of circumstances to determine whether the corporations should be considered joined. ⁵⁹ Having determined relevant factors to be considered courts must then assign different "weights" to each of the interests and compare them (i.e. "balancing" the competing interests of all parties - not just plaintiff and defendant) to make the decision.

Factors to be considered in determining the balance of interests in piercing the corporate veil include:

-Stock ownership ⁶⁰ - the fact that the parent owns a majoritty or even all the stock of the subsidiary alone is not sufficient to warrant holding the parent corporation liable for the contracts or torts of the subsidiary.

-Interlocking boards of directors and/or officers and employees. while common employees, officers, or shareholders may be evidence of no factual separation of corporate interests these are alone insufficient and there are cases where despite such factors no liability was found. ⁶¹ If the two companies have overlapping  [*33]  boards of directors and/or officers and employees the moving party must nevertheless show that in fact the domination and control of the subsidiary by the parent was complete: interlocking boards of directors and officers and stock ownership are alone insufficient to justify disregarding the separate legal existence of the subsidiary. They are however one factor to be considered. ⁶²

-Commingling of funds, ⁶³ or other financial irregularities such as one-sided contracts which favor one of the companies at the expense of the other, ⁶⁴ (e.g. sale of goods at or below costs). Common tax returns, common addresses, parent's use of subsidiary's property as if it were its own. ⁶⁵ All of these factors can be evidence of fraud and/or abuse of the law. Where the practical effect of such legal gymnastics results in substantive injustice to victims of negligent torts the court will disregard the corporate separation.

-Whether the companies hold themselves out as separate entities to third parties.

-Undercapitalization: One critical factor in determining whether the court will disregard the corporate fiction is the under-capitalization of the subsidiary. ⁶⁶ This is all the more true where undercapitalization is a deliberate corporate policy designed precisely to evade responsibility for wrongs of the corporate group. ⁶⁷

All these questions can only be answered by looking to the actual facts to determine the actual degree of control exercised by the parent over the subsidiary. ⁶⁸

 [*34]  Thus the doctrinal confusion may be clarified not only by dogmatically distinguishing direct and imputed liability from each other and by properly recognizing and distinguishing the various theories of veil piercing (agency, instrumentality, alter-ego, identity) from each other but also by acknowleding the common factors underlying each of these tests. By evaluating the problem in toto using a balancing test the advocate may have a better practical grasp on how to properly advise her clients.

7. Reverse Piercing the Corporate Veil
 
To add to the confusion noted there is also a theory of "reverse piercing" of the corporate veil. Thankfully, this is in fact quite simple. In "reverse piercing" the debts or wrongful acts of individuals (shareholders, or directors or even officers and employees) are attributed to the company rather than the usual piercing situation where the acts of the company are attributed to its shareholders. ⁶⁹ Further, the same rules in traditional veil piercing apply to reverse veil-piercing ⁷⁰ Since reverse veil-piercing usually involves seeking to reach corporate assets for debts rather than torts we do not address it further here.

D. Independent Contractors/Subcontractors
 
We have just analyzed the liability of corporate parent and subsidiary. Can the corporation avoid liability by resorting to sub-contractors? Not necessarily. Liability for the act of a supposed independant contractor will be imputed to the contracting party where both the sub-contractor and the contractor have the same offices, and where all finances of both companies are handled by one of them and where losses of the subsidiary are accounted to and paid by the parent. ⁷¹ Whether a franchisee is an independent contractor or an agent of the franchisor is a question of fact. ⁷² Thus where franchisor does not completely  [*35]  dominate and control franchisee it was no error of law to find that the franchisee was an independent contractor and not an agent thus barring vicarious liability. ⁷³ Again, a fact intensive inquiry similar to the questions examined in piercing the corporate veil will be undertaken to determine whether it is equitable to hold the contracting party liable for the torts of their subcontractor.

