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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> T & N Ltd & Ors, Re Companies Act 1985 [2006] EWHC 1447 (Ch) (16 June 2006) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/1447.html Cite as: [2007] 1 All ER 851, [2007] Bus LR 1411, [2007] BusLR 1411, [2006] EWHC 1447 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/06/2006

The Honourable Mr Justice David Richards:

Introduction

1. This is an application by the administrators of T&N Limited (T&N) and fifty-seven associated companies for leave to convene meetings of certain creditors of those companies under section 425 of the Companies Act 1985 to consider schemes of arrangements between the companies and those creditors. The application raised several issues of principle, which were the subject of a number of different hearings. In this judgment I give the reasons for decisions announced on earlier occasions.
2. The schemes of arrangement are proposed to be made with those employees and former employees of the companies who have or may in the future have claims for damages for personal injuries arising out of exposure to asbestos, with dependants or relatives of such employees who have or may in the future have claims under the Fatal Accidents Act 1976 or equivalent legislation in other jurisdictions and with persons, principally other employers, who have or may in the future have contribution claims in respect of claims by employees or their dependants. In each case the claims are restricted to those covered by employers' liability insurance in place between 1 October 1969 and 30 April 1995.
3. T&N and some of the other companies proposing schemes were for many years engaged in the manufacture, distribution, sale and installation of asbestos-containing products. In the course of their employment, many employees were exposed to asbestos dust. Some employees have developed diseases and other conditions partly or wholly as a result of this exposure, and it is certain that others will do so in the future. In previous judgments, I have referred in more detail to the business and financial circumstances of T&N and its associated companies and the personal injuries claims against them, and to particular features of asbestos-related conditions: see Re T&N Ltd [2004] EWHC 2361 (Ch), [2005] 2 BCLC 488 paras 6 to 44 and Re T&N Ltd [2005] EWHC 2870 (Ch) paras 3 to 11 and 24. A particular feature of asbestos-related conditions is the long period between exposure to asbestos dust and either the start of the condition or the appearance of symptoms of the condition. It may be many years before any condition starts at all, for example in the case of mesothelioma by the development of the first malignant cell, and many years after that before any symptoms become apparent.
4. T&N and its associated companies are the subject of a very large number of personal injuries claims in the United States, and of a smaller but nonetheless significant number of claims in the United Kingdom. While most of the US claims are in respect of product liability, the claims in the UK are made mainly by former employees or their dependants.
5. Insurance cover for employers' liability in the United Kingdom was provided to T&N and some of the other companies proposing schemes under employers' liability policies issued by Royal & Sun Alliance Plc (RSA) or its predecessor for the period from 1 October 1969 to 31 March 1977 and by Syndicate 45/117 at Lloyd's (the Syndicate) for the whole or part of the period from 1 April 1977 to 30 April 1995. I refer to RSA and the Syndicate as the EL Insurers and to the policies issued by them as the EL Policies. Employers' liability insurance for earlier periods was commuted before the appointment of the administrators.
6. The EL Insurers have asserted that the EL Policies excluded all asbestos-related claims and that in any event they were entitled to avoid the policies on grounds of alleged misrepresentation and non-disclosure. In May 2002 the administrators commenced proceedings in the name of T&N and associated companies against, among others, the EL Insurers to determine the extent of the cover provided by the EL Policies. The EL Insurers denied liability for asbestos-related claims and claimed to avoid the policies. The Court of Appeal directed that the coverage issues should be tried first. After a two-week trial, involving extensive factual and expert evidence, Lawrence Collins J gave judgment on 9 May 2003, and held in favour of T&N and its associated companies. With the judge's permission, the EL Insurers appealed. A hearing of the appeal was fixed first for November 2003, then deferred to May 2004, but settlement discussions between the parties reached the point where, by consent, the Court of Appeal ordered that the hearing be vacated and all further proceedings both in the appeal and in the High Court proceedings be stayed until June 2006.
7. Non-binding terms were set out in an exchange of correspondence and a sum of £36.74 million was placed in escrow by the EL Insurers. It is a term of the heads of agreement that the proposed schemes of arrangement should sanctioned by the court, in order to give effect to the proposals for the compromise and to make them binding on those who can now or may in the future be able to claim under the EL Policies.
8. The essential features of the scheme are that, by way of compromise of the claims in the litigation, the scheme companies and actual or potential claimants in respect of asbestos-related diseases and conditions will not assert claims against the EL Insurers, and the sum of £36.74 million paid into escrow will be held by trustees to pay a dividend on such claims as and when they are made and established. The fund will be available to meet both present and future claims.

