Extraterritorial Jurisdiction in International Law In Light of Piercing the Corporate Veil

The concept of jurisdiction refers to the state power and authority over its nationals and residents within its territory exercised through legal official bodies and agencies such as legislative, judicial and executive organizations. The exercise of this power beyond the territory of a country is called extraterritorial jurisdiction. As far as judicial jurisdiction is concerned, national courts apply traditional criteria and rules such as lex loci rei, lex loci solutionis, lex loci domicilii and the like in order to exercise their jurisdiction over transnational cases. However, the vast presence of transnational or multinational companies in international arena and in particular, their complex organizational structure along with the broad scope of their activities at international level caused national and international courts to face with new jurisdictional questions in cases where transnational companies are involved. Resolution of these new questions requires new criteria in order to justify judicial jurisdiction of the relevant courts. The corporate veil-piercing theory is a mechanism developed to serve this requirement. The core of this theory is to prevent fraud in transnational activities of the companies and in particular, to prevent misuse of the principle of corporate independence from the shareholders. Based on this mechanism, the relevant court may lift the corporate veil and extend its jurisdiction over the mother company – foreign company- or foreign shareholders and thus justify the extraterritorial jurisdiction of itself. This rule was initially developed in commercial cases by domestic courts and was subsequently applied by international courts and tribunals to justify diplomatic protection by national state of the shareholders and also in certain human rights cases in support of the claims by victims of human rights abuses. The application of the rule is appreciated by jurisprudence of national and international courts as well as the doctrine.