E. Rico
 
In theory, systematic abuses of labor in a foreign subsidiary or by a foreign sub-contractor might lead to liability under the Racketeering Influenced and Corrupt Organizations Act. However there are numerous procedural obstacles which limit in practice the application of RICO. ⁷⁴ The author has addressed this topic extensively elsewhere, so other than noting that RICO could be a basis of liability of the parent company for the subsidiary or subcontractor the reader is referred to the literature. ⁷⁵

III. PIERCING THE CORPORATE VEIL IN THE E.U.: LIABILITY OF A PARENT COMPANY IN THE E.U. FOR THE TORTIOUS ACT OF A SUBSIDIARY ⁷⁶
 
Is the situation in the European Union similar to that in America? Essentially, yes: corporate forms can be ignored where domination and control of a corporation is complete but  [*36]  will ordinarily be respected. However one possible theory that may meet more success in Europe than the United States is that the company that exploits the labour of the third world worker not only violates international human rights law but also obtains thereby an unfair competitive advantage. Thus where a corporate subsidiary employs slave labour, or perhaps even child labour in contravention of the ILO provisions, or where it pays women workers less than men doing the same work we could fairly say that there is a tort. This tort however benefits the parent company in Europe, and is a detriment to its competitors which do not employ slave labour, child labour, or underpaid women's labour. Thus the tort also could constitute an unfair competitive advantage under Article 81 of the EC Treaty. Article 81 states that:

"The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market" ⁷⁷ (emphasis added).

Clearly, an agreement between a parent company and a third world subsidiary or subcontractor to profit from slave labour, child labour, or unequal women's pay would affect trade within the Union and distort competition by favouring the predatory exploitative company at the expense of companies which obey international law. The company's only argument would be that Article 1 3 permits an exception in cases where such an agreement "contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit" ⁷⁸ However this argument would likely fail because the consumer does not in fact have a fair share of the benefit from an anti-competitive agreement or operation which is based on labour exploitation for they are in fact profiting therefrom. Further, slave labour and sweatshops are hardly "economic progress" or improvements in the production or distribution of goods. Thus, if the agreement or enterprise is found to be anti-competitive as profiting from slave labour, illegal child labour, or the underpaid  [*37]  illegal labour of women then the exception would be unlikely to apply.

As to imputed liability in Europe as in America the torts of a wholly owned subsidiary may be imputed to the parent company. To impute the tort to the parent company the court must first "pierce the corporate veil" and look at the ownership and control of the subsidiary by the parent. ⁷⁹ The easiest case is the wholly owned subsidiary with unity of management in both parent and subsidiary. A case which would be almost as easy would be that of the parent company with a wholly owned subsidiary that however has a different board of directors. As the independence of the subsidiary grows, the likelihood of proving actual control decreases, and with it the likelihood of being able to impute legal responsibility to the parent company for the acts of a subsidiary. Ownership and control is of course reflected in stock ownership. It would be unlikely that the ECJ would impute control of a subsidiarity to a parent company which owns the largest bloc of stock in a subsidiarity but which bloc is a minority share of all shares.

The most difficult case is of, again, the independent subcontractor. In such a case there is no ownership or control (at least theoretically...) but there is a contract. Knowing that freedom of contract is a general principle of law it would be very difficult to show that the contract should be ignored. However fraudulent contracts do exist. It could be argued that where the European company knew or should have known that the contract it obtained was so favorable due to exploitative labor practices that that would constitute an unfair trading advantage. That does nothing to compensate the unfair labour practices in the third world but it would discourage EU companies from profiting thereby.

Once the corporate veil is pierced, obtaining jurisdiction under COM 44/2001 would be relatively easy. Thus, at least in theory, it would be possible to impute tort liability to a parent company either for a tort committed by a wholly owned subsidiary. Alternatively, a company might be fined for violations of human rights which also constitute anti-competitive behaviour. Thus, briefly, similar principles of law can be found in Europe to impose liability on corporations for the acts of their subsidiary in the third world.

