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Electronic copy available at: http://ssrn.com/abstract=1616820Electronic copy available at: http://ssrn.com/abstract=1616820
1
Environmental Piercing of the Corporate Veil
The Norwegian Supreme Court Decision in the Hempel Case
by Beate Sjåfjell
1 Piercing of the Corporate Veil and the Hempel Case
1.1 Introduction
In this exciting meeting of environmental and traditional company law interests, a fundamental
question is what the case – legally speaking – actually is about.
1
Costs are imposed
2
on a parent
company based on the subsidiary’s polluting activity – and first and foremost that of the subsidiary’s
predecessor. The legal basis cited in the Hempel case is the Norwegian Pollution Control Act
3
Section
51. However, this provision does not designate the parent company of the subsidiary responsible for
the pollution as a possible addressee for the claim. Does this case only concern interpretation of the
provision, or is this – at least also – a type of piercing of the corporate veil?
The concept of piercing of the corporate veil is neither clearly defined nor generally agreed upon,
not in Norwegian law and definitely not in a comparative European perspective. A brief overview is
therefore first given of the background for the discussion and some of the main delimitations of the
concept. Thereafter the Norwegian case to be discussed in this article is presented. In Section 2 the
result and the grounds of the Norwegian Supreme Court decision are discussed and sought placed in
the broader legal landscape. In Section 3 some legal and economic consequences of the decision are
indicated, including whether the decision may be perceived as an unlawful restriction on the free
movement of capital or the freedom of establishment according to the EU Treaties. Section 4
concludes.
Associate Professor, Department of Private Law, Faculty of Law, University of Oslo. All comments are
welcome, including information about relevant cases from other jurisdictions (beate.sjafjell@jus.uio.no). My
warm thanks to the Company Law Research Group at our Department for a stimulating debate on this issue
and especially to Mads Andenas for helpful comments and for always being an inspiring discussion partner.
1
The case discussed in this article is the case of Hempel AS vs the Norwegian State, decided by the Norwegian
Supreme Court on 10 March 2010 and available (in Norwegian only) at www.lovdata.no.
2
The legal basis specifies that the responsible party may be ordered to carry out or carry the costs of
environmental investigations. The reality in this case as it stood before the Supreme Court was that
investigations had been carried out and the issue was therefore whether the parent company, which had paid
for the investigations in first-hand could claim compensation from the state.
3
The Pollution Control Act of 13 March 1981 No. 6 is available in the original Norwegian at www.lovdata.no
and in English translation here: http://www.regjeringen.no/en/doc/Laws/Acts/Pollution-Control-
Act.html?id=171893 (last visited 24 May 2010).
Electronic copy available at: http://ssrn.com/abstract=1616820Electronic copy available at: http://ssrn.com/abstract=1616820
2
1.2 Piercing of the corporate veil
1.2.1 Limited liability and groups of companies
The evolution of the limited liability company has been long and tortuous
4
and it was by no means
inevitable that those new creations would find acceptance in the various societies in which they
arose. In the end, however, companies gained general acceptance, as the need for the methods of
financing and organisation that they made possible meant that the various obstacles to acceptance
were overcome. Companies came into existence in various ways: as the result of private contracts
between the participants which were eventually endorsed through legislation or through royal
charters/official grants with the resulting entities eventually being set free from those ties.
5
In short,
the concept of the company developed along different routes in different jurisdictions.
6
In general,
from the entrepreneur’s point of view, it seems to have been important from the start to have a
means of acquiring capital other than through borrowing, while for the investors it was desirable to
have the possibility of contributing to the financing of a project (and sharing the profit) without
liability for more than the contributed amount. In this way, ventures such as voyages of discovery
and railways were made possible – without limited liability the risks involved in participating in the
financing of these ventures would most likely have been prohibitive.
Originally individuals were shareholders. Once companies were recognised as shareholders a whole
new way of structuring business became possible and today groups of companies dominate the
business world, in some cases with hundreds of subsidiaries and sub-subsidiaries. The legal concept
of limited liability, developed with the individual shareholders in mind, has been transferred to the
new shareholder – the parent company – perhaps without enough consideration of the difference,
and of the consequence.
7
Groups of companies give rise to a whole set of new issues and although the piercing of the
corporate veil also may arise as an issue as regards individual shareholders, this article will focus on
4
J. Micklethwait and A. Wooldridge, The Company. A Short History of a Revolutionary Idea. (New York,
Toronto, Modern Library, 2003) pp. 53–54: ‘The company was the product of a political battle, not just the
automatic result of technological innovation’.
