Chandler v Cape: Piercing The Corporate Veil: Lessons In Corporate Governance

Originally published May 10, 2012

Keywords: Chandler, Cape, corporate governance, health and safety, asbestos

Introduction

On 25 April, the Court of Appeal handed down an historic ruling concerning the liability of parent companies to an employee of one of its subsidiaries.

The case concerned health and safety matters, but the decision has much wider implications for parent company liability across a broad range of issues.

One area of particular concern will be multi-national companies headquartered in the UK operating through subsidiaries in less developed countries. The case potentially opens up avenues of recourse that, up to this decision, would not have been available.

Mayer Brown's Corporate and Environment and Safety Groups have teamed up to offer a one-stop service to guide clients on the ramifications of the decision and on the practical steps they can take to mitigate the risk of liability.

The Facts

The claimant, Mr Chandler, was employed for a short time by Cape Building Products Limited ("Cape Products") in the late 1950s and early 1960s. During the course of his employment he was exposed to asbestos fibres.

Mr Chandler was diagnosed with asbestosis in 2007. Cape Products was dissolved some time ago and, in any event, its insurance policy contained a very broad exclusion that would have prevented recovery for this illness against its insurer.

In view of this, Mr Chandler began proceedings against Cape Products' parent company, Cape PLC.

As a general proposition, parent companies are not liable for the negligence of their subsidiaries on the basis that each has a distinct legal personality and it should, as a rule, not be possible to "pierce the corporate veil".

In this case, however, the Court of Appeal held that the parent company, Cape PLC, was liable (although, technically, the corporate veil was not pierced).

Basis of Court of Appeal's decision

The Court of Appeal was keen to stress that Cape PLC was liable not because it in some way assumed the liability of its subsidiary, but because it owed a direct duty of care to Mr Chandler which it breached.

Key then, to the decision – and to addressing the more general governance issues arising from it – are the factors identified by the Court as being relevant to establishing whether such a duty of care exists.

Arden LJ identified four relevant factors as follows:

are the businesses of the parent and subsidiary in a relevant respect the same? does the parent have, or ought it to...