 [*38]  Conclusion: The Transnational Corporate Group in International Law

Transnational corporate groups are increasingly influential ⁸⁰ in world politics. ⁸¹ Some have gone so far as to propose that corporations are or should be subjects of international law. ⁸² In fact, corporations, ⁸³ like other non-state actors, ⁸⁴ do have directly applicable duties and rights under international law. ⁸⁵ Corporations may have duties under the UN Declaration  [*39]  on the Elimination of All Forms of Racial Discrimination, ⁸⁶ the UN Declaration on the Elimination of All forms of Intolerance and of Discrimination Based on Religion or Belief, ⁸⁷ the Rio Declaration on the Environment and Development ⁸⁸ and other international conventions. These conventions state explicitly or implicitly that "private actors have both negative and positive duties in respect of socio-economic rights." ⁸⁹ and recognise the limited international legal personality of multinational corporations ⁹⁰ Implying that human rights can be enforced against corporations. ⁹¹ Thus to that extent corporations ⁹² may ⁹³ be said to  [*40]  have limited international legal personality. ⁹⁴ Corporations do not however have a constitutive power in the formation of international law. Yet corporations, and international financial institutions such as the world bank ⁹⁵ can contribute to the formation of customary international law ⁹⁶ by aiding in the process of elaborating norms ⁹⁷ even if sometimes only as observers ⁹⁸ and commentators.

 [*41]  Just as we have seen the law evolve from an enlightenment principle of individual responsibility for definite acts to socially contextualized diffuse responsibility with relaxed causation requirements so also are we seeing the rise of a transnational corporate governance. Corporate counsel can regard these facts with incomprehension, fear and distrust. Alternatively, they can understand the underlying long-term cyclical movements and flow with them. By developing rational responsible forms of transnational corporate governance corporate counsel can help their clients to pursue enlightened self interest, to improve the good-will of their clients by showing their company to be a "good neighbor" and even improve the voice of the corporation as a contributor to international law.

Legal Topics:

For related research and practice materials, see the following legal topics:





FOOTNOTES:


n1. See, e.g. United States v. Yousef, 327 F.3d 56, 86 (2003).



n2. David Emerick, Mark Gibney, The Extraterritorial Application Of United States Law And The Protection Of Human Rights: Holding Multinational Corporations To Domestic And International Standards, 10 Temp. Int'l & Comp. L.J. 123, 123-124 (1996).



n3. For an examination of the forum non-conveniens doctrine in the context of torts of first world parent corporations committed by their third world subsidiaries see: Malcolm J. Rogge, Towards Transnational Corporate Accountability in The Global Economy: Challenging the Doctrine of Forum Non Conveniens in In Re: Union Carbide, Alfaro, Sequihua, and Aguinda, 36 Texas International Law Journal 299 (Spring 2001).



n4. See, e.g. United States v. Yousef, 327 F.3d 56, 86 (2003).



n5. One example of a U.S. law which specifically does apply to overseas conduct is the Foreign Corrupt Practices Act which illegalizes the most egregious instances of bribery overseas. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95 -213, 91 Stat. 1494 (1977) (codified at 15 U.S.C. s 78dd-1).



n6. Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 993 (2d Cir.), cert. denied, 423 U.S. 1018 (1975)



n7. Hartford Fire Ins. Co. v. California, 125 L. Ed. 2d 612 (1993).



n8. Critics of free trade decry the fact that inefficient jobs are eliminated through competition. However the fact is that on the balance NAFTA has overall created more jobs for both Mexico and the United States.



n9. For a general discussion of macquilla operations in Mexico see, Daniel I. Basurto Gonzalez, Elaine Flud Rodriguez, Environmental Aspects Of Maquiladora Operations: A Note Of Caution For U.S. Parent Corporations, 22 Saint Mary's Law Journal 659 (1991).



n10. See, e.g., Green v Equitable Powder Mfg. Co. (1951, DC Ark) 95 F Supp 127, 121. (Liability of a subsidiary for the tort of another subsidiary in the corporate group: defective product - dynamite).



n11. See, e.g., Ex parte Union Camp Corporation (Re: Joel Cobb v. Union Camp Corporation) 2001 Ala. LEXIS 197,;816 So. 2d 1039 (Sup. Ct. Ala. 2001).



