A former psychiatric hospital patient cannot pursue the company that later acquired the hospital's operations for alleged abuse by staff, the Court of Appeal has ruled, in a decision with pointed implications for how liability and insurance track through business transfers.
The ruling, handed down on September 8, 2026, turned on a question that had never been squarely decided at appellate level in over four decades of TUPE law: does an employer's vicarious liability to an outside claimant follow the employees to a new employer when a business changes hands?
The answer, the court held unanimously, is no.
The claimant, identified only as ABC under a court anonymity order, alleged she was mentally and verbally abused and restrained more than 200 times during a four-month stay at Huntercombe Hospital in Maidenhead in 2018 and 2019. The privately run psychiatric facility was owned and operated by Huntercombe (No.12) Limited.
ABC initially sued Huntercombe alone. The problem was that Huntercombe had since gone into liquidation. It did carry public liability insurance - but with a deductible of £250,000 per claim. According to ABC's legal team, that excess would likely consume most or all of any damages award.
So ABC changed tack. In around March 2021, Huntercombe's operations had been transferred to Active Young People Limited under the Transfer of Undertakings (Protection of Employment) Regulations 2006 - the rules commonly known as TUPE. Two doctors who had at various times been ABC's consultant psychiatrist and responsible clinician transferred with the business. ABC joined AYPL and the two doctors as additional defendants, arguing that Huntercombe's vicarious liability for the doctors' alleged acts and omissions had passed to AYPL through TUPE.
The stakes were not small. The court was told more than 50 similar claims by other claimants are pending against the same parties, with a case management conference scheduled for the autumn.
TUPE exists to protect employees when their employer changes. Regulation 4(2)(a) says that on a relevant transfer, all the transferor's rights, powers, duties and liabilities "under or in connection with" the transferred employees' contracts of employment pass to the new employer.
ABC's argument was straightforward: vicarious liability arises because an employee commits a wrong in the course of employment. That connection to the employment contract, ABC said, was enough to bring it within the sweep of TUPE.
AYPL countered that TUPE's entire purpose was to safeguard the rights of employees - not to give outside claimants a new target when the original employer runs out of money.
The Court of Appeal gave five reasons for dismissing the appeal.
First, the underlying EU Acquired Rights Directive - the source of the TUPE regime - exists to protect employee rights on transfer. Vicarious liability gives an employee no right they can enforce against their employer. It is, the court said, a secondary liability, always dependent on the employee's own direct liability to the injured party. In the court's words, it is simply a legal construct - a way for a claimant to pursue an employer likely to be better funded than the negligent employee.
Second, the so-called "protection" that vicarious liability offers employees is illusory. Under established authority, an employer who pays out on a vicarious liability claim is entitled to recover a full indemnity from the employee responsible. Far from shielding employees, the doctrine ultimately points the bill back at them.
Third, reading "in connection with" in the context of the Directive's purpose, the connection between an employer's vicarious liability to an outsider and the employee's contract of employment is not the kind of connection the regulation contemplates. The driver for the relevant connection, the court held, must be the Directive's purpose of protecting employee rights - and vicarious liability does nothing for that.
Fourth, the TUPE regulations read as a whole support that conclusion. Regulation 11 requires a transferor to give the incoming employer detailed information about employee-related liabilities before a transfer - claims brought by employees, disciplinary history, pending tribunal actions. There is no equivalent provision for third-party claims. If Parliament had intended those to transfer too, the court reasoned, it would have built in the same disclosure machinery. Its absence was not an oversight but a deliberate policy choice.
That point had real teeth on the facts. If AYPL were liable for 50-plus abuse claims worth potentially millions of pounds, it would have had no entitlement under the regulations to know they even existed before agreeing to the transfer.
Fifth, standing back from the technicalities, it struck the court as fundamentally counter-intuitive that a third party could bring claims against a transferee about events that happened before the transfer, about which the transferee knew nothing and had no right to know anything. ABC's entire case, the court observed, depended on the happenstance of a business transfer that had nothing to do with her.
Although it did not need to decide the point, the first-instance judge had indicated that if vicarious liability did transfer, the transferor's right to claim on its public liability insurance would transfer with it. The Court of Appeal did not disturb that finding. Existing authority already establishes that an employer's liability insurance covering liabilities connected with an employee's contract - such as a personal injury claim by the employee - travels with the liability on transfer.
The practical upshot is that AYPL does not inherit Huntercombe's liability, and ABC and the other 50-plus claimants are left pursuing an insolvent entity whose insurance deductible may swallow their claims.
The court was careful not to criticise ABC or her advisors, acknowledging she may have suffered loss for which, through no fault of her own, she may not be able to recover. But it described the claim against AYPL as opportunistic.
For claims teams and underwriters working on business transfers, the ruling draws a bright line: TUPE moves employee rights and the liabilities that go with them, but an employer's vicarious liability to outside claimants stays behind with the seller. Transferees cannot be ambushed by pre-transfer tort claims they had no way of knowing about - but equally, claimants chasing an insolvent transferor may find that the insurance sitting behind it is structured to offer little practical recovery.
