In a judgment handed down on 25 April 2012, the Court of Appeal found, that a parent company could be liable to an employee of its subsidiary.

This is the first reported case wherein the law of tort has been extended in this way.

Chandler  v  Cape plc  [2012] EWCA Civ525

In brief:

Held that, in certain circumstances, a parent company can owe a duty of care to an employee of its subsidiary. In this case, the parent's superior knowledge of the potential health and safety risks meant that it could be said to have assumed responsibility for the employee's health and safety.

Background:

Mr Chandler worked for Cape Building Products Ltd (“CBP”) on and off for a total of about 18 months round about 1960. Asbestos was produced at the site where Mr Chandler worked (although Mr Chandler himself did not work with asbestos), and it was accepted that he was exposed to asbestos dust. As a result of this, 50 years on, he contracted asbestosis.

It was accepted that CBP failed in its duty to provide a safe work environment.

CBP was dissolved some years ago.

It was accepted that although CBP did have employer’s liability insurance, this did not cover asbestosis. Hence there was no point in seeking the restoration of CBP in order to make any claim.

Findings at first instance:

1) Initially Cape was merely a tenant of CBP’s at its Uxbridge site. But by 1953, CBP was a wholly owned subsidiary of Cape plc (“Cape”);

2) Cape and CBP had at least one director in common at all material times, and most of CBP’s board meetings took place at Cape’s HQ;

3) CBP was originally known as Uxbridge Flint Brick Company Limited. It slowly took over asbestos production for the group, acquiring Cape’s asbestos related assets and changing its name to CBP in July 1956;

4)CBP took on Cape’s working practices and was acknowledged internally as being the asbestos member of the Cape group, although it remained a self-contained entity;

5) Cape shared its experience and know-how in the asbestos industry with CBP;

6) Product development, including research into the suppression of asbestos dust, was dealt with by Cape;

7) Health and safety issues relating to asbestos were dealt with on a group-wide basis, in particular Cape retained a group medical adviser and a group chemist or scientist, and carried out medical surveillance;

8) Cape’s medical adviser took an active role, dealing with both HSE and Factory Inspectorate at the Ministry of Labour on the question of asbestosis;

9) Cape’s medical adviser was a leading authority with regard to asbestos and asbestosis.

Therefore:

The three-stage test for establishing a duty of care, as set out in Caparo Industries plc v Dickman was established:

1. 1.the detrimental affects of asbestos on the health of those exposed to it was known to             Cape, damage was therefore foreseeable;

2. the relationship of proximity between Mr Chandler and Cape is established; and
3. had the question been raised, it would have been found to be fair, just and reasonable for a duty of care to be owed by Cape to Mr Chandler.

Consequently liability was established.

Cape appealed.

On appeal:

Lady Justice Arden found: “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, as in the present case:

1. 1) the businesses of the parent and subsidiary are in a relevant respect the same;
2. 2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
3. 3) the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known;
4. 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.
   

For the purpose of (4) 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.”

A subsidiary and its parent company are separate entities. The parent does not assume a responsibility to the employees of is subsidiary merely because it is the parent. The question is whether the parent did anything to assume a direct duty. If so, the assumption of liability can arise without piercing the corporate veil.

Appeal dismissed