Enterprise Liability

In Theosophical Foundation Pty Ltd v Commissioner of Land Tax,[1] Herron CJ stated that ‘a court may in some cases disregard the corporate entity and have regard instead to the economic realities behind the legal façade’.[2] The focus of this head of veil piercing is upon the relationship between the companies in a group ‘and their contribution to the common commercial objective’.[3] This approach to veil piercing is a sub-set of a wider notion of enterprise liability. Enterprise liability has a long intellectual history and manifests itself in a range of arguments related to products liability, vicarious liability and corporate groups.

An early article of importance was that of Adolf Berle, who observed that there were legal cases in which ‘several corporations became in effect a single enterprise and merged their operations, their several entities were disregarded and their respective assets and liabilities pooled in a common pot which represented, substantially, the actual enterprise of which they were parts’.[4] These ideas were taken up by a number of scholars in the following decades, most pertinently by Blumberg writing on corporate groups.[5] Blumberg was cautious not to over-state his arguments about the extent of any principles, but was of the general belief that the reality of a multinational company is that it involves a ‘business being conducted collectively by interlinked companies under common ownership and control’.[6] Such a conception was said to be the basis of a number of specific rules in US law, which permitted the courts to ignore the separate legal personality of constituent companies for a specific legal purpose. Enterprise liability was said to have the purpose of providing an immediate avenue of redress for unpaid creditors and to force constituents of the group to absorb the full costs of their combined activities, so as not to create externalities.[7]

[1] (1966) 67 SR (NSW) 70.

[2] (1966) 67 SR (NSW) 70, 75-6.

[3] Premier Building and Consulting Pty Ltd (rec apptd) v Spotless Group Ltd (2007) 64 ACSR 114, 191 (Byrne J).

[4] AA Berle, ‘The Theory of Enterprise Entity’ (1947) 47 Colum LR 343, 349.

[5] PI Blumberg, The Multinational Challenge to Corporation Law : The Search for a New Corporate Personality (1993). A summary of his position is available in PI Blumberg, ‘The Transformation of Modern Corporation Law: The Law of Corporate Groups’ (2005) 37 Conn LR 605.

[6] PI Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality (1993), Cell phone repair ; viii-ix.

[7] M Dearborn, ‘Enterprise Liability: Reviewing and Revitalizing Liability for Corporate Groups’ (2009) 97 Cal LR 195, 212.