When Is A Parent Company Liable For The Actions Of Its Subsidiary?

The High Court recently held that a parent company owes a common law duty of care to the employees of its subsidiary because it retained overall responsibility for the relevant matters in relation to those employees.1 Although the Court emphasizes that this is not a case of "piercing the corporate veil" of the parent company, the decision has a rather similar effect and will impact on how group companies are managed.

Facts

The claimant was an employee of Cape Building Products Ltd (Cape Products) at a site which manufactured asbestos boards. During the course of his work, the claimant was exposed to asbestos dust which was produced during the manufacture of the boards and contracted asbestosis. His exposure had been caused by negligence and constituted a breach of statutory duty on the part of Cape Products.

At the relevant time, Cape Products was a wholly-owned subsidiary of Cape Plc and one of many subsidiary companies within the Cape group which had as its core business the production of asbestos-based products. However, Cape Products had no policy of insurance to indemnify it against claims for damages for asbestosis and had ceased to exist at the time of the claim.

Cape Plc controlled aspects of the group's core business even when the business was undertaken by a subsidiary company. The extent of this control was the most strongly contested issue of fact in this case. The court emphasises the following facts:-

Cape Plc and Cape Products had common directors: the chairman of each subsidiary was an executive director of the parent company and reports to the managing director of the parent company. The managing director of each subsidiary company had a wide measure of autonomy in day-to-day matters but was responsible to the chairman of the subsidiary and consulted him on all major policy decisions. Cape Plc employed a group medical adviser and a chief scientist who were responsible, between them, for the health and safety issues relating to all the employees within the group of companies. Upon becoming a wholly-owned subsidiary, Cape Products adopted the working practices of its parent company. Many aspects of the production process were discussed and authorised by the board of Cape Plc - "As and when it felt it appropriate the Defendant [i.e. Cape Plc] did control what Cape Products was doing." Decision

The Court held that, while there is no general duty to prevent a third party from causing damage to another, a parent company owes a...