July 4, 2018

Duty of Care - AAA v Unilver (Court of Appeal)

Court of Appeal holds that English holding company does not owe a duty of care to the employees of its subsidiary Kenyan company

The Kenyan employees of a Kenyan company brought a claim against the English ultimate holding company of the Kenyan company (as well as the Kenyan company). The English holding company applied for a stay and argued that the claimants had no arguable claim against either company.

The 3-stage test for establishing a duty of care is foreseeability, proximity and reasonableness. At first instance, the judge held that the damage suffered by the appellants (from third parties) was not foreseeable and nor would it be reasonable to impose a duty of care. However, she did hold, with hesitation, that there was a sufficient degree of connection between the activities of the holding company and the damage suffered by the employees to satisfy the test of proximity. The appeal from that finding has now been unanimously allowed by the Court of Appeal.

Sales LJ pointed out that there is no special doctrine in the law of tort in relation to the responsibility of a parent company in relation to the activities of its subsidiary, and the same principles which apply to all third parties (such as a consultant giving advice to the subsidiary) will apply: "Helpful guidance as to relevant considerations was given in Chandler v Cape Plc; but that case did not lay down a separate test, distinct from general principle, for the imposition of a duty of care in relation to a parent company".

However, he did recognise that, on the facts of a particular case, it may be that a parent company has greater scope to intervene in the affairs of its subsidiary than an ordinary third party. The cases where this might arise will usually fall into 2 categories: 1) where the parent has in substance taken over the management of the relevant activity of the subsidiary, in place of, or jointly with, the subsidiary's own management; and 2) where the parent company has given relevant advice to the subsidiary about how it should manage a particular risk.

Here, the management of the affairs of the subsidiary was conducted by the subsidiary's management and the evidence did not show that the subsidiary had received relevant advice from the holding company.

COMMENT: This case might be contrasted with that of Chandler v Cape (see Weekly Update 14/12), where the parent company was held to owe a duty of care to its subsidiary's employees, in part because the parent company was said to have superior medical knowledge on the link between asbestos and lung disease and so knew, or ought to have known, that the subsidiary or its employees would rely on that superior knowledge. No such superior knowledge could be shown here.