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FILE NAME Cape Asbestos CAPE DATE 2007 DOC CAPE021 DOCUMENT DESCRIPTION Article - Piercing the Corporate Veil Cape Industries and Multinational Corporate Liability for a Toxic Hazard 1950-2004 Piercing the Corporate Veil Cape Industries and Multinational Corporate Liability for a Toxic Hazard 1950-2004 GEOFFREY TWEEDALE LAURIE FLYNN The corporate veil refers to the separation of legal identity between parent firms and their subsidiaries which gives the parent protection against the liabilities of its subsidiaries Fearing that such liability protection would facilitate illicit activity early twentieth century courts especially in America would sometimes pierce the corporate veil This article explores Adams v Cape 1990 in which American plaintiffs attempted to persuade the English courts to lift the corporate veil and impose liability for industrial disease on Cape Industries a leading U.K. asbestos manufacturer This landmark case shows how corporate strategy can be closely intertwined with international corporate law and occupational health and safety issues It also highlights how limited liability law and separate legal personality can result in significant injustice to claimants against multinational enterprises 'The Author 2007. Published by Oxford University Press on behalf of the Business History Conference All rights reserved For permissions please mail journals.permissions@oxfordjournals.org khm023 Advance Access publication May 29 2007 GEOFFREY TWEEDALE is reader in business history at Manchester Metropolitan University Contact information Manchester Metropolitan University Business School Aytoun Street Manchester M13GH M13GH U.K. mail G.Tweedale@mmu.ac.uk LAURIE FLYNN is a freelance writer and documentary film producer Contact information mail laurievincentflynn@mac.com This article draws on a large mass of business and legal papers that was generated by the Yandle and Adams litigation The papers have been deposited at Manchester Metropolitan University Business School and document citations in the text are from this source We are grateful to Nick Wikeley for advice in the writing of this article David Bricknell David Jeremy Clive Bishop Barry Castleman Steve Tombs and Jock McCulloch kindly offered comments and help at various times Two anonymous referees and editors Steven Tolliday and Kenneth Lipartito provided some final sharpening The responsibility for the text is our own 268 Piercing the Corporate Veil Corporations are typically organized according to the laws of limited liability and increasingly operate across national boundaries by means of subsidiaries A massive business literature has described this process and extolled the enormous material benefits that have ensued Business historians have made important contributions to this field indeed the writings of Alfred D. Chandler Jr. Mira Wilkins and Geoffrey Jones on multinational enterprises MNEs are one of the most prominent achievements of the profession But it is also clear that this literature is not comprehensive Its overwhelming focus has been on structure economic performance technology and entrepreneurship Political interactions regulation and legal aspects are much less well covered As Morton Keller noted over twenty years ago law and government regulation are lacunae in the Chandler paradigm.,,Recently there are encouraging signs that this picture is beginning to change but even so much more historical work is needed on the interaction between law and business Besides this failure to see MNEs as legal constructs other blind spots exist in business history Alongside an obsession with entrepreneurship and the internal organization of the firm there is a tendency to see many facets of company activity as simply externalities As C. M. Rosen and C. C. Sellers have highlighted many aspects of big business as its environmental impact culture and ethics not commonly discussed by historians. This yields a somewhat sanitized view of corporate life in which business historians rarely discuss how corporations injure workers pollute the environment or engage in illegal activity This may explain why business history has so far failed to connect with recent widely publicized debates about the nature of the corporation and globalization.3 This paper looks at one of the externalities left out of the literature on the history of MNEs occupational and environmental impact of a toxic product In doing so it explores the operations of limited liability law and emphasizes the way in which MNEs are shaped by legal as well as economic considerations At the heart of our discussion is the relationship between parent companies and their 269 1. Morton Keller Business History and Legal History Business History Review 53 Autumn 1979 295 303 2. C. M. Rosen and C. C. Sellers The Nature of the Firm Towards an cultural History of Business Business History Review 73 Winter 1999 577-600 3. Joel Bakan The Corporation The Pathological Pursuit of Profit and Power New York 2004 270 TWEEDALE AND FLYNN subsidiaries In particular we explore the way in which companies can shield their assets behind the corporate veil phrase that rarely if ever occurs in business history writing yet relates to a fundamental concept in company law What is the Corporate Veil In British law it is well established that corporations are shielded from the liabilities of their subsidiaries by the corporate veil The roots of this term lie in the evolution of limited liability doctrine as it developed in the nineteenth century and the legal concept that a corporation is an artificial legal person with a corporate personality Legal reasoning has held that the corporate person is fundamentally separate from its members whether they are individuals or companies The principle was enshrined in a House of Lords ruling in Salomon v Salomon & Co. 1897 legal decision so important that it has since been treated by judges and academics alike with a reverence bordering on the religious It involved the question as to whether Aron Salomon a boot manufacturer was personally responsible for the losses of A. Salomon & Co Ltd. When it was ruled that he was not the scope of limited liability was greatly extended by establishing that the corporate form could be used legitimately to shield a business owner whether individual or company from liability.5 Salomon thus a drew veil between a limited company and its group members or subsidiaries Despite the evident success of limited liability fully realized Parliament's hopes that it would stimulate entrepreneurial taking is important to remember that Salomon was regarded by some contemporaries as immoral even disastrous because it flew in the face of the logic that those engaged in corporate activity should support it with all their resources It appeared that limited liability undermined this concept while separate corporate personality provided an incentive for risks to be externalized by the relatively simple mechanism of making one a company parent or holding company and another a subsidiary A parent company now became simply a shareholder and was therefore legally no more responsible for the unlawful behavior of a subsidiary than would be a 4. Salomon v A. Salomon & Co. Ltd 1897 A.C. 22 R. Grantham and C. Rickett eds Corporate Personality in the 20th Century Oxford U.K. 1998 1 5. For details of Salomon see Grantham and Rickett Corporate Personality Piercing the Corporate Veil member of the public for the liabilities of a large public company in which he or she owneda single share Anxieties about these aspects of company law sharpened in the early twentieth century when it was especially in America giant corporations had the potential to overwhelm institutions and governments In the Progressive era popular discontent and labor agitation led to calls for more government regulation Limited liability was basically unaffected but to protect society it was sometimes deemed appropriate for the courts in exceptional cases usually involving fraud or sham companies to impose liability upon a shareholder This was known as piercing the corporate veil phrase apparently first coined in America in 1912.6 By the 1920s this had become an accepted legal doctrine in the United States It was also adopted in England where the more genteel phrase of lifting the corporate veil was used Since the early twentieth century corporate veil litigation has increased It has also become more complex and controversial with the increasing number of MNEs Marked national differences have appeared in judicial willingness to pierce the corporate veil with the practice more widespread in the