SECTION A
QUESTION 1
This essay argues that (i) the current law on veil piercing and tort does not reflect the proposed ideal that
shareholders should be personally liable for all tortious and contractual liabilities and (ii) it should begin to
move towards this position but only regarding tort victims. The suggested unfairness of limited liability for
creditors is fettered by the existence of diverse classes. However, tort victims would appropriately benefit
from extending shareholder liability in tort law.
This essay will first provide an overview of limited liability and the purported unfairness it creates for
creditors, distinguishing between voluntary creditors and involuntary tort victims. It will then examine the
current law on ‘veil piercing’ and tortious claims before transitioning to a normative debate considering
whether the current law should be reformed and whether and to what extent shareholders should be
personally liable in each case.
Limited liability
It is well established that companies have a ‘separate legal personality’ from their shareholders (Salomon).
Following this, limited liability provides protection to shareholders, shielding them from personal liability and
restricting their liability for the company’s debts to their share value (Daves, Worthington and Hale, 2021).
Its rationale is based on the asymmetry in risk and reward faced by shareholders, in turn encouraging
entrepreneurism, and public investment without fear that personal assets are at risk.
Harm and unfairness are unlikely to come to ‘competent voluntary creditors’ (Kraakam, 1991) who can
effectively protect themselves via contracts and can benefit from limited liability by avoiding competition
with shareholders' personal creditors. Conversely, involuntary creditors such as tort victims are adversely
Page 1 of 14
, affected due to their disadvantaged position given their inability to contract, and their low ranking on the
payment hierarchy of the Insolvency Act 1986.
Considering this unfairness and vulnerability, abuse of the corporate form is inevitable (Allan, 2018), and
so a balance must be struck between limiting liability and holding corporations accountable for the harm”
(Hou, 2023), to ensure business remains honest and fair (Wibberley, 2014).
The current law
Following the rule in Salomon, the courts assumed an “inherent veil-piercing jurisdiction,” (Allan) leading to
an arbitrary expansion of its scope such as within corporate groups deemed as operating as a ‘single
economic unit’ ((Littlewoods Mail Order Stores [1969]), by reason of justice (Wallersteiner), and even
without justification within the context of family law (Green [1993]).
Prest v Petrodel marked a turning point, indicating only one ‘true ground’ for veil piercing: where a
company is used to evade an “existing legal obligation or liability”, ensuring the “company or its controller”
is deprived of the advantage it would have obtained. This narrowed the principle’s scope becoming
“practically obsolete” following Hurstwood [2021]. This is due to the uncertainty of its application meaning
there is no consensus (neither judicial nor academic) on its nature or scope (Allan). Subsequently, veil-
piercing is increasingly rare and is only exercised as a last resort if the same result cannot be achieved
through private law (Munby J in Ben Hasham [2009]). Perhaps this is because there has been no true
corporate piercing case (Galeza, 2020) and where it has been used, ‘alternative avenues’ could have been
used, such as agency and trusts, which are significantly less controversial and inconsistent whilst achieving
similar results (Allan).
Page 2 of 14
QUESTION 1
This essay argues that (i) the current law on veil piercing and tort does not reflect the proposed ideal that
shareholders should be personally liable for all tortious and contractual liabilities and (ii) it should begin to
move towards this position but only regarding tort victims. The suggested unfairness of limited liability for
creditors is fettered by the existence of diverse classes. However, tort victims would appropriately benefit
from extending shareholder liability in tort law.
This essay will first provide an overview of limited liability and the purported unfairness it creates for
creditors, distinguishing between voluntary creditors and involuntary tort victims. It will then examine the
current law on ‘veil piercing’ and tortious claims before transitioning to a normative debate considering
whether the current law should be reformed and whether and to what extent shareholders should be
personally liable in each case.
Limited liability
It is well established that companies have a ‘separate legal personality’ from their shareholders (Salomon).
Following this, limited liability provides protection to shareholders, shielding them from personal liability and
restricting their liability for the company’s debts to their share value (Daves, Worthington and Hale, 2021).
Its rationale is based on the asymmetry in risk and reward faced by shareholders, in turn encouraging
entrepreneurism, and public investment without fear that personal assets are at risk.
Harm and unfairness are unlikely to come to ‘competent voluntary creditors’ (Kraakam, 1991) who can
effectively protect themselves via contracts and can benefit from limited liability by avoiding competition
with shareholders' personal creditors. Conversely, involuntary creditors such as tort victims are adversely
Page 1 of 14
, affected due to their disadvantaged position given their inability to contract, and their low ranking on the
payment hierarchy of the Insolvency Act 1986.
Considering this unfairness and vulnerability, abuse of the corporate form is inevitable (Allan, 2018), and
so a balance must be struck between limiting liability and holding corporations accountable for the harm”
(Hou, 2023), to ensure business remains honest and fair (Wibberley, 2014).
The current law
Following the rule in Salomon, the courts assumed an “inherent veil-piercing jurisdiction,” (Allan) leading to
an arbitrary expansion of its scope such as within corporate groups deemed as operating as a ‘single
economic unit’ ((Littlewoods Mail Order Stores [1969]), by reason of justice (Wallersteiner), and even
without justification within the context of family law (Green [1993]).
Prest v Petrodel marked a turning point, indicating only one ‘true ground’ for veil piercing: where a
company is used to evade an “existing legal obligation or liability”, ensuring the “company or its controller”
is deprived of the advantage it would have obtained. This narrowed the principle’s scope becoming
“practically obsolete” following Hurstwood [2021]. This is due to the uncertainty of its application meaning
there is no consensus (neither judicial nor academic) on its nature or scope (Allan). Subsequently, veil-
piercing is increasingly rare and is only exercised as a last resort if the same result cannot be achieved
through private law (Munby J in Ben Hasham [2009]). Perhaps this is because there has been no true
corporate piercing case (Galeza, 2020) and where it has been used, ‘alternative avenues’ could have been
used, such as agency and trusts, which are significantly less controversial and inconsistent whilst achieving
similar results (Allan).
Page 2 of 14
