Recent cases in Europe and the UK have indicated that parent companies can be held liable for the actions of their subsidiaries to a greater degree than would previously have been the case, depending on a number of factors concerned with the proximity of the relationship between the parent company and a plaintiff.
In the joined cases of El du Pont de Nemours and Dow Chemical, these two parent companies were held responsible, by the EU General Court on appeal in February, as equally and independently liable for the anti-competitive conduct of a joint venture vehicle (JV). This reinforced the original decision of the European Commission, which found that the supervisory committee of the JV, comprised of executives from both parent companies, exercised decisive influence over the JV even though the JV had the status of a 'full-function' autonomous company.
In the UK case, David Chandler v Cape plc, an April Court of Appeal decision saw an employee’s claim for asbestosis against a parent company upheld. The subsidiary company had been negligent in allowing the employee’s exposure to asbestos but the company no longer existed and its employer liability insurance had not covered asbestosis claims. The relationship between the parent company and the employee was deemed to be close enough that a duty of care was owed by the parent. Some of the factors leading to this decision were that goods were manufactured by the subsidiary to the parent’s specifications, that the parent dictated health and safety policies and that the parent failed to act on knowledge of unsafe working practices at the subsidiary. The court emphasised that this decision did not, however, pierce the long held 'veil of incorporation' concept, a subsidiary still being firmly recognised as a separate legal entity from its parent.
More case law will be required before the extent of liability in different scenarios becomes clear but parent companies should ensure that where they have a relationship with a subsidiary which may be close enough for the courts to impose a duty of care, they do not fail to act on wrongdoing or health and safety lapses by the subsidiary. Further, a subsidiary's employer liability insurance should be checked for adequacy to avoid the liability being transferred to the parent.