The Sins of the Father: A Note on the Liability of Parent Companies

When considering claims against parent companies, a useful starting-point is the digest provided by Sales LJ (as he then was) in AAA v Unilever plc [2018] BCC 959 at [36]:

“There is no special doctrine in the law of tort of legal responsibility on the part of a parent company in relation to the activities of its subsidiary, vis-à-vis persons affected by those activities. Parent and subsidiary are seperate legal persons, each with responsibility for their own separate legal activities. A parent company will only be found to be subject to a duty of care in relation to an activity of its subsidiary if ordinary, general principles of the law of tort regarding the imposition of a duty of care on the part of the parent in favour of a claimant are satisfied in the particular case.”

For the long-tail disease practitioner, a spur to claims against the parent company is typically the insolvency of both the employer-subsidiary and its insurer – unhappily, not an uncommon combination of circumstances given the vagaries of corporate life and the latency periods between exposure and disease often running into several decades. In the asbestos litigation arena, it was Chandler v Cape plc [2012] 1 WLR 3111 where liability first came to be imposed against a parent company. On both sides of the litigation fence, one sees competing assertions about the reach – and conversely the limit – of what in short-hand might be called Chandler principles.

As stated by Arden LJ (as she then was) in her judgment in Chandler, with which Moses and McFarlane LJJ agreed, at [1]:

“The principal issue is whether Cape owes a direct duty of care to the employees of its subsidiary to advise on, or ensure, a safe system of work for them.”

The Court of Appeal upheld the determination of Wyn Williams J that Cape plc was directly liable to Mr Chandler as the evidence disclosed an “assumption of responsibility” on the part of Cape towards him as an employee of its subsidiary.

As explained at [80] of the lead judgment, it was deemed appropriate to impose on the parent company a responsibility for the health and safety of its subsidiary’s employees because of a combination of circumstances as follows:

(i) the business of the parent and subsidiary company were in relevant respects the same;

(ii) the parent had, or ought to have had, superior knowledge on some relevant aspects of health and safety in the particular industry;

(iii) the subsidiary’s system of work was unsafe as the parent company knew, or ought to have known; and

(iv) the parent knew or ought to have foreseen that the subsidiary or its employees would rely upon it using that superior knowledge for the employee’s protection.

Pausing there, the operative duty as such was held to be one owed directly by Cape to the employees, and not also the employers. Thus, in respect of the injury and loss complained of by employees such as Mr Chandler, Cape plc and its subsidiary would be, as a matter of law, jointly and severally liable. Whether Cape’s failings were characterised as ‘acts’ or ‘omissions’, Cape’s responsibility ultimately rested on causing or permitting an ongoing unsafe system of work, in circumstances where it knew or ought to have known of that unsafety – better than others – and where it had the power, by the imparting of that superior knowledge and/or the giving of instructions, to remedy the relevant want of safety. As Arden LJ stated at [78]:

“ As the Judge held, working on past performances and viewing the matter realistically, Cape could, and did on other matters, give Cape Products instructions as to how it was to operate with which, so far as we know, it duly complied.”

Accordingly, on the one hand, it may be said that Chandler was but the application, to a parent company, of ordinary common law principles and did not give rise to a new species of liability; on the other hand, it may be said that if full regard is had to the ‘particular facts of the case’, the circumstances in which the parent company might be held liable will be kept strictly to within proper bounds.

This balance was struck by Lord Briggs in his observations in Vedanta Resources plc v Lungowe [2019] 2 WLR 1051 (litigation arising from alleged toxic emissions from the Nchanga Copper Mine in the Chingola District of Zambia) at [51]:

“Sales LJ thought that cases where the parent might incur a duty of care to third parties harmed by the activities of the subsidiary would usually fall into two basic types: (i) Where the parent has in substance taken over the management of the relevant activity of the subsidiary in place of or jointly with the subsidiary’s own management; (ii) Where the parent has given relevant advice to the subsidiary about how it should manage a particular risk. For my part, I would be reluctant to seek to shoehorn all cases of the parent’s liability into specific categories of that kind, helpful though they will no doubt often be for the purposes of analysis. There is no limit to the models of management and control which may be put in place within a multinational group of companies. At one end, the parent may be no more than a passive investor in separate businesses carried out by its various direct and indirect subsidiaries. At the other extreme, the parent may carry out a thoroughgoing vertical reorganisation of the group’s businesses so that they are, in management terms, carried on as if they were a single commercial undertaking, with boundaries of legal personality and ownership within the group becoming irrelevant, until the onset of insolvency, as happened within the Lehman Brothers group.”

Whilst this provides a warning against any fixing on any one formulation as determinative, Chandler v Cape may be seen, on its facts, as involving both of the two categories of case envisaged by Sales LJ. In other words, given the dominant status of Cape plc (at the head of this multinational group of companies, truly an industrial leviathan) and given also the particular standing and expertise of its Group Medical Adviser, it may reasonably be thought that Chandler could hardly be stronger on its facts for establishing a duty of care. A careful comparison between the facts in that case and the one next under consideration, to see whether they can and should be materially distinguished, is as ever mandated.

The motivation of the parent in acquiring the subsidiary may call for investigation. After all, the acquisition of the latter by the former may be precisely because the former did not have relevant expertise in the subsidiary’s sphere of operations and in effect wanted to ‘buy it in’. Superior knowledge may, if anything, rest with the subsidiary.

By the same token the allegation that the parent does have superior knowledge warrants careful consideration. Whether one is a ‘novice at the firing range’ or an ‘expert in ballistics’, no great degree of knowledge (superior or otherwise) is required to know that a loaded gun is dangerous. Without embarking here on a review of the landmark literature, if there was a general understanding amongst factory occupiers, at the material times of the given case, that asbestos was dangerous, then when one considers the question of (deemed) reliance by the subsidiary, the alleged ‘superior knowledge’ and the consequences to be attached to it risk being over-stated.

Moreover, of itself, the issuing of policies for a group does not mean that the parent has taken control of the operation of the subsidiary: see, for example, Okpabi v Royal Dutch Shell plc [2018] Bus LR 1022. Whether and to what extent the parent has relevantly ‘taken up the reins’ will, absent witnesses (or over and above them), turn on a careful consideration of what the contemporaneous documentation shows – or does not confirm. An illustration of this is provided by Thompson v Renwick Group plc [2014] PIQR P18. There, reversing the view of the trial judge, the Court of Appeal held that the mere appointment by the parent company of a director, with a responsibility for health and safety, to the subsidiary’s board was not a sufficient basis on which to impose a direct duty of care as between the parent company and the subsidiary’s employee. Rather, by reference to an analysis rooted in whether the legal personalities of the two companies were kept distinct, it was held that the director was acting pursuant to a director’s duty to the subsidiary – and not the parent company. Thompson was referenced, without disapproval, in Vedanta.

Whether distinct legal personalities have been retained and respected as between parent and subsidiary is a question for the Court rather than some (still) higher judgment, but one notes how the Kings James Bible thunderously put it:

“The son shall not bear the iniquity of the father, neither shall the father bear the iniquity of the son: the righteousness of the righteous shall be upon him, and the wickedness of the wicked shall be upon him.”

In short, there usually is a dividing line but where, in the particular case, it is to be drawn calls for an early effort in terms of inquiry, getting at the relevant documentation and pleadings.