Legal Update
May 2011
Chandler v Cape: Piercing the Corporate Veil: Lessons in Corporate
Governance
Introduction
On 25 April, the Court of Appeal handed down an
historic ruling concerning the liability of parent
companies to an employee of one of its subsidiaries.
In this case, however, the Court of Appeal held that the
parent company, Cape PLC, was liable (although,
technically, the corporate veil was not pierced).
The case concerned health and safety matters, but the
decision has much wider implications for parent
company liability across a broad range of issues.
Basis of Court of Appeal’s decision
One area of particular concern will be multi-national
companies headquartered in the UK operating through
subsidiaries in less developed countries. The case
potentially opens up avenues of recourse that, up to this
decision, would not have been available.
Mayer Brown’s Corporate and Environment and Safety
Groups have teamed up to offer a one-stop service to
guide clients on the ramifications of the decision and on
the practical steps they can take to mitigate the risk of
liability.
The Facts
The claimant, Mr Chandler, was employed for a short
time by Cape Building Products Limited (“Cape
Products”) in the late 1950s and early 1960s. During
the course of his employment he was exposed to
asbestos fibres.
Mr Chandler was diagnosed with asbestosis in 2007.
Cape Products was dissolved some time ago and, in any
event, its insurance policy contained a very broad
exclusion that would have prevented recovery for this
illness against its insurer.
In view of this, Mr Chandler began proceedings against
Cape Products’ parent company, Cape PLC.
As a general proposition, parent companies are not
liable for the negligence of their subsidiaries on the
basis that each has a distinct legal personality and it
should, as a rule, not be possible to “pierce the
corporate veil”.
The Court of Appeal was keen to stress that Cape PLC
was liable not because it in some way assumed the
liability of its subsidiary, but because it owed a direct
duty of care to Mr Chandler which it breached.
Key then, to the decision – and to addressing the more
general governance issues arising from it – are the
factors identified by the Court as being relevant to
establishing whether such a duty of care exists.
Arden LJ identified four relevant factors as follows:
• are the businesses of the parent and subsidiary in a
relevant respect the same?
• does the parent have, or ought it to have, superior
knowledge on some relevant aspect of health and
safety in the particular industry?
• does the parent know (or ought it to know) that the
subsidiary’s system of work is unsafe in some way?
• does the parent know (or ought it to have foreseen)
that the subsidiary or its employees would rely on
its using that superior knowledge for the employees’
protection?
For the purposes of the last point, the court noted that
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 this last point 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 case of Cape PLC and its subsidiaries, the court
found that there was a group policy in relation to health
and safety.
While Cape PLC did not control all of the activities of
Cape Products, the court ruled that it is enough if it can
establish that the defendant controlled or took overall
responsibility for the measures adopted by Cape
Products to protect employees against harm from
asbestos exposure.
In this case, Cape also had a Group Medical Adviser
who was responsible for health and welfare of all
employees within the group. Indeed, the Group Medical
Adviser was directly involved in an investigation of a
case of a person who had contracted an asbestos related
disease at a factory in Uxbridge. In addition, Cape
employed a Group Chief Scientist or Chemist who was
involved in seeking out ways of suppressing dust from
the group’s factories, not just those operated by Cape
itself.
Practical Points
Group companies will need to examine the decision
carefully to determine whether their codes of
governance procedures (including health and safety,
employment and environment policies and practices)
create a risk of parent liability. In particular, businesses
need to look at:
• the roles and responsibilities of directors and
managers;
• the composition of parent and subsidiary boards;
• line management and reporting lines;
• director and local management training;
• the scope of environmental, health and safety and
employment communications from subsidiary to
parent and the role of legal privilege; and
• the content of external communications by parent
companies on environmental, health and safety and
employment matters and membership of lobby or
trade groups.
If you would like any further information on Chandler v
Cape PLC or any related issue, please contact:
Michael Hutchinson
Partner, London
E:[email protected]
T: +44 20 3130 3164
Martin Mankabady
Partner, London
E: [email protected]
T: +44 20 3130 3830
Mayer Brown is a global legal services organisation advising many of the world’s largest companies, including a significant portion of the
Fortune 100, FTSE 100, DAX and Hang Seng Index companies and more than half of the world’s largest banks. Our legal services include
banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate
matters; employment and benefits; environmental; financial services regulatory & enforcement; government and global trade; intellectual
property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management.
OFFICE LOCATIONS AMERICAS: Charlotte, Chicago, Houston, Los Angeles, New York, Palo Alto, Washington DC
ASIA: Bangkok, Beijing, Guangzhou, Hanoi, Ho Chi Minh City, Hong Kong, Shanghai, Singapore
EUROPE: Brussels, Düsseldorf, Frankfurt, London, Paris
TAUIL & CHEQUER ADVOGADOS in association with Mayer Brown LLP: São Paulo, Rio de Janeiro
ALLIANCE LAW FIRM: Spain (Ramón & Cajal)
Please visit our web site for comprehensive contact information for all Mayer Brown offices. www.mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer
Brown Europe–Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales
(authorised and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong
Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are
the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© 2012. The Mayer Brown Practices. All rights reserved.
0000xxx
0133env
May 2012
Xxxxx
2011
XXXX