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Parent Companies: responsible for the activities of their subsidiaries?

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A key characteristic of limited companies is their distinct legal identity. An important result of this is that any liability incurred by a particular company is against that company alone – not against its members or of a company within the same group. 

Despite this, usually due to the fact that a parent company will be wealthier than a subsidiary, it is fairly common for claimants to attempt to bring a claim against a parent company for the actions of its subsidiary. This was the case in AAA & Ors v Unilever PLC and Unilever Tea Kenya Limited.

The Facts:

Following the results of an election in Kenya in 2007, violent rioting took place throughout the country. A tea plantation owned and operated by Unilever Tea Kenya Limited (UTKL) was invaded by rioters. 218 Kenyan nationals living on the plantation suffered personal attacks and damage to property as a result. 

UTKL is a subsidiary company domiciled in Kenya, the parent company being Unilever Plc, domiciled in the UK. The victims brought a claim in English courts against UTKL and the parent company for an alleged breach of a duty of care by failing to protect them against a foreseeable risk. 

The Judgement:

The Court of Appeal considered that in order to establish the liability of the parent company, the requirements for a breach of duty must be established directly against the parent company.

Elaborating, the court thought that there may be sufficient proximity between the parent and subsidiary companies and therefore a parent company may owe a duty of care in respect of its subsidiary’s activities if:

1. The parent company has substantively taken over the management of the relevant activity in the subsidiary; or

2. The parent company has given relevant advice to the subsidiary about how it should manage a particular risk.

On the facts, the Court of Appeal found that the parent company had not done either of the above to such an extent that would give rise to a duty of care in the first instance. Therefore, there could be no breach.

What should businesses take away from this?

Protecting against this kind of claim could require a great deal of foresight and consideration surrounding the degree to which a parent company becomes involved in the activities of a subsidiary. The ruling aims to reflect the commercial realities of how group businesses operate. Nevertheless, it will always be more attractive for claimants to seek to establish liability against a wealthier parent company with regards to their potential damages. 

If you are looking for advice and would like to discuss how we can help you to structure your business, please contact Simon Porter in BakerLaw’s Corporate & Commercial Department or call 01252 730754.

 

Case cited: AAA & Ors v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532

 

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

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