Parent Company Liability (nothing to do with vicarious liability)

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. 

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[1] I’m referring to the Dorset Yacht Co Ltd v Home Office [1970] AC 1004 

Minimum Alcohol Pricing in Scotland 3: A Decision

I have blogged about minimum pricing before; both on its possible illegality, and on the SWA’s approach. Now a Scottish court has heldthat there is no problem in law with the proposals, and so it would appear minimum pricing will become a reality. (Except that other EU states are challenging the measure at a higher level, as reported here).

I don’t propose to go through all the aspects of the judgment, which is here, at any length. I am more interested in the free movement of goods (FMG) issue, which I discussed before. This was, as I understand, the main argument of the SWA. Other arguments, including ones based on the Scotland/England Acts of Union hardly passed a smell-test.

On the FMG point, it was held that the Scottish measure did impinge on free movement, but was justified on the basis of the protection of the life and health of humans (Art 36 TFEU). This is a treaty-enshrined basis that allows derogation from strict free movement of goods. Lord Doherty held that there was a legitimate aim, and that the measure was proportionate to that aim.

[55] There is overwhelming evidence of grave health, social, economic and public order consequences caused in Scotland as a result of excessive alcohol consumption. Such consumption by harmful and hazardous drinkers is particularly concerning, and is harmful to those drinkers and to others. On the basis of the material placed before me I am in no doubt that reduction of alcohol consumption generally, and reduction of consumption by hazardous and harmful drinkers in particular, are both legitimate aims in terms of Article 36.

…

[64] If … alternative measures would be just as effective as minimum pricing in achieving the legitimate aims being pursued, the contention that they would be less of an obstacle to freedom of movement of goods would appear, at least prima facie, to be logical and have force…

…

[73] The petitioners [argue] that excise duty on alcohol can be increased as much as is necessary to raise the prices of cheaper products to desired levels. Such an approach would not affect, or target, drinkers of cheaper products only: but it could subject them to price increases of at least the same order as under minimum pricing. … In those circumstances [an excise duty] would be no less effective in reducing the consumption of cheap alcohol or the consumption of alcohol by hazardous and harmful drinkers.

…

[77] That argument would have been more persuasive if the legitimate aims of the measures had been to reduce consumption, including consumption by hazardous and harmful drinkers, to the maximum extent possible regardless of possible economic or social consequences. However, those are not the aims of the measures. Rather, the relevant aims are [ [54][striking] a reasonable balance between, on the one hand, public health and social benefits, and, on the other, intervention in the market … The Parliament and the Ministers recognised that many people have "a balanced, positive and enjoyable relationship with alcohol": such drinkers are not the target of the measures. The major problem is excessive consumption of cheap alcohol. The measures seek to address this by increasing the price of such alcohol.]

This is proportionality doing what proportionality does worst. Proportionality, as a concept, is primarily found in EU law. If measure is tied to a legitimate aim, and goes no further than necessary to achieve that aim, it is proportionate. On this occasion, that has the net result of blowing an FMG argument out the water.

But note the judicial sleight of hand. We have defined the aim of the measure such that there is much less scope for an alternative, less-FMG-infringing measure. An excise duty would raise all prices, and that is not the aim. The aim is to increase prices of cheaper products only. But it is precisely the increase at the lower end that means there is an FMG issue – a foreign drinks company now can’t compete on pricing. By defining the aim of the measure with such tight reference to the measure made the proportionality hurdle a much lower one for the Scottish Ministers to clear.