Re T&N Ltd and other companies
| Jurisdiction | England & Wales |
| Judge | Mr Justice David Richards |
| Judgment Date | 21 October 2004 |
| Neutral Citation | [2004] EWHC 2361 (Ch) |
| Docket Number | Case No: 5798 (and others) of 2001 |
| Court | Chancery Division |
| Date | 21 October 2004 |
[2004] EWHC 2361 (Ch)
The Honourable Mr Justice David Richards
Case No: 5798 (and others) of 2001
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Richard Snowden QC & Peter Arden (instructed by Denton Wilde Sapte) for the Administrators
Simon Mortimore QC (instructed by Allen & Overy) for the Trustees of the T&N Retirement Benefits Scheme (1989)
Keith Rowley QC & Elizabeth Ovey (instructed by DLA LLP) for the Trustees of the Champion Pension Scheme
David Allan QC & Hugo Groves (instructed by John Pickering and Partners) for the UK Asbestos Claimants
Dominic McCahill (of Weil, Gotshal & Manges) for the Official Committee of Asbestos Property Damage Claimants
Hearing dates: 5, 6, 7, 8 and 11 October 2004
Approved Judgment (revised)
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an application for directions under section 14(3) of the Insolvency Act 1986 by the administrators of 133 English companies, including T&N Limited (T&N) and a large number of its subsidiaries. These companies are also subject to proceedings in the United States Bankruptcy Court for the District of Delaware (the US Court) under Chapter 11 of the US Bankruptcy Code. They are all members of a multi-national group whose ultimate holding company is Federal-Mogul Corporation Inc (FMC). FMC and 22 of its US subsidiaries are also subject to Chapter 11 proceedings. There is currently a Plan of Reorganisation (the Plan) being promoted in the Chapter 11 proceedings, which is designed to apply to all the US and UK companies. Voting on the Plan among the creditors is by ballot and the voting deadline is 3 November 2004. That is also the deadline for filing objections to the Plan with the US Court, which has scheduled the confirmation hearing for 9 December 2004. At that hearing the US Court will consider whether to confirm the Plan, which will include a consideration of the fairness of the Plan in accordance with the criteria under the relevant US law.
The administrators and a substantial body of creditors of T&N and its subsidiaries (the T&N Group) have grave reservations in relation to the Plan and it is in relation to issues connected with the Plan that the administrators now seek the directions of the court.
In one of his witness statements in support of this application, Mr James Gleave, one of the administrators, rightly said:
"This is a matter of utmost complexity. It is impossible to explain every issue and relevant fact in a witness statement of manageable proportions."
In order to understand the issues raised, and to provide a summary which can be used as and when further applications are made to this Court, it is necessary to set out a considerable amount of information and evidence. I wish to pay a real tribute to all the advocates who have appeared on this application and to the solicitors and clients, for the great assistance which they have given in their evidence and submissions and in seeking to make the many issues of fact and law as manageable as possible.
The structure which I propose to adopt is to set out some basic information about the companies and then, in more detail, to describe the principal creditor groups of the UK Companies and their claims. This will concern asbestos-related liabilities and pension fund deficits. I then give some detail of the administration and Chapter 11 proceedings, including a cross-border insolvency protocol and the development of the Plan. This is followed by a summary of the administrators' application for directions and its procedural history. Thereafter I consider the issues which arise on the application. In doing so, I give some explanation of aspects of UK insolvency law and procedures which may be relevant to these cases.
As well as the 133 English companies in administration there is one company registered in Scotland for which an administration order was made by the Court of Session in April 2002. I will refer to all these companies collectively as the UK Companies, but will normally refer to the English Courts and English law. However, it is highly unlikely that there is any material difference between English and Scots law on issues which arise for consideration.
