Re Cape Plc
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 07 June 2006 |
| Neutral Citation | [2006] EWHC 1316 (Ch) |
| Docket Number | Case No: 3803 (AND OTHERS) OF 2005 |
| Court | Chancery Division |
| Date | 07 June 2006 |
[2006] EWHC 1316 (Ch)
Mr Justice David Richards
Case No: 3803 (AND OTHERS) OF 2005
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Thomas Stockdale (instructed by Travers Smith) for Cape Plc and the other Applicant companies
Mark Phillips QC and Richard Fisher (instructed by Russell Jones & Walker) for Vincent O'Brien
Martin Pascoe QC and Hugo Groves (instructed by Thompsons) for John Duncan Hurst
Hearing dates: 28 February and 1, 2 and 3 March 2006
Approved Judgment
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.
The Honourable
Introduction
This is an application under section 425 (1) of the Companies Act 1985 by Cape Plc and twenty four subsidiaries (the scheme companies) to convene meetings to consider a composite scheme of arrangement proposed between those companies and actual and potential claimants for damages for asbestos–related personal injuries. In this judgment I give the detailed reasons for the orders which I made for convening the meetings.
Cape and its subsidiaries carry on successful businesses in the provision of industrial support services to the energy sector. Cape's shares are listed on the Alternative Investment Market of the London Stock Exchange. Its principal businesses used to be asbestos mining and the manufacture, distribution and installation of asbestos products. As with other companies previously engaged in those businesses, it faces a substantial number of claims for damages arising from exposure to asbestos dust. Because of the long latency periods of the more serious asbestos–related conditions, there will be a significant volume of claims in the future and claims may continue to be made for anything up to 40 to 50 years.
There is great uncertainty as to the likely cost of future claims. As well as the inherent difficulties in forecasting claims of this type over a long period, there are specific uncertainties, including the extent to which scheme companies may be liable in respect of other subsidiaries and former subsidiaries (the additional companies) which had or may have had inter–company indemnity, agency or business transfer arrangements, the extent to which the Financial Services Compensation Scheme will respond to claims against insolvent insurers and the legal treatment of pleural plaques claims (see Rothwell v Chemical & Insulating Co Ltd [2006] EWCA Civ 27, now on appeal to the House of Lords). Actuarial reviews commissioned by Cape of the discounted value, net of insurance, of all unpaid UK claims, including future claims, have produced a best estimate of £119.4 million in a range of £70.2 to £240.3 million. Nonetheless, the uncertainties are such that the board of Cape is unable to reach a conclusion on any figure.
Unlike some other asbestos producers, Cape is solvent. A significant factor is that it is not affected by claims made against it in the United States, following the decision of the Court of Appeal in Adams v Cape Industries Plc [1990] Ch 433.
Although Cape is solvent and expects to remain so, the uncertainty as to future asbestos–related claims raises a real but unquantifiable risk that at some point in the future Cape or other companies in its group could become insolvent. This in turn acts as a brake on the development of the group's businesses. Lenders and investors are naturally cautious about committing finance on a long–term basis in these circumstances, and the cost of finance is higher than would otherwise be the case. The chairman of Cape describes the problem in these terms:
The Group is at present generating sufficient funds to discharge its liabilities as and when they fall due. The Cape Directors expect this situation to continue. Nevertheless, the uncertainty over asbestos-related claims in the future is having a prejudicial effect on the growth and development of the Group's businesses.
As a result of the uncertainty it is likely that the Group has lost a number of business opportunities, and absent the Scheme may continue to do so, as the Group has, at times, been unable to obtain funding at commercially acceptable rates. There are also certain significant organisations in the Group's fields of activity which have limited or placed conditions on their dealings with the Group, for example, by demanding guarantees or bonds in circumstances in which they would not do so of the Group's competitors. The Cape Directors believe that such restraints on the Group's ability to expand should be alleviated to a significant extent if the Scheme were in place.
This detrimental effect on the group's business has a corresponding impact on the prospects for asbestos claimants. Leaving aside insurance cover, which, though important, is inadequate to meet all likely claims, the group's ability to meet the claims is dependant on the successful continuation and development of its businesses. It is those businesses which will generate the earnings needed to pay claims.
Development of the scheme proposals
Against this background, Cape and its advisors have developed proposals with a view to protecting the group's businesses from asbestos claims, so as to maximise the opportunities for their successful development, while at the same time directing a proportion of its earnings to the payment of asbestos claims. It is these proposals which are contained in the proposed scheme of arrangement and the documents to be executed or adopted pursuant to the scheme. I describe the proposals in summary form later in this judgment.
I will also later deal in more detail with the definition of the creditors to be affected by the scheme. In very broad terms, they are persons who now have or may in the future have personal injury claims or claims under the Fatal Accidents Act 1976 against any scheme company, arising out of exposure to asbestos for which the scheme company is or may be responsible. They also include asbestos–related derivative claims, such as claims by other employers for indemnity or contribution.
The majority of claims by individuals are made by present or former employees or their dependents. There are also claims by workers in other businesses in which Cape products were used, by members of the families of employees and other workers, and by claimants who lived close to Cape factories. Employees' claims may be made for breach of contract, breach of statutory duty or common law negligence. Dependants may make claims under the Fatal Accidents Act 1976 and other claims are made in negligence.
Cape announced its intention to seek to put in place proposals to deal with exposure to asbestos claims in June 2005 at the time of an issue of shares designed in part to raise funds for this purpose. Applications were made to the court in June and November 2005 for directions in accordance with the Practice Statement (Companies: Schemes of Arrangement) [2002] 1WLR 1345 as to the notification to be given to persons potentially affected by the scheme. In a case such as this, involving twenty-five companies and a wide range of potential claimants whose exposure to asbestos, whether as employees or otherwise, has occurred over a long period, this has itself been a complex process.
Among those who have been involved in the process of consultation since June 2005 are trade unions, asbestos victims support groups, and firms of solicitors who regularly act on behalf of asbestos – related personal injuries claimants.
Claimants' representation on this application
Thompsons, solicitors, act for many claimants against Cape and companies in its group and they are also coordinating responses to the proposals on behalf of a number of interested parties, including trade unions and support groups. For the purposes of making submissions on the present application, they appear for John Duncan Hurst, a former employee of a Cape subsidiary, who has a provisional award of damages. By reason of the terms of the award and section 32A of the Supreme Court Act 1981, he will be entitled to apply for a further award of damages if he should develop any other diseases or conditions specified in the judgment. Mr Pascoe QC and Mr Groves are instructed on his behalf.
Russell , Jones & Walker are another firm of solicitors acting for asbestos–related personal injury claimants. They appear on this application for Vincent O'Brien. Mr O'Brien is currently a part-time employee of Cape, but he was previously a full-time employee of a subsidiary and in the course of that employment he was intermittently exposed to asbestos. He does not currently suffer from any asbestos–related condition. His employer was one of the additional companies and, during the period of his employment, it appears that it was carrying on business as agent for Cape, which later provided an express indemnity. If Mr O'Brien were to develop any actionable condition, he would have a claim against his former employer and probably an alternative claim against Cape. Mr Phillips QC and Mr Fisher are instructed on his behalf on this application.
Cape is funding the costs of these firms for the purpose of dealing with the scheme and has also funded the cost of a report by KPMG on the financial aspects of the scheme and the financial position of the Cape group prepared at the request of Thompsons.
Although formal representation orders have not been made in respect of Mr Hurst and Mr O'Brien, they are represented on this application so that argument can be addressed to the court, from the standpoint of claimants who would be bound by the...
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