Parent company responsible for subsidiary action in asbestos case

Chandler v Cape (Queens Bench Division 14 April 2011)

The claimant was exposed to asbestos whilst employed by Cape Building Products for two periods in 1959 and 1961/1962. Although he did not work directly with asbestos, production of asbestolux boards caused asbestos to permeate the entire site and, as a consequence, the claimant developed mesothelioma.

Cape Products had ceased to exist and no employers liability insurance was available to compensate the claimant. The claimant argued that Cape, as parent company, also owned a duty of care the claimant and was concurrently liable.

Mr Justice Wyn Williams in the High Court decided for the claimant on the basis that Cape owed a concurrent and independent duty of care to the claimant because: it had actual knowledge of the working conditions on site: the production of asbestos in a building without sides caused the escape of dust and was a systematic failure that Cape knew about: the risk was obvious: Cape employed group scientific and medical officers who were responsible for health and safety issues for the group as a whole: and, on the evidence, Cape and not its subsidiaries dictated health and safety policy.

This case should not be seen as representing a departure in imposing liability on a parent company. To pierce the corporate veil and impose a liability for the acts of subsidiaries, claimants need to prove that the parent and subsidiaries operate as a single economic entity with subsidiaries operating under the complete control of the parent.

Also, claimants will have to prove the corporate arrangements were such that the parent operates effectively sole and exclusive control of the subsidiarys activities or that the arrangements were effectively a sham designed to evade liability.

However, the duty considered in this case arose because the particular level of control and strategic direction by the parent over the subsidiary was to such an extent that, in relevant matters such as health and safety, it was a parent and not the subsidiary that called the shots.

Parent companies consequently need to look to their own actions and determine whether they themselves enjoy a direct liability even if they feel confident in the protection of the corporate veil. A parent of subsequently acquired subsidiaries with legacy liabilities will not find itself liable on this basis. Claimants in those circumstances will still need to pierce the corporate veil to establish liability, but equally a parent of a recently disposed subsidiary may be at risk if a claimant can establish that the parent at the time of tortious activity (e.g. asbestos exposure), enjoyed a close and controlling relationship with its former subsidiaries. Failure to consider this possibility and investigate accordingly and at the diligence stage in a corporate acquisition can, therefore, lead to unwelcome consequence in the future.