n12. See, e.g., Real Estate Investors Four, v. American Design Group Inc., 2001 Mo. App. LEXIS 566,;46 S.W.3d 51 (Mo. App. 2001)



n13. See, e.g., Charles Lennon vs. Dacomed Corporation, Alan Podis, M.D., Miriam Hospital, Limagyn Technologies, Inc., Formerly Known As Urohealth Systems, Inc., And National Union Fire Insurance Company, 2003 R.I. Super. LEXIS 48,;CCH Prod. Liab. Rep. P16,572 (R.I. App. 2003).



n14. See, e.g., Edward A. Swan, Sr. v. New Orleans Terminal Company, 745 So. 2d 52;1999 La. App. LEXIS 1549 (La. Ct. App. 1999).



n15. See, e.g., Pappalardo v. Richfield Hospitality Services, 790 So. 2d 1226;2001 Fla. App. LEXIS 11092;26 Fla. L. Weekly D 1927 (Fla. App. 2001).



n16. See, e.g., Sandra Jean Hersey v. Lonrho, Inc., 73 Conn. App. 78;807 A.2d 1009;2002 Conn. App. LEXIS 520 (Conn. App. 2002).



n17. See, e.g., Stephen D. Sugarman, Doing Away With Tort Law 73 Cal. L. Rev. 555 (1985).



n18. The most famous case of a corporate parent accused of the tortious act of its subsidiary is In re Union Carbide Corp. Gas Plant Disaster at Bhopal, India 634 F. Supp. 842 (S.D.N.Y. 1986). Ultimately the case was heard not in the U.S. but in India on the basis of forum non conveniens.



n19. See, e.g., Lauritzen v. Larsen 345 U.S. 571;73 S. Ct. 921;97 L. Ed. 1254;1953 U.S. LEXIS 2533 (U.S. S. Ct. 1953)



n20. See, Eric Allen Engle, Extraterritorial Jurisdiction: Can Rico Protect Human Rights? A Computer Analysis Of A Semi-Determinate Legal Question. 3 J. High Tech. L. 1 (2004).



n21. "Under the doctrine of respondeat superior, an employer may be vicariously liable for the tortious acts of its employees only if those acts were committed in furtherance of the employer's business and within the scope of employment (see, Riviello v Waldron, 47 NY2d 297, 302)."

N. X., v. Cabrini Medical Center, 97 N.Y.2d 247;765 N.E.2d 844;739 N.Y.S.2d 348;2002 N.Y. LEXIS 184, 7 (N.Y. App. Div. 2002).



n22. See, e.g., Daniel M. Williams, v. Rep Corporation, 302 F.3d 660;2002 U.S. App. LEXIS 17275, 4;CCH Prod. Liab. Rep. P16,399 (7th. Cir 2002).



n23. A typical example of the willingness of the court to ignore legal formalisms in the interest of rendering substantive justice in cases of personal injuries is seen in Petrocco v. At&T Teletype, Inc., 273 N.J. Super. 613, 642 A.2d 1072 (Law Div. 1994):


 
"To allow the defendant to hide behind the exclusive remedy provision in this situation would effectively allow a manufacturer who had already put defective products into the stream of commerce to shield itself from injuries those products may later cause by virtue of subsequently entering into a business transaction with someone other than the injured party. The exclusive remedy provision of the Workers' Compensation Act was not intended to immunize a third-party manufacturer in such a situation."



n24. See, e.g., Delfina Kaczorowska, v. National Envelope Corporation - East 342 N.J. Super. 580;777 A.2d 941;2001 N.J. Super. LEXIS 307, 20 (N.J. Sup. Ct. 2001).



n25. "The precise legal relationship between the parties has not played a particularly significant role in the cases imposing strict liability"

Garcia v. Halsett, 3 Cal. App. 3d 319, 325; 82 Cal. Rptr. 420, 423 (Cal. App. 1970).



n26. Kasel v. Remington Arms Company, Inc., Defendant and Respondent (Cal. App. 1972) 101 Cal.Rptr. 314, 24 Cal.App.3d 711. (U.S. manufacturer held liable for Mexican subcontractor/franchisee's defectively manufactured product - ammunition).



