A parent company would not usually expect to be liable for obligations incurred by its subsidiaries. In the absence of express guarantees or indemnities, each company in a group is a separate legal entity, responsible only for its own liabilities. The decision in Chandler v Cape plc demonstrates that in certain circumstances this may not hold good.
The case was part of a long and unhappy saga of claims for asbestosis, dating from events many years ago. The claimant, a Mr Chandler, was employed between 1959 and 1962 by C, a company that manufactured bricks and asbestos products. Although the claimant worked in the brick manufacturing part of C's factory and did not work with asbestos, he was exposed to asbestos dust escaping from the asbestos processing part of the site.
The asbestos processing operation had originally been carried out by P at a different site. P needed a larger factory and so acquired C in order to gain access to C's premises. At first, P rented the factory from its new subsidiary, C. P installed the plant and equipment required for asbestos processing. Some of the processing took place in a shed without sides, from which asbestos dust could escape freely.
Later, the asbestos processing business was transferred from P to C. C became part of an integrated group of companies, headed by P. But C was not merely a division of P; it was a separate legal entity, owning its own assets and entering into its own contracts, including in due course the claimant's contract of employment. Like many subsidiaries, its board included directors who also sat on the board of P; indeed a number of C's board meetings were held at P's head office. But it remained a separate company.
There was no question that the claimant could have won compensation from C for what, even in the 1950's and 1960's, were obviously manifest failures to ensure a safe working environment. However, long before the claimant's disease was diagnosed, C had been wound up. In similar cases, winding up can be set aside by order of the court to allow a claim against the relevant company's employee liability insurance. But C's insurance had excluded liability for asbestosis, so restoring the company would not help the claimant.
However, the claimant was able to show that P also owed him a duty of care. The evidence showed that P had assumed responsibility for the health and safety of C's employees. This was because:
- P had originally carried on the asbestos business itself at the same site and so was assumed to be fully aware of all relevant risk factors - including the escape of asbestos dust;
- in some cases, at a strategic level, P directed C's business (e.g. in relation to exploiting new products and markets) and C was accustomed to comply with any such directions;
- P was in a better position than C to determine safe working practices; C had a company doctor on site, but P employed a group medical adviser who was becoming an internationally recognised expert on the dangers of asbestos;
- the group medical adviser had visited C's premises and must have been aware that asbestos dust was not adequately prevented from escaping;
- P issued a 'group manual' on health and safety issues to all its subsidiaries, but it took no steps to mitigate the escape of asbestos dust, nor did it direct C to do so; andthe evidence showed that P, not its individual subsidiaries, dictated policy in relation to health and safety issues.
This was sufficient to establish that P had assumed a duty of care to ensure that employees of its subsidiaries were provided with a safe system of work. P failed in that duty and was liable to compensate the claimant.