United States than it is in England where the orthodoxies of Salomon are usually strictly maintained Transnational business has also complicated veil piercing because of jurisdictional issues about where a case should be litigated forum non conveniens Above all the burgeoning of multinational enterprise of it occurring after limited liability law was conceived introduced areas of litigation not apparent in the nineteenth century One such area is international toxic tort.9 The complexities of veil piercing in toxic product cases are strikingly 271 6. M. Wormser Piercing the Veil of Corporate Identity Columbia Law Review 12 Dec. 1912 496 52S4ee generally G. Berk Alternative Tracks The Constitution of American Industrial Order 1865-1917 Baltimore Md 1997 7. P. I. Blumberg The Multinational Challenge to Corporate Law The Search for a New Corporate Personality New York 1993 65 15R0ichard Meeran Liability of Multinational Corporations A Critical Stage in the UK in Liability of Multinational Corporations under International Law eds Menno Kamminga and Sam Zarifi The Hague 2000 251 64See also Peter Muchlinski Multinational Enterprises and the Law Oxford 1995 325-27 8. Sandra K. Miller Piercing the Corporate Veil among Affiliated Companies in the European Community and in the US A Comparative Analysis of US German and UK Piercing Approaches American Business Law Journal 36 Fall 1998 73-149 David Milman ed Regulating Enterprise Law and Business Organization in the UK Oxford 1999 218-40 9. Mary E. Rolle Unravelling Accountability Contesting Legal and Procedural Barriers in International Toxic Tort Cases Georgetown International Environmental Law Review 15 Winter 2003 137 201 See also Frank Pearce 272 TWEEDALE AND FLYNN illustrated by a landmark English legal case Adams v Cape 1990 This involved a British MNE and its liabilities for the toxic mineral asbestos Asbestos and Cape Industries Asbestos defines a group of fibrous fireproof minerals which first attracted the attention of industrialists in the late nineteenth century Within a few decades asbestos was a global industry with mines in South Africa and Canada and factories in America Europe and the Far East The industry's heyday occurred after the Second World War when a handful of companies Manville in the U.S. and Turner & Newall N in the dominated world production Until the 1960s asbestos was widely regarded as a lifesaver but since then a sinister undercurrent has surfaced Asbestos is now the most controversial and feared of the industrial minerals because it can cause asbestosis a potentially fatal fibrosis of the lungs and cancers Most countries in the developed world have virtually banned its manufacture though they still have to come to terms with its legacy of asbestos disease In America such has been the explosion in litigation that there have been demands for congressional action The leading asbestos companies have retreated into bankruptcy or adopted various strategies to limit billions of dollars in liabilities The way in which the industry was structured has become important Asbestos companies were amongst the first to use multidivisional organizations which extended overseas through complex cartels licensing agreements and holding companies It was an industry with several sectors which were not only vertically interconnected but also functioned like separate industries The production of asbestos textiles asbestos cement insulation and brake linings revolved around the key industry of asbestos mining and the distribution of various fibers The three main commercial asbestos fibers were white chrysotile blue crocidolite and brown amosite Chrysotile accounted for about 95 percent of world and Steve Tombs Toxic Capitalism Corporate Crime and the Chemical Industry Dartmouth N.H. 1998 10. See S. J. Carroll et al Asbestos Litigation Santa Monica Calif 2005 posted at www.rand.org who note that through 2002 about 730,000 people had filed claims in the U.S. against 8,400 defendant entities The eventual costs are likely to exceed 200 billion Piercing the Corporate Veil asbestos production but crocidolite and amosite known collectively as amphiboles were important in specialist applications such as thermal insulation In Britain the industry was controlled by three firms Cape Asbestos and British Belting & Asbestos respective positions can be shown by their approximate issued capital in the early 1970s when asbestos use was reaching a peak N 65 m BBA m and Cape 5 m.11 Cape Asbestos had been incorporated in London in 1893 to control a syndicate that operated South African crocidolite mines It then integrated forward into manufacturing by establishing a London plant in 1897 and then later German and French plants The mines were the linchpin of Cape's business however It mined most of the world's amosite and was a leading producer of crocidolite However it was not until after the 1930s that Cape became profitable with specialties such its preformed amosite temperature pipe and boiler insulation The company grew dramatically during and after the Second World War with sales of fireproof board insulation for warships gas masks brake linings and parts for armored vehicles Throughout the twentieth century Cape Asbestos was regarded as very much a British business run from a London headquarters Yet even from the 1890s it was linked with the South African diamond mining company De Beers and was also related to another great South African business empire American Corporation Both De Beers and American were intertwined through the industrialist Sir Ernest Oppenheimer 1880 195w7ho had founded American in 1917 and became chairman of both the latter and De Beers Cape Asbestos therefore became part of the most powerful economic conglomerate in South Africa In the 1930s and 1940s American developed a decentralized structure that was a maze of interlocking directorships mutual agreements 273 11. Monopolies Commission Asbestos and Certain Asbestos Products London 1973 12. Monopolies Commission Asbestos 135-38 See also Cape Asbestos Ltd The Story of the Cape Asbestos Company Ltd London 1953 J. McCulloch Asbestos Blues Labour Capital Physicians and the State in South Africa Oxford U.K. 2002 42-58 13. S. Katzenellenbogen updated by R. A. Salamie American Corporation of South Africa Ltd in International Directory of Company Histories ed T. Grant London 1997 25 3S0ee also T. Gregory Ernest Oppenheimer and the Economic Development of South Africa Cape Town 1962 D. Pallister et al South Africa Inc The Oppenheimer Empire London 1988 D. Innes American and the Rise of Modern South Africa London 1984 274 TWEEDALE AND FLYNN restrictive arrangements and monopolistic business practices The structure was said to facilitate and stimulate business but it also made it difficult to trace the group's financial connections Under the Oppenheimers American emerged as the world's largest mining company Its empire was so complex that it was never 15 recognized as a single entity In 1957 American and De Beers controlled 40 percent of South Africa's gold 80 percent of the world's diamonds a sixth of the world's copper and produced most of South Africa's coal American's involvement in Cape Asbestos grew during the Second World War when an Oppenheimer company Mining & Investment Corporation the majority shareholder By 1949 Central had a majority on the board of directors of Cape In 1969 Central Mining's shareholding in Cape was superseded by that of Charter Consolidated a British registered mining finance company also controlled by Oppenheimer interests Charter was one of four major holding companies within the Oppenheimer group the others were American De Beers and Rand Selection Cape Asbestos thus became a subsidiary of Charter which had a 63 percent holding Structurally Cape Industries as Cape Asbestos was known after 1974 resembled its bigger parent and during the twentieth century it became a jumble of holding companies subsidiaries interlocking directorships and licensing agreements Major company reorganizations occurred in 1948 when Cape formed a holding company Cape Asbestos South Africa Pty Ltd CASAP and in 1960 when Cape Asbestos itself became a holding company with 24 subsidiaries At the head office at 112-116 Park Street London separate holdings companies handled U.K. and overseas business while beneath them the trading groups were organized into major divisions By the 1970s Cape's overseas group had four main divisions building and insulation automotive products mining and a South African industrial group see Figure 1 14. L. Flynn Studded with Diamonds and Paved with Gold Miners Mining Communities and Human Rights in South Africa