Background
T&N was incorporated in 1920 as Turner & Newall Limited, as the holding company for an amalgamated group of companies engaged in the manufacture of textile and insulating products. Many or all of these products contained asbestos, a natural product which was both light-weight and contained unique fire and heat-resistant properties. The T&N Group became a major UK business, expanding over the next 40 years into the manufacture, distribution and installation of a wide range of products containing asbestos, including building materials, as well as numerous other products having no association with asbestos. It also owned or controlled non-UK subsidiaries which owned or controlled asbestos mines in southern Africa and Canada. More recently, the group concentrated on car components, such as disc brake pads, spark plugs, pistons, piston rings and gaskets. T&N was for many years a listed company, with its shares traded on the London Stock Exchange. In 1998 it was taken over by FMC and has since remained a wholly-owned subsidiary of FMC. The UK business is now carried on by T&N and 13 other companies.
FMC was incorporated in the State of Michigan in 1899 and its shares are listed on the New York Stock Exchange. The Federal-Mogul group, comprising FMC and its worldwide subsidiaries and affiliates, is one of the world's largest automotive and vehicle parts manufacturers. It manufactures and distributes a wide range of products in the automotive, small engine, heavy-duty and industrial markets, supplying both manufacturers and so-called "aftermarket" customers such as distributors, engine rebuilders and retail parts stores. As at the end of 2003, the Federal-Mogul group, including the T&N Group, had approximately 44,900 full-time employees, of whom about 18,400 were employed in the United States and the majority of the remainder in Europe. There were about 3,500 employees in the UK. For the year 2003 the Federal-Mogul group had net sales from continuing operations of about $5.5 billion. There is a significant portion of the group's business which is conducted outside the US by companies which are not subject to Chapter 11 proceedings or any other insolvency-related proceedings.
Asbestos litigation
The financial stability of US and UK companies in the FM group has been undermined by a rising tide of asbestos-related litigation. There have been, and continue to be, claims on a substantial scale in the UK from UK-based claimants, but, large as they are, they are dwarfed by the claims in the United States.
The majority of claims in the UK are brought by former employees against employers which processed or manufactured asbestos products in the UK. There was a total of 657 pending claims against T&N and its subsidiaries at the end of 2001, of which 427 were made by former employees. The next largest category, numbering 157, are so-called bystander claims by workers not employed by T&N companies but who worked at locations such as shipyards and power stations where they were exposed to asbestos through lagging and spraying carried out by employees of T&N companies. There were 43 household exposure claims where the claimant lived in the same household as an employee of a T&N company and the asbestos dust had been brought into the house on the employee's work clothes. There were also 18 product liability claims and 12 neighbourhood claims, the latter being claims by persons who lived or worked close to a T&N company factory.
A large proportion of the UK claims relate to serious and often fatal asbestos diseases. Of the claims pending at the end of 2001, 193 related to mesothelioma (an invariably fatal tumour affecting the pleura or peritoneum, which typically develops 20 to 40 years after the first exposure to asbestos and will usually be fatal within two years or less of diagnosis), about 25 related to other asbestos-induced cancer and 141 related to asbestosis (a non-malignant fibrotic condition of the lungs which causes breathlessness and in severe cases leads to an early death). While there is a declining trend of claims relating to asbestosis, particularly of severe cases, there is a rising trend in the incidence of mesothelioma in the UK which is expected to peak in the years 2011–2015.
The remaining 295 claims related to pleural conditions. These are very different from the claims described above. The condition usually takes the form of benign pleural plaques or thickening which cause no symptoms or disability. They indicate an exposure to asbestos and the possibility, but no more, that a serious asbestos-related condition may develop. Under English law pleural conditions have been held to be compensatable, normally by an award of provisional damages enabling the claimant to recover further damages if a serious condition develops. I was told by David Allan QC, appearing for representative UK asbestos claimants, that the existing position that such conditions can ground a claim for damages is to be challenged in a case to be heard later this year.
In studies undertaken by Dr Mark Peterson, an actuary instructed to advise the Asbestos Claimants Committee in the United States, he has estimated that there are likely to be 21,125 future UK claims: Table 1.7 of his memorandum dated 19 February 2004. Based on settlement values during the period 1998–2001 and...
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