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Liability of a parent company for the employees of a subsidiary

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28/07/2014


In the 2012 case of Chandler v Cape plc [1], the Court of Appeal held that a parent company owed a direct duty of care to an employee of a subsidiary who contracted asbestosis through exposure to asbestos dust. This was the first reported case to reach the Superior Courts of a parent company being held liable to an employee of a subsidiary on tort law principles. How widely that decision would be applied remained to be seen, however, with parent companies, particularly in high risk industries such as manufacturing of heavy machinery, on notice that they may be imposed with a duty of care to advise their subsidiaries on steps that need to be taken to safeguard their employees’ safety.

A second case addressing this question has now been answered by the Court of Appeal [2].

In this case, Mr Thompson had been employed by two companies which were acquired by a subsidiary of the defendant. Mr Thompson developed pleural thickening as a result of his exposure to asbestos dust. As his employer did not carry liability insurance and would be unable to meet any award of damages he instituted proceedings against the defendant. At first instance, the court held that the parent, by appointing a director of the subsidiary employer with responsibility for managing health and safety at the depot where Mr Thompson worked, had assumed a duty of care to the employees of the subsidiary. The parent appealed.

The Court of Appeal allowed the appeal. It held that in running the day-to-day operation of the subsidiary the new director was not acting on behalf of the parent. Rather, he was acting as a director of the subsidiary, the company to whom he owed his fiduciary duties as a director. This makes sense. A director appointed by a parent may, depending on the terms of his appointment, owe some obligations to the appointing company, but this will not detract from his or her fiduciary, and now under the Companies Act 2006, statutory, duties to the subsidiary. In this case there was no evidence of any relationship between the new director and the parent company beyond his inferred nomination by the parent as a director of the subsidiary.

The Court referred to its decision in Chandler v Cape where it had stated that the key question was “whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees” and found that the facts in this case were very different from those in Chandler v Cape, leading to a different outcome. The Court explained that co-ordination of operations between members of the same group was just that and it was incumbent upon the claimant to go further and show that the parent company had assumed a duty of care to the employees of the subsidiary. In this case, it appeared that the parent company did not conduct any business other than the holding of shares in the subsidiaries. The Court suggested that the claimant needed to show that, because of its superior knowledge or expertise, the parent company was better placed to protect the employees of the subsidiary from risk of injury and, further, that it would be fair, because of that superior knowledge or expertise, for the subsidiary to rely upon the parent to protect its employees. The fact that the subsidiary and parent shared the use of resources did not mean that they ceased in any way to be distinct corporate entities.

Directors and shareholders of parent companies will welcome this decision which shows that the burden of showing the assumption of a duty of care to the employees of a subsidiary is a high one. It is clear that each case will be determined in accordance with its own facts but this case shows that the appointment of a nominee director and the shared use of resources will not, without more, establish the existence of a duty of care.

[1] [2012] EWCA Civ 525
[2] Thomson v Renwick Group Plc [2014] EWCA Civ 635
[3] [1990] 2 AC 605