London 1992 15. Pallister et al South Africa viii 16. The chairman was now Harry Oppenheimer 1908-2000 See C. Denny Dynastic Diamond Billionaire Dies in South Africa Guardian 21 Aug. 2000 Piercing the Corporate Veil CAPE INDUSTRIES OVERSEAS LTD Park Street London W1 BUILDING AND INSULATION MINING oo North American Cape Asbestos South Asbestos Corporation Africa Pty Ltd NAAC CASAP AUTOMOTIVE mn S. AFRICAN INDUSTRIAL GROUP mn 275 Amosite Mines of South Africa Pty Ltd Consolidated Blue Asbestos Corporation Pty Ltd Egnep Pty Ltd Cape Blue Mines Pty Ltd Amosa Pty Ltd Figure 1 Structure of Cape's overseas business 1975 North American Asbestos Corporation After the 1930s Cape developed a profitable American business in amosite and crocidolite In 1936 it began marketing its asbestos products through the Union Asbestos & Rubber Company UNARCO Cape contracted with UNARCO to manufacture its products under the Unibestos trade name at various plants including one in Paterson New Jersey in 1941 later moved to Tyler Texas in 1954 and another in Bloomington Illinois opened in 1951. Unibestos sold widely and was included in U.S. Navy specifications in 1942 stretching Cape's mines to capacity Cape sold amosite to UNARCO at a discount in an exclusive arrangement After the war Cape decided to start its own American company In 1953 it established the North American Asbestos Corporation NAAC in Chicago The NAAC sold blue fiber from Cape's mines in Koegas and Pomfret and amosite from the Penge mine The fiber found a ready market throughout the U.S. Canada the Caribbean and Mexico In 1956 Cape reported that it had earned nearly 5 m from fiber sales in North America In the early 1960s the NAAC's turnover 17. NAAC CAC Cape Asbestos Companies Magazine 3 Summer 1954 5 27 Mr Cryor Receives 32 Storeys Up CAC Magazine 4 Spring 1955 20 18. Penge was named after Penge in England 276 TWEEDALE AND FLYNN still topped $ m a year generating gross profits of nearly 0.5 m year Sales peaked at 10 m in the early 1970s but in 1977 profits of over $ m still netted Cape a dividend of 200,000.20 The NAAC became an important contributor to Cape's economic performance in the 1950s and 1960s when Cape often paid its shareholders dividends up to 25 percent Meanwhile Cape's asbestos found its way to most of the major American users of amphiboles particularly Manville while most of the fiber used at UNARCO's Tyler and Bloomington plants was supplied by the NAAC By the late 1970s Cape had sold nearly million tons of asbestos in the United States The business was undisturbed by the dangers of asbestos When Cape opened its Chicago office in 1953 it had known for decades that inhaling asbestos fibers scarred the lungs and caused asbesto- sis Knowledge of this disease at the firm was better than in most other companies This was partly because its factories were among the dustiest in the industry and partly because Cape in 1930 had been party to the British government's formulation of the world's first asbestosis regulations By the late 1940s Cape also knew that there was a rising incidence of lung cancers at its main factory in Barking near London Dr. Richard Gaze 1917 198w2ho had joined Cape as its chemist and later became its technical director with special respon- sibility for health and safety learned of asbestosis the day he joined the company in 1943. He later discussed these dangers with Amer- ican personnel though that was hardly necessary By the 1940s UNARCO was already receiving compensation claims from workers with asbestosis and it had helped sponsor industry research into the carcinogenic potential of asbestos research which was kept secret However dust control in American asbestos plants was poor Working conditions were particularly bad at UNARCO's Tyler and Bloomington conditions of which Gaze was aware He vis- ited both plants and was also alerted to the poor conditions at Tyler 19. A. R. Sarabia Lord Bissell & Brook to M. E. Meyer 23 Jan. 1978 Manchester Metropolitan University Business School hereinafter MMUBS Archive 20. C. G. Morgan memo to Meyer 6 April 1977 MMUBS Archive 21. M. Greenberg Cape Asbestos Barking Health and Environment 1928 194A6merican Journal Industrial Medicine 43 Feb. 2003 109 19 22. Gaze deposition US District Court for the District of Texas Tyler Division Herman Yandle Kay v PPG Industries Inc. Civ Action Nos 74-3 74-13 London 4 J5une 1975 50 57 MMUBS Archive 23. B. I. Castleman Asbestos Medical and Legal Aspects Englewood Cliffs N.J. 2005 554 5D5. Ozonoff Failed Warnings Asbestos Disease and Industrial Medicine in The Health and Safety of Workers ed R. Bayer New York 1988 139 218 Piercing the Corporate Veil by others Asbestosis cases were inevitable but these were dealt with under a state workmen's compensation system that provided little coverage for occupational diseases and only modest benefits.2 Shielded by the latency of asbestos diseases which may take decades to appear the industry made a fortune while deferring the fateful day when thousands of sick workers would launch legal claims against the industry The disease and litigation time bomb would explode after the 1960s explosion made worse by mesothelioma This extraordinary disease is a painful and invariably fatal cancer of the lining of the chest or of the abdomen It is both slow growing taking thirty years or more to appear and virulent killing within a year or so of first symptoms Yet the fatal exposure can be quite trivial sometimes a matter of days or weeks rather than years and need not be occupational environmental or bystander exposure is also dangerous leading to mesotheliomas among office staff construction workers railwaymen housewives and schoolteachers Cape had a unique insight into mesothelioma Crocidolite is a particularly potent cause of the disease Indeed the appearance of the world's first mesothelioma cluster occurred in the 1950s around Cape's blue asbestos mines in the Northern Cape By 1969 the U.K. government was so concerned about mesothelioma that it pressured asbestos manufacturers including Cape to cease importing crocidolite Cape was free to market it elsewhere including the United States 277 Litigation against NAAC and Cape In the early 1970s the U.S. market for asbestos was so profitable that Cape contemplated opening a factory near Boston In 1973 annual American asbestos usage hit 800,000 tons though this was to prove a peak In that year a landmark legal decision involving an asbestos insulation worker Clarence Borel effectively shifted awards from the workmen's compensation system to the courts This ruling Borel v Fibreboard held manufacturers strictly liable for their failure to warn of an unreasonably dangerous product thus launching the 24. R. Brittingham Pittsburgh Corning to Gaze 17 July 1962 MMUBS Archive 25. Similar problems were evident in the U.K. even though a national compensation scheme operated See N. J. Wikeley Compensation for Industrial Disease Aldershot U.K. 1993 278 TWEEDALE AND FLYNN greatest avalanche of toxic litigation in the history of American jurisprudence For an industry built on a failure to warn that had been using a product that it knew to be lethal for over half a century this ruling was catastrophic more so than to suppliers like Cape Within a year of Borel Texas lawyers launched a class action suit Yandle v PPG Industries 1975 for 100 m dollars in damages on behalf of a group of workers allegedly made ill by conditions at UNARCO's old Tyler plant The action was launched against Pittsburgh Plate Glass PPG which had bought the Tyler factory in 1962 and a decade later dismantled and buried its production facilities after a government survey had highlighted major industrial hygiene deficiencies Under product liability law the NAAC and parent Cape Industries were also sued In London Cape's management expressed mystification that time should be taken up in claims of this nature and could not understand why Cape itself had been joined in the legal proceedings at all In 1974 Cape told its shareholders that the action was being strenuously contested ... because the amounts are highly speculative and conjectural and have only a tenuous basis in law and fact However chemist Gaze and NAAC boss Gerry Morgan were soon deposed as plaintiffs lawyers made a first stab at piercing Cape's corporate veil Over two days in 1975 in a solicitor's office in London Gaze helped seal the fate of PPG and also the NAAC He testified that since 1961 he had continually discussed health hazards with the Tyler managers including PPG staff and that neither Cape nor the NAAC had ever placed warning labels on asbestos bags In 1977 lawyers for 462 Tyler employees and