I. Introduction

During the last decades there has been a shift in thinking about the role of (multinational) companies in society. This has had an impact on the manner in 26which company law has been viewed: from an business-centred view of the law, in which the law serves the functioning of the business, to a society centred view of the law, in which law should serve the interests of the wider society. There seems to be a trend towards enterprise liability in public interest matters. The meaning of the term enterprise in that respect is not uniform, but context-dependent. The history of the application of the concept of undertaking in Article 101 TFEU shows how the content of this concept has expanded over time, how its application has taken hold outside EU competition law and even provided a basis for forum shopping in civil cases. This underscores the diligence legislators should apply when introducing and defining the enterprise as subject of obligation and liability, e. g. in the context of ESG. Internationally there is a trend in case law in which the norm addressee of enterprise liability is increasingly stretched. This has led and is still leading to continuing legal development in case law. However, the different enterprise concepts defined as norm addressees in different legislative contexts cannot be simply transferred from one to the other. To illustrate this, in this Article I will explore the different ways veil piercing can be used in public interest matters, particular in the areas of EU competition law, ESG and international investment law.

II. The use of the corporate veil and piercing in litigation

Piercing the corporate veil concerns instances in which the limits of the privilege of limited liability which has been granted to legal persons are exceeded – piercing – in cases with a public or societal interest. The term veil piercing is often used in the context of liability, but it is also used to look through the legal personality in other ways when applying the law. I will address situations where piercing plays a role outside traditional corporate law, and in particular where public or societal interests are involved. There is a range of areas of law other than company law in which veil piercing is applied, including state liability, sanctions legislation, tax legislation, mass torts, EU state aid law, data protection law and FDI screening. This article will be limited to lifting a corner of the veil in the areas of EU competition law, ESG and international investment protection, with aspects of jurisdiction being discussed in passing. This article will thus deal with litigation in an international context, where the boundaries of the legal entity privilege of limited liability are crossed – pierced – in cases with a public or societal interest.

As a starter, it is important to consider the different ways in which the corporate veil and piercing can be used in international litigation; both as a sword (by plaintiffs in proceedings) and shield (by defendants in proceedings).

Piercing can be used as a sword:

1. 27To establish liability: by raising a liability ground against a non-primary acting group company to create an additional liable party;

2. To create jurisdiction: by raising a cause of action against a group company which will serve as an anchor defendant to create jurisdiction in the country in which that company is domiciled;^[1]

3. Creation of admissibility: for shareholder claims with respect to “derivative damages”;

4. To expand recovery possibilities: seeking recourse against property of a non-primarily liable legal person for debts of the primary acting legal person.^[2]

   In turn, the corporate veil can be used as a shield^[3]:

5. To evade jurisdiction: invoking a jurisdictional requirement of nationality (ratione personae) or the notion of investment (ratione materiae) in a treaty or arbitration agreement to challenge the jurisdiction of an arbitral tribunal on the ground that shareholders of a claimant do not satisfy these requirements^[4], or the invocation by a state-owned enterprise of state immunity from jurisdiction;

6. To fend off admissibility: invoking the inadmissibility of claiming derivative damages (reflective loss);

7. To fend off liability: reliance on the corporate veil to avert liability for actions of a primary acting group company;

8. To frustrate recourse: reliance on the corporate veil to frustrate recourse on assets of the primarily liable legal entity, opposition to recognition and enforcement of arbitral awards due to an alleged lack of an arbitration agreement, inadmissibility of recourse on assets of legal entity that was not a party to the arbitration and invocation by a state-owned enterprise of state immunity of enforcement.

III. 28Ways in which the legal entity privilege of limited liability is challenged

Generally, the legal bases on which the privilege of limited liability of a legal person are challenged in litigation are the following.

Firstly, Enterprise liability: Enterprise liability is a way of placing liability on a conceptual entity that participates in economic transactions.^[5] According to this concept, the enterprise bears liability for its own actions. In group relationships, an enterprise may be run by several group companies, where breaches by one such group company may automatically lead to liability of such other group company. The enterprise liability approach is opposed to the concept of entity liability,^[6] where only the legal person (entity) is the legal subject, bearer of liability for its own actions.