5
Inter alia, R. Harris ‘Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844’
(2000) p. 18 and K.J. Hopt ‘Comparative Company Law’ in The Oxford Handbook of Comparative Law M.
Reimann and R. Zimmermann (eds) (Oxford: Oxford University Press, 2006) pp 1161–1191 p. 1164. See also K.
Greenfield ‘From Rights to Regulation in Corporate Law’ in Perspectives on Company Law: 2 F.M. Patfield (eds)
(London: Kluwer Law International, 1997) pp 1–25 pp. 20–21.
6
See further J. Micklethwait and A. Wooldridge, The Company. A Short History of a Revolutionary Idea. (New
York, Toronto, Modern Library, 2003) and also K. Pistor et al., ‘The Evolution of Corporate Law: A Cross-
Country Comparison’ (2002) 23 The University of Pennsylvania Journal of International Economic Law, pp 791–
871.
7
K. Vandekerckhove Piercing the Corporate Veil (Alphen aan den Rijn: Kluwer Law International, 2007) pp. 5–6.
Electronic copy available at: http://ssrn.com/abstract=1616820Electronic copy available at: http://ssrn.com/abstract=1616820
3
the piercing the veil in company groups and specifically the piercing of the parent company veil for
claims against the subsidiary.
8
1.2.2 General, special and quasi-piercing of the corporate veil and that
which is neither
In Norwegian law there is no agreement as to whether there is room for piercing of the corporate
veil as a distinct legal basis for claims against a parent company, nor in which cases that could be
permissible. To the extent that there is room in Norway for what we could call a general company
law-based rule on piercing the corporate veil – and case-law does indicate that there may be a
certain room – this will most likely be in the case of undercapitalised subsidiaries where the finances
of parent and subsidiary have not been kept separate and where the parent company has totally
controlled the subsidiary in the interests of the parent. A certain degree of fault seems also to be
required.
Many of the cases in which piercing could have been discussed is covered by the quite broad
Norwegian rule of fault-based liability; originally based on case-law, now codified in both Companies
Acts Section 17-1.
9
In Norway most academics distinguish clearly between fault-based liability and
piercing, while some see the fault-based as a special variant of piercing.
10
In a comparative light, we
may note that many argue that these categories indeed should be kept separate while others see
this as quasi-piercing.
11
Quasi-piercing then seems to be used as a term covering both fault-based
liability and statute-based liability for the parent (directly designating the parent as responsible for
certain costs incurred by the subsidiary).
12
In this article, neither of these will be categorized as
piercing (quasi or otherwise).
Some authors distinguish between piercing of the corporate veil and identification; the latter
typically taking place in the context of the interpretation of a legal or contractual norm.
13
As long as
8
Ibid. also briefly discusses “reverse piercing” as well as “vertical piercing”.
9
In Norway we have one Act for companies limited by liability which cannot offer their shares to the general
public and one for companies which can: the Private Limited Liability Companies Act of 13 June 1997 No. 46
and the Public Limited Liability Companies Act of 13 June 1997 No. 45, resp. (available in Norwegian at
www.lovdata.no and for a fee, in an English translation at http://www.revisorforeningen.no/?did=9439949,
last visited 2 Nov. 2009).
10
M.H. Andenæs Aksjeselskaper og allmennaksjeselskaper [Private and public limited liability companies]
(2006) p. 39, M. Aarbakke et al., Aksjeloven og allmennaksjeloven: Kommentarutgave [Commentary to the
Norwegian Private Limited Liability Companies Act and the Public Limited Liability Companies Act]. (2nd ed.,
Oslo, Universitetsforlaget, 2004) pp. 39-40.
11
According to K. Vandekerckhove Piercing the Corporate Veil (Alphen aan den Rijn: Kluwer Law International,
2007) pp. 12-13.
12
Ibid.
13
K. Vandekerckhove Piercing the Corporate Veil (Alphen aan den Rijn: Kluwer Law International, 2007) pp. 13-
14.
4
the identification of the parent with the subsidiary takes place within the realm of a reasonable
interpretation I would also distinguish between that and piercing, and call the process interpretation
and the result, if you like, identification. However, if the parent company cannot be identified with
the subsidiary based on a reasonable interpretation of the relevant norm, in accordance with the
accepted legal method for the area, then we are dealing with what I would call special piercing of
the corporate veil.