n27. Veranda Beach Club Ltd. Partnership v Western Sur. Co. (CA1 Mass) 936 F2d 1364, 1373; 33 Fed Rules Evid Serv 809, 20 FR Serv 3d 409 (1st. Cir. 1991).



n28. Favorito v Pannell (CA1 RI) 27 F3d 716, 720; (1st. Cir. 1994).



n29. Mason v Kenyon Zero Storage, 71 Wash App 5, 856 P2d 410 (Wash. App., 1993).



n30. Wilson v Joma, 537 A2d 187 (S. Ct. Del. 1988).



n31. Deuchar v Foland Ranch, 410 NW2d 177 (S.Ct., S.Dak.1987).



n32. In re Albano, 143 BR 323 (Bankr. D. Conn. 1992).



n33. Aliota v Graham 984 F2d 1350 (3d Cir. 1993), cert. Den. (US) 126 L Ed 2d 37, 114 S. Ct. 68



n34. Giant Food, Inc. v Scherry, 51 Md App 586, 444 A2d 483, 29 ALR4th 134 (1982).



n35. Daniel L. Schilling, vs. Emerald Green International, 2001 Minn. App. LEXIS 1041 (Minn. Ct. App. 2001) (Corporate veil not pierced: shareholder not held personally liable for debt of company). But see: NEROX POWER SYSTEMS, et al. v. M-B CONTRACTING COMPANY et al.54 P.3d 791;2002 Alas. LEXIS 140 (S. Ct. Alaska, 2002) (Corporate veil pierced: Majority shareholder of corporation held personally liable for debts of pierced corporation).



n36. See, e.g. Krivo Indus. Supply Co. v. National Distillers & Chem. Corp., 483 F.2d 1098, 1102 (5th Cir. 1973).



n37. Leming v. Oilfields Trucking Co., 44 Cal. 2d 343, 282 P.2d 23, 51 A.L.R.2d 107 (Cal. S. Ct. 1955).



n38. Carbonella & Desarbo, Inc. v. Dealer's Quest, Inc. et al. 2003 Conn. Super. LEXIS 1539, 11 (2003) (Superior Court, Connecticut, unreported) (Court should not pierce corporate veil only under exceptional circumstances)



n39. Water, Waste & Land, Inc. v. Lanham, 955 P.2d 997 (Colo. 1998).



n40. Litchfield Asset Management Corp. v. Howell, 70 Conn. App. 133, 148, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002).



n41. Abdel-Fattah v. Pepsico, Inc., 948 S.W.2d 381 (Tex. App. Houston 14th Dist. 1997).



n42. Abdel-Fattah v. Pepsico, Inc., 948 S.W.2d 381 (Tex. App. Houston 14th Dist. 1997). Mid-Missouri Telephone Co. v. Alma Telephone Co., 18 S.W.3d 578 (Mo. Ct. App. W.D. 2000).



n43. Fisser v International Bank 282 F2d 231 (2d. Cir., 1960).



n44. Board of Trustees, Sheet Metal Workers' Nat. Pension Fund v. Elite Erectors, Inc., 212 F.3d 1031 (7th Cir. 2000).



n45. Milgo Electronic Corp. v United Business Communications, 623 F2d 645, cert den (1980) 449 US 1066, 66 L Ed 2d 610, 101 S Ct 794.



n46. Divco-Wayne Sales Financial Corp. v Martin Vehicle Sales, 45 Ill App 2d 192, 195 NE2d 287 (Ill. App. 1963).



n47. Hersey v. Lonrho, Inc., 73 Conn. App. 78, 87, 807 A.2d 1009 (Conn. App. 2002).



n48. Saphir v. Neustadt, 177 Conn. 191, 210; 413 A.2d 843 (1979).



n49. See, e.g., Brown v Margrande Compania Naviera, S.A. (Dist. Ct. Va. 1968).



n50. Tomasso v. Armor Construction & Paving, Inc., 187 Conn. 544, 447 A.2d 406 (1982).



