Essential corporate news - Week ending 11 May 2012
11 May 2012

Queen’s Speech 2012: Enterprise and Regulatory Reform Bill

The Queen’s Speech published on 9 May 2012 included proposals for an Enterprise and Regulatory Reform Bill. The purpose of the Enterprise and Regulatory Reform Bill is expressed to be to provide the right conditions for economic recovery by strengthening the business environment, reducing regulatory burdens and improving business and consumer confidence.

The Enterprise and Regulatory Reform Bill will include provisions relating to the following:

• Directors’ pay: The aim is to strengthen the framework for setting directors’ pay by introducing specific measures following the Government’s response to the consultation paper on shareholder voting rights published by the Department for Business, Innovation and Skills in March 2012. In addition, Section 439(5) Companies Act 2006 will be repealed so that directors’ remuneration is contingent on the outcome of the shareholder vote on the directors’ remuneration report.
• Competition: Leadership for sector regulators on competition enforcement and a single authoritative voice for the UK internationally is to be provided by bringing together the Competition Commission and the competition functions of the Office of Fair Trading to create a single Competition and Markets Authority.
• Green Investment Bank: New powers will be given to the Green Investment Bank (a funding scheme introduced in 2010 by the Government charged with attracting private funds for financing private sector investment in environmental preservation) in order to address under-investment in environmental preservation schemes.
• Workplace dispute resolution: The employment tribunal system will be overhauled and existing dispute resolution procedures will be transformed. Other proposals include encouraging the earlier resolution of disputes and giving employers more confidence to hire new staff.

(Queen’s Speech 2012, Cabinet Office, 09.05.12)

(Queen’s Speech 2012, Cabinet Office Briefing Notes - Enterprise and Regulatory Reform Bill, 09.05.12)

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Liability of a parent company for harm suffered by an employee of its subsidiary - Chandler v Cape Plc [2012] EWCA Civ 525

This was an appeal by Cape plc (Cape) against a High Court decision ordering it to pay £120,000 in compensation to David Chandler after he contracted asbestosis while working at Cape Building Products Limited (Cape Products), a wholly owned subsidiary of Cape. The High Court had held that Cape was liable to Mr Chandler on the basis of the common law concept of assumption of responsibility and it is one of the first cases in which an employee has established at trial liability to him on the part of his employer’s parent company. The Court of Appeal had to consider whether Cape, as the parent company, owed a direct duty of care to its subsidiary to advise on, or ensure, a safe system of work for its employees.

Background

Mr Chandler was an employee of Cape Products between 1959 and 1962. In 2007, Mr Chandler discovered he had contracted asbestosis due to asbestos dust exposure in the course of his employment with Cape Products. However, since Cape Products no longer existed, and had no policy of insurance during his employment which would indemnify it against claims for damages for asbestosis, Mr Chandler brought a claim against Cape alleging it was a joint tortfeasor with Cape Products and should be jointly and severally liable to pay him damages. Cape argued it owed no duty of care to the employees of its subsidiaries. The High Court considered the three-stage test for the imposition of a duty of care as set out in Caparo Industries v Dickman [1990] 2 AC 605, namely foreseeability, proximity and whether it was fair, just and reasonable for a duty to exist, ruling that since Cape had actual knowledge of Mr Chandler’s working conditions with Cape Products, the risk of him suffering was foreseeable. Cape had employed a scientific officer and a medical officer responsible for health and safety issues and had retained responsibility for ensuring that its own employees and those of its subsidiaries were not exposed to harm.

The appeal

In the appeal, Cape argued that it did not exercise complete control over Cape Products and although it was the parent company of Cape Products, Mr Chandler’s employer, this did not give rise to a duty of care to protect him from injury at work. It had been agreed by both parties at the trial that there was nothing to justify the piercing of the corporate veil. Cape was entitled in law to organise its operations so that they were carried out by members of its group. Cape also argued that while there could be an assumption of responsibility by an independent contractor in favour of the employees of his employer, where the question was one concerning the assumption of responsibility, it was unnecessary to follow the three-part test in Caparo as no new duty of care was created in this case.

Cape argued that as a parent company it exercised some control over Cape Products but that this did not involve health and safety issues and did not imply that it had day to day involvement in Cape Products. Cape exercised financial control over expenditure in the same sort of way that one would normally expect to see a subsidiary looking to a parent for approval and there were also common directors. However, the existence of common directors did not imply a watering down of Cape Products’ obligations to its employees. In addition, the appointment of a doctor by Cape to protect its employees did not mean that Cape took control of Cape Products operational procedures for the health and safety of its employees.

Judgment

The Court of Appeal dismissed the appeal and found that Cape had assumed a duty of care either to advise Cape Products on what steps it had to take in light of the knowledge then available to provide employees with a safe system of work or to ensure that those steps were taken. Cape also owed a direct duty of care to the employees of Cape Products and it had omitted to advise on precautionary measures, despite its knowledge about the nature and management of asbestos risks. The Court of Appeal concluded that in appropriate circumstances, the law may impose on a parent company responsibility for the health and safety of its subsidiary employees. These circumstances include a situation such as in the present case where:

• the businesses of the parent and subsidiary are in a relevant respect the same;
• the parent company has, or ought to have, superior knowledge of 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 company knew, or ought to have foreseen, that the subsidiary, or its employees, would rely on its using that superior knowledge for the employees' protection although it is not necessary to show that the parent company 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 and may find that the element of reliance on using superior knowledge is established where evidence demonstrates that the parent has a practice of intervening in the trading operations of the subsidiary, for example, production and funding issues.

The Court of Appeal also emphatically rejected any suggestion that the matter concerned the piercing of the corporate veil, arguing that a subsidiary and its company were separate entities and that no assumption of responsibility would be imposed as a result of a company being the parent company of another company. The issue in this case concerned whether what the parent company did amounted to taking on a direct duty to the subsidiary’s employees.

(Liability of a parent company for harm suffered by an employee of its subsidiary - Chandler v Cape Plc [2012] EWCA Civ 525)

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