Special piercing of the corporate veil, i.e. with a distinct legal basis as a springboard or to the
protection of special interests, has not been discussed much at all in Norwegian company law. In
environmental law, much effort has been put into arguing that what may be categorised as special
piercing is no more than a very wide interpretation of the environmental legal basis. This is a part of
the discussion in the case below.
1.3 The Hempel Case
The issue in the case is the responsibility for pollution of the ground after decades of manufacturing
of ship paint and plastic and related waste disposal. The company Monopol Maling- og Lakkindustri
AS carried out this business from 1918 to 1991, with waste disposal from the 1960s. In 1983
Monopol Maling og Lakk merged with a subsidiary of the Danish company Hempel AS, the parent
company in this case. The result of the merger was given the name Hempel Coatings (Norway) AS
14
and by 1989 the parent Hempel owned 100 per cent of the shares.
The polluted properties were sold in 1995 and 1996, with a disclaimer for environmental liability on
the behalf of the seller. This latter point was not a topic for discussion in the Supreme Court’s
deliberations.
15
The first indications that the ground was polluted seem to have come after investigations carried out
in 1984 and 1991/1992. After a mapping in the mid-90s, the county governor in 1997 ordered
Hempel Coatings to carry out preliminary environmental investigations. After submitting a complaint
in vain, Hempel Coatings carried out the preliminary investigations, which concluded with pollution
on both properties and the nearby ocean floor. By the time the county governor received the report,
the calendar showed March 2001. Hempel Coatings had in the meantime changed its name to Askøy
Eiendom AS
16
and was without assets and undergoing liquidation. Through a demerger in 1991, the
manufacturing and sales-related assets (except for the polluted properties) had been transferred
from this subsidiary to a new subsidiary of the parent Hempel. The new subsidiary was given the
name Hempel (Norway) AS.
17
14
From 1991; after first being named Monopol-Hempel AS.
15
It was dismissed as a private law (contractual) clause that could not affect the public law liability of the
companies.
16
Indicating that its status had changed from a manufacturing company to a real estate company.
17
From 2000. First the new subsidiary was named Hempel Norge AS, then Hempel IFA Coatings AS after a
merger with another company. From 1995 the parent Hempel owned 100 per cent of the shares of this new
subsidiary, which carried on with some of the manufacturing and took over a number of employees.
5
The Climate and Pollution Agency
18
took over the case and issued a notice of order in 2003 to carry
out further investigations to the parent Hempel, the new subsidiary Hempel (Norway) and the new
owners of the polluted properties. In 2004 the Climate and Pollution Agency chose to order the
parent Hempel to carry out further investigations to determine the extent of the pollution and also
to identify the remedial action that should be set into force. After submitting a complaint to the
Ministry of Environment in vain, Hempel sued the state in 2007, with the NHO – the Confederation
of Norwegian Enterprise
19
– as a third party intervener before the Court of Appeal and the Supreme
Court. According to the judgment the environmental investigations were carried out in the
meantime, so that the case at issue before the Supreme Court was whether the state should
compensate Hempel’s expenses.
20
All three court instances decided that the parent company could be made responsible in accordance
with Section 51 of the Pollution Control Act.
2 Environmental law meets company law
2.1 The deliberations of the Supreme Court
In its unanimous decision, the Supreme Court emphasised the legislative objective, the very wide
wording of the provision and the preparatory works’ indication that a concrete assessment should
be made taking into account a variety of aspects. Amongst indications for a piercing in this case, the
deliberations open with a quote from the Ministry of Environment’s decision concerning the
complaint from Hempel, stating that such orders are “of a different nature than claims from ordinary
creditors. Such orders have a generally beneficial function that is to ensure that important societal
interests are taken care of”. Environmental and societal interests therefore, in the opinion of the
Ministry, gave grounds for “a restrictive interpretation of the company law limitation of liability”.
Against this stood the limited liability of shareholders as a “fundamental principle of company law,
of great societal significance”, as the Supreme Court points out after giving an account of the
Ministry of Justice’s view on the matter.
The Supreme Court went on to emphasise that the case does not concern liability for shareholders in
general, but rather the special case where there is a group of companies.
