In a judgment handed down on 25 April 2012, the Court of Appeal held that a parent company owed a duty of care to an employee of its subsidiary company where the employee suffered asbestosis as a result of exposure to asbestos in the workplace.

Background

The Claimant, Mr Chandler, had been employed by Cape Building Products Ltd. ("Cape Products"), a wholly owned subsidiary of the Defendant, Cape Plc, between 1959 and 1962. Cape Products' business was manufacturing bricks and a type of asbestos, known as Asbestolux. These two processes were carried out in different parts of the same site at Cowley Works in Uxbridge, Middlesex.

Mr Chandler was employed to stack and load bricks although during the course of his work on the site he was exposed to asbestos dust. Indeed, Cape Plc admitted that the asbestos dust generated during the process of manufacturing Asbestolux spread throughout the whole site, as a result of the Asbestolux factory having no walls.

In 2007 Mr Chandler discovered that he had contracted asbestosis as a consequence of exposure to asbestos dust while employed by Cape Products. At this point, Cape Products had been dissolved and it had been established (in Cape plc v Iron Trades Employers Liability Association Ltd [2004] Lloyd's Rep IR 75) that the relevant employers' liability policy did not respond to claims for damages relating to asbestosis.

Mr Chandler brought a claim against the parent company, Cape Plc, on the basis that it and Cape Products were joint tortfeasors and were jointly and severally liable to pay him damages for the injury caused to him whilst working for Cape Products. Mr Chandler submitted that at all material times during the period of his employment, Cape Plc owed him a duty of care and had breached that duty in exposing him to asbestos. Cape Plc accepted that, if it did owe Mr Chandler a duty of care, it was in breach of that duty. It accepted that the fact that asbestos dust had spread throughout the whole site at Cowley Works was a "systemic failure".

First instance decision

The court was required to determine whether Cape Plc owed a direct duty of care to the employees of its subsidiary to advise on, or ensure, a safe system of work for them.

Mr Justice Wyn Williams found that it was necessary to apply the three-stage test from Caparo Industries Plc v Dickman [1990] 2 AC 605 of foreseeability, proximity and whether it was fair, just and reasonable for a duty to exist. In this vein, Wyn Williams J carefully considered the facts and in particular the relationship between Cape Plc and Cape Products.

Wyn Williams J saw several factors in the relationship between Cape Plc and Cape Products as significant in supporting the existence of a duty of care owed by Cape Plc to employees of Cape Products. First, the fact that Cape Plc had acquired a majority share in Cape Products (formerly known as Uxbridge Flint Brick Company Ltd) in 1945 and had appointed a manager to run the Cape Products' factories at Cowley Works as a branch of Cape Plc. Wyn Williams J accepted that this was evidence of a longstanding connection between the two companies and indeed an early assumption of responsibility by Cape Plc for the activities of Cape Products. Second, Cape Plc began producing Asbestolux at the site in 1951 following which, in 1956, Cape Products became a wholly owned subsidiary of Cape Plc and took over the production of Asbestolux, inheriting working practices which Cape Plc had adopted at that site. This was accepted as evidence of the fact that Cape Plc had always had a level of control over the working practices at the Cowley Works site. It was also seen as evidence that there was a core business, relating to asbestos products, which was undertaken by Cape Plc and many of its subsidiaries, including Cape Products. Third, Wyn Williams J noted that documents produced by both companies prior to, during and subsequent to Mr Chandler's employment with Cape Products showed that Cape Plc had control over some of the activities of Cape Products during the relevant period. Not only did the minutes of board meetings of both companies show that Cape Plc and Cape Products had common directors during the relevant period, they also evidenced the fact that many of Cape Products' production processes were discussed and authorised by Cape Plc's board. This supported Mr Chandler's submission that Cape Plc had assumed responsibility for at least some of the activities of Cape Products. Fourth, Wyn Williams J considered it significant that Dr Smither, a medical doctor employed by Cape Plc in 1962 as a medical officer (although associated with the company from 1961), was based at the site in Cowley Works and investigated the risks of working with asbestos. Notably, Dr Smither prepared a report on this subject which was considered by Cape Plc's board. Dr Smither later became Group Medical Adviser. Wyn Williams J found that, throughout the relevant period, Dr Smither was responsible for the health and welfare of all employees within the group of companies and was personally involved in investigating a case of an employee who had contracted an asbestos related disease while working at the Cowley Works site. Also during the relevant period, Cape Plc employed a Chief Chemist, Dr Gaze, who was involved in seeking to suppress the asbestos dust. All of these factors, Wyn Williams J held, supported the contention that Cape Plc had assumed a responsibility for the health and safety practices of Cape Products.

