Environmental liability : piercing the corporate veil and its implications

Abstract

For shareholders, ownership of property does not entail a standard benefit and liability condition. Whereas a typical commercial scenario is one in which an individual takes financial risks which result in the upward or downturn of that investment, creating a fair economic equilibrium, company law principles have created a situation in which shareholders are granted substantial powers over the direction of the company, stand to make excessive profits, but are not financially liable for their actions (notwithstanding the fictio iuris that the actions are performed by the company and not the shareholders or directors that control it) beyond their investment. The 'corporate veil' has presented two major threats to the environment: it encourages companies to engage in risky behaviour in order to realize maximum profits and it subsidises harmful actions, placing the burden of costs in excess of the company's share capital on the public purse and victims of environmental damage. In essence, it violates the principle of liability for environmental harm and disregards the economic and rights based values prevalent in tort law. However, the law does, in specific and exceptional situations, ignore this separation of identities and lift or pierce the corporate veil. This work seeks to illustrate that when liability has been properly assigned corporate action, aiming to mitigate or eliminate future liability, has been taken. Proposed, is that the practice of veil piercing becomes more frequent and utilised as a tool to encourage corporations to integrate environmental principles into the corporate governance model, effectively reducing their impact on the environment. Noting that commercial enterprise should not be severely stifled, alternatives to veil piercing aimed at improving the current system of liability for environmental harm are also provided.