A second basis is true veil piercing/alter ego:^[7] when applying this concept, legal entities are equated with each other in a legal sense.^[8] In terms of liability, what was intended by the abuse is not honoured.^[9] This may result in a legal entity being held liable for the entire claim for which, in the absence of the abuse, only another legal entity would be liable.^[10]

Thirdly, indirect veil piercing, e. g. tort liability and in common law applying principles of agency and trust: a group company is held liable for its own wrongful acts, which are closely related to conduct or omissions of another group company. This includes the abuse of the identity difference between legal entities, where liability will fall on the person who, by using his control, induced the legal entities concerned to cooperate in that wrongful act, as well as 29the legal entities themselves. Unlike the concept of alter ego, there is no automatic liability for the entire claim of the other legal entity, but only for the part that concerns the abuse of the company in question. The tort approach strictly speaking is not a form of veil piercing, because it involves liability for one’s own actions. It is therefore also called improper, or indirect piercing of liability.

The approaches of enterprise liability and alter ego are forms of true veil piercing, essentially ignoring the legal personality of one of the legal entities involved.

In my view, enterprise liability should have an explicit basis in a treaty, regulation or law (legislator-made law). After all, this is about a generally applicable override of one of the core principles of legal personality, with the aim to safeguard public interests usually located outside company law. In the trias politica, the legislator is best placed to decide when such piercing is appropriate.^[11]

This is in contrast to identification or improper breakthrough of liability, which may be based on judge-made law (finding and formation of law in an individual case), always involving abuse – or tort – of the companies involved (not strict liability) and applying these doctrines to an individual case.

IV. Enterprise liability in EU competition law

When it comes to public duties imposed on businesses, the concept of enterprise liability has taken hold in various fields. The doctrine immediately raises a definitional question: what does the term “enterprise” mean? The meaning of the term “enterprise” is not uniform, but context-dependent. To that extent, it is an “open norm addressee”.

An example of an enterprise liability approach can be found in EU competition law, in which the concept of enterprise is used as the norm addressee. Underlying this is a public interest: the functioning of the free market and integration of the European single market.

It is interesting to zoom in on this as it illustrates how the introduction of the concept of “enterprise” in the context in the law can take on a life of its own; within the legal area in which this norm addressee was introduced, but subsequently also in adjacent legal areas.

30First of all, for the cartel prohibition in Article 101(1) TFEU – several decades ago – the “undertaking” was introduced as the norm addressee. The treaty history provides little insight into the scope of that autonomous EU law concept.

The concept first took shape in the enforcement practice of the European Commission, through fining decisions. A key driver of the European Commission’s expanding interpretation of the concept of undertaking was that fines are imposed based on the turnover of the undertaking.^[12] That turnover is obviously larger if that undertaking is deemed to comprise several legal entities.^[13] The European Commission thereby looked primarily at the parent company, even if it was not the legal entity in which the infringements actually took place, because consolidated turnover provided a basis for a higher fine. In case of repeat offences by (a legal entity within) the enterprise, a higher fine basis applies; regardless of which entity within that enterprise actually committed the infringements. This contributes to the deterrent effect of the European Commission’s fining practice.

That enforcement practice was subsequently challenged by several companies, after which the European Court of Justice (ECJ) rendered several judgments on how to apply the concept of undertaking in different group constellations, including on imputation of infringements by subsidiaries to parent companies.^[14] The concept of undertaking includes any entity engaged in an economic activity, regardless of its legal form and the way it is financed, and designates an economic unit, even if it consists of different legal entities from a legal point of view.^[15] The concept of undertaking/economic unit gives rise ipso jure to joint and several liability of entities comprising the economic unit at the time of the infringement; irrespective of whether these entities have been designated as infringers in a decision of the competition authorities.^[16]

31As a subsequent development, with the emergence of so-called follow-on litigation – in which customers of cartelists fined by the European Commission claim damages from the cartelists on the basis of private law – this expanded EU competition law concept of undertaking has found its way into national damages law. With the implementation of the EU Cartel Damage Directive, the concept of undertaking has become part of private law of EU member states. In the Skanska judgment (2019), the ECJ ruled that the concept of undertaking in Art 101(1) TFEU in the context of the imposition by the European Commission of fines cannot have a different meaning than in the context of private law claims for damages for breach of competition rules.^[17] It is also clear that the undertaking concept is to be applied depending on the circumstances of the case.^[18]

