Originally from Transnational Litigation and Commercial Arbitration - 3rd Edition 

2.5.5. Jurisdiction over Foreign Business Entities & the Corporate Veil

As discussed previously in the European (Brussels I Regulation) context,282 the method chosen by a given business enterprise to conduct its foreign operations is likely to affect not only the substantive liability of that enterprise for obligations incurred abroad, but also the very amenability of the enterprise to the jurisdiction of foreign courts. Obviously, these are not strictly European concerns.

First, as regards the substantive (liability) side, American law accepts the doctrine of respondiat superior, whereby a principal (the “superior”) is likely to be held liable for the “acts” of his or her agent (subordinate). If, for example, the local/American employee of a German manufacturer, during the course of his or her employment on American soil, breaches a contract or commits a commercially related tort, the German employer/manufacturer risks being held liable for the employee’s act. Similar considerations apply in the case of acts committed by (persons in) the local “branch office” of a foreign entity. If, on the other hand, a similar act is committed by an entity which is (legally) independent of the foreign company, the plaintiff will usually not be permitted to reach beyond that entity’s assets.283 In other words, as in Europe, so too in America: Salomon v. Salomon is nearly everywhere the rule.284

So, in America and elsewhere, shifting a high-risk venture into a subsidiary or affiliated corporation seems a logical way to limit the prospect of liability lawsuits. The key substantive question is whether — or rather, in what circumstances — the parent may actually be held liable for the debts of its subsidiary. In a transnational case, however, the related procedural issue will often need to be decided first: is the foreign parent subject to the jurisdiction of the forum court?