Cape Fear revisited: not as stormy as we thought?

7 minute read
02 June 2014


The Court of Appeal has unanimously held that a parent company was not liable for industrial disease suffered by an employee of a subsidiary.

The judgment in David Thompson v Renwick Group plc [2014] distinguished the ruling of the same court in Chandler v Cape plc [2012] , on which we commented two years ago.

A parent company would not usually expect to be liable for obligations incurred by its subsidiaries. In the absence of express guarantees or indemnities in relation to another party's liabilities, each company in a group is a separate legal entity, responsible only for its own liabilities. However, the decision in Chandler v Cape plc demonstrated that, in certain quite special circumstances, this may not always hold good.

The decision in Chandler v Cape plc

The case was part of the long and unhappy saga of claims for asbestosis, dating from events many years ago. The claimant, a Mr Chandler, was employed between 1959 and 1962 by C, a company that manufactured bricks and asbestos products. Although the claimant worked in the brick manufacturing part of C's factory and did not work with asbestos, he was exposed to asbestos dust escaping from the asbestos processing part of the site. The asbestos processing operation had originally been carried on by C's parent company, P.

There was no question that the claimant could have won compensation from C for what were obviously manifest failures to ensure a safe working environment. However, long before the claimant's disease was diagnosed, C had been wound up. In similar cases, winding up can be set aside by order of the court to allow a claim against the relevant company's employee liability insurance. But C's insurance had excluded liability for asbestosis, so restoring the company would not help the claimant.

However, the claimant was able to show that P also owed him a duty of care. The evidence showed that P had assumed responsibility for the health and safety of C's employees. This was because:

  • P had originally carried on the asbestos business itself and was thus to be taken to be fully aware of all relevant risk factors, including the escape of asbestos dust;
  • in some cases, at a strategic level, P directed C's business (e.g. in relation to exploiting new products and markets) and C was accustomed to comply with any such directions;
  • P was in a better position than C to determine safe working practices; C had a company doctor on site, but P employed a group medical adviser who was becoming an internationally recognised expert on the dangers of asbestos;
  • the group medical adviser had visited C's premises and must have been aware that asbestos dust was not adequately prevented from escaping;
  • P issued a “group manual” on health and safety issues to all its subsidiaries, but it took no steps to mitigate the escape of asbestos dust, nor did it direct C to do so;
  • the evidence showed that P, not its individual subsidiaries, dictated policy in relation to health and safety issues.

This was sufficient to establish that P had assumed a duty of care to ensure that employees of its subsidiaries were provided with a safe system of work. P failed in that duty and was liable to compensate the claimant.

A different case on different facts

The facts in David Thompson v Renwick Group plc were somewhat different, although unfortunately for Mr Thompson, the resulting damage to his health was much the same.

The claimant worked for two companies over a period of several years. In both cases, his duties involved handling raw asbestos. His second employer took over the business of the first and was then in turn itself taken over by a subsidiary of R. R appointed a new director to the employer's board to run the business and the evidence showed that this director had been involved in health and safety matters. In addition, the business was carried on in such a way that the claimant could be asked to make deliveries to the premises of various companies within the group, not just to those of his employer.

By the time the damage to the claimant's health was diagnosed, his employer was a company of no substantial value. Moreover, it had no employee liability insurance for asbestos damage and so was not worth suing. The claim was thus made against R on the basis of a similar duty of care to that established in the Cape case. At first instance, the claim succeeded; R then appealed.

The appeal succeeded. The Court of Appeal ruled that R assumed no duty of care to anyone merely by appointing a director to run the relevant business, even though that director had some health and safety responsibilities. Nor was it relevant that the claimant sometimes made deliveries to other group companies' premises. That showed merely that the business was being run on divisional lines, not that the separate legal entities and contractual arrangements of individual companies could be disregarded.

Nor was it shown that R ever carried on the same business as the claimant's employer. On the contrary, R appeared to have carried on no business other than holding shares in its subsidiaries. R had no better knowledge or understanding of asbestos and its health risks than the claimant's employer. It was not fair to infer that the claimant's employer relied on R to protect employees from harm or that R had assumed a duty to do so. There were none of the special features of the situation in the Cape case that made it fair, just or reasonable to impose a duty of care.

Practical points

These contrasting judgments demonstrate that the outcome of each case of this kind will be determined by its precise facts. In the absence of express guarantees or indemnities for the liabilities of others, each company is liable only for its own debts and obligations unless a relevant duty of care can be established. Such a duty will only arise where:

  • the relevant loss or damage is foreseeable;
  • there is sufficient proximity between the party owing the duty and the party alleged to have caused the loss or damage (e.g. one has control over the other); and
  • it is fair, just and reasonable to impose the duty of care.

The Renwick Group judgment seems to show that "proximity" or "control" require more than a parent company's control of its subsidiaries by way of shareholding or board appointments; it must involve a far closer understanding of and involvement in the subsidiary's business and affairs of the kind illustrated in the Cape case.

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