Acquisitions of companies in the industrial sector now merit even more rigorous due diligence from a health and safety perspective, because the buyer may be liable for the historic failings of defunct subsidiaries. In terms of ongoing operations, parent companies should ensure that compliance procedures for health and safety are the duty of the officers of the subsidiaries, whilst making sure that any knowledge on particular risk factors is passed on to them by the parent. Care needs to be taken where companies in a group structure have overlapping businesses.
Mr Chandler was an employee of a subsidiary of Cape PLC between 1959 and 1962, during which time he was exposed to asbestos in the course of his work. After contracting asbestosis in 2002 he brought a claim against Cape PLC, because the subsidiary had been dissolved some years earlier.
The Court of Appeal held that Cape PLC owed a direct duty of care to the employees of its subsidiary.
The Court of Appeal restated the legal principle that parent companies have a separate legal personality and that it is not usually possible to pierce the "corporate veil". The judgment made it clear that the question was not whether the corporate veil should be pierced in this instance, but whether the parent company should be liable in tort.
The Court stressed that the parent's conduct did not have to be out of the ordinary in a parent-subsidiary relationship or amount to absolute control. As long as the parent company exercised some control over its subsidiary, such as providing high level advice or help, the duty of care could arise.
Cape's controlling conduct is detailed in the box below.
Chandler v Cape PLC [2011] EWCA Civ 525
Where did they go wrong?
The duty owed by a parent company to a subsidiary's employees is not one that arises automatically, but did so in this case because:
- The parent company and its subsidiary had a relatively similar business, which included dealing with asbestos
- The parent company knew, or ought to have known, that the subsidiary's system of work was unsafe
- The parent company knew, or ought to have known, that the subsidiary or its employees would rely on its superior knowledge of health and safety matters for the protection of the subsidiary's employees
- The parent company had a practice of intervening in the trading operations of the subsidiary in relation to production and funding issues
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.