Accordingly, Wyn Williams J held that Cape Plc owed a tortious duty to Mr Chandler and the Caparo test was satisfied. Cape Plc had actual knowledge of Mr Chandler's working conditions and admitted that the risk of him suffering an asbestos-related disease was foreseeable. He also found that by virtue of the fact that Cape Plc had assumed an overall responsibility for the health and safety measures implemented by Cape Products (and therefore also for safeguarding Mr Chandler against illness from exposure to asbestos), a special relationship existed between Cape Plc and Mr Chandler and, as such, proximity between the parties was established. No argument was advanced by Cape Plc to the effect that it would not be fair, just and reasonable to impose a duty upon them.

Court of Appeal decision

Cape Plc appealed against the decision of Wyn Williams J on several grounds including that the judge applied the wrong test for the imposition of liability on a parent company and that the judge failed to identify the scope of the duty of care which he found.

The first instance decision was upheld. The Court of Appeal found that Cape Plc owed a direct duty of care to the employees of Cape Products.

In arguing that it was not liable to Mr Chandler for his injuries, Cape Plc relied on the fact that it did not have complete control of the subsidiary company, Cape Products. The Court of Appeal was satisfied that Cape Plc was in the practice of providing Cape Products with instructions in other matters and found that Cape Plc had assumed a duty to advise Cape Products on how to provide employees with a safe working environment. Further, it held that there had been an omission by Cape Plc to advise its subsidiary on precautionary measures.

The Court of Appeal agreed with Wyn Williams J on the factors that showed the existence of a duty of care owed by Cape Plc to Mr Chandler. The Court of Appeal put particular emphasis on the fact that Cape Plc had regular input into the running of Cape Products' business and that Cape Products could not incur capital expenditure or make certain other decisions without parent company approval; that Cape Plc was responsible for the "systemic failure" which resulted from the escape of asbestos dust; that by installing its business at Cowley Works, and passing on its business in asbestos to Cape Products, Cape Plc had implicitly undertaken a duty of care to ensure that its business was carried on without risk to the employees in the other business of Cape Products carried on at that site; and that Cape Plc had superior knowledge about the asbestos business and its resources exceeded those of Cape Products. Cape Plc therefore had a duty to share knowledge that it had about the risks of asbestosis with its subsidiary as well as advise on how to provide a safe working environment for Cape Products' employees.

Comment

The question of whether a parent company can owe a duty of care to its subsidiary's employees has not been considered previously by the English courts. Whilst two preliminary issues hearings (Ngcobo v Thor Chemicals Holdings Ltd, January 1996, unreported and Connelly v Rio Tinto Zinc Corporation Plc [1999] C.L.C. 533) considered it arguable that a parent company may owe a duty of care to employees of its subsidiaries, neither case was required to make findings on this question.

This decision indicates that the English courts are willing to impose a duty of care on a parent company for the health and safety of its subsidiary's employees in appropriate cases. The circumstances in which such a duty may be imposed include where: "(i) the businesses of the parent and subsidiary are in a relevant respect the same; (ii) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry; (iii) the subsidiary's system of work is unsafe as the parent company knew, or ought to have known; and (iv) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees' protection". For the purposes of (iv) it is not necessary to show that the parent company is in the practice of intervening in the health and safety policies of the subsidiary; it is sufficient that it had overall responsibility for the health and safety policies of its subsidiary's employees. This decision ought to be of some assistance to asbestos-related disease claimants in instances where they face difficulties in claiming under the insurance policy of their former employer where it is no longer in existence.

Ordinarily under English law the parent company cannot be held responsible for liabilities of its subsidiary subject to limited exceptions. Each company, being a separate entity, has a distinct legal personality. At first instance Wyn Williams J was eager to point out that this was not a case where it was appropriate to pierce the corporate veil. The Court of Appeal agreed with the judge since it was possible to impose a tortious liability on the parent company for the negligent acts of its subsidiary by other means. Nevertheless, this decision broadens the scope of a parent company's potential responsibility for its subsidiary.