“I blame the parents”: Parent companies (in the UK) may owe a duty of care to their subsidiaries’ employees

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The English Court of Appeal recently delivered a judgment in Chandler v Cape Plc [2012] EWCA Civ 525 which has potentially significant implications for groups of companies. It is also a warning of contingent liabilities which might arise where a group company may have exposed employees to asbestos or other toxic substances. These liabilities may emerge many years after the alleged exposure to the toxic substance. Mesothelioma and other illnesses caused by exposure to asbestos can take decades to develop. For the unwary, the liability for damages to employees of subsidiary companies may be unexpected and potentially significant.

A recognition of the potential risks for parent companies arising from this case is of importance in the M&A context, where alleged exposure to asbestos may have been by companies which are now dormant, insolvent, or no longer in the group and where records may no longer be available. The case emphasises the need for due diligence and the importance of indemnities and insurance arrangements when undertaking corporate group acquisitions.

In the Cape case, Mr Chandler had contracted asbestosis as a result of a short period of employment over fifty years earlier with Cape Building Products Ltd, a company which is no longer in existence. Its parent company, Cape plc, is still in existence and Mr Chandler had obtained a judgment under which Cape plc was held to be liable to him. The decision was in an appeal by Cape plc against that earlier decision. The case is significant because it is one of the first in which an employee established that his employer's parent company (not just the employer) owed him a duty of care.

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