Outline of the schemes

9. The claims which will be covered by the schemes fall into three broad categories. First, personal injury claims by employees and former employees for damages for asbestos-related diseases. The claims covered will be those made by a person who was employed by a scheme company during at least part of the period from 1 October 1969 to 30 April 1995 and who has developed or may in the future develop a disease caused by exposure to asbestos during their employment with the scheme company. Secondly, claims under the Fatal Accidents Act 1976 or equivalent legislation by dependants or relatives of former employees whose deaths are caused by asbestos-related diseases. Thirdly, contribution and other claims made in respect of claims in the first two categories. Contribution claims will principally be made by other employers outside the T&N group. The claims covered by the schemes include not only those which have already been asserted or could now be asserted but also those which are contingent at present but which may be capable of being made in the future. Finality in respect of such claims is considered essential by the EL Insurers. I will return to this feature of the proposed schemes.
10. The claims covered by the scheme (EL Claims) are defined as follows:

"A claim against the EL Insurers under the EL Policies arising out of a claim against a Scheme Company in relation to Asbestos Exposure to an Injured Person which occurred in the Cover Period and during and in the course of his employment as an Employee including but not limited to:

(i) a claim by an Injured Person, or on behalf of his estate pursuant to the Administration of Estates Act 1925, the Damages (Scotland) Act 1976 or the Administration of Justice Act 1982, for damages and/or compensation for an Asbestos Disease, or a claim by the CRU in respect of such a claim; or

(ii) a claim by a Contribution Claimant in respect of a claim as described in sub-paragraph (i) above or (iii) below; or

(iii) a claim by or on behalf of a Current Dependant or by or on behalf of a Current Relative or by or on behalf of any person akin to a Current Dependant or Current Relative pursuant to any equivalent legislation wherever and whenever enacted,

except in each case a claim where a TUPE Transfer of the Scheme Company's undertaking has occurred before 1 October 2001 (which will be a TUPE Claim)."

EL Claimant is defined as:

"A person who immediately prior to the EL Schemes taking effect has or may have at any time in the future an EL Claim, and who is a creditor within the meaning of section 425 of the Companies Act 1985, or a Non Scheme EL Claimant who is treated as being an EL Claimant pursuant to Clause 14 of the EL Schemes".

"Injured Person" is defined as:

"Any person who suffers, at any time after commencement of the Cover Period, an Asbestos Disease caused partly or wholly by Asbestos Exposure."

"Asbestos Disease" means any injury, disease or condition caused partly or wholly by Asbestos Exposure and "Asbestos Exposure" means the use of and/or exposure to asbestos. "Current Dependants" means persons who at the effective date under the scheme are dependants, as defined in section 1(3) of the Fatal Accidents Act 1976, of an Injured Person, and "Current Relatives" means persons who at the effective date under the scheme are relatives, as defined in the Damages (Scotland) Act, of an Injured Person.

11. The effect of section 1 of the Third Parties (Rights Against Insurers) Act 1930 is that on entering administration in 2001 the rights of T&N and the other companies under the EL Policies in respect of liabilities which had by then been incurred to EL Claimants were transferred to those EL Claimants, whether or not they had then in fact made a claim. As and when any such liability was subsequently incurred or is in the future incurred, the rights under the policies in respect of such liability was, or will be, likewise transferred. By definition, all claimants to whom the schemes will apply either now possess or will in the future possess direct claims against the EL Insurers by virtue of this statutory transfer. I will later in this judgment consider further certain aspects of this transfer of rights. The schemes will compromise rights against the EL Insurers but not rights against the scheme companies.
12. As recited in the draft schemes, it is a requirement of the EL Insurers that the schemes provide finality in respect of claims which might otherwise be brought against them under the EL Policies in respect of asbestos diseases and that the litigation is settled. The schemes must ensure that no relevant claimant or scheme company is entitled to claim or assert any rights against the EL Insurers in respect of any past, present or future EL Claim. To this end, the schemes provide that all present and future rights of the EL Claimants against the EL Insurers, and the fruits of any action to enforce such rights, shall be assigned absolutely to the trustees of a trust to be established pursuant to the schemes and referred to below. They further provide that none of the EL Claimants, the trustees or the scheme companies will be entitled to make any claim or assert any right against the EL Insurers in respect of the EL Policies or any EL Claim.
13. Under the proposed schemes, a trust will be established and the sum of £36.74 million together with accrued interest will be paid to the trustees. The trustees will hold and administer the resulting fund in accordance with the trust deed and a set of trust distribution procedures. The purpose of the schemes is to enable the EL Claims to be established, ascertained and paid from the trust fund in accordance with and subject to the provisions of the schemes, trust deed and trust distribution procedures, and to preclude such claims from being brought against the EL Insurers.
14. The "core objective" set out in the schemes is:

