Creditors 59, 105 And 106 In Petition Of The Scottish Lion Insurance Company Limited V. Goodrich Corporation And Others
| Jurisdiction | Scotland |
| Judge | Lady Dorrian,Lord Hardie,Lord Reed |
| Neutral Citation | [2011] CSIH 18 |
| Date | 08 March 2011 |
| Docket Number | P1981/08 |
| Court | Court of Session |
| Published date | 08 March 2011 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Reed Lord Hardie Lady Dorrian | [2011] CSIH 18 P1981/08 OPINION OF THE COURT delivered by LORD REED In Notes of CREDITORS 59, 105 and 106 Noters: in Petition of THE SCOTTISH LION INSURANCE COMPANY LIMITED Petitioner; against GOODRICH CORPORATION AND OTHERS Respondents: _______ |
For the Petitioner: Howie, QC; Morton Fraser LLP
For the Respondents: McNeill, QC, Walker; Simpson & Marwick, WS
8 March 2011
Introduction
[1] This appeal concerns a question which has arisen in the context of an application to the court to sanction an arrangement between the petitioner and its creditors under section 899 of the Companies Act 2006, following meetings of the creditors which were ordered by the court under section 896. At the meetings, the creditors cast their votes. Following the meetings, the votes were given a weighting according to the value placed upon each creditor's claims against the petitioner, on the basis that one vote would be allocated for each £1 Sterling which a claim was worth. For the purpose of that valuation exercise, creditors wishing to vote were invited to submit documentation supporting their valuation of their claims. The valuation exercise had a considerable effect upon the result of the voting: in broad terms, the claims of creditors who voted in favour of the scheme were attributed a relatively high value compared with the claims of creditors who voted against it. The application for sanction is opposed by the respondent creditors on grounds relating in part to the valuation process. There are, in particular, issues raised as to whether the voting majorities required by section 899 were actually attained, so as to confer jurisdiction on the court to sanction the arrangement, and as to whether in any event the arrangement, which provides for the valuation of claims on a broadly similar basis, is in consequence so unfair to creditors such as the respondents that it should not be sanctioned. In these circumstances, the Lord Ordinary has not only appointed an officer of the court as a reporter, to enquire into the regularity of the proceedings and to report to the court, but has in addition appointed that the hearing of the application for sanction should take the form of a proof, at which each party will be entitled to lead evidence in support of its contentions. For the purposes of that proof, the Lord Ordinary has made an order for the production of the documentation which was submitted to the petitioner by certain creditors in support of the valuation of their claims, subject to conditions designed to protect confidentiality.
[2] The question which has arisen, against that background, is whether the noters, who are amongst the creditors whose documentation is to be produced under the order, are entitled to object to the production of certain of the documents, and to the inspection of the documents by the reporter or by the court itself, on the ground of legal professional privilege. The Lord Ordinary has held that privilege cannot be claimed, since any privilege which might otherwise have attached to the documents was waived when they were submitted to the petitioner. The noters have appealed against that decision to this court.
The background
[3] The petitioner is an insurance company incorporated in Scotland, which has been in "run off" since 1994. Its business included "occurrence" insurance: that is to say, insurance providing prospective coverage against claims relating to the risks covered by the policy as long as the underlying act or omission occurred during the relevant policy period. The petitioner's remaining portfolios include both "short tail" and "long tail" business. While it is thought that its short tail business, such as property insurance, is unlikely to give rise to any future claims, its long tail business includes exposure to asbestos, pollution and health hazard losses which may not become evident until long after the exposure to which they relate. In the ordinary course of run off, claims are adjusted and settled as and when they are received. In addition, the company can terminate its liability to individual creditors once and for all by means of agreed commutation payments. Unless a mechanism for terminating the run off is established, it may continue for many years.
[4] In 2005 the petitioner presented an application for sanction of a scheme of arrangement under section 425 of the Companies Act 1995, the predecessor of section 899 of the 2006 Act. Some time after the notices convening a meeting of creditors had been despatched, the 2005 scheme was withdrawn.
