Corporate holding structures and liability risks in the UK

The English Court of Appeal has upheld the High Court decision that a holding company owes a direct duty of care to the employees of its subsidiary.

The claimant, Mr Chandler, was an employee of Cape Building Products Ltd (Cape Products) in 1959 and 1961/62 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.    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.

The English courts have confirmed that Cape plc owed a direct duty of care to the employees.   Relevant factors included that Cape plc:

• had actual knowledge of the Mr Chandler’s working conditions;

• should have foreseen the risk of injury to Mr Chandler;

• employed skilled officers with responsibility for health and safety issues relating to all employees within a group which had a business focussed on dangerous asbestos-based products; and

• dictated and retained overall responsibility in relation to health and safety issues.

Court of Appeal decision

The Court of Appeal confirmed the decision of the High Court holding that responsibility of a parent company for the health and safety of its subsidiary’s employees may be imposed where:

(1) the businesses of the parent and subsidiary are in a relevant respect the same;

(2) the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;

(3) the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and

(4) the parent knew or ought to have foreseen that the subsidiary or its employees would rely on it using that superior knowledge for the employees’ protection.

Comment

This is one of the first cases in which a parent company was held to owe a direct duty of care to, and be liable for, a subsidiary’s employees. It is not a case of “piercing the corporate veil” and the decision to impose a direct duty of care on the parent company was not based on the parent company’s control of its subsidiary. Rather, it was the assumption of responsibility by the parent company over the relevant affairs of its subsidiary that forms the basis of the court’s judgment.

Whilst the case specifically relates to the parent company’s responsibility for health and safety matters of employees of all subsidiaries, the way the Court of Appeal’s decision is phrased is likely to have wider implications for parent company liability, particularly in circumstances where there is “intervention”.   It is, therefore, important for parent company directors to properly empower subsidiary boards and ensure decision making capacity is not usurped.

Marlies Braun