"(i) to enable EL Claimants with Established Claims to receive a payment or payments from the Trust Fund which:

(a) reflect the value of the underlying EL Claim assigned to the Trust by the EL Claimant;

(b) are fair and proportionate having regard to the interests of other EL Claimants with similar EL Claims;

(c) are calculated in an efficient and cost-effective manner following an efficient and cost-effective review of the EL Claim; and

(ii) to enable the EL Insurers to benefit from the payments, releases and other rights provided to them by the EL Scheme."

To that end the trust distribution procedures set out procedures for establishing the value of a claim. There is an expedited review procedure, which uses a set of specific liquidated values for each major asbestos-related disease as applied to claims satisfying certain medical and exposure criteria. Alternatively, a claimant may elect for the individual review process, under which the amount of any admitted claim will be individually assessed, subject to a maximum value specified for each disease. Any claimant dissatisfied with the decision under either procedure may refer it for adjudication by an independent expert.

15. Claims may therefore be made as and when asbestos-related diseases become apparent. They will be subject to the limitation periods applicable to such claims. The trust will have a duration of at least ten years and will thereafter continue until the trustees declare by deed that they have discharged or provided for the discharge of all liability under the trust deed and trust distribution procedures to all EL Claimants and the EL Insurers, subject to a maximum term of 80 years. It is expected that the trust will continue for at least 40 years.
16. When a claim is established in accordance with the trust distribution procedures, there will as soon as practicable be paid to the claimant a sum equal to the "payment percentage" of the claim current at that time. Payments will also be made in respect of legal and medical costs incurred in establishing the claim. The payment percentage will be fixed initially, and thereafter periodically reviewed, in accordance with an assessment of the value of present and future claims, the size of the fund and projected costs and investment returns. The reserving policy under the trust distribution procedures aims to ensure that current and future EL Claimants receive an equivalent level of payment percentage of their established claims. The trustees will have power to pay additional dividends at a later stage if the assessment shows that this can be done without prejudice to the position of unpaid and future claims. The actuaries retained by the administrators have advised that the likely payment percentage at the outset of the schemes will be 75% and that, if there are no further changes in the law following Barker v Corus (UK) Ltd [2006] 2 WLR 1027, there should be an additional dividend of 25%.
17. The schemes contain special provisions to deal with particular circumstances. First, businesses of some scheme companies have been the subject of a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 and 2006 apply. The effect of such a transfer is that there is a transfer of liability in respect of employee claims to the transferee company. Employees or former employees whose claims have been transferred in this way will not qualify as EL Claimants and will not be bound by the schemes. If any such claim is established and paid by the EL Insurers, they will be entitled to payment from the trust fund of a sum equal to the current payment percentage of the claim. Secondly, there are some companies within the group (non-scheme companies) for which it is anticipated that schemes will be proposed but will not be sanctioned because so few (if any) EL Claimants will vote that the statutory majorities will not be achieved. Claims arising out of the exposure of employees of those companies to asbestos which would be EL Claims if the schemes involved those companies will, at the election of the claimant, be treated as an EL Claim and will therefore be subject to the determination and payment provisions of the trust distribution procedures. Such a claimant will be required to waive all rights against the EL Insurers. The settlement sum paid by the EL Insurers has been calculated on the footing that such claims should be met out of it. If a claimant does not agree to the treatment of his claim in this way, the EL Insurers will be fully indemnified out of the trust fund for any payments made by them to the claimant. Thirdly, the scheme contains provisions to deal with the EL Insurers' rights of indemnity against the scheme companies, to the extent that they were upheld by Lawrence Collins J.