n51. Consolidated Sun Ray, Inc. v Oppenstein 335 F2d 801 (Mo. Ct. App. 1964).



n52. Corrigan & Schirott, Piercing the Corporate Veil: Dispelling the Mists of Metaphor, 17 Tr Law Guide 121.



n53. See, e.g. New York Trust Co. v Carpenter (Ohio, Ct. App.) 250 F 668



n54. Wallace v. Wood, 752 A.2d 1175, 1184 (Del. Ch., 1999).



n55. Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 658 F. Supp. 1061, 1084 (D. Del. 1978)



n56. Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 658 F. Supp. 1061, 1084 (D. Del. 1978)



n57. Sonora Diamond Corp., v. The Superior Court Of Tuolumne County, 2000 Cal. App. LEXIS 695,21;83 Cal. App. 4th 523; 99 Cal. Rptr. 2d 824;2000 Cal. Daily Op. Service 7375 (Cal. App., 2000).



n58. See, e.g., Aronson v. Price, 644 N.E.2d 864, 867 (Ind. 1994) (courts balance eight factors:


 
(1) undercapitalization, (2) absence of corporate records, (3) fraudulent representations (4) use of the corporation to promote fraud (5) payments made by the corporation (6) commingling of funds and business (7) failure to observe corporate formalities, and (8) shareholder acts ignoring, controlling or manipulating the corporate form.



n59. Daimler-Benz Aktiengesellschaft v. Olson, 21 S.W.3d 707 (Tex. App. Austin 2000).



n60. Martin v Development Co. of America 240 (Ariz. Ct. App. 1917).



n61. Davis v John R. Thompson Co. 239 Ill App 469 (1926).



n62. Townley v. Emerson Elec. Co., 178 Misc. 2d 740, 681 N.Y.S.2d 741 (Sup. Ct. 1998).



n63. Absent fraud, commingling, failure to observe corporate formalities and/or inadequate capitaliztion corporate veil would not be pierced. In re Audre, Inc., 216 B.R. 19 (Bankr. 9th Cir. 1997).



n64. Daimler-Benz Aktiengesellschaft v. Olson, 21 S.W.3d 707 (Tex. App. Austin 2000).



n65. American Fuel Corp. v. Utah Energy Development Co., Inc., 122 F.3d 130 (2d Cir. 1997).



n66. See, for example, Henderson v Rounds & Porter Lumber Co. (DC Ark) 99 F Supp 376; Fish v East 114 F2d 177 (Colo. Ct. App. 1940).



n67. This often happens in taxi-cab companies which are artificially split into several companies. See, e.g. Wallace v Tulsa Yellow Cab Taxi & Baggage Co., 178 Okla 15, 61 P2d 645 (Sup. Ct. Okla. 1936).



n68. Scandinavian Satellite System, AS v. Prime TV Ltd., 291 F.3d 839 (D.C. Cir. 2002).



n69. Securities Investor Protection Corp. v. Stratton Oakmont, Inc., 234 B.R. 293, 321 (S.D. N.Y. 1999); San-Dar Associates v. MDO Development Corp., N.Y.L.J., July 22, 1997, at 22, col. 4 (Sup. Ct., Bronx County 1997); State of New York v. Easton, 169 Misc. 2d 282, 288-289 (Sup. Ct., Albany County 1995).



n70. Securities Investor Protection Corp., supra, at 321; San-Dar Associates, supra; State of New York v. Easton, supra, at 288-90.



n71. Joseph R. Foard Co. v Maryland 219 F 827 (Ct. App. Md. 1914).



n72. Kuchta v. Allied Builders Corp. 21 Cal.App.3d 541, 547, 98 Cal.Rptr. 588 (1971).



n73. Cislaw v Southland Corp. 4 Cal App 4th 1284, 6 Cal Rptr 2d 386, 92 CDOS 2631, 92 Daily Journal DAR 4136 (1992, Cal. App.).