21
The Supreme Court
underlines that a parent company normally has the possibility of controlling the subsidiary and that
it has an economic interest in the subsidiary’s business (presumably the Court here means more
than the average individual shareholder usually has). However, the Court does not discuss whether
18
A directorate under the Norwegian Ministry of Environment with supervisory powers; see
http://www.klif.no/no/english/english/ (last visited 24 May 2010).
19
For more information on the NHO see http://www.nho.no/english/ (last visited 24 May 2010).
20
The question still remains whether the parent also will be held liable for the clean-up costs.
21
This is an important distinction and one that is often not made; according to K. Vandekerckhove Piercing the
Corporate Veil (Alphen aan den Rijn: Kluwer Law International, 2007) p. 531 it is “striking that in legal systems
analysed shareholder liability or veil piercing issues are not treated differently depending on whether the
subsidiary is dominated by an individual person or by a parent corporation”.
6
Hempel was in a position to actually exert control over the polluting subsidiary (and especially its
predecessor), nor the consequences of Hempel’s lack of even the possibility of control for most the
years of the polluting activity.
22
Finally the Supreme Court seems to place decisive weight on the
argument that mergers and demergers, restructuring and splitting up of companies should not have
as a consequence that in the end there is no responsible or solvent legal entity.
2.2 Placing the case in the legal landscape
Whether the Supreme Court itself is of the opinion that this is a pure interpretation of an
environmental provision without company law implications, as opposed to a case of piercing the
corporate veil, is not clear.
23
On the one hand the Court explicitly speaks of interpreting the
provision of the Pollution Control Act, on the other hand, arguments for and against piercing are
discussed without the Court stating for example that these are just supporting arguments as this is
not a piercing matter. Whatever the opinion of the Court itself on its judgment may be, from a
company law perspective, it seems difficult to categorise this decision as an environmental law issue
only, for reasons set out in this section.
The Pollution Control Act Section 51 does not according to its wording give a legal basis for ordering
a parent to undertake environmental investigations (or pay the costs) of polluted ground that the
subsidiary or the subsidiary’s predecessor has owned, or for pollution caused by the business of the
subsidiary or that of the subsidiary’s predecessor. The Pollution Control Act Section 51 sets out that
“anyone that possesses, does, or initiates anything that results in or that there is reason to believe
may result in pollution to arrange or pay for any investigations or similar measures”.
24
In Norwegian
law, much emphasis is placed on preparatory works. The preparatory works of the Pollution Control
Act show that it is the entity responsible for the pollution that the provision aims to catch.
25
In other
words, the provision may be seen as codifying the polluter pays principle.
26
Before the Act was
amended in 1996, the wording of the provision referred to the entity or person responsible for the
22
More Strukturhaftung (linked to the possibility of control) than Verhaltenshaftung (where the emphasis is on
“inequitable or wrongful conduct consisting of a breach of the standards of orderly and sound group
management”) in other words (see ibid. pp. 538–540). While the Strukturhaftung approach has been criticised
in the context of ordinary creditor claims, ibid. p. 541, in Dutch case–law not even “close intermingling”
between parent and subsidiary seems to be sufficient grounds for veil piercing for environmental liability, ibid.
pp. 423–424.
23
Perhaps lack of clarity and principled judgments is a general tendency in European case-law in this area?
According to ibid. p. 528 the courts tend to avoid “the use of strict rules or theories. When the courts pierce
the veil by identifying members of a corporate group, they are concerned about the result rather than the
legal underpinning of their decision”.
24
In the semi-official translation on the website of the Ministry, “enhver” is translated with “any person”. I
have chosen “anyone” meaning to indicate that “enhver” may be a person or a legal entity.
25
According to the proposition to the Parliament, Ot.prp. nr. 11 (1979-1980) Chap. 7.
26
The principle is also set out in Section 2 No. 5 of the Act.
7
polluting “business”.
27
This was changed to the current wording because “business” was seen as too
restrictive. The aim was to clarify that any “human activity that could lead to pollution”
28
could be
grounds for an order to investigate whether pollution had occurred and identify the necessary action
to be taken. Apart from that, no substantive change was intended
29
– the aim is clearly still to target
the entity directly responsible for the pollution.
Faced with an interpretation of who is responsible according to this provision, which does not
designate the parent company as a possible candidate, the core issue in the case is whether the
parent company may be held responsible for the subsidiary’s – and especially the subsidiary’s
predecessor’s – polluting activity. In other words, whether the – as a starting point – watertight
liability shield for the parent company as a shareholder may be pierced to allocate responsibility not
to the polluter but to the parent, in its capacity not as responsible for the pollution but as a solvent
shareholder that has not itself violated the division between the legal entities or been negligent (as
far as the case shows) relevant to this case.