Finally, this undertaking concept has led to questions of private international law; international jurisdiction. In cartel damages cases certain claimants have seized on the aforementioned ECJ jurisprudence for forum-shopping purposes.^[19] In particular, litigation funders usually have a preference to bring their cases in certain European jurisdictions. Plaintiffs seek to create jurisdiction by suing group companies that have not themselves participated in a cartel fined by the EC in their home jurisdiction for damages caused by the cartel, alongside foreign defendants who are (group companies of) addressees of the relevant EC decision. On this issue Dutch courts in 2023 referred preliminary questions to the ECJ in three different cases (MTB/Athenian Brewery,^[20] Smurfit^[21] and EWGB et al^[22] ) in order to clarify how to apply the criterion in Article 8(1) Brussels I bis Regulation of close connection between the claims 32against multiple defendants in such situations.^[23] In the MTB/Athenian Brewery case the ECJ clarified that Article 8 (1) of the Brussels I bis Regulation must be interpreted as not precluding – in claims for a parent company and its subsidiary to be held jointly and severally liable to pay compensation for the damage suffered as a result of an infringement, by that subsidiary, of EU competition rules – the court for the place of residence of the parent company seised of those claims from relying exclusively, in order to establish its international jurisdiction, on the presumption that where a parent company holds directly or indirectly all or almost all of the capital of the subsidiary that infringed the competition rules, it exercises a decisive influence over that subsidiary, provided that the defendants are not deprived of the possibility of relying on firm evidence suggesting either that that parent company did not hold directly or indirectly all or almost all of the capital of that subsidiary, or that that presumption should nevertheless be rebutted.^[24]

The history of the application of the concept of undertaking in Article 101 TFEU shows (i) how the content of this legal concept has expanded over time, even without establishing that this corresponds with the intention of the drafters of the treaty provision at the time, (ii) how its application has taken hold outside public economic law and (iii) that this has provided a basis for forum shopping in civil cases. The undertaking concept in Article 101 TFEU is like a stone thrown into a pond, with new and wider circles emerging all the time^[25]; within EU competition law and beyond.

In any case, it illustrates that defining the term “undertaking” or “enterprise” as a norm addressee requires a large degree of diligence on the part of the leg33islator.^[26] Lack of clarity about the scope of the norm addressee can obviously give rise to disputes and litigation.

V. Piercing in international investment law

Another area of law in which piercing plays a role in various ways is international investment law. States conclude bi- or multilateral treaties that include safeguards to protect investors of one treaty state investing in the other treaty state from unlawful government intervention by the host state. This may include unlawful expropriation and unfair treatment. Under those treaties, foreign investors can usually submit a dispute with the host state about their investment in arbitration. Such independent dispute resolution mechanism was also meant to prevent trade wars. As recently as the beginning of the last century, for instance, a port blockade took place in Venezuela by British, German and Italian forces to force payment of Venezuelan government bond claims to European investors (so-called gunboat diplomacy).^[27] Originally, this protection was provided mainly to protect investors from industrialised countries against unlawful actions of states where legal protection was lower than in their home countries. In the last decade, arbitrations are also increasingly being brought against, for example, Western European countries, such as the cases against Spain in connection with the abolition of subsidies for solar energy^[28] and the cases brought by RWE and Uniper against the Netherlands in connection with a law banning coal fired power plants.^[29]

Such an investment arbitration tribunal has jurisdiction with respect to a dispute between one treaty state and an “investor” (ratione personae) residing in the other treaty state over an “investment” (ratione materiae). Both the determination of whether there is an “investment” and “investor” giving access to the arbitral tribunal may involve piercing.^[30]

With respect to “investment”, arbitral tribunals have ruled that shares in a company incorporated in the host country fall within the scope of that term. 34This means that in case an expropriation measure targets property owned by a company incorporated in the host country in which the foreign investor holds shares, the foreign investor can bring a claim based on the treaty. In this way, a foreign investor can thus claim treaty protection thanks to piercing^[31] , despite the fact that it is only indirectly – through the assets of the local company in which it holds shares – affected by the expropriation measure.^[32]

Conversely, to fend off such claims, some states actually try to pierce through the legal personality of the foreign “investor”.^[33] According to an authoritative judgment of the International Court of Justice (ICJ) Barcelona Traction, the domicile of the legal entity determines its nationality, irrespective of the nationality of its shareholders, while veil piercing may take place under exceptional circumstances, in order to prevent abuse of the limited liability privilege, such as in cases of fraud or abuse or to prevent evasion of legal requirements or obligations.^[34] This leads to a generous grant of jurisdiction. For example, a Dutch company of which shares are all held by Russians can bring a claim against the Russian Federation under the Russian-Dutch BIT.^[35] Some states invoke abuse in defence against such claims,^[36] stating that the bilateral investment treaty was not designed to protect Russian residents from unlawful acts of the Russian Federation.

To prevent abuse by investors, the newer generations of investment treaties provide ever clearer delineations of the terms “investment”, “investor” and the nationality requirements applicable to them, including so-called “denial of benefits” provisions.

