Adams v Cape Industries Plc [1990] Ch. 433

Company Law

 

Adams v Cape Industries Plc [1990] concerns responsibility of the UK based parent company and enforcement of a foreign judgment.

 

Keywords:

Company law – Asbestos – Contamination – Texas court – Parent company – Subsidiary company – Enforcement of a foreign judgment – Jurisdiction – Court of Appeal – Appeal dismissed

Facts:

In the case of Adams v Cape Industries Plc [1990], Cape Industries Plc was the UK registered company and head of Cape Industries group. It had subsidiary companies in many countries including South Africa. They shipped asbestos from South Africa to the US where they also had a subsidiary company.

Employees of Texas company started to become ill with asbestos (a toxic chemical applied for construction). Employees who were severely contaminated by asbestos dust sued the company in the Texas court. Cape Industries Plc argued that the Texas court did not have jurisdiction to hear the case because it was a British registered company. Several hundred plaintiffs had been awarded damages by a Texas court for personal injuries suffered as a result of exposure to asbestos dust. The company in Texas did not have enough money to pay all of the claimants and consequently, the claimants sought to enforce the judgment in the UK.

The first instance court found that the corporate veil could not be lifted, so the claimant employees could not receive the compensation. As a result, the claimants appealed before the Court of Appeal.

Issue:

Whether the UK parent company was responsible under the following arguments: (a) Cape Industries Plc and its subsidiaries were one single economic unit; (b) the subsidiaries were a façade concealing the true facts; (c) the subsidiaries were agents of Cape Industries Plc.

Held:

The employees’ appeal failed. They could not receive compensation from the defendant (the parent company). The appeal failed on the agency and group entity argument. Namely, there was no evidence of sufficient control of the parent company over the subsidiary in Texas.

In particular, the Court of Appeal reviewed the arguments for lifting the veil discussed above, in particular the agency argument, the single economic unit argument and the ‘façade’ argument, and held that none of these applied to the facts.

Cape Industries Plc did not have sufficient control over the day-to-day activities of the company and did not hold sufficient shares of the company to argue that Cape had sufficient control to be liable for the acts of its subsidiary.

Finally, a suggestion that the veil could be lifted in the interests of justice was also rejected.

 

Applied: Pemberton v Hughes [1899] 1 Ch. 781, [1899] 2 WLUK 57; Okura & Co Ltd v Forsbacka Jernverks AB [1914] 1 K.B. 715, [1914] 1 WLUK 40; Littauer Glove Corp v FW Millington (1928) 44 T.L.R. 746, [1928] 1 WLUK 7; Jacobson v Frachon (1928) 138 L.T. 386, [1928] 1 WLUK 6; Vogel v R & A Kohnstamm Ltd [1973] Q.B. 133, [1971] 4 WLUK 54. 

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