Piercing the corporate veil is therefore what the Supreme Court, in my opinion, actually does in this
case: It uses the provision of the Pollution Control Act itself as a starting point only and then, with
that as a springboard, proceeds to pierce the corporate veil of the responsible subsidiary’s parent,
which the provision in itself does not give grounds to do. Thereby the Supreme Court has shown that
important societal interests may form the basis for piercing the corporate veil in certain settings. The
decision signalises that it is no longer a matter of course that complicated corporate structures may
be used to pulverise responsibility for the business of the group.
30
The polluter pays principle, which
underlies the relevant provision, does not on the face of it justify holding the parent liable, especially
this parent. It is not the polluter.
31
Another fundamental principle does, however, serve to
complement the polluter pays principle in this case – namely the principle of sustainable
development and especially the core instrumental part of the principle. That is the part which is
codified in Art. 11 TFEU and which stipulates that environmental protection requirements must be
integrated in all areas, with the aim of achieving a sustainable development.
32
As such the decision is
in line with EU law.
33
27
The Norwegian word “virksomhet” could also linguistically be translated with “activity”, but the Norwegian
understanding of the word in this concept is more in line with the translation “business”.
28
In violation of the Pollution Control Act Sect. 7, which stipulates that “No person may possess, do, or initiate
anything that may entail a risk of pollution unless this is lawful pursuant to section 8 or 9 or permitted by a
decision made pursuant to section 11”.
29
According to the proposition to the Parliament, Ot.prp. nr. 48 (1995–1996) Sect. 3.2.2.2.
30
The grounds of the Supreme Court do not indicate that that was the objective of the mergers and demerger
in this case, although apparently the attorney for the state did argue that that was the case.
31
Although in some cases it could be the real polluter, this is not the case in Hempel.
32
For a further discussion of the significance of this principle in European law, see inter alia B. Sjåfjell Towards
a Sustainable European Company Law. A Normative Analysis of the Objectives of EU Law, with the Takeover
Directive as a Test Case (Alphen aan den Rijn: Kluwer Law International, 2009) and for an updated version
8
3 Some legal and economic consequences
3.1 Significance for the pollution control authority
The Norwegian Climate and Pollution Agency may now carry on as they have done and with greater
confidence: Where there is no existing and solvent directly responsible company to be found, the
corporate veil of the parent company may be pierced. The grounds that the Supreme Court gives for
its decision makes the assessment of whether future claims can be made against parent companies
easy. Firstly, the Supreme Court does not require that the parent company actually had the
possibility of controlling or influencing the subsidiary in such a way that the pollution could have
been prevented. The parent company came into the picture after most of the polluting activity had
taken place. Secondly, no requirement of fault on the part of the parent company is made. Although
negligence theoretically could have been discussed for the years after the paint company became a
subsidiary of Hempel, no such issue was raised. Thirdly, although the Supreme Court does mention
as an argument for the result that dilution of responsibility through restructuring and splitting of
companies should not be allowed to have as a consequence that there is no responsible or solvent
legal entity, the Court does not indicate that the Hempel group carried out the mergers and
demerger with the intent of avoiding the responsibility. Accordingly, there is no need in future cases
to discover and possibly try to substantiate any such intent. Any parent company can be held
responsible for claims based on the Pollution Control Act Section 51 against the polluting subsidiary.
According to a newspaper report on the case, there are approximately 2300 polluted industrial
properties in Norway and the decision in this case could have relevance for many of them.
34
It lies beyond the scope of this article to discuss whether claims based on other sections of the Act or
of similar acts also now may be used as a basis for piercing the corporate veil. Suffice it to say here
that the grounds of the Supreme Court are wide and as a starting point relevant to any case where
environmental interests stand against the interest of the parent company of keeping the corporate
veil intact.
(after the Lisbon treaty), see B. Sjåfjell ‘The Very Basis of Our Existence: Labour and the Neglected
Environmental Dimension of Sustainable Development’ (working paper 2009, available at
ssrn.com/paper=1517393). The Norwegian Constitution has a less sharply formulated duty to protect the
environment in Sect. 110B.
