Parent company owed duty to subsidiary’s employee – Piercing the corporate veil?

Parent company owed duty to subsidiary’s employee – Piercing the corporate veil?

The Court of Appeal has given judgement in the case of  Chandler v Cape plc [2012] EWCA Civ 525 and has upheld the judgement of the trial judge that a parent company owed a duty of care to an employee of a subsidiary company, in particular in relation to health and safety.

The Court of Appeal insisted that this was not a case of the court ‘piercing the corporate veil’ and that there was no automatic duty owed by the parent company to the subsidiary company’s employees. However, they did make clear that there could be an assumption of responsibility in certain circumstances including where the following where present:

  1. the businesses of the parent and subsidiary are in a relevant respect the same;
  2. the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry;
  3. the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and
  4. the parent knew or ought to have foreseen that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection

The Court of Appeal also said that “For the purposes of (4) it is not necessary to show that the parent is in the practice of intervening in the health and safety policies of the subsidiary. The court will look at the relationship between the companies more widely. The court may find that element (4) is established where the evidence shows that the parent has a practice of intervening in the trading operations of the subsidiary, for example production and funding issues.

In the leading judgement, Lady Justice Arden said that “I would emphatically reject any suggestion that this court is in any way concerned with what is usually referred to as piercing the corporate veil. A subsidiary and its company are separate entities. There is no imposition or assumption of responsibility by reason only that a company is the parent company of another company.

Yet, this is an example of how difficult it is to keep legal entities separate within a group structure.

Nick Lindsay
nick.lindsay@gmail.com
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