The Court of Appeal has recently considered whether a parent company should be held responsible to third parties for the acts and/or omissions of its subsidiary.
In reaching its decision, the court was required to consider the relationship between the parent company and its wholly owned subsidiary, and in particular the nature and degree of the control the parent exercised over the subsidiary.
Determining the Relationship
Unilever Tea Kenya Limited (UTKL), a Kenyan incorporated company, owned and operated a local tea plantation which came under attack in 2007 following presidential elections. Among the victims of the violence were employees of UTKL and their family members, who lived and worked on the plantation. A claim was brought against UTKL's UK registered parent company, Unilever Plc (Unilever), alleging that it owed and breached a duty of care in tort to the victims of the violence by failing to have adequate crisis management policies in place.
Unilever argued it did not owe a duty of care to the victims of the attacks as there did not exist a sufficient degree of connection between its activities (and omissions to act), and the damage suffered by the victims.
Unilever pointed to the fact that at the time of the violence in 2007, UTKL's management had put in place its own 'crisis and emergency management' policy and ran a crisis management training programme. In doing so, UTKL had never referred to its parent Unilever, or anyone in the Unilever group for advice on the local policy, the training programme, running the plantation or its relations with the local community in Kenya.
What Did the Court Decide?
The court held that there was insufficient evidence to suggest that Unilever had exercised the relevant degree of control over UTKL's management. The court did state, however, that a duty of care may more likely be established in circumstances where a parent company has sufficiently intervened with the affairs of its subsidiary by taking certain actions, for example:
- where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of, or jointly with, the subsidiary's own management; and
- where the parent has given relevant advice to the subsidiary about how it should manage a particular risk.
The appellants attempted to, but had failed to argue the second point in this case.
What Can You Learn from This Case?
Parent and subsidiary companies are separate legal identities, each with responsibility for their own separate activities. This case however highlights the importance of the balance to be struck by parent companies when attempting to minimise legal risk on one hand, and retain effective control of subsidiaries on the other.