Chandler v Cape plc [25.04.12]

The Court of Appeal has today upheld a decision that a parent company owed the Claimant, an employee of its subsidiary, a direct duty of care.  

Implications

The Court of Appeal has upheld this first reported case of a direct duty of care being found to be owed by a parent company to an employee of its subsidiary.

It is important to appreciate that the Defendant, Cape plc was not found liable merely because it was the parent company. The Defendant and its subsidiary were distinct legal entities. The liability of a subsidiary does not “magically” transfer to the parent, contrary to what is sometimes argued. Similarly, this was not a case were the Court disregarded the subsidiary’s limited liability status, “piercing the corporate veil”, because of evidence that the corporate structure was in some way a sham. It was a perfectly proper corporate structure.

The lead judgment was given by Lady Justice Arden. She provided a checklist before imposing on a parent company responsibility for the health and safety of its subsidiary’s employees:

  • The business of a parent company and subsidiary are in a relevant respect the same.  
  • The parent company has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry.  
  • The subsidiary’s system of work is unsafe as the parent company knew, or ought to have known.  
  • The parent company knew, or ought to have foreseen, that the subsidiary or its employees would rely on it using that superior knowledge for the employees’ protection.

The likely effect of this judgment is two-fold:

  • Claimants faced with an insolvent employing company, and no or untraced insurance which would cover the claim, will be encouraged to closely examine the relationship between that company and its parent to see whether they can realistically argue that a direct duty of care was owed by the parent company to the subsidiary’s employees, having regard to Arden LJ’s checklist.
  • Defendants will need to consider whether they have a contribution claim against a parent company, applying the same test.

Such cases are unlikely to be common, but claimants will no doubt feel encouraged that a defunct, uninsured former employer may no longer mean the end of the road.

Background

The Claimant was employed by a brick manufacturing company called Cape Building Products Ltd (“Cape Products”), a wholly owned subsidiary of the Defendant, at a site in Uxbridge, during the late 1950s and early 1960s. He was exposed to asbestos dust from another part of the site where asbestos boards were manufactured in open-sided buildings.

The production of asbestos boards was initially undertaken at a factory on the Cape Products site by the Defendant, as tenant to Cape Products. However, by the time of the Claimant’s employment, the asbestos business had been sold to Cape Products. It remained a separate company, however. The Claimant contracted asbestosis as a consequence of that exposure.

By the time the Claimant brought his claim, Cape Products no longer existed and there was no policy of insurance in place during the period of exposure which would respond to his claim. The Claimant sued the Defendant, arguing that it owed him a duty of care during the period of his employment and had breached that duty, causing his disease.

High Court

The Judge concluded that, despite the fact that the Defendant had not employed the Claimant, it nevertheless owed him a duty of care. The “three-stage test”, established in the case of Caparo Industries plc v Dickman [1990], was satisfied: the damage was foreseeable; there existed between the Claimant and Defendant a relationship of sufficient proximity; and it was fair, just and reasonable to impose a duty of care on the Defendant.

The principal reason for concluding that the relationship between the Claimant and Defendant was sufficiently proximate was evidence indicating that it was the Defendant, not its subsidiary, which dictated policy in relation to health and safety issues so far as the production of asbestos products was concerned. The Defendant, he found, retained responsibility for ensuring that both its own employees and those of its subsidiaries were not exposed to harm through exposure to asbestos dust. That degree of control was sufficient to satisfy the proximity test.

Court of Appeal

The Court of Appeal agreed that the Defendant owed the Claimant a direct duty of care, and that duty had been breached.

This conclusion was reached even though the Defendant was not responsible for the actual implementation of health and safety measures at Cape Products.

On the evidence available, the Defendant maintained a degree of control over the asbestos business at Cape Products’ site. It was fully aware of the “systemic failure” on site which allowed asbestos dust to escape from a factory with no sides. It knew the risks to health that this posed. It involved itself in issues relevant to the health and safety policy at Cape Products. Its knowledge of the nature and management of asbestos risks was superior to that of Cape Products. It was in breach of duty by failing to either advise Cape Products on what steps it had to take to provide employees such as the Claimant with a safe system of work, or to ensure that those steps were taken.