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May 1, 2012

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Parent firm liable in “historic” asbestos case

In a judgement that could have far-reaching ramifications for UK companies with subsidiaries, the Court of Appeal has ruled in favour of an asbestosis sufferer, who sought damages against the parent company of his former employer.

The Court upheld a decision by the High Court in April last year, which ruled that Cape plc, as the parent company, was liable for the activities of its subsidiary, Cape Building Products Ltd. The appeal judgment, handed down last week (25 April), could have significant consequences for companies in the UK with domestic-based subsidiaries, as well as multi-national companies headquartered in the UK with subsidiaries in developing countries, where their operations have greater potential to cause direct harm to workers, the local environment, and consumers.

The case centered around David Chandler, 71, who was employed by Cape Building Products Limited (formerly Uxbridge Flint Brick Company), between 1959 and 1961, during which period he suffered heavy asbestos exposure. Diagnosed with asbestosis in 2007, he was unable to pursue a claim against Cape Building Products, owing to an ‘asbestosis exclusion clause’ in its insurance policy. Mr Chandler’s lawyers, Leigh Day & Co, instead decided to pursue his claim against Cape plc.

In their judgement, the Appeal Court judges stressed: “There is no imposition or assumption of responsibility by reason only that a company is the parent company of another company. The question is simply whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees.”

Leigh Day & Co provided evidence that the parent company was directly involved in, and knew about, the health and safety effects from asbestos exposure on workers at Cape Building Products Ltd. The law firm pointed out that Cape plc employed group medical and safety officers, who oversaw health and safety at its subsidiaries, and that it had close involvement with governmental organisations concerned with asbestos safety.

The Appeal Court also found it significant that the boards of both parent and subsidiary companies shared directors.
Based on such evidence, the Court found that Cape plc “assumed a duty of care either to advise Cape Building Products on what steps it had to take, in the light of knowledge then available, to provide those employees with a safe system of work, or to ensure that those steps were taken”.

The judgement concluded: “In summary, this case demonstrates that in appropriate circumstances the law may impose on a parent company responsibility for the health and safety of its subsidiary’s employees.

“Those circumstances include a situation where, as in the present case, the businesses of the parent and subsidiary are in a relevant respect the same; the parent has, or ought to have, superior knowledge on some relevant aspect of health and safety in the particular industry; the subsidiary’s system of work is unsafe as the parent company knew, or ought to have known; and 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.”

Following the ruling, Vijay Ganapathy, senior solicitor at Leigh Day, said: “This historic judgment gives hope to thousands of victims, not just of industrial disease, but also those injured or who have been denied justice in the past through the complexity – and sometimes cruelly contrived nature – of corporate structuring.€

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11 years ago

I’m amazed that a company handling asbestos could take out employer liability insurance with an “asbestosis exclusion clause”, and that this was apparently legal.
How common is/was this sort of thing, i.e. wriggling out of employer insurance obligations.

11 years ago

Would this ruling have any effect in reverse. i.e a European Based parent company with subsidiaries in the UK?

11 years ago

Concerned, probably not, because European companies lie outside UK jurisdiction.

It is an interesting development, the practice of larger holding companies exporting their riskier activities to subsidiaries has been a well developed practice. Although not illegal it is arguably amoral.