Dear old Mr. Droog works for Fyodor Ltd in the 1960s. Fyodor
Ltd was a bit bad, and exposed Mr. Droog to batemanium, a chemical that caused
Mr. Droog to go blind in his later life. By the time Mr. Droog suffers his
loss, realises the cause, and wants to sue, Fyodor Ltd is history. It was wound
up. Can Mr. Droog sue the extant parent company, Dostoevsky Plc?
By Chandler v Cape [2012] EWCA Civ 525, he can. The Court of Appeal agreed
with the judge at first instance, and upheld the imposition of parent company
liability. This was because the parent had assumed responsibility for the
safety of its subsidiary’s employees.
What I find interesting about this case is the fact that it
has no relation whatsoever with
vicarious liability. Arden LJ made passing reference to the fact that the first
instance judge had not found liability on “any form of vicarious liability”.
That’s the only mention it gets, and no vicarious liability cases were cited in
argument. Google “chandler cape vicarious”, and you get the square root of
hee-haw.
Given that it was accepted by the parent in Chandler v Cape
that the subsidiary would have been liable, it seems surprising that there was
no argument at all regarding whether the parent ought to be liable vicariously.
If vicarious liability were to apply to parents and subsidiaries, the parental
liability would be a slam-dunk success.
Instead, counsel for the claimant argued for the direct liability of the
parent. It is worth noting that counsel’s approach was breaking new legal
ground, in that the idea of ‘parent company liability’ is new. Although the
approach taken is a far less iconoclastic approach than arguing for vicarious
liability. All the court had to do was accept that the normal rules of
assumption of responsibility in the tort of negligence could apply to the parent company, and did indeed apply on the facts of the case.
I think the reason why vicarious liability was left to one
side can be explained in this quote:
“69 I would
emphatically reject any suggestion that this court is in any way concerned with
what is usually referred to as piercing the corporate veil. A subsidiary and
its company are separate entities. There is no imposition or assumption of
responsibility [read, liability] by reason only that a company is the parent
company of another company.”
This concern is fair enough. If we are to have “limited
liability” companies, and the bundles of legal risk are supposed to be capable of being parcelled up and
apportioned amongst a corporate group, vicarious liability might be the wrong
approach.
But let's apply this logic to
natural beings. Why should it be that we (as individuals or companies) be
liable on one set of terms for the acts of natural persons we employ (vicarious liability is expressly fault free) but a different set for the
actions of legal persons we own (where normal tort rules apply)? Is the commercial uncertainty caused by a
raggedy corporate veil a better reason to keep liability separate than the
moral oddness of being responsible for the vulgar, deliberate and secret acts
of your employees?
Put another way, if the correct way to decide if a parent is liable to its
subsidiaries employees, or Borstal guards are liable to terrorised residents[1] is through the application of a general tortious test that incorporates an element of fairness, why is that different for companies and employees? Given that vicarious liability is dogged by uncertain theoretical foundations, ought it ignore the more stable reasoning afforded by the general law of negligence? Abandoning vicarious liability in favour of the general test would replace strict liability with fault based liability, and import a measure of fairness. Vicarious liability cases could be re-theorised to fit that model. The role of control would be more central. And in those cases where the employer is truly blame free, they would not be saddled with a tort liability they could have done nothing to avoid.
[1] I’m
referring to the Dorset Yacht Co Ltd v Home Office [1970] AC 1004
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