JUNE 2014
  • A Parent Company’s Tort Liability to Employees
    of a Subsidiary

    Stefan HC Lo
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Chandler v Cape plc appears to be the first reported case in the UK dealing squarely with the question of a parent company’s tort law duty of care to an employee of its subsidiary company. Where an employee of a subsidiary company suffers injury as a result of an unsafe workplace, liability in negligence under the common law prima facie rests with the subsidiary company and not with a parent company because each company in a corporate group is a separate legal entity even if the group operates as a single economic unit. However, a shareholder can be held liable in tort where he is personally involved in the conduct constituting a tort. It is on this basis that the Court of Appeal in Chandler v Capeconsidered that a parent company can be liable in negligence in respect of its own acts or omissions in its involvement in the activities of its subsidiary.

This article will examine some relevant Australian judicial decisions which were not referred to by the Court of Appeal in Chandler v Cape. The Australian decisions and Chandler v Capediverge in certain respects, and it is not clear whether the UK Court of Appeal would have been swayed by the reasoning of the Australian judges had the Australian cases been considered. Through a comparison of the UK and Australian cases, this article assesses whether Chandler v Cape provides a welcome development in the law. Some concerns have been raised by commentators as to the appropriateness of imposing a duty of care on parent companies in light of the company law doctrines of limited liability and separate entity. However, the present writer’s view is that Chandler v Capeis to be lauded as it seeks to ensure that corporate controllers who are responsible for wrongful or negligent conduct do not escape liability.

While the present writer disagrees with the narrow basis on which the Australian courts imposed a duty of care on a parent company for torts of its subsidiaries, an analysis of the Australian reasoning is helpful in isolating the relevant legal issues and identifying the doctrinal basis for such liability.