Procedural aspects of the application

18. Following the decision of the Court of Appeal in Re Hawk Insurance Co Ltd [2001] 2 BCLC 480, the practice as regards applications under section 425 to convene meetings was changed. So far as possible, issues arising on the composition of classes should be decided at that stage, rather than on the later application to sanction the scheme of arrangement if approved at the meeting(s). The revised practice is set out in the Practice Statement (Companies: Schemes of Arrangement) [2002] 1 WLR 1345. The responsibility as to the constitution of classes and as to the number of meetings lies with the applicant, but paragraph 4 of the Practice Statement requires the applicant to draw the attention of the court as soon as possible to any issues which may arise as to the constitution of the meetings or which may otherwise affect the conduct of the meetings. Unless there are good reasons for not doing so, the applicant must also take all steps reasonably open to it to notify any person affected by the scheme of the intention to promote the scheme and of its purpose and of the proposed composition of classes. The court will, if necessary, give directions for the resolution of any such issues and in particular will hear interested parties. The Practice Statement concludes by stating that the court will expect any creditor who raises any such issue at the hearing to sanction the scheme to show good cause why they did not raise it at an earlier stage.
19. This practice is to avoid the waste of costs and court time which results if it is not until the sanction hearing that it is determined that the classes were wrongly constituted. If the classes have been wrongly constituted, the court has no jurisdiction to sanction the scheme. The purpose underlying this revised practice shows also that if there are known to be other issues which would go to the jurisdiction of the court to sanction the scheme, they too are best raised at the stage of the application to convene the meetings: see In re Savoy Hotel Ltd [1981] Ch 351 and In re MyTravel Group Plc [2005] 2 BCLC 123. The same is true also of issues which, although not strictly going to jurisdiction, are such that they would unquestionably lead the court to refuse to sanction the scheme. Examples in this category of issue on the present application are the questions arising under the Employers' Liability (Compulsory Insurance) Act 1969.
20. On a preliminary application, the administrators drew the court's attention to the existence of a number of essentially jurisdictional issues which arose in relation to the proposed schemes. For the reasons given above, I considered it right that those issues should be dealt with at this stage. Further issues were subsequently raised and argued. Just as the Practice Statement makes clear that determination of a creditor issue at this stage cannot altogether preclude the issue being raised at the sanction hearing, so the same applies to the other jurisdictional issues which have been raised. This applies with greater force in the present case in view of the limited notification process referred to below. It was explicitly on this basis that the administrators made the application.
21. A further issue on the pre-convening application was the notification to be given of the convening application. Paragraph 4 of the Practice Direction requires the applicant to take all steps reasonably open to it to notify any person affected by the scheme, unless there are good reasons for not doing so. The EL Claimants are a very large class. T&N and its group companies employed very large numbers of people over a long period. Many of the factories and other work places have long since closed, many former employees will have died or moved from their last known addresses and many of the addresses can no longer be identified. I was satisfied on the administrators' evidence that it was impracticable, and to a considerable degree futile, to extract names and addresses from the very extensive records held by the companies and send notification to those addresses.
22. Instead of attempting a mass notification of EL Claimants, the administrators proposed, and I directed, steps designed to bring the issues to the attention of those actively involved on behalf of claimants and to ensure proper argument on the issues. Notification of the application was given to the EL Insurers, three companies which are the principal contribution claimants, the creditors' committees of each of the scheme companies (which include representatives of many of the firms of solicitors which regularly act for claimants with asbestos-related disease) and the Transport and General Workers' Union, which had the largest union membership among employees.
23. The administrators also approached two firms of solicitors, Thompsons and Travers Smith, who agreed to instruct counsel to present argument on the issues. Thompsons have extensive experience of claims in this area and currently act on behalf of about 250 claimants against T&N. In particular they act for the personal representatives of Ronald Laidler and for George Scott. Mr Laidler was employed during the period covered by the EL Policies and was joined as a party to the litigation against the EL Insurers, as a representative of current and future claimants with an interest in the policies. He had obtained a judgment against a scheme company before the administration orders were made. He has since died and his widow has a claim for damages under the Fatal Accidents Act 1976. Mr Scott was employed by a scheme company during the period covered by the EL Policies and has a claim for damages in respect of an asbestos-related disease but has not yet obtained judgment. Thompsons instructed Patrick Field QC to present submissions on the issues which affected employees, former employees and their dependants, but not so as to bind any clients of Thompsons or other EL Claimants. As to the purpose of the schemes and their impact on EL Claimants, Mr Field stated in his skeleton argument:

