The manufacturing industry has been affected by asbestos-related illnesses for decades now. Due to the long latency period between exposure and first sign of symptoms, it is not unusual for historic employers such as manufacturers to be difficult to identify and locate. The company may have been dissolved many years ago and if no employer’s liability insurers for the period of exposure can be identified, it could be a pointless exercise restoring that company to the register for the purposes of legal proceedings.
The starting point for any legal action is to identify a defendant worth suing. The question therefore arises as to what, if any, liability does a live parent company have for its dissolved subsidiary companies in circumstances where it was alleged the subsidiary company had negligently exposed its employees to asbestos?
The door was opened by the Court of Appeal in the case of David Ryan‑Chandler v Cape Plc (2012). The Chandler case was an asbestosis claim involving exposure to asbestos at work in the late 1950s and early 1960s when the claimant worked for Uxbridge Flint Brick Company, a subsidiary of one of the UK’s biggest asbestos companies, Cape Plc.
It was common ground that the simple fact that Cape Building Products Limited (formerly Uxbridge Flint Brick Company) was a subsidiary of Cape Plc or part of a group of companies, of which Cape Plc was the parent, was not enough for Cape Plc to owe a duty to employees of the subsidiary firm.
However, given the particular circumstances in that case and applying the well known test laid down by the House of Lords in Caparo Industries Plc v Dickman (1990), Cape Plc were found liable.
The Court of Appeal stressed in that case the question was simply whether what the parent company had done amounted to taking on a direct duty to the subsidiary’s employees.
In the Chandler case the parent company, Cape, had knowledge of the systemic failings at the subsidiary’s factory where the claimant worked. Combined with their superior knowledge about the nature and management of asbestos risks and the fact that Cape had actually assumed some responsibilities for the subsidiary’s activities issuing them operational instructions, meant that Cape had assumed a duty of care either to advise the subsidiary what steps to take or to ensure that those steps were taken. In short, Cape owed a direct duty of care to the employees of Uxbridge, Flint and Brick.
The Court of Appeal identified circumstances where it may be appropriate for the law to impose responsibility on a parent company for the health and safety of its subsidiary’s employees, namely:
- The business of the parent company and subsidiary were, in a relevant respect, the same.
- The parent has, or ought to have, 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.
- The parent knew or ought to have foreseen that the subsidiary or its employees would rely on it using that superior knowledge for the employee’s protection.
The limitations of this approach, however, were made all too clear in the recent Court of Appeal case of Thompson v Renwick Group Plc (2014).In this case the claimant was employed by two companies between 1969 and 1978. The employing companies were acquired by the defendant’s subsidiary in 1975. Shortly after the acquisition of the subsidiaries, the defendant company appointed a new director to the board of the subsidiary company and tasked him with running the site where the claimant worked.
The claimant was employed as a labourer and later a driver. His working conditions were appalling and the subject of damning comments by the Court of Appeal. The claimant was exposed to asbestos dust and as a result, developed diffuse pleural thickening. The claimant’s employers did not have employer’s liability insurance and would not be able to meet any judgment.
The claimant therefore brought proceedings against the parent company arguing that by appointing a new director, the defendant had taken control of the daily operation of the business that employed the claimant and as such, had assumed responsibilities which gave rise to a direct duty of care between defendant and claimant.
The Court of Appeal found that the appointment of a director did not satisfy the test in Caparo and did not give rise to a duty of care. The director was performing his duties on behalf of the subsidiary company that employed the claimant. There was no evidence of any relationship between the director and the defendant (parent company) beyond his inferred nomination as a director of the subsidiary.
Further, whilst there was inevitably some evidence of collaboration between companies and sharing of resources between the companies in the group, there was no evidence that the defendant was anything more than a holding company of the claimant’s direct employer. In short, the parent company did little more than hold shares in the subsidiary. Having regard to the test in Caparo, there would need to be a risk of foreseeable injury; a relationship of proximity between the parties and it should be fair, just and reasonable to impose liability.
Unlike Chandler, the defendant had no superior knowledge or expertise that would have enabled it to protect the employees of subsidiary companies against the risk of asbestos injury. In Chandler, the parent company had actually employed a group medical adviser with responsibility for the health of all employees within the group.
The case reinforces the fact that the Courts have no appetite to pierce the corporate veil. The circumstances in which a parent company may also owe a duty to employees of a subsidiary will be extremely limited and the test in Caparo will need to be satisfied.
The case is a reminder that a parent company is only a shareholder. Unless the acts or omissions of the parent company satisfy the proximity test, for instance where there is a large measure of control over a subsidiary, a duty of care will not be established. This has a significant impact for manufacturers and those operating in the manufacturing industry.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.