The Court of Appeal has held in Chandler v Cape plc that a parent company owed a duty of care for the health and safety of an employee of a subsidiary. This is the first reported case dealing with this issue.
From 1959 to 1962 Mr Chandler worked for a subsidiary of Cape plc which manufactured asbestos products. Whilst at work he was exposed to asbestos fibres, and in 2007 he was diagnosed with asbestosis. By that time, the subsidiary had been dissolved and its employers’ liability insurance did not cover asbestosis. Mr Chandler’s estate brought a claim against Cape plc alleging that it had owed and breached its duty of care to Mr Chandler.
The Court of Appeal agreed that in the particular circumstances of the case, Cape plc had owed Mr Chandler a direct duty of care which had been breached. The key circumstances here were that the parent company ran a very similar business to that of its subsidiary; it was well aware of the risks of being exposed to asbestos; and it had controlled health and safety policy and practice across the group. This decision does not affect the general principle of separate legal personality. The relevant law was the common law duty of care established in Caparo Industries plc v Dickman (1992): the damage must be foreseeable; there must be a sufficiently close relationship between the parties; and it must be fair, just and reasonable to impose a duty of care.
The Court gave general guidance on the circumstances in which a parent company may have a direct duty of care for the health and safety of employees of a subsidiary: • the businesses of the parent company and subsidiary are in a relevant respect the same;
- the parent company had or ought to have had superior knowledge of relevant health and safety practices;
- the parent company knew or ought to have known that the subsidiary’s system of work was unsafe; and
- the parent company knew or ought to have foreseen that the subsidiary would rely on that superior knowledge to protect its workforce.
It is clear that the courts will look at the wider relationship between group companies when assessing liability. Employers are therefore advised to look at group policies, reporting lines, and the extent of a parent company’s involvement in the affairs of subsidiaries, as well as reviewing relevant insurance policies. This judgement also increases the importance of due diligence on acquisitions in order to assess potential liabilities.