those for the defendants which included the U.S. government as another seller of asbestos to Tyler settled the case for over 20 m with no one accepting liability Having informed its shareholders that the action had no merit Cape now had the humiliation of informing them that its share of the damages was 5.2 m with the NAAC 26. Paul Brodeur Outrageous Misconduct The Asbestos Industry on Trial New York 1985 73 27. UNARCO had sold its asbestos business to Pittsburgh Corning Corporation a joint venture of Pittsburgh Plate Glass Company later PPG and Corning Glass Works NIOSH Asbestos Survey Pittsburgh Corporation Tyler Texas Project No 71-45 7 Dec. 1971 MMUBS Archive 28. Jimmy Wayne Adams and Others v Cape Industries Plc and Capasco Ltd High Court Chancery Division 15 March 1988 Day 20 9 MMUBS Archive 29. Cape Industries Ltd Reports & Accounts 1974 18 MMUBS Archive 30. Gaze deposition London 4 5 June 1975 Yandle v PPG MMUBS Archive Piercing the Corporate Veil insurers paying about 4 m and Cape over $ m or 571,000 The settlement generated enormous publicity least because New Yorker journalist Paul Brodeur made the Tyler plant the centerpiece of his powerful expos^'.32 With asbestosis and mesothelioma cases rising further American litigation was inevitable Meanwhile in the early 1970s several regulatory agencies the Occupational Safety & Health Administration OSHA and the Environmental Protection Agency becoming concerned about asbestos raising the specter of regulation for the industry In 1971 for example OSHA set its first dust threshold that limited exposure to asbestos in the workplace and thereby began to drive up production costs for asbestos products Events in South Africa in the 1970s especially the introduction of economic sanctions against apartheid compounded Cape's difficulties So too did the growing aversion to amphiboles in world asbestos markets The company had further problems closer to home In 1973 it set aside 3.5 m compensation for its U.K. workforce Many claims related to a Cape factory in Hebden Bridge Yorkshire where the mortality from the dusty conditions attracted first the attentions of TV documentary makers and then a major government inquiry Meanwhile the NAAC had exhausted its insurance To reinsure would cost over million dollars a year which was far more than the business was worth even if insurers could be found In November 1977 Cape decided to liquidate the NAAC and then refuse to appear in American court cases New cases soon materialized In 1981 injured workers and their dependants from the Bloomington UNARCO factory launched actions led by a local lawyer Jim Walker By the following year 250 workers at this plant were alleged to have developed asbestos diseases The first case was lost on a technicality but 54 former workers succeeded in 1982 in suing the Cape group on the grounds of strict liability in tort and willful and wanton misconduct The plaintiffs were awarded 55 m in damages Part of this total 35 m was punitive damages against Cape expression of the moral outrage of the jury at the manufacturer's behavior in exporting a lethal product without warnings 279 31. Cape Industries Ltd Reports & Accounts 1977 4 MMUBS Archive 32. Paul Brodeur Expendable Americans The Incredible Story of How Tens of Thousands of American Men and Women Die Each Year of Preventable Industrial Disease New York 1974 Brodeur Outrageous Misconduct 33. Morgan listed six regulatory agencies causing chaos in our industry Letter to Gaze 28 June 1977 MMUBS Archive 280 TWEEDALE AND FLYNN The year 1982 was eventful The mighty Manville filed for bankruptcy as did UNARCO In Britain a hour TV documentary Alice A Fight for Life had given national publicity to Alice Jefferson mesothelioma victim from a Cape factory in the north of England The Bloomington factory was the subject of a World in Action TV documentary which described how Cape Industries of London part of one of the richest corporations in the world has run away from its responsibilities to the sick and dying families of 34 a small town in America Cape management responded by telling shareholders that it would not be defending the Bloomington action or paying damages They asserted that the firm did no business in the United States and that judgments were not enforceable in England Future litigation they predicted would have no material effect on Cape Industries Did Cape Do Business in America In 1983 a federal district judge in Tyler awarded a further 205 Tyler plaintiffs damages of about 75,000 each against Cape With Cape in default the plaintiffs then brought proceedings against the group in London Cape's defense was its nonappearance in U.S. courts and its reliance on the corporate veil The English courts would now have to decide whether Cape had conducted business in the United States whether it had controlled the NAAC and whether Cape had been involved in morally culpable acts One obstacle for the plaintiffs was the way in which Cape's American operation the NAAC had been structured Cape had made full use of the advantages created by the legal fiction that a company is distinct from its shareholders The NAAC was a wholly owned subsidiary with Cape owning all the 1,000 shares However the NAAC structure was designed so that Cape had no permanent establishment in the United States The parent firm had no formal office in America and no name on a door which meant that Cape was not subject to income tax as a U.S. domestic corporation This reflected the input of Cape's Chicago attorneys who were recruited in 1953 to advise not on the health hazard that had not yet been accepted as a serious liability for Cape but on U.S. federal and state taxation They assured their clients that this could be avoided by 34. ITV World in Action A Small Town Tragedy 5 July 1982 35. Cape Industries Ltd Reports & Accounts 1981 22 MMUBS Archive Piercing the Corporate Veil ensuring that all contracts were completed either in the U.K. or South Africa Other attractions of such a subsidiary arrangement were that returns at that time did not have to be filed at Companies House in London though Cape had to pay tax on its overall corporate profits in the U.K Cape's American lawyers explained further advantages of incorporating in Illinois where laws are quite liberal as to who may be shareholders and directors and where shareholders and directors meetings are held The eventual arrangement was that Cape had two directors on the board of the NAAC by the 1970s these were Cape's managing director and later chairman Geoffrey Higham and Richard Gaze Two Chicago attorneys Max Meyer and Herbert Brook were also board members Despite its grand title the NAAC was a small outfit In Chicago the office staff consisted of its office director first Bob Cryor then after 1970 Gerry Morgan assisted by four female secretaries and a handful of sales people In legal testimony Morgan confirmed that the company sold fiber to PPG but he distanced its activities from Cape Industries He stated that NAAC was virtually a oneman organization ... a marketing arm ... a service organization that handled virtually no paperwork Cape's secretary and group lawyer in London Tony Penna agreed and argued that NAAC directors were really cosmetic Cape Chairman Higham emphasized that his firm's control of its subsidiaries was arms length and that the holding company merely provides services to these subsidiaries This testimony appeared to support Cape's contention that it did no business in the United States though some evidence pointed the other way For example Cape exercised close control over the NAAC's accounting Cape received monthly financial statements besides detailed quarterly board meeting reports and dictated the NAAC's dividend In 1971 Cape Industries own parent Charter began examining Cape's accounting and financial control systems 281 36. R. H. Dent to Lord Bissell & Kadyk Chicago 18 Sept. 1953 MMUBS Archive 37. Evidence of A. J. Penna Adams and Others v Cape 15 March 1988 Day 20 MMUBS Archive 38. Lord Bissell & Kadyk 29 Sept. 1953 MMUBS Archive 39. Our Men in Chicago CAC Magazine 9 Spring 1960 4 5 40. C. G. Morgan deposition Chicago 20 May 1975 Yandle v PPG 10 28 55 MMUBS Archive 41. Adams and Others v Cape 15 March 1988 Day 20 transcript 12 MMUBS Archive 42. A. Higham deposition Yandle v PPG London 4 June 1975 11 29 MMUBS Archive 282 TWEEDALE AND FLYNN including the use of computers Richard Gaze wrote to Chicago attorney Meyer to ensure that the NAAC was part of the modernization program Cape also monitored and vetted staffing in Chicago Interestingly Cape's own legal advice on its policy of giving discounts to favored U.S. customers was that