33
Compare the preamble of Directive 2004/35/CE of the European Parliament and of the Council of 21 April
2004 on environmental liability with regard to the prevention and remedying of environmental damage, OJ
2004 L 143/56-75: “The prevention and remedying of environmental damage should be implemented through
the furtherance of the "polluter pays" principle, as indicated in the Treaty and in line with the principle of
sustainable development” (Recital 2).
34
Bergens Tidende 17 Feb. 2010 – according to the same report, a number of these properties were polluted
by companies that no longer exist. As the preamble of the Environmental Liability Directive indicates, this is a
problem all over Europe.
9
3.2 Significance for the company law debate on piercing the corporate
veil
In the Norwegian company law discussion on possible piercing of the corporate veil, the criteria
based on the few relevant cases from the Supreme Court have been set out as a combination of
firstly, that keeping the veil intact would be unreasonable and secondly, that there has been a
commingling of assets or that the two companies (parent and subsidiary) otherwise have not been
kept separate in such a way that the formal structure (of two separate legal entities) does not
deserve protection. Examples of unreasonable behaviour on the part of the parent company could
be undercapitalisation of the subsidiary compared to the business and the involved risk, but that
would probably not in itself be sufficient if the two legal entities were kept properly separate.
35
Although the argument has been put forward in environmental law literature that a claim
concerning pollution perhaps more easily should pierce the veil compared to that of an ordinary
creditor,
36
the issue has also there been discussed on the premises of the company law debate which
is based on claims from ordinary creditors.
37
After this case, it should be clear that it is possible to
discuss environmental piercing of the corporate veil independently of the premises on which the
potential general rule on piercing of the veil is discussed in company law. It is interesting to note, in
that respect, that the third party intervener, the Confederation of Norwegian Enterprise, argued
against Hempel having to bear these costs because that would constitute a piercing of the corporate
veil, which could have a rub-off effect on other areas and be detrimental to Norwegian business life.
The argument was probably put forward based on a reasoning that the Court would not make a
decision that would constitute a piercing of the corporate veil in a situation which did not fit in with
the Court’s earlier indication as to the circumstances in which such piercing possibly could be
considered. Conversely the Ministry of Environment argued that having Hempel bear these costs
would be a decision that would lie within the scope of a reasonable interpretation of the Pollution
Control Act, with reference to central academic contributions in the field of environmental law.
38
One could speculate, from an environmental law perspective, whether a reason for this
35
Such is also the case in the UK either where piercing cannot be counted on even for the undercapitalised
company with one shareholder, and where rules on “wrongful trading” rather are applied, see P. Davies Gower
and Davies' Principles of Modern Company Law (8th edn. London: Sweet & Maxwell, 2008) p. 193 et seq.,
especially p. 209, and for Norwegian law see M.H. Andenæs Aksjeselskaper og allmennaksjeselskaper [Private
and public limited liability companies] (2006) pp. 39-41.
36
H.C. Bugge Forurensningsansvaret: Det økonomiske ansvaret for å forebygge, reparere og erstatte skade ved
forurensning [Responsibility for pollution: The economic responsibliity for preventing, remedying and
compensating damage caused by pollution] (Oslo: 1999) pp. 603–608, with further references, pointing out
that in the USA, piercing is accepted much quicker in case of claims concerning pollution than ordinary
financial claims. See also footnote 40 below.
37
Suppliers of goods and services in the one Norwegian case (“Kongeparken”) and financial institutions in the
other (“Minnor”).
38
H.C. Bugge Forurensningsansvaret: Det økonomiske ansvaret for å forebygge, reparere og erstatte skade ved
forurensning [Responsibility for pollution: The economic responsibliity for preventing, remedying and
compensating damage caused by pollution] (Oslo: 1999).
10
argumentation has been the exact same belief – that if the Court saw this as a piercing of the
corporate veil, the parent company would be let off the hook.
Certainly this case is not an example of a general piercing of the corporate veil, which could apply to
any claim. Had the Hempel case been a precedent for such a general case-law-based rule of piercing,
that would have meant the beginning of the end to limited liability in groups. On the other hand, it is
also clearly more than what some authors designate quasi-piercing or statutory “piercing”.
39
If the
Norwegian provision had explicitly, or according to a reasonable interpretation of the wording,
identified the parent company as a potential addressee for the claim in addition to the polluting
subsidiary, this would not, as I have delimited the issue, been a question of piercing – merely that of
interpretation or, if you like, identification.
