Dual-Listed Company Structures: Effect on Liability and Indemnity Contracts

In 2003 Carnival merged with Princess Cruises to form the largest cruise ship company in the world, now known as Carnival Corp. & PLC. Prior to the merger, Carnival was listed on the New York Stock Exchange and Princess was listed on the London Stock Exchange. In order for shareholders of the merging companies to avoid divestiture, the merger was accomplished through a dual-listing agreement. Unlike with a traditional merger, in which either one company absorbs the other company or both companies are absorbed into a newly-created third company, with a dual-listing merger the merging companies remain separate legal entities.

In lieu of a transfer of assets and liabilities, a dual-listing merger is effectuated contractually—primarily through an equalization agreement, the merging companies’ formation documents, and the merging companies’ bylaws. A typical equalization agreement, which will be recognized in the formation documents and bylaws, unites the companies: (1) economically, by setting an equalization ratio for distributions, and mandating that for one company to pay a dividend, the other company must also pay a dividend, and if it cannot do so, the former must pay the dividend on behalf of the latter; (2) through shareholder control, by setting an equalization ratio for relative voting rights of the respective shareholders, so that a combined class of shareholders votes on matters affecting the entire company, while shareholders of the individual companies continue to vote separately on more intimate matters wherein joint voting may create conflict; and (3) by establishing interlocking boards of directors and top management. Thus, the directors, all of whom are directors for each component company, look out for the interests of the combined dual-listed company (“DLC”). Arguably, the fact that the component companies’ bylaws and formation documents recognize the DLC merger—and the other component company—enables the directors while acting as directors for one company to consider the interests of the other company without breaching their fiduciary duties.

Carnival makes quite clear in its Annual Report that it is “the largest cruise company with a global market share of 48%,” and net income over $1.2 billion in 2014. Carnival asserts the two component companies are united operationally, yet retain their separate legal entities. Such is the essence of the DLC. “By unifying through people, i.e. the directors, instead of through common ownership, the [DLC] structure allows two separate legal entities to operate as one.”[1]

Whether Carnival’s component companies are actually separate entities was at issue in Sabo v. Carnival Corp. & PLC.[2] The plaintiffs, seamen who worked aboard Cunard Lines, a subsidiary of Carnival PLC (formerly P&O Princess PLC), filed a class action against the Carnival DLC. The district court dismissed the action for want of jurisdiction over the DLC. In affirming the dismissal, the Eleventh Circuit noted the plaintiffs “hoped to . . . invoke U.S. maritime law . . . [and] tap into a larger pool of potential class members, opening the class not only to workers from the Seafarer’s own Cunard line, but also to employees from Carnival Corporation & PLC’s entire fleet.”[3] The plaintiffs’ argument that the Carnival DLC should be suable because it is operationally one company fell flat. “Corporation-like qualities, absent incorporation, do not make an entity a corporation.”[4] Further, corporation by estoppel was inappropriate, according to the court, because that theory is typically only used where there is a technical deficiency in a company’s incorporation. Likewise, the court dismissed the plaintiff’s theory that the DLC is a joint venture, because joint ventures are limited in scope, while DLCs are all-encompassing global operations with an indefinite duration.

Therein lays the splendor of the DLC: With its matching boards of directors, joint shareholder votes, and ability to make inter-company loans and cross-stream transfers of assets, Carnival Corp. & PLC is unified to the point in which “the only way to provide a fair assessment of the respective corporations’ financial data is a to present a single, combined financial statement.”[5] Yet, in terms of liability, it is as if the companies did not merge—they retain their status as separate legal entities and liability only attaches on one side.

With limiting liability in mind, allocation of risk contracts, e.g., indemnity, present unique challenges with DLCs. Indemnity contracts often use words such as “affiliates.” For instance, a provision may read: “Company A will indemnify and hold harmless Company B, and its directors, officers, employees, agents, shareholders, subsidiaries, and affiliates . . . .” While Sabo made clear that the component companies in a DLC are separate legal entities that do not share one another’s liability, a contract covering “affiliates” does not bear the same limitations.

The term affiliate has been defined as “a corporation that is related to another corporation by shareholdings or other means of control [such as] a subsidiary, parent, or sibling corporation.”[6] DLCs do not involve subsidiary, parent, or sibling relationships; they unite through, amongst other documents, the equalization agreement. In the strictest sense, the component companies are not related to one another through shareholdings. Yet, in a broader sense they are. Purchasing a share of Carnival Corp. stock entitles the holder to receive the equivalent of any dividends paid by Carnival PLC, and to vote on matters that affect Carnival Corp. and Carnival PLC, such as electing directors, Further, “Carnival Corporation and Carnival PLC are permitted to transfer assets between the companies, make loans to or investments in each other and otherwise enter into intercompany transactions,” which supports the contention that there is common ownership. In the alternative, the component companies are related through control; the companies have matching directors and top management, as well as provisions in their corporate documents mandating that their directors perform their duties with regard to the DLC and its shareholders as a whole.[7]

Assuming, for the sake of argument, that the component companies in a DLC are affiliates, the question then becomes: How many degrees of separation can exist between entities in a DLC while maintaining their status as affiliates? Company A has Subsidiary A and Company B has Subsidiary B. Company A and Company B enter into a DLC relationship. One degree of separation would be Company A/Subsidiary A or Company A/Company B. Two degrees of separation would be Subsidiary A and Company B. At the third degree Subsidiary A and Subsidiary B are affiliates, which is quite expansive an allocation of risk especially considering the companies are only contractually related. Speculating on how attenuated the relationship could be for a court to find two entities in a DLC are affiliates would be purely academic at present, but it is a question that must be considered when allocating risk with part of, or even when forming, a DLC.


[1] Chad A. Pasternack, Dual Listed Company Structures as a Defense Against Liability, 51 Gonz. L. Rev. 159, 185 (2015).

[2] Sabo v. Carnival Corp., 762 F.3d 1330 (11th Cir. 2014).

[3] Id. at 1334.

[4] Pasternack, supra note 1, at 182 (citing Sabo, 762 F.3d at 1335).

[5] Id. (citing Carnival Corp. & PLC, 2013 Annual Report 17).

[6] Greenberg v. Hudson Bay Master Fund Ltd., No. 14cv5226, 2015 WL 2212215 (S.D.N.Y. May 12, 2015) (quoting Black’s Law Dictionary 69 (10th ed. 2014).

[7] Pasternack, supra note 1, at 169 (citing Stuart R. Cohn, The Non-Merger Virtual Merger: Is Corporate Law Ready for Virtual Reality?, 29 DEL. J. CORP. L. 11-12 (2004)).

Chad A. Pasternack is an attorney with Ver Ploeg & Lumpkin, P.A. Mr. Pasternack focuses his practice on insurance coverage disputes and commercial litigation. This post is based in part on his article entitled “Dual Listed Company Structures as a Defense Against Liability,” which is available here.