Suing the corporate soul; parent company down for asbestosis

4 May 2012 by David Hart KC

Chandler v. Cape Plc, Court of Appeal, 25 April 2012, read judgment.

This may sound like a rather dreary topic, but the problem is vitally important for the proper reach of environmental and personal injury law. Some may have seen from my post on the Erika disaster the difficult issues which can arise when a multi–national (in that case, Total) does business through a number of corporate entities, particularly where they are domiciled in different countries. But the present case is a good example where liabilities are not confined to the party directly responsible for the injury or disaster. Good thing, too, for this claimant, who stood to gain nothing from his former employer, a company now dissolved, or indeed its insurers.

In the late 1950s and early 1960s Mr Chandler worked for a Cape company, Cape Products, loading bricks. Asbestos was also  produced at his workplace, and dust from that part of the works was allowed to blow around the works. Mr Chandler recently contracted asbestosis, and wanted to claim for the admitted negligence of Cape Products. But Cape Products was no more, and there had been excluded from its employers liability insurance any cover for pneumoconiosis. So that led nowhere. Hence this claim against Cape Plc, its parent company, on the basis that Cape Plc had “assumed” responsibility for the health of its subsidiary’s employees.

Mr Chandler’s claim was successful. But the grounds for this success need to be looked at carefully. You cannot simply sue a parent company on the basis that it makes money out of its subsidiaries. Nor can you say that  the parent is vicariously liable for the defaults of its subsidiary. You have to go further, as this claim did, and say that, in some way, the parent was directly involved with and hence responsible for the subsidiary’s default. The starting point for this finding, as the judge – Wyn Williams J – and the Court of Appeal agreed, was that the parent company was well aware of the systemic failures of the subsidiary.

In particular, the parent (Cape) knew that the asbestos business was carried on in a way which risked the health and safety of others at Mr Chandler’s works, most particularly the employees engaged in the brick making business. The judge found that the parent had superior knowledge about the nature and management of asbestos risk. Hence, as Arden LJ put it

I have no doubt that in this case it is appropriate to find that Cape assumed a duty of care either to advise Cape Products on what steps it had to take in the light of knowledge then available to provide those employees with a safe system of work or to ensure that those steps were taken. The scope of the duty can be defined in either way. Whichever way it is formulated, the injury to Mr Chandler was the result. As the judge held, working on past performance and viewing the matter realistically, Cape could, and did on other matters, giving Cape Products instructions as to how it was to operate with which, so far as we know, it duly complied.

In these circumstances, there was, in my judgment, a direct duty of care owed by Cape to the employees of Cape Products. There was an omission to advise on precautionary measures even though it was doing research and that research had not established (nor could it establish) that the asbestosis and related diseases were not caused by asbestos dust.

Arden LJ then sought to explain in more general terms where you can sue the parent for its own default where the claim arises more directly from the defaults of its subsidiaries. As she put it

In summary, this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees. Those circumstances include a situation where, as in the present case, (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 its using that superior knowledge for the employees’ protection. For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. The court may find that element (4) is established where the evidence shows that the parent has a practice of intervening in the trading operations of the subsidiary, for example production and funding issues.

This is not necessarily a straightforward set of tests for a claimant to satisfy. It involves close analysis of how close or distant the parent was to the subsidiary – in this case, a trawl through Cape documents from the 1940s to the 1960s.  Did the parent simply sit and wait for the money to roll in? Or did it have extra knowledge which it could provide to the subsidiary? On the other hand, the Court’s emphasis under (4) is important; the parent’s relevant involvement in its subsidiary may include interventions other than the narrowly health and safety role.

The judgment also explain in a helpful way what actually is meant by “assuming responsibility” to a claimant or class of claimants. The last thing a parent company in fact wants to do is to assume liabilities to those who are employed by or otherwise contracted to a subsidiary. Indeed, one of the reasons (apart from tax) for these elaborate company structures is precisely to put liabilities in little compartments – so that if some disaster hits one company in the group, the group as a whole does not necessarily fall apart. Arden LJ put it this way

Whether a party has assumed responsibility is a question of law. The court does not have to find that the relevant party has voluntarily assumed responsibility….. The word “assumption” is therefore something of a misnomer. The phrase “attachment” of responsibility might be more accurate.

But assumption of responsibility is not all or nothing. Hence, as it was explained,

The parent company is not likely to accept responsibility towards its subsidiary’s employees in all respects but only for example in relation to what might be called high level advice or strategy.

So again, this is a brake upon the circumstances in which such a claim will lie.

Purists may say that this sort of decision is an enemy to the sort of certainty which one wants to achieve dealing with company structures; the whole point of limited liability companies is to prevent liabilities spreading from one company to another. But in truth, though rarely litigated, it is a straightforward example of the choice which faces a parent company. If it gets closely involved with its subsidiary then it may have to pay the price for that closeness.

As I said at the beginning of the post, the principles go well beyond the sort of personal injury claim at issue here. Parent companies may well get involved in major environmental decision-making of their subsidiaries, and the implications of this will be obvious. A decision not to clean up some badly contaminated land owned by a subsidiary may come home to haunt the parent company if it was involved. So it is very likely to be a case which many reach for, when, as often, the subsidiary is not good for the money.

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