The fact that environmental scholars have argued that the result in such a case as this is possible to
achieve within the realm of a reasonable interpretation of the provision does not change my legal
analysis of this case: When environmental law meets company law, environmental law must either
provide a specific basis for holding the parent liable for the subsidiary’s pollution or substantiate that
a piercing of the veil of limited liability, which company law gives all shareholders, is justified.
40
It is
the latter that has happened in this case.
From a company law perspective, it is important to recognise that special piercing of the corporate
veil may take place when that will further environmental protection or other important significant
societal interest. This is not just an issue of who will bear the costs, but what the further
consequences of the decisions on the costs may be, as the next section indicates.
3.3 Significance in form of incentives and disincentives
On the one hand, it could be argued that this kind of decision, allocating liability to a parent for
pollution that mainly occurred before the first merger (i.e. before the relevant business was
introduced into the group at all), will serve as a disincentive for takeovers, mergers and other
business acquisitions (as well as for the acquisition of industrial real property). This could be seen as
deterring investors from investing in or acquiring control of Norwegian companies. On the other
hand, this could instead or mainly be seen as an incentive for a new and deeper understanding of
the environmental liability dimension of due diligence in the case of mergers, takeovers and other
acquisitions. That would probably mean that mergers and acquisitions would take more time.
39
K. Vandekerckhove Piercing the Corporate Veil (Alphen aan den Rijn: Kluwer Law International, 2007) pp. 12–
13.
40
Comparison may be made here to US law, where the terms “operater” and “owner” in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 previously were interpreted so broadly that
parent companies were included, as the purpose of the Act otherwise would be undermined (cf. the EU
Environmental Liability Directive 2004/35/CE ). In 1998, the United States Supreme Court put a stop to this
very broad interpretation and stipulated that parent companies only could be held responsible in accordance
with traditional (state) piercing of the corporate veil doctrines, see ibid. pp. 89–91. However, apparently, for
piercing of the veil to occur, parental oversight must be “outrageous”, ibid. p. 508.
11
However, a potential slowing-down effect of this judgment would probably be positive, allowing for
a more well-substantiated decision-making than is often the case.
41
As regards the environmental interests at issue in cases such as this, it could from a company law
perspective be argued that this is just a matter of who should pay the costs for mapping the problem
and cleaning up the pollution – the parent company (who did not pollute) or the state (whose
overarching responsibility it is to ensure that the environment is protected for the good of all
Norwegians). In other words, neither is responsible, the culprit is insolvent or non-existent, so why a
company rather than a whole country? However, making a parent company bear the costs in a
situation such as this may have great significance beyond preserving the national treasury. As
already indicated, due diligence will probably from now on be conducted with greater focus on
potential environmental liability. Companies which conduct business that may pollute, will have an
incentive to keep a good track-record and make sure that they can substantiate that they have done
no environmental wrong. In the long run, this could be one small step of many leading to a cleaner
environment.
3.4 Free movement and legal certainty
The Court of Justice of the European Union has in several decisions found that a state measure, even
though non-discriminatory, that affects the position of (potential) shareholders and thus is liable to
‘deter investors from other Member States’ and ‘consequently, affect access to the market’ may be
perceived as a restriction on the free movement of capital and the freedom of establishment.
42
It
could certainly be discussed whether a Supreme Court decision of a Member State,
43
making a
parent company liable for costs incurred by a subsidiary for its polluting activity, is liable to deter
investors from the rest of Europe from considering Norwegian companies – as indicated above. On
the other hand, it could be questioned whether such a possible effect is ‘too uncertain or too
indirect’ to constitute a restriction.
44
Space restricts me from a full analysis of this issue. Suffice it to
say here that even if this were regarded as a restriction, a Supreme Court decision that follows
through on practice that may be justified by invoking the polluter pays principle and the sustainable
development principle easily may be said to pursue a valid objective. Environmental protection has
in itself, even before it was included amongst the Treaty objectives, by the Court been recognised as
41
See for a criticism of the “market for corporate control” where decisions often are made in haste, B. Sjåfjell
Towards a Sustainable European Company Law. A Normative Analysis of the Objectives of EU Law, with the
Takeover Directive as a Test Case (Alphen aan den Rijn: Kluwer Law International, 2009) especially Part V.
42
C-463/00, Commission of the European Communities v. Kingdom of Spain [2003] ECR I-4581 para. 61 and
Case C-98/01 , Commission v. UK para. 47 (emphasis added).