American courts might decide that they had jurisdiction over Cape because the NAAC was so active in the United States and because Cape's trade could not be carried out without its subsidiary Richard Gaze's testimony of the close involvement of Cape's directors with the American scene also seemed at odds with Cape's argument that it did not control the NAAC In the 1950s and 1970s Cape developed joint ventures with Manville to make the asbestos marine board Marinite The NAAC was also closely linked with Cape's London fiber laboratories which dealt with technical problems in thermal insulation that arose in the U.S. market Not surprisingly a transatlantic traffic of personnel and information developed Unibestos production was launched at UNARCO by a former manager of Cape's Barking facility Rudolf Wild who worked for UNARCO between 1928 and the 1940s In the late 1940s and early 1950s regular personal contacts were maintained by Thomas C. Hale another Barking manager and K. C. Gray a Cape sales manager Bob Cryor visited Cape in London almost yearly and his successor at UNARCO visited Barking equally regularly Cape directors regularly visited the United States These included Geoffrey Higham chairman of Cape after 1980. Gaze visited Bloomington in 1956 Pittsburgh in 1961 and thereafter his visits to America became annual These people alongside NAAC staff also visited large contract customers in the U.S. on behalf of the South African mining operations thus generating new customers In private NAAC personnel did not view themselves as mere commission agents of another firm Cryor viewed the NAAC as the nucleus of a national distribution organization To be somewhat trite he wrote we rather try to think of ourselves as being part of a ordinated group with responsibilities to the whole even though this may mean subordinating other and more profitable interests of NAAC.46 In fact Cape did treat the NAAC as part of a coordinated group Its American subsidiary gave Cape a direct input into the 43. Gaze to M. E. Meyer 20 July 1971 MMUBS Archive 44. R.K. Decker memo 26 Nov. 1962 MMUBS Archive 45. R. Gaze The Development of Unibestos in the USA n.d. MMUBS Archive 46. R. Cryor to Malcolm Reid Cape 28 Dec. 1956 MMUBS Archive Piercing the Corporate Veil industrial politics of U.S. asbestos production The NAAC hada seat on the Asbestos Textile Institute ATI which in turn was linked with the Asbestos Information Association AIA These were trade organizations that in the 1970s became increasingly involved with the defense of asbestos and the minimization of health risks Cryor once served as president of the ATI while Gaze was on the board of the AIA Through the NAAC Cape helped American industrialists defend asbestos and counteract the influence of physicians such as Dr Irving Selikoff who in the 1960s had publicized the mineral's dangers In 1977 Gaze after attending one AIA meeting told Morgan that one of your first tasks must be to try to organize a body of medical opinion that is prepared to stand up to Selikoff A most revealing yardstick by which to judge Cape's involvement with the NAAC was the reaction to the Yandle litigation in 1974. Far from feeling any regret over the harm to workers or misgivings over the American situation Cape bitterly resented the way in which it had been hauled before the courts Penna told the Chicago attorneys that we really cannot be said to have a moral responsibility and are simply victims of the US product liability cult Cape's solution was to launch a major reorganization in which the primary aim was to evade American litigation while protecting the trade in asbestos until such time as Cape could withdraw from the market The first step in 1974 was to rename the parent company Cape Industries thus shedding asbestos in name though the mineral was not eliminated from the company's products until 1990 Then in 1975 the South African mines were moved in Cape's corporate structure from Cape Industries a large public company to Cape Industries Overseas Ltd which had only 100 in shares See Figure 1 Meanwhile on a visit to Chicago in May 1975 Gaze and Penna discussed taking the NAAC offshore so that Cape's continued presence in America could be disguised idea that Gaze raised formally in a confidential letter to then NAAC boss Gerry Morgan In July 1975 Gaze told Morgan that he and Higham were resigning from the NAAC board to disassociate the parent company as fully as possible from the operating companies Gaze added It would I think be as well for this letter not to appear on the office file and so I 283 47. 48. 49. Gaze to Morgan 7 July 1977 MMUBS Archive Penna to S. Milwid 4 July 1977 MMUBS Archive G. Foster The Conundrum at Cape Management Today Dec. 1977 43-50 49-50 50. Gaze to Morgan 20 June 1975 Meyer to Penna 3 Oct. 1975 Adams and Others v Cape 15 March 1988 Day 20 transcript 37 MMUBS Archive 284 TWEEDALE AND FLYNN am sending it to your home I am also sending a copy to Max Meyer at his private address The reorganization was to be completed in 1977 as the Yandle case reached a conclusion In November of that year the Cape board met in London to agree the settlement of Yandle the liquidation of the NAAC and Cape's disappearance from the U.S. courts Also on Cape's agenda was the formation of a new shore company to sell asbestos to the North American market Within days of the meeting Gaze travelled to Chicago to inform Morgan that he would soon be out of a job This personal visit was a remarkable courtesy if Morgan was regarded as merely a distant salesman especially since Gaze had resigned from the NAAC board Morgan would later testify that it was Gaze who ran the NAAC and that he himself knew nothing of the approaching liquidation Now apparently without a job in December 1977 Morgan visited London where he met with Tony Penna Within days of being fired Morgan was running a new com- Continental Products Corporation whicah lthough it was not a Cape subsidiary was based in the same Chicago building 150 North Wacker Drive and had the same office equipment fur- nishings and telephone number as the NAAC Like its predecessor CPC sold asbestos which coincidentally came from Cape's South African mines Cape had paid Morgan a generous redundancy pack- age which along with another 160,000 effectively seeded the new organization.54 But Cape's involvement was deeper than that CPC traded through another company Associated Minerals Corporation AMC which was formed in January 1978 and was based in Liecht- enstein country renowned for its secrecy in financial matters The AMC stock was held by a nominee a Liechtenstein lawyer named Dr. Karl Ritter who agreed to vote as instructed by Cape.55 In reality AMC operated as a Cape shell company that was inserted into a network that did not differ markedly from the previous NAAC arrangement except that now Cape had no formal link to the United 51. Gaze to Morgan 4 July 1975 MMUBS Archive 52. Memo to file Cape Industries London 12/13/14 Archive Dec. 1977 MMUBS 53. Mau v UNARCO Morgan direct examination 14 MMUBS Archive 54. Adams and Others v Cape 15 March 1988 Day 20 4 MMUBS Archive 55. On bearer share certificates see Organization for Economic Cooperation and Development OECD Behind the Corporate Veil Using Corporate Entities for Illicit Purposes Paris 2001 29 3P0osted at www1.oecd.org/publications/e- 2101131e.pdf Piercing the Corporate Veil States See Figure a b An internal memorandum explained candidly The Liechtenstein company has been chosen under advice from our lawyers because it enables the shareholders to be disguised under a bearer share certificate arrangement The Liechtenstein company will be managed by .. Cape Asbestos Fibres Ltd a wholly owned UK subsidiary of Cape Industries Ltd but ... we wish to disguise this fact from would enquirers The benefits receivable from the United 285 Cape London AMC Liechtenstein ChicagoChicago a NAAC Chicago CASAP South Africa Shipments of brown asbestos Shipments of brown asbestos CASAP South Africa Cape London AMC Associated Minerals Corporation CASAP Cape Asbestos South Africa Pty CPC Continental Products Corporation NAAC North American Asbestos Corporation Figure 2 a Continental Products Corporation 1977-81 b North American Asbestos Corporation 1953 1977 286 TWEEDALE AND FLYNN Kingdom from this investment are indirect It is simply an exercise to enable us to continue to sell asbestos fiber in the United States thereby protecting commission income from our wholly owned South African subsidiary ... Once again the lawyers and Meyer involved ensuring that there were no directorships that Cape and CASAP directors kept out of the U.S. and that the Cape connection was