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.