Sins Of The Father

It is a well-established principle of company law that a company has a separate legal personality from its members (Salomon v A Salomon & Co Ltd [1897]). In certain limited circumstances, such as where the corporate structure has been used for the purposes of a fraud or as a device to avoid an existing contractual or legal obligation, the court will 'pierce the corporate veil' but, as a general rule, shareholders will not be liable for a company's acts or omissions.

However, in the recent case of Chandler v Cape Plc [2012], the Court of Appeal held that a parent company owed a duty of care to an employee of one of its former subsidiaries. The decision was based on well-established rules about the tort of negligence, rather than on the basis that the corporate veil should be pierced, and leaves intact the principle that a company has a separate legal identity from its shareholders. Nevertheless, it may have wide reaching implications for parent companies and other shareholders since it means that company owners can no longer guarantee that their liability in relation to a subsidiary will be limited to the value of their investment.

This article will discuss the facts of this case, the circumstances in which a parent company might be liable to a subsidiary's employees and the potential implications this may have on the way corporate groups are organised and managed.

Background to the claim

Cape Plc (Cape) was founded in 1893 and for over 70 years was one of the world's largest miners of asbestos and producers of fire-resistant asbestos products. The asbestos was mined in South Africa and made into asbestos products through a network of factories across the UK.

In 1945 Cape was looking to expand its production capacity and to do this it decided to rent an empty factory at a site some thirty miles away from Cape's main UK facility. Cape rented this site off a third party, Uxbridge Flint Brick Company Ltd (UFBC) and it managed the production of asbestos on these premises for a number of years (as a tenant) before eventually purchasing UFBC in 1953. Shortly thereafter, in 1956, Cape sold its asbestos business to UFBC and changed UFBC's name to Cape Building Products Ltd (Cape Products).

Cape Products operated two distinct businesses at its premises: i) its asbestos business and ii) a brick-making business. These businesses were operated in separate buildings; the asbestos production took place in an open-sided warehouse, which was adjacent to the brick-making site. Mr Chandler, the claimant in this case, was employed in Cape Products' brick-making business between 1959 and 1962. Due to the open sides of the asbestos factory, asbestos dust frequently blew out over the area in which Mr Chandler worked.

In 2007, long after his employment had terminated, Mr Chandler discovered that he had contracted asbestosis. It was accepted that he had contracted this as a result of his employment with Cape Products. However, Cape Products had been dissolved a number of years ago and its employer's liability insurance did not cover asbestosis. Mr Chandler therefore brought a negligence claim against Cape Products' parent company, Cape, on the grounds that Cape and Cape Products were joint tortfeasors who were jointly and severally liable to...