Awakening Sleeping Beauty: Reviving Lost Remedies and Discourses to Revoke Corporate Charters
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AWAKENING SLEEPING BEAUTY: REVIVING LOST REMEDIES AND DISCOURSES TO REVOKE CORPORATE CHARTERS by GIL YARON B.A. & Sc., McMaster University, 1989 LL.B., The University of Ottawa, 1996 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS OF LAWS in THE FACULTY OF GRADUATE STUDIES (Faculty of Law) We accept this thesis as conforming to the required standards THE UNIVERSITY OF BRITISH COLUMBIA January 2000 © Gil Yaron, 2000 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of J^/\<^J The University of British Columbia Vancouver, Canada ABSTRACT The central objective of this interdisciplinary thesis is to articulate a theoretical, doctrinal and political justification for the reintroduction of corporate charter revocation as a remedy to enhance the accountability of corporations in modern society. Corporations were originally conceived of as public institutions granted charters to carry out specific activities in the interests of society. Where a corporation acted outside of its charter, the corporation's charter could be revoked. Over the past 150 years, corporate lawyers have silently amended corporate laws to provide corporations with rights, powers and privileges that exceed those of individuals. Internal institutional regulation through corporate charters has been replaced by external oversight through administrative regulatory mechanisms. Where incorporation was once considered a privilege, today it is a right. Despite these developments, this thesis argues that theory and doctrine still support the paramountcy of the public over the private, and the legal remedies of corporate charter revocation. The thesis contains six chapters including introduction and conclusion. Chapter one introduces the legal principle of corporate charter revocation and demonstrates why such a remedy is necessary in the context of modern corporate law. Chapter two considers the four accepted theories of the corporate structure and asserts that a revised "neo-concessionist" approach continues to inform our understanding of the corporation/state relationship. Chapter three reinforces this theoretical analysis through an historical and doctrinal account of the prerogative remedies of scire facias and quo warranto and the development of ii statutory charter revocation provisions. Chapter four focuses on the place of the state, specifically the Attorney General, in initiating revocation proceedings and some of the political barriers to reinstating the remedy. Through the exploration of these barriers and consideration of several recent American case studies, an effort is made to develop a strategy for the successful implementation of corporate charter revocation. The paper concludes with some thoughts about various outstanding barriers to the successful utilization of the remedy, the nature and application of corporate charter revocation generally, and calls for a continuation of a broader debate about the place of the corporation in modern society. iii TABLE OF CONTENTS Abstract II Table Of Contents IV Acknowledgements vi Introductory Quote vii CHAPTER I: INTRODUCTION 1 CHAPTER II: THEORIES OF THE CORPORATION 17 CONCESSIONISM 21 CONTRACTUALISM : 22 ENTITY THEORY .' 23 ENTERPRISE THEORY 24 THEORETICAL DISCORD 25 CREATING A MODERN THEORY FOR CORPORATE CHARTER REVOCATION: A NEO- CONCESSIONIST APPROACH 32 CHAPTER III: AWAKENING SLEEPING BEAUTY 41 THE NATURE OF THE ROYAL PREROGATIVE 48 LAYING THE AXE TO THE ROOT OF THE TREE: THE CONSTITUTIONAL REMEDIES OF QUO WARRANTO AND SCIRE FACIAS 53 i. Quo Warranto 53 ii. Scire Facias 55 iii. The Three Seminal Cases: Eastern Archipelago, Dominion Salvage and Hellenic 60 STATUTE 70 i. Federal 74 ii. Alberta 81 iii. British Columbia 83 iv. Ontario 86 ANALYSIS 89 i. Disuse 90 ii. Irrelevance 91 iii. Abrogation 92 iv. Revival 95 v. Proper Remedy 96 CHAPTER IV: THE STATE AND CORPORATE CHARTER REVOCATION 104 PERSONNEL BARRIERS 106 INSTITUTIONAL BARRIERS 118 IDEOLOGICAL BARRIERS 125 DEVELOPING A STRATEGIC RESPONSE 133 APPLICATION OF STRATEGIC RESPONSE TO AMERICAN CASE STUDIES 136 iv CHAPTER VI: CONCLUSION SELECT BIBLIOGRAPHY ACKNOWLEDGEMENTS A work of this scale is not achievable without the support of many individuals. I am very grateful to the many people who have assisted me on this journey. To Richard Grossman and Thomas Linzey whose pioneering work to revive the topic of charter revocation in the United States provided the inspiration for this research. To Professors Rob McQueen and