Duty of Care in Supply Chains
Introduction
In tort law, a duty of care is simply a legal obligation imposed on a party necessitating adherence to a set standard of reasonable care while undertaking acts with foreseeable harm to others. The first element that has to be established in cases of duty of care is the existence of negligence. Thus, the claimant has to show the existence of a duty of care that has been enforced by law to have been breached by the defendant. Accordingly, a duty of study is subject to liability whereby necessary remedies have to be made. To some extent duty of care could be referred to as a social contract. The leading judicial test in England need to assess the duty of care is found in the Caparo Industries plc v Dickman case, whereby the House of Lords provided a three-part test: Harm must be "reasonably foreseeable"; a link of "proximity" must be existence between the claimant and the defendant; and must be reasonable, fair, and just to impose liability. The purpose of this paper is to offer an analysis of the circumstances under which a duty of care might extend across a company’s supply chain where the company has its base in the UK but the harm occurs out of the jurisdiction.
Duty of Care in the United Kingdom
Tort cases against corporations in the UK arise when there is a breach of a ‘duty of care’ as a result of harm to others. Negligence is the careless act carried out by a person or a company or its agents and it results in damages to another and for which the entity is deemed liable to remedy the effects in form of compensation. For negligence to be established; there must be a duty of care to the plaintiff; the perpetrator breached the duty of care by failure to undertake reasonable care; and the breach resulted in the damage which is the subject of the complaint. Thus, there must exist a relationship between parties for duty of care to exist. In addition, there must be negligence by a company that causes harm, and such a failure of responsibility is a result of a lack of duty of care. Under English law, the duty of care for multinational corporations’ parent company with operations outside the UK was founded under the English Court of Appeal in Lubbe as follows:
Whether a parent company is proved to exercise de facto control over the operations of a (foreign) subsidiary and which knows, through its directors, that those operations involve risks to the health of workers employed by the subsidiary and/or persons in the vicinity of its factory or other business premises, owes a duty of care to those workers and/or other persons in relation to the control which it exercises over and the advice which it gives to the subsidiary company?
A person or a company is liable for negligence when the made to the victim is not unforeseeable, when there is a duty of care to the victim, the duty has been breached, and there is a causal relationship between the act of neglect and the damage. Most attention is focused on determining whether or not a company owes a duty of care to its employees or others as a result of its activities and action across the supply chain. In order to establish a duty of care, the Caparo test also referred to as the three-stage test, must be fulfilled. For instance, the potential for harm must be foreseeable. The proximity requirement must be fulfilled; and it has to be just, fair, and reasonable for the duty of care to be imposed. The last condition makes it hard to prove liability and the existence of a duty of care as a result of actions across the supply chain.
Circumstances When Duty of Care Extends across a Company’s Supply Chain
A company’s supply chain is a network of facilities put together to perform different functions from procurement of materials between facilities and product development to distribution of goods to customers. Thus, a supply chain is made up of interconnected channels and networks that provide services and products to the end consumer. Generally, parent companies in the UK cannot be liable for the liabilities and actions of their subsidiaries, suppliers, and supply chain because they are separate legal entities. In the common law, there is no general duty that prevents third parties from harming others. This means that a mother company in the UK has under the common law no duty to prevent its members in the supply chain from harming its employees through its business activities.
However, there are circumstances under which a duty of care might extend across a company’s supply chain where the company has its base in the UK but the harm occurs out of the jurisdiction. For instance, when there is a product liability. According to the Consumer Protection Act 1987, product liability is ensured to protect the welfare of consumers. When a UK-based company’s supply chain entails the manufacturer of consumable goods the parent company must be held accountable for any actions and activities across the supply chain. However, negligence claims have to be established and brought against the manufacturer of the faulty products and show that the UK-based company has a duty of care to the injured party outside its jurisdiction. Although a parent company based in the UK owes a duty of care only within its areas of operations, it is responsible for health and safety across its entire supply chain. This can be explained by the Chandler v Cape plc case. The Lady Justice Arden of the Court of Appeal in this case established that the parent company owed a duty of care to the employees in one of its subsidiaries located outside the UK and it has the responsibility of protecting the worker from personal injuries that were suffered in the work environment. The Court of Appeal established that Cape Plc. had accepted the responsibility for ensuring employees’ health and safety across its supply chain and for this reason; it had control over the affected business as matters of health and safety procedures were involved. For instance, Cape was aware of the unsafe working practices but undertook no steps to ensure that situation was improved. Thus, the superior knowledge of Cape Plc. relating to the risks, Cape was held accountable for duty of care as it provided advice to Cape Products on how to ensure safety.
