Chandler v Cape Industries plc [2012] EWCA Civ 525

Mr Chandler contracted asbestosis from exposure to asbestos dust while employed by Cape Products Ltd, a subsidiary of Cape plc. The subsidiary was dissolved and uninsured. The Court of Appeal upheld the finding that Cape plc owed a direct duty of care to its subsidiary's employees based on assumption of responsibility, establishing that parent companies can be liable for subsidiaries' employees' health and safety in appropriate circumstances.

Facts

Mr David Chandler was employed by Cape Building Products Ltd (‘Cape Products’) between April 1959 and February 1962 at the Cowley Works in Uxbridge. Cape Products was a wholly-owned subsidiary of Cape plc (‘Cape’), a well-known asbestos producer. Mr Chandler worked outdoors loading bricks on the same site where asbestos was manufactured in a factory with open sides. Asbestos dust migrated from the asbestos factory into his working area, and he subsequently developed asbestosis.

Cape Products was dissolved and its employer’s liability insurance excluded pneumoconiosis (which covered asbestosis). Mr Chandler therefore brought proceedings against Cape plc directly, arguing that Cape had assumed responsibility for the health and safety of Cape Products’ employees.

The Relationship Between Cape and Cape Products

Cape acquired Cape Products in 1945 and installed plant for asbestos production at the Uxbridge site. Cape Products became integrated into the Cape group: common directors sat on both boards, board meetings were held at Cape’s head office, and Cape Products required Cape’s approval for capital expenditure and operated ‘in accordance with company policy’. Cape employed a group medical adviser (Dr Smither) who conducted research into asbestosis and visited the Uxbridge factory. Cape also employed Dr Gaze as group chief chemist, who was involved in dust suppression methods.

Issues

The principal issue was whether Cape, as the parent company, owed a direct duty of care to the employees of its subsidiary, Cape Products, to advise on or ensure a safe system of work for them.

Judgment

The Court of Appeal (Lady Justice Arden, Lord Justice Moses, Lord Justice McFarlane) unanimously dismissed Cape’s appeal and upheld the finding that Cape owed a duty of care to Mr Chandler.

The Legal Framework

The court applied the three-stage test from Caparo Industries plc v Dickman [1990] 2 AC 605, requiring foreseeability of damage, proximity between the parties, and that it be fair, just and reasonable to impose a duty. Lady Justice Arden explained that the basis for liability was assumption of responsibility:

“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.”

No Piercing of the Corporate Veil

The court emphasised this was not a case of piercing the corporate veil:

“I would emphatically reject any suggestion that this court is in any way concerned with what is usually referred to as piercing the corporate veil. A subsidiary and its company are separate entities. There is no imposition or assumption of responsibility by reason only that a company is the parent company of another company.”

The Circumstances Establishing Duty

Lady Justice Arden identified the circumstances in which a parent company may owe a duty of care to its subsidiary’s employees:

“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.”

Systemic Failure

The trial judge had found, and the Court of Appeal agreed, that:

“this was no failure in day to day management, this was a systemic failure of which the Defendant was fully aware.”

Implications

This case is significant as one of the first in which an employee successfully established liability against his employer’s parent company at trial. It establishes that parent companies can owe direct duties of care to subsidiary employees where they have superior knowledge of health and safety risks, the subsidiary’s system of work is unsafe, and the parent has a practice of intervening in the subsidiary’s operations. The decision does not depend on the parent having absolute control of the subsidiary, nor does it collapse the principle of limited liability or pierce the corporate veil. Rather, it recognises that in integrated corporate groups where the parent takes responsibility for health and safety matters across the group, employees of subsidiaries may be owed a direct duty of care by the parent.

Verdict: Appeal dismissed. Cape plc was held to owe a direct duty of care to the employees of its subsidiary Cape Building Products Ltd, and was liable for the claimant’s asbestosis caused by exposure to asbestos dust at the subsidiary’s workplace.

Source: Chandler v Cape Industries plc [2012] EWCA Civ 525