secret As Penna later put it clearly disclosure of it was likely to hinder rather than help The secret Liechtenstein company enabled Cape to continue selling asbestos to America despite American product liability law and apartheid sanctions until it was ready to distance itself from asbestos mining This occurred in 1979 when a complex series of moves began that was akin to American swallowing its own tail Cape's South African mines were first sold for 15.5 m to Barlow Rand another American company alongside an indemnity that U.S. judgments were not enforceable in England The asbestos mines were then sold on again to General Mining another Oppenheimer firm As to the fate of the AMC an attentive reader of Companies House filings would have noted in 1979 the disposal of AMC by Cape Industries Overseas CPC a company that was uninsured was liquidated in 1981 Despite Cape's documented links with the AMC Cape staff proved unwilling or unable to shed any light upon its origins When questioned in 1984 the Cape and Charter director Geoffrey Higham stated that he could not recall whether he had ever heard of the AMC until lawyers mentioned it and knew nothing about its business Penna repeatedly denied to the press that Cape had any involvement with the Liechtenstein based firm Morgan when questioned in a deposition testified that he also knew nothing about Cape's connection with the AMC Q Were the principals of that entity AMC the principals of some part of Cape Asbestos A I have no idea Q Have you ever 56. Cape memo Adams and Others v Cape 15 March 1988 Day 20 transcript 14-15 MMUBS Archive 57. Adams and Others v Cape 15 March 1988 Day 20 transcript 50 MMUBS Archive 58. Companies House London Cape Industries Overseas Ltd 1979 Reports MMUBS Archive 59. J. Walker documents notes on deposition of G.A. Higham 3 4 Oct. 1984 Thacker v UNR Industries 70 MMUBS Archive Piercing the Corporate Veil A Nobody talks about that Q Have you ever determined the identity of the principals until this very day A No sir I can't even read the name of the man who signed the contract.6 The attempt to enforce the 205 Tyler claims against Cape Industries Adams v Cape came to trial in London in 1988. Documents produced in legal discovery now revealed more fully the legal web behind the reorganizations This was encouraging for the American plaintiffs because sham companies can induce the courts to pierce the corporate veil Less helpful to the Americans was significant hostility among the English judiciary to American product liability law and the level of damages set by the U.S. courts which were regarded as astronomic and unfair by English standards The media took little interest in the case In his decision in 1988 Mr. Justice Scott accepted that the NAAC had been an integral part of the Cape group which operated worldwide as a single economic entity He also agreed that the AMC arrangement was a fa^adethat was designed to sell fiber in America while avoiding liability He was skeptical of many of the details presented at the trial by Cape's directors and dismissed Morgan's testimony as disingenuous and false Nevertheless he regarded the NAAC as a separate legal entity so that the presence of NAAC at 150 North Wacker Drive Chicago Illinois did not constitute 962 the presence in Illinois of Cape ... Cape's actions had been somewhat conspiratorial but these were too subjective and not ... relevant to the main question In Scott's view the corporate veil could not be lifted simply because justice demanded it and so he dismissed the Adams claims Cape's labyrinthine relationship with Charter was not an issue in Adams However Charter was pursued by the same group of lawyers and plaintiffs simultaneously in the United States where a district court decided that Charter was liable because it controlled Cape and was therefore guilty of fraud and injuring workers This was reversed in 1988 when the U.S. Court of Appeal judged that Charter's control 287 60. C. G. Morgan deposition Pittsburgh 31 Oct. 1980. Court of Common Pleas of Allegheny County Pennsylvania Civil Division Anthony A. Barber al v Pittsburgh Corning Corporation v Commonwealth of Pennsylvania et al No. GD 79-21544 191-2 193-4 MMUBS Archive 61. Adams and Others v Cape Industries plc and Another 1991 1 All ER 929 CA MMUBS Archive 62. Adams and Others v Cape All ER 966-7 MMUBS Archive 63. Adams and Others v Cape All ER 967 MMUBS Archive 288 TWEEDALE AND FLYNN of Cape did not reach the required level of dominance.64 In England too the Adams case went to the Court of Appeal which refused to overturn the original verdict The English Court underlined the legality of Cape's Liechtenstein company It described the AMC as the creature of Cape but did not feel entitled to lift the corporate veil merely because the corporate structure has been used so as to ensure that the legal liability if any in respect of particular future activities of the group will fall on another member of the group rather than the defendant company Whether or not this is desirable the right to use a corporate structure in this manner is inherent in our corporate law.'65 This was a landmark decision and the most detailed review of this aspect of corporate law ever undertaken in England The result was a striking restatement of the Salomon principle of strict separate personality The Corporate Veil and the Asbestos Industry In the aftermath of Adams Cape promptly declared that it had a distinguished past and confident future astonishing statement especially in view of the catastrophic mesothelioma epidemic that was emerging in the polluted towns around Cape's former mines in South Africa In 1996 Charter Consolidated sold its interest in Cape for about 48 million leaving Cape Plc to make its own way as an international asbestos removal contractor and manufacturer of nonasbestos fire protection and insulation products Cape prospered again though as a shadow of its former self and still burdened with asbestos liabilities.67 In retrospect one is struck by the number of legal landmarks in which Cape was involved It was part of the first big American asbestos settlement 1977 it was the first company in the United States to incur punitive damages in asbestos litigation 1982 and it owned the first U.S. asbestos company to file for bankruptcy 1982 64. Clarence Craig and Duveen A. Craig v Lake Asbestos of Quebec Ltd v Charter Consolidated 1988. US Court of Appeals for the Third Circuit No. 87-1254 MMUBS Archive 65. L.J. Slade Adams and Others v Cape All ER 102 MMUBS Archive 66. Cape Plc A Distinguished Past and a Confident Future A Short History of Cape PLC 1893 199L3ondon 1993 67. D. Blackwell Cape Leaves Litigation Behind Financial Times 26 March 2004 T. Macalister Cape Misses Court Date to Avoid Payment Guardian 18 Nov. 2003 Piercing the Corporate Veil In 2003 it settled yet another important case Lubbe v Cape brought by 7,500 of its former South African workers after the court made a precedent ruling that the case could proceed in London.68 Yet despite all this litigation Cape emerged remarkably unscathed and had proved itself astonishingly adept at extricating itself from the asbestos business without paying huge compensation The question arises as to whether Cape's actions were typical Before examining that point it should be noted that the asbestos industry has its defenders An authorized history of Turner & Newall N has described the company as a model health hygienist unfairly traduced by historians with an aversion to capitalism.70 Another historian has absolved the American asbestos companies of conspiracy against the public interest and has pinned the blamed for litigation on malevolent journalists and on opportunistic lawyers.71 In fact Cape's use of the corporate veil was quite routine N operated wholly owned American asbestos factories between the 1930s and 1960s through a holding company in Montreal which also controlled N's Canadian mining and manufacturing interests The structure was originally dictated by N's desire to evade American taxes and antitrust law In 1977 N implemented a complex reorganization of its Canadian holding company that involved the setting up of buffer companies to distance its assets from claimants The arrangements proved highly effective in repelling jurisdictional claims when asbestos personal cases were launched against N in the 1980s both in the United States and Canada In America the reaction of W. R. Grace & Company to its spiralling asbestos liabilities after the 1980s was to divest itself of over 4 bn in assets behind an elaborate series of restructurings and technical bankruptcy The result was a empty shell for asbestos claimants