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Parent Company Liability for Subsidiaries

16 April 2019

In considering risk management, an issue which often arises is whether a parent company may be held liable for the acts or omissions of a subsidiary. An English appeal case from 2018 provided useful guidance.

That case followed upon violent attacks in a plantation in Kenya after the 2007 Presidential Election, as a consequence of which 218 employees brought a claim against Unilever plc and Unilever Tea Kenya Limited (UTKL) for a breach of duty of care. 

UTKL is the Kenyan based subsidiary company of Unilever plc which is incorporated in England.

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  Jeremy Glen, Partner

The claimants claimed that Unilever plc should have foreseen the risk of violence and therefore owed a duty of care to protect them from that violence.  In failing to do so and not putting in place adequate crisis management plans, the claimants argued that Unilever plc breached this duty of care.

The original decision was to the effect that the damage was not found to have been foreseeable and so it was not fair, just and reasonable to impose such a duty of care on Unilever plc.  However, the Judge, at first instance, held that, with some hesitation, there was sufficient proximity between the activities and omissions of Unilever plc as the sole defendant and the damage done to the plantation, according to the authority of previous decisions.  This decision was taken to appeal. 

In dismissing the appeal, the Court of Appeal looked in more detail at the corporate structure with regard to the crisis management policy.  The Managing Director of UTKL submitted that they had written their own policy using their own local knowledge, without any consultation or direction from the parent company.  UTKL had also carried out their own crisis management training programme independently of Unilever plc. 

The Court of Appeal held that there was no special doctrine in the law of tort (delict in Scotland) of legal responsibility on the part of a parent company in relation to the activities of its subsidiary regarding persons affected by those activities.  Parent and subsidiary companies are separate legal persons, each responsible for their own separate activities. 

It was held that the parent company would only be subject to a duty of care where the ordinary general principles of the law of tort applied in relation to a duty of care towards the claimant.  The same legal principles would be applied in relation to whether a third party who, for example, gave advice to the subsidiary, owed a duty of care to the claimants.

In cases of this nature, the interaction and nature of involvement of the parent company has to be considered when determining whether or not it owed a duty of care.  The Court of Appeal in this case did identify two instances in which a parent company may owe a duty of care to the employees of a subsidiary.  These were:

(a) where the parent company had taken over management or the joint management with the subsidiary company; or

(b) where the parent had given specific advice in relation to the management of a particular risk. 

In this case, however, the claimants failed in demonstrating this and accordingly the case was dismissed.

With a view to protecting the separate liability of companies within a group, it is important to have regard to the corporate governance of each, ensuring that each company manages its own affairs.

Contact: Jeremy Glen, Partner, T: 0141 221 8012 

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