"Thompsons are firmly of the view that the aims and intentions of the proposed Schemes, namely to provide fair compensation for injured claimants in an efficient way, are commendable. In the absence of a workable and enforceable Scheme the options appear to be chaos and uncertainty, neither of which benefits the claimants."

24. Travers Smith act for Cape Insulation Limited (Cape) which was itself a manufacturer of asbestos products and is one of the principal employers with contribution claims against T&N and other scheme companies. They instructed David Chivers QC to present submissions on the issues which affect them. It should be recorded that Cape is a subsidiary of Cape Plc which is itself promoting a scheme of arrangement with a view to putting in place a mechanism for dealing with the Cape group's exposure to asbestos-related claims. Unlike T&N and its associated companies, Cape Plc and its subsidiaries are solvent. Importantly they are not affected by claims in the United States: see Adams v Cape Industries Plc [1990] Ch 433.
25. The administrators were represented by Richard Snowden QC, Paul Stanley and Ceri Bryant (with Mr Stanley and Miss Bryant dealing with separate issues at the hearing in January 2006) and the EL Insurers by William Trower QC, with Jeffrey Terry for RSA and Stephen Robins for the Syndicate. Mr Terry dealt with the issues on behalf of RSA at the hearing in January 2006, when the Syndicate were not represented.

Issues

26. The issues which arose for decision were as follows:

i) Issues under the Third Parties (Rights Against Insurers) Act 1930:

a. Are EL Claimants to whom rights against the EL Insurers have been transferred by operation of section 1 of the Act creditors of scheme companies?

b. Would the scheme be rendered ineffective by section 3?

ii) Are the schemes compromises or arrangements between the scheme companies and their EL Claimants for the purposes of section 425 of the Companies Act 1985?

iii) In what circumstances do contingent contribution claimants constitute creditors for the purposes of section 425?

iv) In what circumstances are present or future dependants with potential claims under the Fatal Accidents Act 1976 creditors for the purposes of section 425?

v) Issues as to the proper composition of classes of creditors.

vi) Whether either the schemes or a proposed amendment to the EL Policies would contravene the Employers' Liability (Compulsory Insurance) Act 1969.

vii) Directions as to convening and holding the meetings.

27. For convenience, I shall generally refer only to the scheme between T&N and its EL Claimants, I shall use "employees" to refer to present and former employees, and I shall use "dependants" to refer to any person who would have a claim under the Fatal Accidents Act 1976 or equivalent legislation elsewhere, whatever they might be called under such legislation.

Third Parties (Rights Against Insurers) Act 1930

28. The rights of EL Claimants against the EL Insurers which will be compromised by the scheme are those transferred to the EL Claimants by the operation of the Third Parties (Rights Against Insurers) Act 1930 (the 1930 Act). The transfer is effected by section 1(1) which, as amended, provides as follows:

"(1) Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then-

(a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or

(b) in the case of the insured being a company, in the event of winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of the company entering administration, or of a receiver or manager of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part 1 of the Insolvency Act 1986 being approved under that Part;

if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred."

29. The effect of the transfer is set out in section 1(4) which provides:

"(4) Upon a transfer under subsection (1) or subsection (2) of this section, the insurer shall, subject to the provisions of section three of this Act, be under the same liability to the third party as he would have been under to the insured, but –

(a) if the liability of the insurer of the insured exceeds the liability of the insured to the third party, nothing in this Act shall affect the rights of the insured against the insurer in respect of the excess; and

(b) if the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this Act shall affect the rights of the third party against the insured in respect of the balance."