and a free exit with the assets for the stockholders though the 289 68. Lubbe and Others v Cape plc 2000 1 WLR 1545 MMUBS Archive See R. Meeran Cape Plc South African Mineworkers Quest for Justice International Journal of Occupational and Environmental Health 9 Sept. 2003 218 2P7eter Muchlinski Corporations in International Litigation Problems of Jurisdiction and the United Kingdom Asbestos Cases International and Comparative Law Quarterly 50 Jan. 2001 1 25 69. Pallister et al South Africa 254 70. P. Bartrip The Way from Dusty Death Turner & Newall and the Regulation of Occupational Health in the British Asbestos Industry 1890s London 2001 71. Rachel Maines Asbestos and Fire Technological Trade and the Body at Risk New Brunswick N. J. 2005 72. G. Tweedale Magic Mineral to Killer Dust Asbestos Hazard Oxford U.K. 2nd ed 2001 219 Turner & Newall and the 290 TWEEDALE AND FLYNN bankruptcy court was later able to claw back about $ bn The core Grace company remains profitable today though it remains under the shadow of heavy fines levied by the Environmental Protection Agency for asbestos damages at a former Grace mine in Libby Montana while seven of its current and former executives face federal indictments that they knowingly placed their workers and the public in danger In the late 1990s the leading Australian asbestos company James Hardie also restructured its business to deal with its growing asbestos liabilities In 2001 it established a compensation fund while simultaneously and surreptitiously shifting its assets and corporate headquarters to the Netherlands When the fund ran dry within only three years the Dutch parent was revealed to be immune to claims because Australia did not have an enforcement treaty with the Netherlands The subsequent public outcry resulted in a New South Wales Government Commission The Commission's report revealed a masterly use of the corporate veil to distance Hardie from liability.74 It also identified a string of possible offences against the Corporations and Trade Practices Acts and the common law Inevitably such problems have been magnified in countries where government regulations are more lax leading to accusations that the separation of legal identity has enabled MNEs to apply double standards Certainly in the United Kingdom Cape had to operate under far more stringent safety standards than standards that were never applied for example in South Africa.76 Double standards were also evident in Cape's policy towards the United States whence fiber was shipped without the safety warnings that became a requirement on bags of raw asbestos imported into the United Kingdom after 1976 action that reflects little credit on 73. K. Rivlin and J.D. Potts Not So Fast The Sealed Air Asbestos Settlement and Methods of Risk Management in the Acquisition of Companies with Asbestos Liabilities New York University Environmental Law Journal 11 no 3 2003 626 6J1. Heenan Graceful Maneuvering Corporate Avoidance of Liability through Bankruptcy and Corporate Law Vermont Journal of Environmental Law 2003 online journal published at www.vjel.org/roscoe/roscoe03a.html 74. New South Wales Government Cabinet Office Report of the Special Commission of Inquiry into the Medical Research and Compensation Foundation Sept. 2004 Posted at www.cabinet.nsw.gov.au/publications 75. Ben Hills The James Hardie Story Asbestos Victims Claims Evaded by Manufacturer International Journal of Occupational and Environmental Health 11 April 2005 212-14 76. J. McCulloch and G. Tweedale Double Standards The Multinational Asbestos Industry and Asbestos Disease in South Africa International Journal of Health Services 34 no 4 2004 663 79 Piercing the Corporate Veil Cape Industries given its unparalleled knowledge of the hazards of amphiboles Much more is now known about mesothelioma in South Africa than when Adams was contested It is the story of the concealment of a major public health hazard.77 In the early 1960s Cape and other South African producers had at first supported research into mesothelioma but then ensured that the alarming results showing that mesothelioma was linked with environmental exposure were suppressed This allowed Cape to continue to mine and sell amphiboles vigorously while denying or minimizing the dangers Similarly knowledge at Cape of health dangers rarely made it to the United States or influenced policy at Cape's operations there In 1966 for example Richard Gaze told NAAC boss Cryor that asbestos in no way presents a hazard to the public at large and denied that there was any evidence that amosite caused mesothelioma Yet as Gaze knew independent medical studies had appeared only the year before in England that showed that mesothelioma deaths had occurred close to Cape's main factory even among individuals who had never worked in the asbestos industry In the late 1970s Gaze was still telling U.S. asbestos industrialists that crocidolite was not much worse than chrysotile and that the hazards are greatly exaggerated in this country the UK Such scientifically inaccurate statements facilitated the export of Cape's blue fiber to America after its import had been effectively banned in the United Kingdom We shall never know how many workers died as a result but some idea of the risks can be appreciated from the fate of several Cape executives.81 Rudolf Wild died of mesothelioma in 1951 as did his daughter who was probably exposed to dust from her father's clothes Tom Hale died of mesothelioma in 1961. So too did Bob Cryor in 1970. Gaze himself who was a key architect of the NAAC died from peritoneal mesothelioma in 1982.82 291 77. Flynn Studded with Diamonds 189 181-200 202McCulloch Asbestos Blues 78. Gaze to Cryor 22 March 1966 MMUBS Archive 79. M.L. Newhouse and H. Thompson Mesothelioma of Pleura and Peritoneum Following Exposure to Asbestos in the London Area British Journal of Industrial Medicine 22 Oct. 1965 261-69 80. Gaze to Guy Gabrielson Nicolet Inc. 18 Feb. 1977 MMUBS Archive 81. One recent estimate suggests that 10,000 Americans are dying annually from asbestos diseases with 100,000 deaths projected over the next decade See Environmental Working Group Asbestos Think Again Washington D.C. 2004 Posted at www.ewg.org/reports/asbestos 82. Information from death certificates legal documents personal information and Brodeur Expendable Americans 141 292 TWEEDALE AND FLYNN Conclusion Separate legal personality still stands in the shape of Salomon and Adams and is regarded by most legal experts as inherently sound This article however demonstrates that the corporate veil can allow MNEs to escape responsibility and leave victims of corporate actions with no recourse The story of Cape Industry's American operations provides a striking illustration of how limited liability can act as a bar to recovery for corporate injuries even when a firm has been found guilty Over the past twenty years tort law has arguably been the uniquely effective and indispensable means of exposing and defeating the asbestos conspiracy providing compensation to victims and deterring future malfeasance Yet in Bloomington and Tyler and in many other American locations hundreds indeed thousands of asbestos victims were denied the opportunity to claim damages from Cape Industries because of the legal doctrines supporting the corporate veil Companies have been able to use traditional entity law to externalize the costs of conducting highly risky activities A distinct pattern therefore emerges from this discussion of corporations enjoying the benefits of personality without the drawbacks such as punishment for misdeeds and of being able to restructure their businesses in flagrant disregard of industrial hazards and of the interests of anyone but their shareholders For business historians Adams and related cases have some intriguing implications This episode is incomprehensible without an understanding of corporate law which business historians have largely avoided in favor of a focus on management technology and other core business operations Yet the asbestos cases show that lawyers played a key role in shaping company strategy This may be a feature of companies involved in the manufacture of toxic 83. Grantham and Ross Corporate Personality 7 84. For similar criticisms see J. Dine The Governance of Corporate Groups Cambridge Mass 2000 46 4a8nd Blumberg Multinational Challenge 133 85. D. Rosenberg The Dusting of America A Story of Asbestos Cover and Litigation Harvard Law Review 99 May 1986 1693-1706 1695 See also M. Anderson Transnational Corporations and Environmental Damage Is Tort Law the Answer Washburn Law Journal 41 Spring 2002 399 425 86. The corporate veil