[5] In 2008, in accordance with current practice in relation to schemes of arrangement with creditors, as described in the Practice Statement issued by Sir Andrew Morritt V-C on 15 April 2002 ([2002] 1 WLR 1345), the petitioner notified its policyholders, as potential creditors, of its intention to proceed with the present scheme. The letter, dated 20 October 2008, explained the background to the scheme and provided information about it. It informed creditors that an application by the petitioner for an order to convene creditors' meetings was expected to be heard by this court on 15 December 2008, and informed them that objecting creditors could be heard in response to that application. It also informed them what the next steps would be if such an order were pronounced. It gave the address of a website which the petitioner had established to disseminate information about the scheme. It was possible to download from the website the proposed scheme, the explanatory statement prepared in accordance with section 897 of the 2006 Act, voting and proxy forms and general notes. Subsequently, it was also possible to download certain orders made by the court, including the interlocutor dated 15 December 2008 which we shall later discuss.
The proposed scheme
[6] On 9 December 2008 the petitioner presented to the court a petition in which it applied for two orders: first, an order under section 896 of the 2006 Act for meetings of creditors, and secondly an order under section 899 for sanction of a scheme of arrangement.
[7] It is unnecessary for present purposes to examine the scheme in detail. In summary, it extends to all of the petitioner's "scheme liabilities", which are defined as including all its liabilities under or in relation to insurance contracts. Scheme creditors will be invited to submit claims in respect of scheme liabilities, which are to be valued as at 31 December 2007. The value of the claims submitted will be determined, failing agreement, by a Scheme Adjudicator applying a specified dispute resolution procedure. Whether they are determined by agreement or by the Scheme Adjudicator, the claims will be determined by reference to "Estimation Guidelines" set out in an appendix to the scheme. Once a creditor's claims have been determined, and any sums owed by the creditor to the petitioner have been set off, the balance will be paid to the creditor in full and final settlement of the petitioner's liabilities to the creditor in respect of its insurance business.
[8] In the petition, the petitioner summarises what it perceives to be the advantages and disadvantages of the scheme to scheme creditors. Advantages of the scheme are said to include: (i) early payment, i.e. the fact that the scheme creditors will have their scheme liabilities determined and paid sooner than if there were no scheme; (ii) that there will be no discount for early payment, so that in most cases scheme creditors will receive, in effect, a premium over the present value of their claims; (iii) that the scheme offers a practical, straightforward and cost effective means of determining the value of present and future claims, with a dispute resolution procedure under which the Scheme Adjudicator will determine claims in respect of which agreement cannot be reached; and (iv) that the scheme will bring finality and certainty in respect of the claims of scheme creditors, thereby achieving savings in costs which the petitioner will apply towards making the undiscounted payments. Disadvantages are said to include: (i) the fact that the scheme creditors will be paid on the basis of an estimate of the value of their claims, so that, although some may receive more than they would otherwise have been entitled to, others may receive less; (ii) that if the scheme comes into force, scheme creditors will be barred from bringing court proceedings to obtain payment of their claims; and (iii) that the petitioner's insurance liabilities to scheme creditors in respect of scheme liabilities will cease, and any subsequent losses which might otherwise have resulted in a claim against the petitioner under the contracts of insurance will not be covered.
The relevant legislation
[9] Arrangements and reconstructions are dealt with in Part 26 of the 2006 Act. So far as material for present purposes, the relevant provisions are as follows:
"895 Application of this Part
(1) The provisions of this Part apply where a compromise or arrangement
is proposed between a company and -
(a) its creditors, or any class of them, or
(b) its members, or any class of them.
...
896 Court order for holding of meeting
(1) The court may, on an application under this section, order a meeting of the creditors or class of creditors, or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs.
(2) An application under this section may be made by -
(a) the company,
...
897 Statement to be circulated or made available
(1) Where a meeting is summoned under section 896 -
(a) every notice summoning the meeting that is sent to a creditor or member must be accompanied by a statement complying with this section, and
(b) every notice summoning the meeting that is given by advertisement...
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