30. There are vested in the transferee only those rights which the insured has against the insurer, so that, under typical liability policies, the transferee must establish his claim against the insured, as to both liability and quantum, before he can seek payment from the insurer: Bradley v Eagle Star Insurance Co Ltd [1989] 1 AC 957, approving Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363. Nonetheless the statutory transfer is effected at an earlier stage. In cases where the facts constituting the cause of action against the insured have occurred before the commencement of its liquidation, administration or other insolvency event specified in section 1(1), the transfer takes effect on such commencement. It is immaterial that the liability of the insured has not at that time been established. In Cox v Bankside Members Agency Ltd [1995] 2 Lloyd's LR 437, Saville LJ said at 467:

"…under the Act the rights of the insured against the insurer are transferred to the third party on (in the case of an insured company) the making of a winding up order etc.: see s.1 (b) of the Act. It follows from this that a statutory transfer can take place before the obligation of the insurer to pay arises i.e. before the liability of the insured has been established. In such an event, since it is clear from the authorities that the third party is to be put in no better position than the insured, the third party does not obtain the right to immediate payment until the liability of the insured is established."

31. Although this statement may have been obiter, Longmore LJ (with whom Jonathan Parker and Maurice Kay LJJ agreed) said in In re OT Computers Ltd, Nagra v OT Computers Ltd [2004] Ch 317 at para 45:

"Whether or not this court is strictly bound by this part of the decision in Cox v Bankside Members Agency Ltd, the question of the date of transfer to the third party of the rights of insured against the insurer should now, in my judgment, be regarded as conclusively determined, at the level of the Court of Appeal, in favour of the view that the transfer takes place on the event of insolvency."

32. This was accepted as correct by the Court of Appeal in Freakley v Centre Reinsurance Company [2005] EWCA (Civ) 115, [2006] 1 BCLC 225. In both Cox v Bankside and In re OT Computers Ltd, the causes of action had occurred before the date of commencement of the liquidation or administration. The requirement for a transfer under section 1(1), that a liability to the third party is incurred by the insured, had therefore been satisfied by that date. Likewise, in the present case, there was transferred to all EL Claimants who had a cause of action subsisting at the commencement of the administration, the rights of T&N against the EL Insurers in respect of those causes of action.
33. What is the position where the cause of action against T&N does not accrue until after the commencement of the administration? The words "any such liability as aforesaid is incurred by the insured" in section 1(1) refers to the accrual of a cause of action in respect of the liability: see, for example, Post Office v Norwich Union [1967] 2 QB 363 at 373 per Lord Denning MR, cited with approval in Bradley v Eagle Star. Accordingly, the transfer will take effect at the accrual of the cause of action. There are therefore in this respect three categories of actual or potential claimants against the EL Insurers pursuant to the 1930 Act. First, there are those claimants whose causes of action had accrued before the date of commencement of the administration and to whom therefore T&N's rights against the EL Insurers were transferred at that date. Secondly, there are those claimants whose causes of action have accrued since the commencement of the administration and to whom therefore T&N's rights against the EL Insurers were transferred when their causes of action accrued. Thirdly, there are those potential claimants who do not presently have, and may never have, an accrued cause of action for substantial damages against T&N. T&N's rights against the EL Insurers have not as yet been transferred to such potential claimants and will only be transferred if and when a cause of action does accrue. It may be noted that, unlike the future tort claimants considered in Re T&N Ltd [2005] EWHC 2870 (Ch), the great majority of EL Claimants are likely to be employees who were wrongfully exposed to asbestos and therefore have accrued causes of action in contract for breach of a contractual duty of care. If they have not as yet developed any disease or condition constituting actionable damage, their claim at present against T&N is for nominal damages only.
34. I will consider these various distinctions when dealing with the composition of classes for the purposes of the scheme.
35. An issue considered in only one of the authorities referred to above is the nature of the third party's rights against the insured once the transfer of rights against the insurer has taken effect. This was considered in the judgments in the Court of Appeal in Freakley v Centre Reinsurance International Company [2005] EWCA (Civ) 115, [2006] 1 BCLC 225, a case which concerned other insurance and reinsurance arrangements as regards asbestos-related liabilities put in place by T&N. At paragraph 35 Chadwick LJ identified four classes of asbestos claimants relevant to the issues in that case, of which the third was:

"asbestos claimants whose claims are established after the statutory event has occurred and after the Retained Limit has been reached, but before the cover under the policy has been exhausted by the Limit of Insurance. The insured is entitled to be indemnified by the insurer in respect of those claims; and the insured's rights to indemnity are transferred to the asbestos claimants."

