The principle of separating corporate liabilities between parent companies and their subsidiaries was examined recently in the Court of Appeal in a case directly relating to the health and safety of workers. The case, Chandler v Cape*, involved liability for a worker who had contracted asbestosis whilst employed by a subsidiary of Cape PLC over 50 years ago. The subsidiary, Cape Products, stopped trading some time ago and its employer’s liability insurance included an exemption for asbestosis. As such Chandler claimed directly from Cape as the parent company. The High Court found in Chandler’s favour awarding him £120,000, however Cape appealed.

The basis for Cape’s appeal was that the subsidiary was operated independently of the parent company and as such could not be held liable for the health and safety of its employees. The court examined both the legal principles and the facts of the case, specifically the nature of the interaction between Cape and the subsidiary in relation to medical matters, health and safety, product development, and technical knowledge of its operations. The barrister for Cape stated that the relationship between the two companies was ‘normal’, with similar banking arrangements, common directors, similar products, and parent company approval for certain activities. However he stated that ‘this control does not need to involve health and safety’. The court therefore had to examine the facts of the case to determine whether Cape as the parent company could be deemed to have accepted responsibility for the subsidiary’s employees.

The court found that Cape must have been aware of health and safety issues at the subsidiary, had sufficient technical knowledge regarding the risk to health, and had been aware of the ‘systemic failures’ at the subsidiary’s premises that led to the exposure. As such the appeal was dismissed^. However while the court was clear to point out that ‘in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its employees’, this would be subject to a number of legal principles, namely (i) the businesses of the parent and subsidiary are essentially the same, (ii) the parent has, or ought to have, superior health and safety knowledge relevant to the industry, (iii) the parent knew, or ought to have known, the subsidiary’s system of work was unsafe, and (iv) the parent knew or ought to have foreseen the subsidiary or its employees would rely on using that superior knowledge for the employees protection.

Whilst this doesn’t pierce the corporate veil that protects parent companies from the actions of subsidiaries it does edge the law in that direction, albeit with a fairly narrow range of criteria. The benefit ought to be an improvement in the management of health and safety from parent company board level downwards. That’s as long as parent companies don’t smarten up their boundaries of corporate separation and tidy up the evidence trail along the route.

*David Brian Chandler v Cape PLC [2011] EWHC 951 OB

^At time of writing Cape has applied for the right to appeal to the Supreme Court