The Court of Appeal has reversed a first instance decision that a parent company had assumed a duty of care to an employee of its subsidiary company in respect of his exposure to asbestos dust: Thompson v The Renwick Group plc [2014] EWCA Civ 635.

When the Court of Appeal decision in Chandler v Cape plc [2012] 1 WLR 3111 was handed down in 2012, there was a degree of concern that it might herald a widening of the circumstances in which parent companies could be held liable for the health and safety of their subsidiaries’ employees and thereby open the floodgates to parent company claims (see our energy and environment e-bulletin and our health and safety e-bulletin on the decision).

Whilst Thompson v The Renwick Group plc largely turns on its facts, it goes some way to clarifying the decision in Chandler and illustrates that it will not be straightforward to establish parent company liability in most cases. In particular, it will not be sufficient to show that:

  • a parent company has appointed a director to the subsidiary;
  • a subsidiary is run purely as a division of the parent company;
  • there is uniform branding or merging of the activities of parent and subsidiary.

However, parent companies should consider carefully the extent to which they take a role in the operations of their subsidiaries and whether it might be said that they have assumed responsibility for any aspect of the business of the subsidiaries. Further, individuals who are directors of both a parent and a subsidiary should be mindful of the need for a clear separation between decisions made in their capacity as a director of each separate entity. 

Background

In Chandler v Cape plc, the Court of Appeal considered whether a parent company was liable for the exposure of its subsidiary company’s employee to asbestos dust. Applying the common law principles established by the House of Lords in Caparo v Dickman [1990] 2 AC 605 (foreseeability; proximity; and whether it was fair, just and reasonable to impose a duty) the Court of Appeal found that a duty of care existed.

In considering whether the traditional Caparo test was satisfied, the court said that the circumstances in which the law may impose responsibility on a parent for the health and safety of its subsidiary’s employees included a situation where, as in that case:

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

This decision caused concern, in part because it did not explain what other circumstances may give rise to such a duty. There was speculation that the ruling may encourage further claims to be brought against parent companies, perhaps in circumstances other than those arising in Chandler itself.

In the present case, Mr Thompson brought a claim against his employer’s parent company, The Renwick Group plc (“Renwick”), as his employer was “not worth powder and shot” and did not have adequate liability insurance. The factors that Mr Thompson cited in support of his claim that Renwick owed him a duty of care included:

  1. Renwick appointed an individual as director of the employer allegedly with specific responsibility for health and safety matters;
  2. Mr Thompson was given a new vehicle and used documents in the course of the business upon which the “Renwick” livery clearly appeared; and
  3. The business of the employer was merged to some extent with the businesses of other subsidiaries in the group (for example they used the same pickup lorry).

The first instance judge found that, through the new director, Renwick had taken control of the daily operation of the business to a sufficient extent to give rise to a duty of care to Mr Thompson.

Decision

The Court of Appeal reversed this decision and held that Renwick was not liable. It reviewed the decision in Chandler and clarified that the four factors cited in that case were not exhaustive but descriptive only. It accepted that there were other situations as between a parent company and the employee of a subsidiary in which a duty of care may arise. It then went on to look at each of the factors put forward by Mr Thompson and found that they were not, individually or collectively, sufficient to fulfil the Caparo test.

In respect of the appointment of a director, the Court of Appeal noted that it was a well-established principle that a director does not by reason only of his position as a director owe a duty to the shareholder that nominated him.

The Court of Appeal also found (with respect to the first Chandler factor) that there was no evidence that Renwick carried on any business at all apart from holding the shares of subsidiaries. That meant this was not a situation, as in Chandler, where the parent company was better placed, because of its superior knowledge or expertise, to protect the employees of subsidiary companies against the risk of injury so that it was fair to infer that the subsidiary would rely on the parent.

That the businesses of the subsidiaries were to some extent merged amounted to no more than a finding that these companies were operating as a division of the group carrying on a single business. That did not mean that the separate legal personalities of the subsidiaries were not retained or respected. This reasoning also applied to the livery on the vehicle and documentation; coordination between subsidiary companies in this way did not mean that the parent company was assuming responsibility for actions of the subsidiary. Renwick was not going beyond its role as a shareholding company and was not interfering with the business of of the employer in a way that meant it owed employees a duty of care.