VI. 35Piercing and ESG

VII. Synthesis: enterprise liablity versus entity liability

This leads to the question whether the concept of enterprise liability will creep into company law. Notably there has clearly been a shift in thinking about the role of (multinational) companies in society.

From:

1. ascribing a favourable societal role to business, due to its positive effects on employment, technological development, community development and driving welfare growth;

2. the (neoliberal) idea that was dominant from the late 19^th into the 20^th century of giving room to (freedom of) enterprise and encouraging capital providers to invest in enterprises;

3. based on the assumption that companies run a business, which was seen as a private activity – in contrast to things like human rights, which were seen as the exclusive domain of the government;

which underpinned:

1. the concept of legal personality and the associated privilege of limited liability;

2. the emergence of international investment law in which foreign investors were given ample opportunities to enforce that protection in arbitration;

and which thinking fits into an entrepreneurial (business-centred) view of law, in which the law serves the functioning of the business,

to:

1. an increasing understanding of:

   1. 39negative externalities caused by companies in their home jurisdiction and abroad, without picking up the tab for those;^[48]

   2. abuse of privileges such as limited liability (by private and public actors) and investment protection;

   3. impairment of foreign states’ right to regulate, as these states would be prevented by treaty investment protection from enacting legislation, including in the area of ESG^[49];

2. more emphasis on the benefit principle – “you profit, you pay”^[50] – : those who profit from economic activity should also bear the costs of its negative externalities^[51];

3. within their sphere of influence, companies are also held accountable in their home courts for public interest matters, such as the functioning of the market (through competition law) and safeguarding human rights;

which thinking fits into a society-centred view of law, in which law (including company law) should serve the interests of the wider society.

This manifests itself not only in a recalibration and introduction of substantive legal standards – duties of care, due diligence obligations – but also in ongoing debates about who should be the legal subject or norm addressee for this purpose. Thereby, two paradigms are contrasted: one sees a group (or the company) as a single organisation, the other sees the group as a collection of separate legal entities, each with its own rights and obligations. The law is not static and when it comes to public interest matters the society centred view thereon seems to become more dominant.

Legislators do not consistently choose one or the other, but always look for the optimal choice when defining the norm addressee for a particular piece of legislation. However, the different enterprise concepts used to define norm addressees are not simply transferable from one legislative context to another.^[52] 40A general EU law principle of corporate liability according to which liability is generally attributed to the entire economic unit does not exist.^[53] The legislators can decide for each individual act of legislation whether or not to apply the enterprise concept.^[54] Notably legislators of EU Member States are not limited in this respect by any higher ranking EU law general principle of either enterprise or entity liability. However, it requires a large degree of diligence on the part of the legislator to consider for a specific legislative proposal whether entity or enterprise liability is appropriate and, in the case of enterprise liability, how exactly the enterprise concept is defined. Failing such diligence, the introduction of enterprise liability may thus result in inconsistencies, legislation becoming inaccessible due to a confusing conceptual framework and the necessity of prolonged litigation to delineate the boundaries of the norm addressee, resulting in legal uncertainty. This is also risky because the legislator does not know in advance what the courts will do with such open norm addressees.^[55] Its application requires a clear cost-benefit analysis in the legislative process. What are the goals the legislator is trying to achieve with enterprise liability in the relevant legislative context? Is using such concept necessary for budgetary reasons (possibility of imposing higher fines), for deterrence or efficiency reasons? Another point of attention is that obligations should lie with the entity that can actually ensure that these can be met.^[56] Legal certainty and foreseeability demand this.

Internationally there is a trend in case law in which the norm addressee of enterprise liability is increasingly stretched, following the enforcement practice of regulatory bodies and civil lawsuits innovatively brought by claimants. This has led and is still leading to continuing legal development in case law.

In my view, the significance of the case law relating to the EU competition law undertaking concept for liability of group companies in other contexts is limited. All things considered, my conclusion is that one should not try to push a 41square through a circle. The EU competition law concept of undertaking assumes a fundamentally different legal concept – namely enterprise liability – from the legal entity privilege of limited liability (entity liability). The use of that enterprise liability had a specific public purpose. Consequently, I do not see how, for example, in a different legal context – e. g. liability of a parent company for contractual creditors of subsidiaries – a national court in an EU members state could and should draw inspiration from it in the absence of a legal basis.^[57]

VIII. Conclusion

This tour d’horizon shows that in cases involving public interests, the subject matter also affects the application of corporate veil and its piercing. Public law invades private law and overrides it, under certain circumstances. Looking across the boundaries of corporate law, it can be seen that in several domains, the boundaries on piercing are in full swing and are expected to remain so in the coming years.