43
Norway is a half-member, with the doubtful pleasure of implementing most of EU law through the EEA
agreement without the opportunity to vote on it first. The relevant provisions of the EU treaties (on free
movement) are replicated in the EEA agreement. For the sake of simplicity, I will use the EU law terminology in
this brief discussion.
44
Joined cases C-282/04 and C-283/04, Commission of the European Communities v. Kingdom of the
Netherlands [2006] ECR I-9141 para. 29.
12
a fundamental objective of the Union.
45
Let us also say, for the sake of argument, that the state
measure of finding the parent liable for the costs would be found necessary and proportionate. This
should be easy enough to argue: EU Treaty law requires the integration of environmental protection
requirement in all areas – a duty directed explicitly to the EU institutions but which has indirect
application for the Member States as well. Not only secondary law and national legislation
implementing EU law but also the Treaties themselves, including the fundamental freedoms, should
be interpreted in light of the principles of the Treaties. The Court has also shown in several ground-
breaking decisions that it will go far to accept national measures protecting the environment, even
when they are probably directly discriminatory – with reference exactly to the principle of
sustainable development.
46
The remaining problem would then be the vagueness of the legal basis for this new obligation for
parent companies. That could violate the legal certainty that EU law requires.
47
This may have been
the case before the Court decision – Section 51 of the Norwegian Pollution Control Act contained no
indication of whether and on what grounds a non-polluting parent company could be made to bear
the costs, leaving it an open and discretionary question, which is usually a red flag for the Court of
Justice. After the Norwegian Supreme Court judgment it could be argued that the state of law is
vague no longer: A parent company can always be made responsible for the costs. Is it then
necessary to codify the responsibility to avoid violating EU law?
The EU Environmental Liability Directive has been included in the EEA agreement, and there are
similar issues there in the definition of 'operator' in Article 2.6. The corporate veil may not be
accorded more weight here than in the Norwegian case law. Further, it should be noted that Article
16(1) of the directive expressly states that the directive is not to prevent Member States from
maintaining or adopting more stringent measures in relation to the prevention and remedying of
environmental damage. The Court of Justice has clarified, with reference also to then Article 176
EC,
48
that that provision also indicates “that such measures may include, inter alia, the identification
of, first, additional activities to be subject to the requirements of the directive and, second,
additional responsible parties”.
49
4 A way forward for environmental protection?
The Hempel case represents something different in the piercing of the corporate veil debate. There
is no requirement of negligence or any other fault on behalf of the parent, there is no discussion of
45
B. Sjåfjell Towards a Sustainable European Company Law. A Normative Analysis of the Objectives of EU Law,
with the Takeover Directive as a Test Case (Alphen aan den Rijn: Kluwer Law International, 2009) Sect. 10.5.
46
Codified in ex. Art. 6 EC, now Art. 11 TFEU, see e.g. C-379/98, PreussenElektra AG v. Schhleswag AG, in the
presence of Windpark Reussenköge III GmbH and Land Schleswig-Holstein [2001] ECR I-2099.
47
C-370/05, Criminal proceedings against Uwe Kay Festersen [2007] ECR I-01129 para. 43.
48
Now Article 193 TFEU.
49
Case 378-08, Raffinerie Mediterranee (ERG) SpA, Polimeri Europa SpA and Syndial SpA v Ministero dello
Sviluppo economico and Others [2010 – not yet published] para. 68.
13
commingling of assets or of abuse of control – not even a requirement of actual exertion of control
by the parent over the subsidiary. There is perhaps an indication that emphasis has been given to
the possible attempt at avoiding liability through the demerger. The Norwegian Supreme Court has
certainly placed decisive weight on the environmental interests sought protected; prioritising them
over the economic interests stimulated through the protection limited liability provides
shareholders. In that context, the Supreme Court clearly wishes to give a disincentive for choosing
company or group structures with the intent of or even the unintended effect of avoiding
environmental liability. Or seen from the positive angle: To give an incentive for companies to
internalise the environmental costs stemming from earlier activity as well as related to new
acquisitions, whether companies or real estate. As such the judgment, if it is followed up by the
Norwegian Supreme Court at the next crossroads (and not torpedoed by the Court of Justice of the
EU), could contribute to stimulating a greater environmental awareness and sense of responsibility
in the business world. Based on the case law from the EU Court of Justice, the Court will most likely
find some way to accept such an incentive as in line with the principles of EU law.