Parent Company Liable For Personal Injury Claim Incurred By Subsidiary

Generally as a matter of law a parent company, like any other shareholder, enjoys limited liability in relation to its subsidiary company's affairs, even if it owns all the shares. A recent case in the Court of Appeal, however, highlights the way a parent's behaviour can jeopardise the protection of limited liability, so that direct responsibility for some aspects of the subsidiary's business – in this case, the welfare of its employees – attaches to the parent even where there is little or no evidence of a formal policy decision to assume responsibility.

The case concerned the company now known as Cape plc and its subsidiary, Cape Building Products Ltd, which no longer exists. The claimant, Mr Chandler, worked in the original brick-making business of the subsidiary more than 50 years ago. At that time the subsidiary, having become integrated into the parent's business, also manufactured asbestos board on the same site, in a factory with open sides, and dust from the factory spread to where he was working outdoors a short distance away. By the late 1950s it was known that exposure to asbestos was life-threatening, and the parent, which itself was long-established in making asbestos products, had a scientific officer and medical officer, who were responsible for health and safety issues for all group employees. The parent had actual knowledge of Mr Chandler's working conditions and the risk was obvious. He discovered in 2007 that he had asbestosis from exposure to the dust. The Court of Appeal found that the parent had a direct duty of care to him.

Giving the main judgment, Lady Justice Arden said that, to establish liability, the court does not have to find that a person voluntarily assumed responsibility. The word "assumption" was something of a misnomer: it would be more accurate to speak of responsibility "attaching". Responsibility for health and safety matters was likely to attach to a parent company where:

the businesses of the parent and subsidiary were in a relevant respect the same (for example, they produced the same type of product); the parent had, or ought to have had, superior knowledge on some relevant aspect of health and safety in the particular industry; the subsidiary's system of work was unsafe, as the parent company knew, or ought to have known; and the parent knew, or ought to have foreseen, that the subsidiary or its employees would rely on its using that superior knowledge for the employees' protection. She added...