UK: Liability Of A Parent Company: Chandler V Cape Plc

Last Updated: 19 July 2012
Article by Rob Edwards

Rob Edwards examines this recent Court of Appeal decision, the first reported case in which express findings on the issue of liability of a parent company to a subsidiary's employee, have been made. Rob draws out the crucial detail and looks at the potential implications for the parties in this case and potentially for other cases.

Background

The Claimant was employed by Cape Building Products Ltd ("Cape Products"), formerly Uxbridge Flint Brick Company Ltd ("Uxbridge"), for a short period in 1959 and again between January 1961 and February 1962. During the course of his work the Claimant was exposed to asbestos dust and fibre. At trial, the system of work was found to be unsafe and it was also found that Cape Products' parent company, Cape Plc were well aware of this systemic failure. A problem arose however because Cape Products was dissolved some years ago and the relevant EL policy of insurance contained an asbestos exclusion clause. Accordingly, no useful purpose would be served in restoring Cape Products to the companies register and seeking to enforce rights against the EL policy.

It was against that background that the claim was brought against Cape Plc which was of course, formerly one of the UK's largest asbestos companies.

The Cape asbestos story

The history of the companies and the extent of their relationship is of some importance to the outcome of this case.

Cape Plc was a major producer of asbestos products operating several factories throughout the UK. After the Second World War Cape Plc were looking to expand. Near to their Barking factory, Uxbridge occupied two factories on a single site at Cowley Works, Uxbridge. One of the factories produced bricks, the other stood empty. By 1953 Cape Plc had acquired all the share capital of Uxbridge and set about modifying the empty factory for the production of asbestolux board. They appointed their own manager to run the branch. However it must be remembered that Cape Plc was still an operating company, not just a holding company with shares in its subsidiaries. Initially Cape Plc was merely a tenant paying rent and rates at the market rate. However the relationship blossomed and Cape Products became a part of an integrated group of companies headed by Cape Plc.

First instance findings

It was accepted that the mere fact that Cape Products was a subsidiary of Cape Plc, or part of a group of companies of which Cape Plc was the parent, was not enough for Cape Plc to owe a duty to employees of the subsidiary firm.

However, a duty was found to be owed by Cape Plc in the circumstances, not because of its ownership of the subsidiary, but because of Cape Plc's actions and assumptions of responsibilities towards the employees of its subsidiaries. It is helpful to highlight aspects of the history to understand how Wyn Williams J came to that conclusion:

  • Cape Plc had a long history of asbestos goods manufacture.
  • Cape Plc was capable of exercising control over Cape Products as a majority shareholder and indeed appointed a director and manager of the company.
  • The main purpose of acquisition of Uxbridge was for the facility to produce asbestos products as an expansion from businesses elsewhere. Minutes of the two companies showed they were working very closely together. Uxbridge changed its name to Cape Products and became a wholly owned subsidiary producing asbestos products.
  • During the period of the Claimant's employment Cape Plc and Cape Products had common directors. Cape Plc also raised capital for "the group's activities" including the asbestos manufacture at the Uxbridge site operated by Cape Products.
  • Minutes of various meetings of both companies showed that Cape Plc considered in detail the cost/benefit of Cape Products' work and expansion and in principle allocated funds to it.
  • Cape Plc, through its company doctor, was taking an active part in discussions relating to the health and safety of an employee of Cape Products suffering from asbestosis. The company doctor was also responsible for the health and safety of all the employees of the companies within the group.
  • A Monopolies and Mergers Commission report concluded that "the chairman of each of the principal UK subsidiaries is an executive director of the parent company and reports to the managing director of the parent company".
  • Witness statements in earlier actions were relied upon to show, and the judge accepted they showed, that Cape Plc accepted responsibility for the health and safety of employees of subsidiaries as well as its own employees.

In the circumstances, relying on the approach in the well known case of Caparo v Dickman [1990 HL], Wyn Williams J held that there was sufficient foreseeability and proximity between the parties, and it was fair, just and reasonable for there to be a duty independently owed by Cape Plc to Cape Products' employees.

Court of Appeal findings

Appreciating the significance of this case, the Court of Appeal emphasised they were not looking to "pierce the corporate veil", as a subsidiary and its parent company are separate entities and there can be no assumption of responsibility simply by virtue of one company being the parent company of another.

The Court of Appeal stressed the question was simply whether what the parent company did, amounted to taking on a direct duty to the subsidiary's employees.

Given the circumstances of this case, in particular Cape Plc's knowledge of the systemic failings of the factory where the Claimant worked, combined with its superior knowledge about the nature and management of asbestos risks, the Court of Appeal concluded it was appropriate to find Cape Plc had assumed a duty of care either to advise a subsidiary on what steps to take or to ensure that those steps were taken. Cape Plc had issued operational instructions to the subsidiary on other matters. Accordingly Cape Plc owed a direct duty of care to the employees of Cape Products.

The Court of Appeal acknowledged that this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary's employees. Those circumstances include a situation where:

  • The businesses of the parent and subsidiary are in a relevant respect, the same;
  • The parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
  • The subsidiary's system of work is unsafe as the parent company knew, or ought to have known; and
  • The parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employee's protection. It is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary; the court will look at the relationship between the companies more widely. It may be sufficient if it is shown a parent company has a practice of intervening in the trading operations of the subsidiary for example production and funding issues.

Wider implications

  • The principles in this case are of course potentially of far wider application. In the disease sphere in particular, it is not unusual to be faced with historic claims from former employees of associated or subsidiary companies which have long since ceased trading and for whom insurance can no longer be traced.
  • In the Chandler case, one should not be fooled by the outcome. The case in fact demonstrates clearly that a parent company will not be held liable simply because it owned, or could control, or had shared directors with, a subsidiary company. Liability attached to Cape Plc because of its own assumption of a responsibility to the subsidiary's employees in relation to their health and safety and of course was then in breach of that duty of care by failing adequately to discharge that responsibility.
  • The case is yet another in a long line of cases over the years where the court looks at the relationship between parties and whether that gives rise to a duty of care. There is no general duty to prevent third parties causing damage to another, though the particular circumstances or relationship between the parties may give rise to an assumption of attachment of responsibility. It must not be forgotten that the burden of proof for establishing this "special relationship" and therefore the assumption of responsibility would rest upon the claimant. In many instances, given the passage of time and the dissolution of companies, it is difficult to see what information a claimant will be able to obtain to discharge that burden.
  • In the Chandler case the Claimant had the benefit of a detailed company history of the company called "The Cape Asbestos Story". They had contemporaneous minutes of board meetings and a long line of previous litigation involving Cape Plc with witness statements from those cases. There will be few cases in general where such similar evidence will exist or survive.
  • Another important feature in the Chandler case was the specialist knowledge of Cape Plc as well as its groupwide medical input. That gave rise to quite a different relationship with its subsidiaries than would be the case in most companies. In many instances subsidiaries will generally have been a separately established business subsequently acquired by the parent to diversify its activities rather than a vehicle for the discharge of the group's main operation. The sharing of premises was also an unusual feature.
  • In cases after Chandler, a claimant will not of course have to demonstrate close analogy with the facts of Chandler but just that he has satisfied the Caparo v Dickman test. That will always be arguable but in the vast majority of cases there will be little reason to depart from the normal rule of no liability of parent companies for the actions of subsidiaries.
  • The Chandler case is an exception that tests the rule because of the strong facts of an asbestos manufacturer acting through subsidiaries but where the parent had specialist knowledge and then undertook an assumption of responsibility for asbestos related disease within the subsidiary's workforce.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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