Chris Tollefson whose excellent graduate theses were an inspiration to me and provided initial insights into the theoretical and historical aspects of the corporation that form the substance of this thesis. To the Law Society of Upper Canada for their financial support which enabled me to pursue critical historical research. To the library staff at the University of British Columbia, especially Allan Soroka, and the National Archives in Ottawa who provided me with ongoing assistance and ideas to further my search for lost and forgotten sources. To Professors Joel Bakan and Wesley Pue for their ongoing support and ideas that made this thesis what it is. And to my wife, Susan Mclntyre, for her unending support and encouragement. This thesis is a product of all that you have shared with me. vi A rule of the English common law, once clearly established, does not become extinct merely by disuse': it may 'go into a cataleptic trance', but, like Sleeping Beauty, it can be revived 'in propitious circumstances'. - Lord Simon of Glaisdale in McKendrick v. Sinclair 1972 S.L.T. (H.L.) 110 at 116. vii Awakening Sleeping Beauty 1 CHAPTER I: INTRODUCTION The rise of the transnational corporation is one of the most profound events in modern history. The increasing concentration of power in the control of this institutional structure has resulted in a gradual, but marked shift from public, democratic government by the people to private, institutional control. Commensurate with this shift has been a reduction in the degree of corporate accountability to society. The corporation from its earliest incarnations was understood as a franchise granted legal existence through Crown grant. Gradually, control over the corporation shifted to the regulatory sphere. Today, the regulatory regime in Canada is being dismantled leaving a vacuum, which is being filled by self-regulation and voluntary corporate compliance initiatives (see discussion infra). Outside of market demand and market regulation, corporations are not being held accountable for their actions. This thesis seeks to begin to reclaim the historic relationship between the corporation and the state through the reintroduction of an historic remedy - corporate charter revocation. The purpose of this thesis is to explore the modern theoretical, doctrinal and political dimensions of corporate charter revocation and to argue for the survival of the remedy at common law and in statute. Although the focus here is not principally on the nature of the corporation and corporate power, this paper will also explore these issues in the course of discussing corporate charter revocation. To that extent, this paper raises questions about some long-established, yet unsupported, principles underlying our traditional understanding Awakening Sleeping Beauty 2 of the corporation and its relationship to the state.1 Through an interdisciplinary analysis of corporate charter revocation, I hope to challenge current theoretical, legal and political understandings of the corporation and reveal new or forgotten places for the public to engage the corporate structure. As stated, this investigation is a response to concerns surrounding the increase in corporate concentration and power and the corresponding decrease in corporate accountability. As the primary tool for economic development in modern capitalist society, the corporate structure has evolved into an autonomous entity immune to any concerns and responsibilities aside from profit maximization for its shareholders. Recent Canadian public opinion polls and comments from business officials reflect this condition. A 1996 Angus Reid survey entitled "Public Perspectives On Corporate Responsibility" found that 45% of Canadians surveyed believed large Canadian corporations have become "less responsible" in the past few years, while only 19% said the corporate sector has become "more responsible".2 John Z. De Lorean, long-time executive with General Motors was very candid in 1979 when he , commented on the nature of the corporation: The system has a different morality as a group than the people do as individuals, which permits it to willfully produce ineffective or dangerous products, deal dictatorially and often unfairly with suppliers, ' Christopher Stanley, "Corporate Personality and Capitalist Relations: A Critical Analysis of the Artifice of Company Law" (1987) 19 Cambrian L.Rev. 97 at 97 comments: "Company law remains bereft of any serious expansive theoretical examination...company law continues to be largely isolated from the critical gaze.. .no scholar has yet dared to venture