in other industries remains to be explored Interestingly in 1994 BAT Industries in London claimed that it had been wrongfully named in a Minnesota tobacco damages suit because it was merely a holding company with 164 employees and had only a distant relationship with its U.S. subsidiary Brown & Williamson On this occasion the American courts were not convinced See P. Pringle Dirty Business Big Tobacco at the Bar of Justice London 1998 203 6 Piercing the Corporate Veil products Stanton Glantz for example has shown the unusually active role played by tobacco industry attorneys even in scientific research.87 This view is shared by former Food & Drug Administration head David Kessler who believes that the tobacco industry put itself in the hands of its lawyers to counter threats to regulation.88 Until now the corporate attorney has not been a prominent figure in business history MNE scenarios but these experiences suggest that it was not simply the entrepreneur that devised corporate strategy Above all this story is important for the discordant note it strikes in the business history literature It is a story of avoidance offshore companies shells the concealment of information and the deaths of workers It would appear that not all MNES are the progressive institutions commonly portrayed in the literature of business history Some are closer to Joel Bakan's depiction of the corporation as a monster whose legally defined mandate is to pursue relentlessly and without exception its own interest regardless of the often harmful consequences it might cause to others Business historians may disagree with this characterization but they need to address these issues if they are to relate their work to contemporary debates in management and globalization To do that they need to bring subjects such as the environment regulation ethics and the social costs of business much closer to the center of the stage than they currently occupy in the Chandler paradigm For Cape and other asbestos manufacturers the occupational and environmental health problems of producing a toxic product were far from being an externality but were central to the operation structure and survival of the business 293 87. S. Glantz et al eds The Cigarette Papers Berkeley Calif 1996 236 88. D. Kessler A Question of Intent A Great American Battle with a Deadly Industry New York 2001 205 89. Bakan Corporation 1 2 294 TWEEDALE AND FLYNN Bibliography of Works Cited Books Bakan Joel The Corporation The Pathological Pursuit of Profit and Power New York 2004 Bartrip P. The Way from Dusty Death Turner and Newall and the Regulation of Occupational Health in the British Asbestos Industry 1890s London 2001 Berk G. Alternative Tracks The Constitution of American Industrial Order 1865-1917 Baltimore Md 1997 Blumberg P.I. The Multinational Challenge to Corporate Law The Search for a New Corporate Personality New York 1993 Brodeur Paul Expendable Americans The Incredible Story of How Tens of Thousands of American Men and Women Die Each Year of Preventable Industrial Disease New York 1974 . Outrageous Misconduct The Asbestos Industry on Trial New York 1985 Cape Asbestos Ltd. The Story of the Cape Asbestos Company Ltd. London 1953 Cape Plc A Distinguished Past and a Confident Future A Short History of Cape PLC 1893-1993 London 1993 Carroll S. J. et al eds Asbestos Litigation Santa Monica Calif 2005 Posted at www.rand.org Castleman B. I. Asbestos Medical and Legal Aspects Englewood Cliffs N.J. 2005 Dine J. The Governance of Corporate Groups Cambridge Mass 2000 Environmental Working Group Asbestos Think Again Washington D.C. 2004 Posted at www.ewg.org/reports/asbestos Flynn L. Studded with Diamonds and Paved with Gold Miners Mining Communities and Human Rights in South Africa London 1992 Glantz S. et al eds The Cigarette Papers Berkeley Calif 1996 Grantham R. and Rickett C. eds Corporate Personality in the 20th Century Oxford U.K. 1998 Gregory T. Ernest Oppenheimer and the Economic Development of South Africa Cape Town 1962 Innes D. American and the Rise of Modern South Africa London 1984 Kessler D. A Question of Intent A Great American Battle with a Deadly Industry New York 2001 Maines Rachel Asbestos and Fire Technological Trade and the Body at Risk New Brunswick N.J. 2005 McCulloch J. Asbestos Blues Labour Capital Physicians and the State in South Africa Oxford U.K. 2002 Milman David ed Regulating Enterprise Law and Business Organisation in the UK Oxford U.K. 1999 Monopolies Commission Asbestos and Certain Asbestos Products London 1973 Piercing the Corporate Veil Muchlinski Peter Multinational Enterprises and the Law Oxford U.K. 1995 New South Wales Government Cabinet Office Report of the Special Commission of Inquiry into the Medical Research and Compensation Foundation 2004 Posted at www.cabinet.nsw.gov.au/publications Organisation for Economic Cooperation and Development OECD Behind the Corporate Veil Using Corporate Entities for Illicit Purposes Paris 2001 Posted at www1.oecd.org/publications/e-book/2101131e.pdf Pallister D. et al South Africa Inc The Oppenheimer Empire London 1988 Pearce Frank and Steve Tombs Toxic Capitalism Corporate Crime and the Chemical Industry Dartmouth N.H. 1998 Pringle P. Dirty Business Big Tobacco at the Bar of Justice London 1998 Tweedale G. Magic Mineral to Killer Dust Turner and Newall and the Asbestos Hazard Oxford U.K. 2d ed 2001 Wikeley N. J. Compensation for Industrial Disease Aldershot U.K. 1993 Articles and Essays Anderson M. Transnational Corporations and Environmental Damage Is Tort Law the Answer Washburn Law Journal 41 Spring 2002 399-425 Greenberg 1928 M. Cape Asbestos Barking Health and Environment 194A6merican Journal Industrial Medicine 43 Feb. 2003 109-19 Heenan J. Graceful Maneuvering Corporate Avoidance of Liability through Bankruptcy and Corporate Law Vermont Journal of Environmental Law 2003 Available from www.vjel.org/roscoe/roscoe03a.html Hills B. The James Hardie Story Asbestos Victims Claims Evaded by Manufacturer International Journal of Occupational and Environmental Health 11 April 2005 212-14 Katzenellenbogen S. updated by R.A. Salamie American corporation of South Africa Ltd. In International Directory of Company Histories ed T. Grant London 1997 pp 25-30 Keller M. Business History and Legal History Business History Review 53 Autumn 1979 295 303 McCulloch J. and G. Tweedale Double Standards The Multinational Asbestos Industry and Asbestos Disease in South Africa International Journal of Health Services 34 4 2004 663 79 Meeran Richard Cape Plc South African Mineworkers Quest for Justice International Journal of Occupational and Environmental Health 9 Sept. 2003 218 27 ___.. Liability of Multinational Corporations A Critical Stage in the UK In Liability of Multinational Corporations under International Law eds Kamminga Menno and Zarifi Sam The Hague 2000 pp 251-64 295 296 TWEEDALE AND FLYNN Miller Sandra K. Piercing the Corporate Veil among Affiliated Companies in the European Community and in the US A Comparative Analysis of US German and UK Piercing Approaches American Business Law Journal 36 Fall 1998 73 149 Muchlinski Peter Corporations in International Litigation Problems of Jurisdiction and the United Kingdom Asbestos Cases International and Comparative Law Quarterly 50 Jan. 2001 1 25 Newhouse M.L. and H. Thompson Mesothelioma of Pleura and Peritoneum Following Exposure to Asbestos in the London Area British Journal of Industrial Medicine 22 Oct. 1965 261 69 Ozonoff D. Failed Warnings Asbestos Disease and Industrial Medicine In The Health and Safety of Workers ed R. Bayer New York 1988 pp 139-218 Rivlin K. and J. D. Potts Not So Fast The Sealed Air Asbestos Settlement and Methods of Risk Management in the Acquisition of Companies with Asbestos Liabilities New York University Environmental Law Journal 11 3 2003 626 61 Rolle Mary E. Unravelling Accountability Contesting Legal and Procedural Barriers in International Toxic Tort Cases Georgetown International Environmental Law Review 15 Winter 2003 137 201 Rosen C.M. and C.C. Sellers The Nature of the Firm Towards an cultural History of Business Business History Review 73 Winter 1999 577-600 Rosenberg D. The Dusting of America A Story of Asbestos Cover and Litigation Harvard Law Review 99 May 1986 1693-1706 Wormser I. M. Piercing the Veil of Corporate Identity Columbia Law Review 12 Dec. 1912 496 524 Newspapers and Trade Publications CAC Cape Asbestos Companies Magazine 3 Summer 1954 Magazine 4 Spring 1955 CAC Magazine 9 Spring 1960 Financial Times 26 March 2004 Guardian 21 Aug. 2000 18 Nov. 2003 Management Today Dec. 1977 CAC Archival Sources Manchester Metropolitan University Business School