Chandler v Cape Plc [2012] EWCA Civ 525

Facts

  • Mr. Chandler was employed by Cape Building Products Limited (Cape Products), a subsidiary of Cape Plc.
  • During his employment, Mr. Chandler was exposed to asbestos at the subsidiary’s factory, which manufactured asbestos board products.
  • As a result of this exposure, Mr. Chandler developed asbestosis, a serious respiratory illness.
  • Cape Products was no longer operational, and its employer liability insurance excluded asbestosis claims.
  • Unable to recover against his former employer, Mr. Chandler brought a negligence claim directly against Cape Plc as the parent company.
  • He alleged that Cape Plc owed a duty of care to his health and safety as an employee of its subsidiary.

Issues

  1. Whether a parent company, Cape Plc, could owe a direct duty of care to an employee of its subsidiary in respect of health and safety.
  2. Whether such a duty of care arises from a direct tortious obligation rather than by piercing the corporate veil.
  3. What criteria must be satisfied for a parent company to be held liable for the acts or omissions of a subsidiary regarding employees’ health and safety.

Decision

  • The Court of Appeal held that Cape Plc owed a duty of care to Mr. Chandler as a former employee of its subsidiary.
  • The appeal by Cape Plc was dismissed; judgment was entered for Mr. Chandler.
  • The Court established that this duty was a direct tortious obligation, not based on piercing the corporate veil or disregarding separate legal personality.
  • Lady Justice Arden set out a four-part test to determine when a parent company may owe such a duty of care.
  • The Court distinguished the imposition of this duty from cases involving fraudulent conduct or lifting the corporate veil.

Legal Principles

  • A parent company may owe a duty of care to the employees of its subsidiary if four requirements are met:
    • The businesses of the parent and subsidiary are, in relevant respects, the same or sufficiently interconnected.
    • The parent company has, or ought to have, superior knowledge or specialized skill relating to health and safety issues relevant to the subsidiary’s industry.
    • The parent company knows, or ought to know, that the subsidiary’s system of work is unsafe.
    • The parent company knows, or ought to foresee, that the subsidiary or its employees would rely upon the parent's superior knowledge for protection.
  • All four elements must be satisfied for a direct duty to arise.
  • The judgment does not equate to “piercing the corporate veil”; rather, it imposes a direct duty based on operational realities and assumed responsibilities.
  • The duty is grounded in the parent’s knowledge, control, and practical involvement, not simply its corporate relationship to the subsidiary.

Conclusion

The Court of Appeal in Chandler v Cape Plc clarified that parent companies can owe a direct duty of care to the employees of their subsidiaries based on factual operational connections and superior knowledge, applying a specific four-part test and without piercing the corporate veil. Parent companies are thus required to take active responsibility where reliance and risk are foreseeable.

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