Word count: 2019
A)
Holdings Plc (Holdings) may face liability for those injured by the chemical leak. Although
the chemical leak occurred at Solvents Ltd’s (Solvents) factory, given this subsidiary is in
financial difficulties and unable to compensate those injured, the question arises as to
whether its parent company can be held liable in their place and by what means.
Firstly, the inquiry revolves around piercing Solvents' corporate veil to attribute liability to
Holdings. In principle, each company in the group is a distinct legal entity, as outlined by
s16(2) of the Companies Act 2006.1 Courts, though reluctant to disregard a company’s
corporate personality in the absence of statutory authority,2 may allow it if there's an
attempt to evade legal obligations following Adams v Cape Industries3 and more recently
Petrodel Resources Ltd v Prest.4 However, the chemical leak doesn't align with this, making it
challenging to argue the parent company is responsible for its subsidiary's actions solely
based on its status as a parent.
Secondly, consideration must be given to whether Solvents and Holdings constitute a single
economic unit, justifying the disregard of their separate corporate identities. While
corporate groups typically maintain distinct corporate personalities, DHN Food Distributors
Ltd v Tower Hamlets LBC, suggests otherwise if Holdings exercises 'complete control,'
demonstrated through control of subsidiary activities and full ownership of shares.5 Both
factors are present, as Holdings and Solvents share directors, and Solvent's financial reliance
1
Companies Act 2006
2
Salomon v Salomon and Company (1896) UKHL 1.
3
Adams v Cape Industries plc (1989) 2 WLR 659.
4
Prest v Petrodel Resources Ltd (2013) UKSC 34.
5
DHN Food Distributors Ltd v Tower Hamlets London Borough Council (1976) 1 WLR 852.
, Word count: 2019
on its parent influences decision-making and who remains on the Board. However, as DHN v
Tower Hamlets is no longer a good authority following Adams v Cape which rejected the
court’s justice-seeking approach,6 it’s unlikely this precedent with be followed, and
corporate personality would be upheld.
Instead, it’s more likely a relationship of agency may have arisen between Holdings and
Solvents, which typically arises when one appoints another to act on their behalf, making
the principal liable for the agent's authorised acts. Technically, the courts have not been
strictly against piercing a veil to hold that a subsidiary is the agent of its parent. 7 Whilst this
does not automatically apply to wholly owned subsidiaries, it will have a greater chance of
success even if this fact alone will not be enough per se to establish a relationship of
agency.8 Additional information on Solvents' incorporation date could support an argument,
akin to Re FG (Films) Ltd,9 suggesting it was created as a holding company for Pilates (and
therefore Holdings) to take over the adhesive business in order to evade the contract. This
certainly seems likely given they transferred the factory to Solvents a year after the
agreement was made. This aligns with Smith Stone & Knight ltd v Birmingham Corporation,10
indicating Solvents operated as an extension of the parent company given Holdings had
appointed its own directors for the board to govern the adventure, subsequently remaining
in ‘effectual constant control’. The argument's strength hinges on Solvents' incorporation
timing, but establishing agency remains a possibility despite its difficulty. However, Holdings'
liability may be determined through alternative means without additional information.
6
Adams v Cape (n 3).
7
Firestone Tyre and Rubber Co v Llewellin (1957) 1 WLR 352 (HL).
8
Salomon v Salomon and Company (n 2).
9
Re FG (Films) Ltd (1953) 1 All ER 615.
10
Smith, Stone & Knight Ltd v Birmingham Corporation (1939) 4 All ER 116.
A)
Holdings Plc (Holdings) may face liability for those injured by the chemical leak. Although
the chemical leak occurred at Solvents Ltd’s (Solvents) factory, given this subsidiary is in
financial difficulties and unable to compensate those injured, the question arises as to
whether its parent company can be held liable in their place and by what means.
Firstly, the inquiry revolves around piercing Solvents' corporate veil to attribute liability to
Holdings. In principle, each company in the group is a distinct legal entity, as outlined by
s16(2) of the Companies Act 2006.1 Courts, though reluctant to disregard a company’s
corporate personality in the absence of statutory authority,2 may allow it if there's an
attempt to evade legal obligations following Adams v Cape Industries3 and more recently
Petrodel Resources Ltd v Prest.4 However, the chemical leak doesn't align with this, making it
challenging to argue the parent company is responsible for its subsidiary's actions solely
based on its status as a parent.
Secondly, consideration must be given to whether Solvents and Holdings constitute a single
economic unit, justifying the disregard of their separate corporate identities. While
corporate groups typically maintain distinct corporate personalities, DHN Food Distributors
Ltd v Tower Hamlets LBC, suggests otherwise if Holdings exercises 'complete control,'
demonstrated through control of subsidiary activities and full ownership of shares.5 Both
factors are present, as Holdings and Solvents share directors, and Solvent's financial reliance
1
Companies Act 2006
2
Salomon v Salomon and Company (1896) UKHL 1.
3
Adams v Cape Industries plc (1989) 2 WLR 659.
4
Prest v Petrodel Resources Ltd (2013) UKSC 34.
5
DHN Food Distributors Ltd v Tower Hamlets London Borough Council (1976) 1 WLR 852.
, Word count: 2019
on its parent influences decision-making and who remains on the Board. However, as DHN v
Tower Hamlets is no longer a good authority following Adams v Cape which rejected the
court’s justice-seeking approach,6 it’s unlikely this precedent with be followed, and
corporate personality would be upheld.
Instead, it’s more likely a relationship of agency may have arisen between Holdings and
Solvents, which typically arises when one appoints another to act on their behalf, making
the principal liable for the agent's authorised acts. Technically, the courts have not been
strictly against piercing a veil to hold that a subsidiary is the agent of its parent. 7 Whilst this
does not automatically apply to wholly owned subsidiaries, it will have a greater chance of
success even if this fact alone will not be enough per se to establish a relationship of
agency.8 Additional information on Solvents' incorporation date could support an argument,
akin to Re FG (Films) Ltd,9 suggesting it was created as a holding company for Pilates (and
therefore Holdings) to take over the adhesive business in order to evade the contract. This
certainly seems likely given they transferred the factory to Solvents a year after the
agreement was made. This aligns with Smith Stone & Knight ltd v Birmingham Corporation,10
indicating Solvents operated as an extension of the parent company given Holdings had
appointed its own directors for the board to govern the adventure, subsequently remaining
in ‘effectual constant control’. The argument's strength hinges on Solvents' incorporation
timing, but establishing agency remains a possibility despite its difficulty. However, Holdings'
liability may be determined through alternative means without additional information.
6
Adams v Cape (n 3).
7
Firestone Tyre and Rubber Co v Llewellin (1957) 1 WLR 352 (HL).
8
Salomon v Salomon and Company (n 2).
9
Re FG (Films) Ltd (1953) 1 All ER 615.
10
Smith, Stone & Knight Ltd v Birmingham Corporation (1939) 4 All ER 116.