A duty of care extends across a company’s supply chain where the company has its base in the UK but the harm occurs out of the jurisdiction because of the relationship between the mother company and its networks. For example, Lord Goff in Smith v. Littlewoods noted that one exception where a duty of care applies outside the UK is when there is “a relationship between the parties which gives rise to an imposition or assumption of responsibility on the part of the defendant.” For example, a duty of care exists as a result of a connection between a main company with its networks outside the UK, and for any harm caused; it must be liable for the possible damages. This can be reflected in Chandler v. Cape, where it was considered that transnational companies must owe a duty of care to the supplier’s employees because there exists a long-term supply contract. Therefore, when a company has a long business relationship with its subsidiaries and parties across the supply chain, the mother company in the UK must be held by the MNE responsible for all the activities of its supplier that cause harm.
When a company in the UK has knowledge of all activities across its supply chain and the possible harm outside its jurisdiction, then it has a duty of care. Thus, in case of negligence, the mother company must be responsible for acts that occur and harm people or other entities in the course of providing the acts. This implies that the ability to have control over the subsidiary is important and not significant actual control, but that a responsibility that must be ensured. For instance, the Cape was liable because it was not only a parent company of Cape Product but because it owed a duty of care to the workers of its subsidiary. Accordingly, A UK-based company has a duty of care to the employees of its suppliers and contractors across the supply chain because it is aware and knowledgeable of the activities carried out on its behalf. In case any harm is done to the people by its suppliers in other countries, then the mother company must be held accountable. Therefore, it is not necessary for a parent company to be in full control over its networks as well as its subsidiary before it becomes liable for acts of negligence. Hughes pointed out that there must be “a practice of intervention in trading operations, coupled with the utilisation of superior knowledge by a parent company and reliance on this by a subsidiary.” Thus, being the mother company automatically gives it control over all matters related to negligence that may cause harm to others. The supposition of responsibility is not necessarily voluntary and as illustrated in Connelly v. RTZ and Lubbe v. Cape, the potential liability in tort must not be restricted to a British subsidiary only, but as well as to the mother company.
An employer has a duty of care if actions are acts of negligent and are committed within the employment scope across the supply chain. This relates to the concept of vicarious liability. Forni pointed out that “To hold an employer vicariously liable for the acts of its employee, the plaintiff must establish that the employee was engaged in the duties which he was employed to perform’ [or] ‘those acts which incidentally or indirectly contribute to the [employer’s] service.” Thus, when a company based in the UK experiences activities of negligence that harm others outside the jurisdiction, then there is a need to establish its vicarious liability. There must be a link between the parties involved and the tort causing harm must have been committed in the line of employment. A director of one of the companies across the network may make the mother company liable if the tort was performed while still under employment. The applicability of vicarious liability is tested via the two-prong test. Under this test, the mother company is only deemed vicariously liable for the employee’s actions if the acts were (1) “either required or ‘incident to his duties or (2) could be reasonably foreseen by the employer in any event . . . .” This can be explained via the Clark Equipment Co. v. Wheat (1979) 92 Cal. App. 3d 503, 520 whereby negligence from the employee employed by Clark Equipment resulted in an accident.
