A recent case has expanded the potential liabilities of parent companies for their subsidiaries.

In Chandler v Cape plc [14.04.11] the Claimant was employed by a brick manufacturing company called Cape Products. He was exposed to asbestos dust from another part of the site where asbestos boards were manufactured in open-sided buildings. He contracted asbestosis.

Cape Products no longer exists and had no employers’ liability insurance at the relevant time. However, its majority shareholder was a parent company, Cape plc. The Claimant therefore sued Cape plc on the basis that it also owed him a duty of care.

The Claimant succeeded because Cape plc had actual knowledge of the working conditions in that, amongst other things:

  • Cape plc produced asbestos boards on the same site until Cape Products later took this over.
  • It employed a group medical officer responsible for the welfare of employees working for its subsidiary companies.
  • It fixed a common health and safety policy.
  • Many aspects of the production process were discussed and voted on by the board of Cape plc.

This case does not establish a general principle that a parent company is always liable for the activities of its subsidiaries. Rather, the Claimant had to satisfy the classic "three stage test" for establishing a duty of care. This requires foreseeability of damage, proximity of relationship, and that it is fair, just, and reasonable to do so. The only stage seriously contested by Cape plc was its relationship to Cape Products.

The law on "piercing the corporate veil" is not affected either. This remains a separate route for making a parent company liable for a subsidiary in exceptional cases where the three stage test is not satisfied but there are suspicions that the apparent corporate arrangements are a “sham” designed to conceal the true state of affairs.

What are the practical implications?

This case works both ways, depending on which side of the fence a corporate finds itself.

On the one hand, a parent company that is involved in aspects of a subsidiary’s business may be at risk of future claims, even after disposing of the subsidiary. The due diligence for corporate acquisitions should therefore properly investigate the relationship between a target parent and its subsidiaries.

On the other hand, where a claimant has changed employers over time and an asbestos claim can be apportioned between them, corporates may be able to reduce their own contribution to the extent that insolvent and uninsured co-defendants might be indemnified by a controlling parent.