The development of the separate legal entity and limited liability concepts in company law: an evolutionary perspective.
2017-02-17T01:08:39Z (GMT) by
This thesis began as an investigation of a legal problem which has aroused considerable public discussion in relation to a large number of compensation claims brought against asbestos miners and manufacturers. The best known manufacturer of asbestos products in Australia was a group of companies controlled by James Hardie Industries Limited. The group was restructured in 2001 with the effect of quarantining within a controlled entity its present and future tort liabilities to meet the claims of asbestos victims. The restructure was able to be effected because of the operation of two venerable company law concepts: the separate legal entity principle and limited liability. This legal problem will probably remain an increasingly important social and economic issue as mass torts involving large corporate groups and huge monetary claims are likely to become more common. The thesis examines the history of these legal concepts to answer the question of how they came about and why they developed as they did. This historical study then raised a number of further questions. Were these historical developments inevitable or necessary to encourage economic development and business enterprise? What was the relationship between legal change and economic development and did one influence the other? Are there underlying mechanisms that drive legal change? Does legal change tend to progress towards greater efficiency or to some end point? In attempting to answer these questions the thesis puts forward the assertion that a ‘legal evolution’ approach provides a useful theoretical framework in analysing the relationship between legal change and social and economic development and the nature of legal change. The sense in which the term ‘legal evolution’ is used in this thesis incorporates evolutionary ideas that have been developed and utilised in a range of disciplines that include biology and the social sciences. The central idea behind this approach is that cultural transmissions, including law, interact with their environments in a similar manner to how natural species evolve and interact with their environments. An evolutionary perspective does not purport to provide a determinist or comprehensive theoretical explanation of how law changes nor does it attempt to predict the directions in which change will occur. Rather, it emphasises the importance of examining the past and placing legal change in its social and economic context and seeing it as driven by a wide range of historical factors. An evolutionary perspective therefore sees the development of the law as ongoing and the result of contingencies, choices and accidents that were by no means inevitable, nor did the law necessarily progress to an endpoint or develop towards its most efficient or optimal form. The thesis argues that the application of the separate legal entity principle, attributed to Salomon’s case, to corporate groups was not inevitable but a choice that was made.