A company is liable for the harm caused by a company in another country across its supply chain when there is an environmental population or harm. Environmental liability is an international concern, and parent corporations must be held liable for the damages caused by their foreign activities. Any person or company operating or owning a facility during the time a hazardous substance was released to the environment is strictly liable for remediation costs and removal as well as any other related damages. Under such cases, the Courts would hold a parent company liable for the environmental sins committed across its supply chain by either piercing the parent’s corporate veil or by directly assigning tort liability to the parent company. Any form of negligence across the supply chain could imply that the parent company was liable for the actions that caused any form of harm. This can be illustrated by the Cape case where the English House of Lords ruled in favour of South African residents and pointed out that they could sue in English Courts for tort damages. This is because the damages arising from the South African asbestos mines which were owned by one of its many subsidiaries. Cape Asbestos South Africa (Pty) was responsible for negligence in its mines and being owned by Cape PLC, the incorporated company was liable. The subsidiary was reasonable for population and cancer attributable to exposure to asbestos. The House of Lords established that the parent company had a responsibility of making sure that proper standards of health and safety were performed by its overseas operations. The directors and the employees of the parent company were knowledgeable of the issues and it failed to provide necessary solutions, and for this reason, Cape PLC owed a duty of care to all persons affected by the harm of negligence. In the case of Cape Plc., the duty of care was imposed because the test (fair, just and reasonableness, proximity, and foreseeability) was fully satisfied.
The inadequacy of depending on host countries to provide a remedy for harm done may compel the parent corporation in the UK to pay for damages because it owes a duty of care. Victims should be able to get a remedy from the parent company in its home country in cases the remedies are inaccessible against the supply chain networks in the country where the harm took place. In cases like that, a subsidiary may participate in tortious actions, and in other cases engage in activities that are linked to human rights abuses. The companies in the host country could not be in a position to uphold the duty of care because the judicial system may be corrupt and ineffectual or there could be no mechanism for victims who have been harmed by businesses’ actions to obtain legal redress. For example, in the case of Shell-Nigeria, litigation was undertaken for harm done outside the jurisdiction of the mother company. Although the case relates to the Netherlands, rather than the UK, it is applicable. Negligence in reference to the control of oil pipeline operations, maintenance, and supervision in Nigeria resulted in oil spills that affected the local people. The case against Shell alleged that the parent corporation was liable for the damages because “(i) it owed a duty of care to the Nigerian farmers (the potential harm was foreseeable), and (ii) it had the power to ensure that adequate steps were taken to avoid the harm, but it breached that duty by failing to ensure that the appropriate safeguards were taken.” Additionally, the Lubbe and Connelly cases were cited as legal authorities as they supported the existence of a duty of care.
The forum non conveniens principle is applicable and compels parent companies to be responsible for harm caused across the supply company outside territorial jurisdiction. Under English law, a two-stage test is applicable where the aspect of proximity and duty of care is applied. For instance, in case the claimant is not in a possible to pay for lawyers or experts but has facts to show that the parent company was responsible for the challenges, then it is possible to sue the parent company for harm done. Thus, the parent company can in principle owe a direct duty of care to workers of its companies in the supply chain because it has the responsibility to ensure safety in operations outside the UK. For example, in Lubbe and Others v Cape Plc the parent company was in principle liable for the negligence that resulted in people being hurt while working in the subsidiary company. The company was in principle responsible and the three-phase was satisfied and showed that the parent company owed a direct duty of care in tort for all persons injured while working in the subsidiary company. In Ngcobo and Others vs Thor Chemicals case, “it was again held that it was arguable that a parent company may owe a duty of care to employees of its subsidiaries.” Thus, like Connelly and Ngcobo, the principle of forum non conveniens has the power to compel a parent company in the United Kingdom to be responsible for the harm it has caused across the supply chain outside the territorial jurisdiction.
The last scenario is when the affected group is restricted, then the parent company is responsible for the liabilities incurred and it owes a duty of care. For example, in the Dutch Shell case, Nigerians did not receive any damages for remedy because Royal Dutch Shell did not owe a duty of care to the local population, but to the employees of the subsidiary. The court justified its ruling by stating that a duty of care is only owed to a restricted group, such as the employees, and in this case not to the unrestricted group of persons. The case is applicable in English courts as it can show that restricted groups such as employees are the responsibility of the subsidiary and parent company in terms of duty of care. In the case of Nigeria, the harm was not caused by negligence by the daughter company, but rather by third parties who sabotaged the oil pipeline. The imposition of liability on the mother company for harm caused by third parties is not just, fair, and reasonable. Nonetheless, in cases where the daughter company or supply chain causes damage to the local population, then the mother company in the UK could be held accountable and liable for duty of care.