n74. See, e.g., PT UNITED CAN COMPANY LTD. v. CROWN CORK & SEAL COMPANY, 138 F.3d 65 (U.S. Ct. App. 2d Cir., 1998). (Indonesian corporation brought suit against minority shareholder, a Pennsylvania corporation, and individual employees of shareholder, alleging breach of contract, breach of fiduciary duty, and violations of Racketeer Influenced and Corrupt Organizations Act - claim dismissed against individual defendants for lack of personal jurisdiction and dismissed claims against minority shareholder on forum non conveniens grounds).



n75. See, e.g. Eric Engle, Extraterritorial Jurisdiction: Can Rico Protect Human Rights? A Computer Analysis Of A Semi-Determinate Legal Question. 3 J. High Tech. L. 1 (2004).



n76. This analysis is based on an unpublished lecture by Prof. Olivier De Schutter, Universite Catholique de Louvain given at the European University Institute, Florence 17-28 June 2002. The author wishes to thank Prof. De Schutter for his creative insights and the EUI for its research facilities.



n77. available at: http://www.paemen.com/websitecontent/competition/Article81.html



n78. Art. 81 3 available at: http://www.paemen.com/websitecontent/competition/Article81.html



n79. See, Stora Kopparbergs Bergslags AB C-286/98 (16 November 2000).



n80. "Economic globalisation has been accompanied by a marked increase in the influence of international financial markets and transnational institutions, including corporations, in determining national policies and priorities." Dinah Shelton, Protecting Human Rights In A Globalized World 25 B. C. Int. Comp. L. Rev. 273, 276. (2002) Available at: http://www.bc. edu/bc org/avp/law/lwsch/journals/bciclr/25 2/06 TXT.htm supra note 34.



n81. See Id. at 104.



n82. Daniel Thurer, Modernes Volkerrecht Ein System Im Wandel und Wachstum - Gerechtigkeitsgedanke als Kraft der Veranderung 60 Zeitschrift fur Auslandisches Offentliches Recht und Volkerrecht at 557, 587 (2000).



n83. The preamble to the Universal Declaration of Human Rights provides that 'every individual and every organ of society shall shall strive ...to promote respect for these rights and freedoms and... to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction ' human rights. Corporations are creations of the state and thus are addressees of this norm because of that and also because the preamble states "universal"observance i.e. observance by all actors in all times and places. UDHR, Preamble available at: http://www.hrcr.org/docs/universal decl.html



n84. "international law is increasingly regulating non-state behavior directly." Dinah Shelton, Protecting Human Rights In A Globalized World, 25 B.C. Int'l. Comp. L.Rev. 273, 301-302 (2002) available at: http://www. bc.edu/bc org/avp/law/lwsch/journals/bciclr/25 2/06 TXT.htm supra note 34.



n85. Para. 42 of General Comment No. 14, The right to the highest attainable standard of health (Article 12), 4 July 2000, U.N. Doc: E/C.12/1999/5,CESCR, states: "While only States are parties to the Covenant and thus ultimately accountable for compliance with it, all members of society - individuals, including health professionals, families, local communities, intergovernmental and non-governmental organisations, civil society organisations, as well as the private business sector - have responsibilities regarding the realisation of the right to health. State parties should therefore provide an environment which facilitates the discharge of these responsibilities." Available at: http://www.unhchr.ch/tbs/doc.nsf/(symbol)/E.C.12.1999.5,+CESCR+General©omment+12.En? OpenDocument

and at: http://www.fao.org/Legal/rtf/cescr-e.htm



n86. Adopted on 20 November 1963 by U.N. General Assembly Resolution 1904 (XVIII). Article 2(1) states that, "No State, institution, group or individual shall make any discrimination whatsoever in matters of human rights and fundamental freedoms in the treatment of persons, groups of persons or institutions on the ground of race, colour or ethnic origin." CERD, Art. 2(1), available at: http://www.unesco.org/human rights/dcb.htm supra not 117.



