Yesterday we asked who was really to blame for the oil spill in the Gulf of Mexico. BP has agreed to establish a $20 billion claims fund over the next three and a half years, and has further acknowledged this 'does not represent a cap on BP liabilities,' pledging to pay 'any legitimate claim.'

That the company implicitly accepts that there is a moral case for its voluntarily waiving the federal cap of just $75 million costs and that this is in the interests of its relationships with both the authorities and the public, reopens the whole question of limited liability that Jubilee Centre has previously raised. Exactly ten years ago, in Risk, reward and responsibility: limited liability and company reform, we argued that, exceptionally in the law of contract, limited liability allows that certain debts may be left unpaid:

'As a result shareholders, who retain rights of ownership, are excused responsibilities of ownership, while directors bear some of the responsibilities of ownership, and share some of the rewards, but carry few of the risks. This flaw at the heart of corporate structure leads to problems in corporate governance, absence of corporate social accountability, and an unhealthy trend towards corporate giantism.'

Now Richard Epstein, professor of law at the University of Chicago, argues in the Wall Street Journal that 'the legal system should never allow self-interested parties to keep for themselves all the gains from dangerous activities that unilaterally impose losses on others':

'A tough liability system does more than provide compensation for serious harms after the fact. It also sorts out the wheat from the chaff — so that in this case companies with weak safety profiles don't get within a mile of an oil derrick. Solid insurance underwriting is likely to do a better job in pricing risk than any program of direct government oversight.'

If limited liability were seriously reformed, it would have significant implications for which share-holdings were undertaken by the hedge fund managers responsible for maximising a return on our pensions and savings, and for the level of interest and involvement they--and we all--paid to our investments. Of course, some will rightly point out that removing the foundation of limited liability from corporate ownership could have enormous negative consequences. Yet, as Lord Templeman once observed, 'The history of the Companies Act illustrates the power of Parliament, if it please, to impose some liability on shareholders as a condition of the grant of incorporation'.

That said, nobody expects President Obama now to force Exxon Mobil or Shell to set up compensation funds for the millions of gallons of oil pollution they have caused in Nigeria, let alone Union Carbide, despite the conviction for negligence earlier this month of seven of the US firm's former employees over India's Bhopal chemical disaster in 1984. After all, an environmental disaster on America's doorstep is one thing (votes, if nothing else); one on another continent is quite literally half-a-world away...

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