Conclusion
For a duty of care to be applicable, the three-part test must be met. The harm must be reasonably foreseeable, the principle of proximity must be applicable, and must be reasonable, fair, and just to impose liability. The Courts pierce the corporate veil to ensure that environmental matters committed across the supply chain are compensated by the parent corporation because of the control it may have. The Cambior and Cape Asbestos cases have illustrated that the Courts hold a parent liable under negligence in case the parent was knowledgeable of the activities carried across the supply chain that would cause damage. There are circumstances under which a duty of care might extend across a company’s supply chain where the company has its base in the UK but the harm occurs out of the jurisdiction are they include, when there is product liability, environmental liability, there is a relationship between the mother company and its networks. In addition, if a company has knowledge of all activities across its supply chain and the possible harm outside and fails to take action, then it is liable to a duty of care. Also, vicarious liability compels companies to be liable outside their jurisdiction. The forum non conveniens principle compels parent companies In the UK to be responsible for harm caused across the supply company outside territorial jurisdiction. Lastly, when the affected group is restricted, then the parent company is responsible for the liabilities incurred and it owes a duty of care.
Bibliography
Books
Dugdale, M et al., ‘Clerk & Lindsell on Torts (19th edn, London: Sweet & Maxwell 2006), p.383
Ru?hmkorf, A. Corporate Social Responsibility, Private Law and Global Supply Chains. Edward Elgar Publishing, [2015].
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Boggs, C. Project Management: A Smorgasbord of International Operating Risks, 4 ROCKY MTN. L. INST. PAPER NO. 13 (2008), pp. 23
Demeyere, S. Liability of a Mother Company for Its Subsidiary in French, Belgian, and English Law. European Review of Private Law 3-2015 [385–414]
Forni,, Robert M. Off the Clock and on the Hook: A Primer on Employer Liability for the Acts of Employees Committed Away from Work. (2008), 2
Hughes, P. ‘Competition Law Enforcement and Corporate Group Liability – Adjusting the Veil’, ECLR (European Competition Law Review) 2014,
Mcgaughey,E. ‘Donoghue v. Salomon in the High Court’, J.P.I. Law (Journal of Personal Injury Law) 2011, nr. 4, p 225.
Meeran, R. Tort Litigation against Multinational Corporations for Violation of Human Rights: An Overview of the Position Outside the United States. City University of Hong Kong Law Review Volume 3:1 Fall 2011 pp 1–
Sanger, A. ‘Crossing the Corporate Veil: The Duty of Care Owed by a Parent Company to the Employees of its Subsidiary’, CLJ (Consumer Law Journal) 2012, nr. 71(3), pp 478–481.
Walemar, B., & Wilson, Paul. Parent Corporation Liability For Foreign Subsidiaries. Fasken Martineau
Cases
Caparo Industries plc v Dickman ([1990] 1 All ER 568)
Chandler v Cape plc [2012] EWCA Civ 525.
Clark Equipment Co. v. Wheat (1979) 92 Cal. App. 3d 503, 520
Donoghue v. Stevenson [1932] AC 562.
Dorset Yacht Co Ltd. v. Home Office [1970] AC 1004
Gray v. Fire Alarm Fabrication Services Ltd. [2006] ECWA Civ 1496.
Lubbe v. Cape Plc, [2000] WL 976033
Ngcobo v. Thor Chemicals Holdings Ltd., 1995 WL 1082070
Sithole v. Thor Chemicals Holdings Ltd. [1999] TLR 110.
Smith v. Littlewoods Organisation Ltd., at 272D
[1] Donoghue v. Stevenson [1932] AC 562.
[2] Gray v. Fire Alarm Fabrication Services Ltd. [2006] ECWA Civ 1496.
[3] Mcgaughey, J.P.I. Law 2011, nr. 4, p 249.
[4] Clark Equipment Co. v. Wheat (1979) 92 Cal. App. 3d 503, 520
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