United Kingdom: Parent Company may Owe a ‘Direct Duty of Care’ to Subsidiary’s Employees
(Sunnyvale, CA)- In the Chandler Vs Cape case, the Court of Appeal has held that a parent company may be liable for injuries caused to the employee of its subsidiary. The parent company may owe ‘duty of care’ to its subsidiary’s employees in specific contexts where the parent company structures its relationship with subsidiaries very closely.
Chandler v Cape PLC  EWCA Civ 525 Case: Background
Mr. Chandler, a former employee of Cape Building Products Limited ("CBP"), a subsidiary of Cape PLC between 1959 and 1962, was diagnosed with asbestosis in 2007 due to his exposure to asbestos. The claimant sued Cape PLC in the English High Court on the ground that the parent company should be held responsible for his health and safety as the subsidiary had closed down its operations.
Chandler v Cape PLC  EWCA Civ 525 Case: Verdict
The Court of Appeal recognised that Cape Plc being CBP's parent did not mean that it was liable to CBP's employees. Though it was not a case where the "corporate veil" could be pierced, the Court of Appeal held that Cape Plc should be held liable under law of torts. The Court of Appeal found that Cape Plc had assumed a duty of care to CBP's employees since: the damage was foreseeable, there was sufficient proximity of relationship between Cape Plc and CBP; therefore it was fair to impose the duty of care on Cape Plc.
In the Chandler v Cape PLC  EWCA Civ 525 Case, ‘Duty of Care’ arose considering the following conditions:
- Both the parent company and its subsidiary were involved in a similar business; in this case, asbestos.
- The parent company was aware, or should have been aware of the fact that its subsidiary's work was risky.
- The parent company was aware, or should have been aware of the fact that the subsidiary or its employees depended on its own high level of knowledge regarding health and safety issues of the employees.
- The court looked at the relationship between the companies more widely. The court found evidence that the parent has a practice of intervening in the trading and funding operations of the subsidiary.
Important Lessons for a Parent Company:
- Parent Companies will need to consider the extent to which they are involved in their subsidiaries' operations, e.g. by setting detailed group health & safety policies and risk assessments, providing group-wide technical support or generally in relation to involvement in trading or funding.
- They will need to consider whether that involvement is suitable and how it should be structured and managed across the group.
- Concerns over parent liability may also influence corporate structuring such as for complex entities like joint ventures: for example, shareholder agreements should set out clear rules for the involvement of shareholders to ensure that the potential for liability is understood and appropriately managed.
- UK-based parent companies will need to be concerned about possible liability for the operations of their overseas subsidiaries which may have different standards and safeguards for health & safety.
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Published: December 13, 2012. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.