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PARENT COMPANY LIABILITY FOR SUBSIDIARY H&S BREACHES

Court of Appeal judgement implications for potential scale of safety fines

Stephenson Harwood LLP has highlighted a recent Court of Appeal judgment on the responsibility of a parent company (Cape Plc) for the asbestos liability of a subsidiary company. SH suggest the case is significant in being the first time a parent company has been held directly responsible for asbestos exposure suffered by the employees of a subsidiary. 

The Court held that absolute control of the subsidiary was not necessary for the parent to assume a responsibility to subsidiary employees. The case was “fact specific” but some of the factors which influenced the Court in finding that this responsibility existed included:

  • parent involvement in health and safety issues which affected the subsidiary;
  • always one or more directors of the parent on the board of the subsidiary;
  • parent exercised some control over the activities of the subsidiary (including some financial control); and
  • parent was aware of working conditions at the subsidiary and aware that “systemic failures” in respect of asbestos control measures were occurring.
Fine assessed on parent turnover potentially significantly higher

SH state that the judgment could have significant financial implications for some parent companies in relation to historic asbestos exposure adding that:

“The case also brings into focus group arrangements for managing asbestos and other risks. While a parent company may wish to retain some control over the arrangements of subsidiaries and ensure uniformity across the group, this will need balancing against the risk of potential extension of liability – both civil and criminal.

In particular, if the parent was successfully prosecuted for a health and safety related offence, the Court would consider its turnover when deciding on the level of any fine. A fine assessed against the turnover of a parent as opposed to a subsidiary may potentially be significantly higher.”

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