As I was re-reading and reviewing my notes, one theme that kept popping up is how troublesome this “fiction” of corporate personhood can be. It feels a bit like the chicken and the egg. Is “corporate personhood” a natural product of the legal analysis, flowing out of concepts like shareholder limited liability and the fact that the company is distinct from the shareholder, OR is is the starting point, the center point, around which we try to fit and sometimes force the legal analysis?
Many times it seems to be the latter, a concept, or “fiction” that we use to try and guide/inform our analysis. It feels awkward sometimes and other times seems to be the perfect fit. Take for example, the case in Hercules Management.
When we studied Hercules in torts, it seemed like the primary focus of the decision was a policy point – the court wanted to ban many claims against auditors based on public policy concerns around the issue of “indeterminate liability”. Separate corporate personhood was a perfect fit for the court to make that point on, because the damages technically weren’t done to the shareholders, they were done to the company. The argument made was that the auditors didn’t prepare the documents for the shareholders, they prepared them for the company. It was the company that was meant to rely on them, not the shareholders, so any damage that occurred that could be directly attributed to those reports would have been to the company. The corporate person stands between the auditors and the shareholders, blocking the relationship that is needed to find liability through tort.
Only the company could sue… but the company was in receivership…. so they were really saying that yes, there was a wrong done and damage suffered, but no, there’s really nothing you can do about it…
I feel like I might be more persuaded by the appellants in Robak v Gardener, 2007 BCCA – that the rule blocking shareholders from recovering for damages done TO the company is really a rule of avoiding “double recovery”, preventing both he company and shareholders from recovering for the same loss. Following that, if it can be shown that the company cannot sue, like in Hercules, then the shareholders should be allowed to. The court doesn’t go for it because… duh… separate corporate personhood, but I can’t help but think about how much “public policy” dictates how and when, and how strictly, we apply the rule.
One other rambling note – the result in Hercules Management seems entirely based on the rule in Foss v Harbottle… individual shareholders have no cause of action in law for any wrongs done to the corporation and that if an action is to be brought in respect of such losses, it must be brought either by the corporation itself or by way of a derivative action. This seems basically like a reiteration of the Soloman principle.. but unless I’m mistaken, Foss v. Harbottle came out 50 years before Soloman? chicken or egg…
