Chandler v Cape Plc [2011] EWHC 951 (QB)

In a recent UK High Court case a parent company was held to owe a duty of care to an employee of a subsidiary company, where the employee had been exposed to asbestos and subsequently suffered asbestosis, in circumstances where the subsidiary company was no longer in existence. The decision is subject to appeal, but it is still

noteworthy from an Irish perspective insofar as the legal principles applied by the judge are also applicable under Irish law.

The Facts

The Court was required to determine whether a duty of care was owed by the parent company to the claimant, an employee of a subsidiary company.  The claimant had developed asbestosis due to exposure to asbestos during his employment at the subsidiary company which had ceased to trade. 

The claimant sued the parent company on the basis that it and the subsidiary company were jointly and severally liable in tort to pay him damages.  The parent company, argued that as the subsidiary was a distinct legal entity which employed the claimant, liability did not attach to the parent.

The Decision

The Court considered the degree of control exercised by the parent over the subsidiary company's operations as well as the level of knowledge it had over it's activities.  Liability hinged on establishing a duty of care between the parties which, in turn, rested on the three stage test of (i) foreseeability of damage, (ii) proximity, and (iii) whether it was fair, just and reasonable for a duty of care to the claimant to exist. The Court found in favour of the claimant.

The Court concluded that while the parent company was entitled to control the activities of its subsidiary, and did so from time to time, this did not mean that it controlled all of the important activities of the subsidiary.  However, on the facts the Court found that the parent company had actual knowledge of the claimant's working conditions, and that the risk of an asbestos related disease from exposure to asbestos dust was obvious.  The parent company had employed a scientific officer and a medical officer who were responsible for health and safety issues relating to all employees across its group.  It was the parent company, and not the individual subsidiary companies, which dictated health and safety policy issues.  The parent company retained responsibility for ensuring that its own employees and those of the subsidiaries were not exposed to the risk of harm through exposure to asbestos.  The Court held that whilst the subsidiaries had a role in implementing the relevant policies, the parent company retained overall responsibility.  At any stage the parent could have intervened and the subsidiary would have accepted this intervention.

The Court held that the claimant had established a sufficient degree of proximity between the parent company and himself.  Accordingly, the three stage test was satisfied and the parent company was found to owe a duty of care, and was liable for damages.

Comment

Chandler v Cape plc may be seen as an exceptional case due to the fact that the parent was held jointly liable to the employee of the subsidiary in circumstances where, at the time of the action, the subsidiary was no longer in existence and there was no insurance policy apparently available under which the employee could benefit.  However the case shows that a parent company, despite being a separate legal entity from its subsidiaries, may be liable in damages to an employee of a subsidiary company, if a duty of care can be established.  Having said this, a parent company will not automatically be responsible for the liabilities of its subsidiary and/or owe a duty of care to employees of a subsidiary. 

It is also worth noting that the Court found that this case was not presented on the basis that the subsidiary was a sham, i.e. nothing more than a veil for the activities of the parent.  Accordingly the court held that it was not a case in which it was appropriate to "pierce the corporate veil".

Notwithstanding that this case is on appeal, parent companies, when drawing up group-wide rules and procedures, may wish to ensure that they clearly establish where in the group ultimate responsibility and control lies. In this case a key consideration for the Court, in determining the parent's potential liability for the actions of its subsidiary, was the degree of knowledge and control exercised by the parent in respect of the subsidiary's health and safety policy. 

An intellectual property case which also shows that a parent company may be jointly liable for the tortious acts of its subsidiaries is Unilever plc v Gillette (UK) Limited [1989] RPC 583. The decision in Unilever also indicates that the relevant factor in assessing whether a parent may be liable is the extent of knowledge and control exercised by the parent over the activities of the subsidiary.

In order to reduce the risk of being held liable for its subsidiary's actions, a parent therefore may wish to consider ensuring that ultimate responsibility and control for compliance with group rules and procedures rests with officers of the individual subsidiary companies, rather than with the parent company. 

Finally, parent companies might note that there may be other circumstances where they might be accountable for the debts or other obligations of their subsidiaries, either under statute or otherwise.  We can advise further on these issues, if required.