CAPE DISTRIBUTION LTD v CAPE INTERNATIONAL HOLDINGS PLC How a Parent Company May be Held Liable in Torts for the Negligence of its Subsidiaries

Anna Lefcovitch, Solicitor, Arcadis LLP
Charles Chatterjee, Associate Fellow , Institute of Advanced Legal Studies

Interestingly enough, despite the fact that over the years the English Courts have handed down a considerable number of judgments on the issue of the extent of liabilities that a parent company is required to shoulder on behalf of its subsidiaries, branches or any other legal entity under its umbrella and control, especially by virtue of their organisational connectivity between itself and its various units whether by virtue of contractual or non-contractual reasons, the commercial world still seems to be disregarding the legal effect of what is usually known as the doctrine of one economic unit. Recently, the High Court of Justice was required to re-visit the above mentioned doctrine in Cape Distribution Ltd v Cape International Holdings plc in which the principal issue was on insurer’s continuing obligations for an existing parent company and its absence towards its subsidiaries whether in order to protect the pension privilege of the employees of that subsidiary or otherwise. These and some of the related issues received the attention of the Supreme Court in re Nortel GmbH (in Administration) and related companies, in re Lehman Bros International (Europe) (in Administration) and related companies in which their Lordships made references to a large number of precedents in order to justify their judgment in Nortel. These cases also confirmed the connotation of the word “obligation” in law, and whether they have to emanate from contracts or conducts of the parties concerned.