At paragraph 36 he said:

"asbestos claimants in the third class can enforce claims against the insurer (once those claims are established) but cannot enforce claims against the insured (save to the extent that their claims are not met by the insurer – see section 1(4)(b) of the Act)."

36. Chadwick LJ continued at paragraph 37:

"I have referred, in the previous paragraph to section 1(4)(b) of the 1930 Act. It seems to me implicit in that provision that, in a case where the rights of the insured against the insurer under the policy in respect of the insured's liability to the third party have been transferred to the third party under section 1(1), the third party must look first to the insurer for payment (to the extent of the rights transferred) rather than to the insured. I would accept that there is nothing in the 1930 Act which can have the effect of extinguishing the underlying cause of action against the insured. As section 1(4)(b) makes clear, the insured remains liable to the third party, at least to the extent that the third party's rights against the insured exceed the rights which are the subject of the statutory transfer. But, as it seems to me, Parliament plainly intended that, following the statutory transfer to the third party of the insured's rights against the insurer in respect of the third party's claim, the responsibility for meeting that claim should (as between insurer and insured) lie with the insurer. If that were not so, (i) there would be a risk of double recovery if the third party were to sue both insurer and insured and (ii) there would be a risk that the insured would be liable to the third party in respect of a claim in which he no longer had any right of indemnity under the policy – because his right had been transferred to the third party by the statute. It would, of course, be a strange case in which the third party chose to pursue the insolvent insured rather than the solvent insurer. But the question whether (and for what) the third party could prove in the insolvency of the insured would have to be addressed if the insurer were also insolvent. "

37. However, Arden LJ expressed her reservations on this part of the judgment of Chadwick LJ. She agreed that the third party's cause of action against the insured is not extinguished but as regards Chadwick LJ's view that the third party is unable to enforce his claim against the insured, she said:

"136… It may not be necessary to the decision in this case, and (as it was not argued on this appeal) I wish merely to ensure that the point is left open for full argument and decision on another occasion if it becomes material. It could, as Chadwick LJ accepts, become important if the insurer were to become insolvent or (being a corporation) was dissolved and could not be revived or its assets were located in a jurisdiction where the third party's claim could not be enforced.

137. I agree that the apparent assumption in section 1(4)(b) is, as Chadwick LJ concludes, that the third party would only be able to enforce any claim against the insured to the extent that the amount of the claim exceeded the amount for which the insured was held covered. However, the third party must first bring proceedings against the insured, and obtain judgment against him, in order to establish the existence and amount of the liability owed to him by the insured (Bradley v Eagle Star Insurance Co Ltd [1989] AC 957). Moreover, the object of the 1930 Act was to give new and additional rights to the third party (see the judgment of Chadwick LJ at [30]), not to reduce them, as would happen if, for example, the insurer was in fact less solvent than the insured or, being a corporation, had ceased to exist (in circumstances where it was no longer possible to revive it). If, on the other hand, the insured was held liable and, in consequence, paid a claim that was covered by the insurance in question, my provisional view is that, one way or another, he would be entitled to obtain recovery from the insurer. In addition, in my judgment (which is provisional as the matter has not been argued), neither the insured nor the insurer could be made liable to pay the third party a second time to the extent that this would result in the third party receiving more than is needed to compensate him for his loss. On this basis, paragraphs (a) and (b) of section 1 (4) of the 1930 Act merely amplify the opening words of that section, and accordingly are to be read simply as explicatory of the effect of the statutory transfer on the insurer."

Latham LJ also reserved his position in relation to this issue.

