The court recognized the general U.S. principle that a parent company is not responsible for the conduct of its foreign subsidiary. It further recognized that the subsidiary is a necessary and indispensable party when a plaintiff seeks to hold the U.S. parent company liable for the conduct of the subsidiary. The court ruled that “Crawford, as a grandmother`s company, is not responsible for the actions of its subsidiary, if there is no agency or alternative ego relationship, this court cannot grant full relief to the plaintiffs in the absence of Crawford Venezuela.” 20 However, the applicants did not invoke an alter ego or an agency relationship in the complaint. Because this is a factual investigation, the court concluded that the plaintiffs could modify their claim to support such theories, but that further discovery would be needed to determine “whether this action could continue fairly without Crawford Venezuela.” 21 `A parent company is subject to a duty of care in respect of an activity of its subsidiary only if, in individual cases, the general and general principles of tort law relating to the imposition of due diligence on the part of the parent company in favour of an applicant are complied with. The legal principles are the same as those that would apply to whether a third party (e.g., a consultant advising the subsidiary) was subject to a tort duty of care owed to a plaintiff dealing with the subsidiary. Piercing the veil is the exception to the basic rule of reduced grip. In order for someone to enter the veil, the person must prove that the parent company openly intended to circumvent the liability rule. This is the case in case of fraud.
The exact definition of fraud is unclear, but often involves setting up a business to intentionally conceal responsibility. Companies are different legal entities from their managers. Therefore, a company, like any shareholder or investor, can buy shares of another company. When a company purchases enough voting shares of another company to control that company, a parent-subsidiary relationship is formed. The relationship between a company and its subsidiary depends on a number of important conditions: if possible, if the parent company is not liable, all group-wide documents or communications must explicitly state that this is the case. It should also be clarified that it is the responsibility of the subsidiary to implement and manage these policies. “Although the legal principles are the same, it may be that a parent company that has greater leeway to intervene in the affairs of its subsidiary than another third party has taken a measure that may meet the relevant test to impose a duty of care on the parent company.” In most cases, the courts are reluctant to penetrate the corporate veil. However, the courts will not consider the clear corporate identity if the parent company demonstrates the dominant position of the subsidiary to the extent that the subsidiary does not express an opinion distinct from the parent company and the plaintiff is likely to suffer an injustice if the corporate veil is not broken (injustice is usually the subsidiary that does not have the funds, to pay a verdict). In 2018, the Court of Appeal ruled in AAA v Unilever PLC [2018] EWCA Civ1532 that Unilever is not liable if any of its subsidiaries failed to take appropriate measures to protect its workers and residents from violence in the run-up to Kenya`s presidential election.
It found that Unilever had not intervened sufficiently to establish a direct duty of care towards workers and residents and that the subsidiary had conducted its own business independently. However, the Court of Appeal held that a parent company may assume a direct role if it has taken over the management of its subsidiary`s business or has given advice on how the subsidiary should manage a particular risk. In addition, a parent company may be held liable for a contract signed by its subsidiary if it is shown that the subsidiary is a mere shell dominated and controlled by the parent company for the parent company`s own purposes. In In re Sbarro Holding, Inc., 91 A.D.2d 613 (2d Abt. 1982), a holding company attempted to stay arbitration against it and other affiliates on the ground that the agreement providing for arbitration existed between a franchisee and its subsidiary. The court ruled that all affiliates could be forced to participate in the arbitration, even if they were not signatories to the contract. The court said: “The recent Supreme Court decision in Okpabi v Royal Dutch Shell Plc [2021] UKSC3 completed a triumvirate of cases in which the Court was asked to rule on whether a parent company can be held liable for the activities of a subsidiary. The liability protection underlying the mother-daughter relationship does not go both ways; if the parent company is sued, its holdings in subsidiaries are considered personal property of the company. Creditors may try to seize ownership interests in other companies, and depending on the collection laws in the state where the lawsuit is filed, they may or may not succeed. It should also be noted that the plaintiffs had attempted to use the Aliens Tort (ATS) Act to sue U.S.
companies for alleged violations outside the United States. The ATS gives federal courts jurisdiction over all civil actions brought by foreigners for misdemeanors in violation of international law or a U.S. treaty. However, the ATS`s jurisdiction has been limited in recent years, with the Supreme Court confirming that it does not grant jurisdiction over criminal acts committed outside the United States unless they affect and affect U.S. territory. with sufficient force to remove the presumption against extraterritorial application7, nor for federal courts to recognize causes of action against foreign companies, regardless of their affiliation with the United States 8 The impact of these developments is still a topic of discussion among U.S. practitioners and has created uncertainty for future atS litigation. But by eliminating the possibility of suing foreign companies in the U.S.
under the ATS, one effect could be an increase in attempts to sue U.S. parent companies or company representatives for human rights violations involving their foreign subsidiaries, rather than taking direct action against the foreign subsidiary. As the majority or sole shareholder of the subsidiary, the parent company has great influence. Like any majority shareholder, he or she can vote on the appointment or dismissal of members of the subsidiary`s board of directors and make important decisions on the operation of the subsidiary. Nevertheless, the subsidiary is an independent company. This curbs the influence of the parent company and gives the subsidiary independence and responsibility: English case law had established that a parent company could be held directly liable to persons dealing with its subsidiary in certain circumstances. In those cases, it was a parent company that had assumed a direct duty of care when it took over the management of its subsidiary`s activities or advised its subsidiary on how to deal with a particular risk. In addition, if the foreign subsidiary is a necessary and indispensable party, as noted above, the court must determine whether that missing foreign subsidiary may be related to the lawsuit filed in the United States under Rule 19(a) of the Federal Rules of Civil Procedure. A “merger” of the absent party is not possible if (1) the location is inappropriate, (2) the absent party is not subject to personal jurisdiction, and (3) membership would destroy material jurisdiction.16 It is interesting to note, however, that the Supreme Court did not approve the specific circumstances which, in unilever, relate to the parent company taking over the management of the subsidiary`s business or to advice on: the management of a particular risk.
Instead, it found that a parent company runs the risk of due diligence when managing and implementing group-wide policies for its subsidiaries. The Supreme Court therefore arguably broadened the scope within which a parent company could be held liable, possibly facilitating the emergence of such liability. Many of these factors are common in companies with subsidiaries, and no single factor generally supports contempt for a clear corporate identity. For example, the appointment of officers and directors who are common to both the parent company and the subsidiary is a common practice for efficient business operations. Crawford requested that the case be dismissed for not belonging to an indispensable party, arguing that Crawford Venezuela was an indispensable party and that Crawford was not responsible for the actions of its subsidiary.19 However, Crawford also argued that Crawford Venezuela could not be joined because the court did not have personal jurisdiction to do so. However, the parent company has the power to replace directors if it does not like its management decisions.
