Chandler v Cape plc.
The Court of Appeal has upheld a decision of the High Court which found that a parent company owed a direct duty of care to an employee of one of its subsidiaries, in Chandler v Cape  EWCA (Civ) 525.
In this case, the claimant, Mr Chandler, was employed by a subsidiary of Cape plc for just over 18 months from 1959 to 1962. During the course of his employment, Mr Chandler was exposed to asbestos fibres and in 2007, Mr Chandler was diagnosed with asbestosis. By this time, the subsidiary entity had been dissolved. Mr Chandler’s estate brought a claim against Cape plc alleging it had owed (and breached) a duty of care to Mr Chandler. It was held at first instance that Cape plc owed Mr Chandler a duty of care. Cape plc appealed, but its appeal was dismissed.
The key points to note are as follows:
- The Court of Appeal stated that Cape plc assumed responsibility to Mr Chandler and owed a direct duty of care to Mr Chandler which it breached. The Court of Appeal stressed that the duty of care from a parent company to subsidiary employees did not exist automatically and only arose in particular circumstances. That is, there was no imposition or assumption of responsibility to the employee by reason only that the defendant was the parent company: parent companies have a separate legal personality and it should, as a rule, not be possible to “pierce the corporate veil”.
- However, in the case of Cape plc, the Court of Appeal identified parallel duties of care between the parent company and subsidiary employees and the subsidiary company and its employees. This was because: (i) the parent company and subsidiary had relatively similar businesses; (ii) the parent company knew (or ought to have known) that the subsidiary’s system of work was unsafe; and (iii) the parent company knew (or ought to have foreseen) that the subsidiary or its employees would rely on its using that superior knowledge the employee’s protection.
- The case results in case law catching up with the group/subsidiary corporate structures that are now relatively common. It is likely that courts will look at group structures holistically. Moreover, the country of incorporation of a subsidiary is unlikely to make a difference if the parent entity is a UK plc.
- In particular, in the case of M&A transactions involving the sale or purchase of a subsidiary entity, parties will need to think about contingent and residual liability issues arising for parent companies.