Cross-border guide to parent company liability for foreign subsidiaries

Our cross-border guide offers insight into how issues of parent company liability for conduct of foreign subsidiaries have been addressed by courts in key jurisdictions: Australia, Canada, Hong Kong, the Netherlands, the United Kingdom and the United States.

The modernisation of international trade has fundamentally changed how companies do business. This has also changed, by necessity, how companies structure themselves to operate within this global environment.  Today, in order to satisfy local regulatory requirements and facilitate doing business across borders, most large corporations comprise of an expansive network of group companies, including a number of subsidiaries established and operating in multiple jurisdictions. The corporate and management structure of these multinationals is the product of careful and deliberate planning. One key aspect of the group structure is to delineate the boundaries of management responsibility, financial benefits and accountability, as well as legal rights and liabilities within and across group companies. For example, in most cases group companies are set up as separate legal entities, each intended to bear financial and legal responsibility for their own endeavours.

In recent years, however, there has been a steady flow of cases brought before various national courts that seek to test the boundaries of where and how a parent company can be held liable for the conduct of subsidiaries, in particular subsidiaries operating in foreign jurisdictions. Claimants have fought these cases for two primary reasons: first, in an attempt to access the often-deeper pockets of parent companies; and second, to use the parent company as an “anchor” defendant to allow them to pursue the claim against the foreign subsidiary before the courts where the parent company is domiciled.

These cases are of critical importance to multinationals given they have the potential to fundamentally alter or undermine carefully designed group risk allocation.