n87. "No one shall be subject to discrimination by any State, institution, group of persons, or person on grounds of religion or other beliefs." Declaration on the Elimination of All Forms of Intolerance and Discrimination Based on Religion or Belief of Resolution 36/55 1981 United Nations available at: http://www.church-of-the-lukumi.org/Resolution% 2036-02.htm



n88. Rio Declaration On Environment And Development, Rio de Janeiro, 3-14 June 1992 U.N. Doc. A/CONF.151/26 (Vol. I) available at: http://www.un.org/documents/ga/conf151/aconf15126-1annex1.htm



n89. Danwood Mzikenge Chirwa, Obligations of non-state actors in relation to economic, social and cultural rights under the South African Constitution, Socio-Economic Rights Project, Community Law Centre, University of the Western Cape (2002) available at: www.communitylawcentre. org.za/ser/docs 2002/Researchseries1.doc



n90. Article 2 of the Charter of Economic Rights and Duties of States states that: "multinationals are not to interfere with the internal affairs of a host country." This implicitly recognises the (limited) international legal personality of multinational corporations.

Charter of Economic Rights and Duties of States, adopted 12/12/1974 A/RES/3281 (XXIX).



n91. Claire Moore Dickerson supra note 122 at 1458 (noting that individuals have rights under international law in cases of violations of jus cogens).



n92. "'Every individual' includes juridical persons. Every individual and every organ of society excludes no one, no company, no market, no cyberspace. The Universal Declaration applies to them all."

Louis Henkin, The Universal Declaration at 50 and the Challenge of Global Markets, 25 Brooklyn Journal of International Law, 1, 25 (1999).



n93. Of course the majority view is that transnational corporations do not enjoy any form of legal personality. However that view is criticised for the practical reason that if transnational corporations have no international legal personality then they would escape international human rights obligations. International Council on Human Rights Policy, Whither the State of Human Rights Protection? (New ways to hold non-state actors accountable) (1998) available at: http://www. humanrights.ch/bildungarbeit/seminare/pdf/000303 danailov clapham. pdf



n94. Robert McCorquodale, Feeling the Heat of Human Rights Branding: Bringing Transnational Corporations within the International Human Rights Fence, 1 Human Rights & Human Welfare 21, 27 (2001) available at: http://www.du.edu/gsis/hrhw/volumes/2001/1-4/mccorquodale-addo.pdf



n95. "At the World Bank, NGOs or groups of individuals may request an Inspection Panel to investigate claims of injury arising out of an act or omission of the Bank resulting from its failure to follow operational policies and procedures with respect to the design, appraisal, and/or implementation of a Bank project organisations apply the law." Duncan B. Hollis, Private Actors In Public International Law: Amicus Curiae And The Case For The Retention Of State Sovereignty 25 B. C. Int. Comp. L. Rev. 235, 244.

Available at: http://www.bc.edu/bc org/avp/law/lwsch/journals/bciclr/25 2/04 TXT.htm.



n96. However non-state actors do play a marginal role in the formation of customary international law. "Looking at the activities of individuals, and more specifically NGOs, one finds evidence of an influence both in the formation and the application of international law, albeit one that is qualitatively and quantitatively less than that of states and international organisations." Duncan B. Hollis, Private Actors In Public International Law: Amicus Curiae And The Case For The Retention Of State Sovereignty 25 B. C. Int. Comp. L. Rev. 235, 244 (2002).

Available at: http://www.bc.edu/bc org/avp/law/lwsch/journals/bciclr/25 2/04 TXT.htm

supra note 1.



n97. For example, in the North American Agreement on Environmental Cooperation, Sept. 8-14, 1993, arts. 14-15, 32 I.L.M. 1482 (1993) [hereinafter NAAEC] permits private parties to petition the NAAEC Secretariat where those petitions are aimed at "enforcement rather than at harassing industry." The Secretariat may request a government to respond to the allegations, and in cases where two of the three states' representatives agree, prepare a factual record and release it to the public. NAAEC arts. 14(2), 15.



n98. Duncan B. Hollis, Private Actors In Public International Law: Amicus Curiae And The Case For The Retention Of State Sovereignty 25 B. C. Int. Comp. L. Rev. 235, 244 (2002).

Available at: http://www.bc.edu/bc org/avp/law/lwsch/journals/bciclr/25 2/04 TXT.htm