38. This issue would be of importance in this case if, by being deprived of any right to enforce payment of their claims against T&N, the EL Claimants to whom rights against the EL Insurers had been transferred by the 1930 Act thereby ceased to be creditors of T&N. If that were the case, there could be no scheme of arrangement between T&N and those EL Claimants. However, as it seems to me, it is not an issue which arises for decision in the circumstances of this case. The underlying premise of the scheme is that there is a genuine and substantial dispute about the validity of the EL Policies and whether they cover asbestos-related claims. If the EL Insurers are right on either of those points, there are no rights against the EL Insurers to be transferred to the EL Claimants under the 1930 Act. In that event, the EL Claimants will be creditors of T&N. Only if the litigation were fought to a conclusion would those issues be determined and the purpose of the proposed settlement and of the scheme is to avoid the risks involved in that course for all parties. Therefore, if Chadwick LJ is correct in his view, the EL Claimants are at least contingent creditors of T&N. If Arden LJ is correct in her provisional view, the EL Claimants are in any event actual creditors of T&N.
39. Two further issues arise on the 1930 Act, both in relation to section 3, which provides as follows:

"Where the insured has become bankrupt or where in the case of the insured being a company, a winding-up order or an administration order has been made or a resolution for a voluntary winding-up has been passed, with respect to the company, no agreement made between the insurer and the insured after liability has been incurred to a third party and after the commencement of the bankruptcy or winding-up or the day of the making of the administration order, as the case may be, nor any waiver, assignment, or other disposition made by, or payment made to the insured after the commencement or day aforesaid shall be effective to defeat or affect the rights transferred to the third party under this Act, but those rights shall be the same as if no such agreement, waiver, assignment, disposition or payment had been made."

40. The first, and fundamental, issue is whether section 3 renders the scheme ineffective so far as it provides for the assignment to the trustees of the rights of EL Claimants against the EL Insurers and the waiver of any entitlement to make any claim or assert any right against the EL Insurers. Mr Snowden, Mr Trower and Mr Field submitted that section 3 does not render the scheme ineffective, while Mr Chivers submitted that it does so. Section 3 applies in terms to any "agreement made between the insurers and the insured" and to "any waiver, assignment, or other disposition made by…the insured." The insured is, of course, T&N. The evident purpose of the section is to prevent arrangements between the original parties to the contract of insurance, or a unilateral act by the insured, prejudicing the persons to whom rights are transferred under section 1 of the 1930 Act.
41. Section 3 does not, in my judgment, apply to the scheme. First, even if the word "agreement" could in the context of section 3 encompass a scheme of arrangement, the scheme is not made between the EL Insurers and T&N. It is made with the EL Claimants. Secondly, the assignment and waiver of rights against the EL Insurers are not made by T&N. They will be made by the EL Claimants under a scheme which will be binding on them only if approved by at least the statutory majority at their meeting and sanctioned by the court. The parallel is not an assignment and waiver by T&N, but an assignment and waiver by the EL Claimants. All counsel agreed that an assignment or waiver made individually by an EL Claimant would be outside the section. The scheme does no more than make the assignment and waiver binding on all the EL Claimants where it is impossible or impracticable to obtain their individual assents.
42. The second issue relates to a proposed amendment to the EL Policies to exclude claims under the Fatal Accidents Act 1976 by future dependants. Any person who is a dependant, as defined in the Fatal Accidents Act, at the time of the death of an employee caused by a wrongful act or omission of T&N has a claim against T&N. The present dependants of an employee who is still living and who was exposed to asbestos by the act or omission of T&N will have a claim under the Act against T&N if he dies as a result of such exposure and they continue then to be his dependants. They are presently identifiable persons with potential claims subject to two contingencies. By "future dependants" are meant persons who are not currently dependants of employees and are not therefore identifiable. The proposed amendment to the EL Policies results from my decision, for the reasons given below, that future dependants are not creditors of T&N and cannot be bound by the scheme. In order to achieve the finality required by the EL Insurers, it is proposed that the policy terms will be amended to exclude them upon terms that they will be entitled to make claims against the trust fund as if they were EL Claimants for the purposes of the scheme. It is clear that section 3 does not render ineffective the proposed amendment. An agreement between the insurer and the insured is ineffective only if made "after liability has been incurred to a third party". No liability has been incurred to future dependants.

Compromise or arrangement for the purposes of section 425

43. The issue is whether the scheme falls within section 425 as being a compromise or arrangement proposed between T&N and a class of its creditors. The administrators and the EL Insurers submitted that the scheme is an arrangement for the purposes of section 425, while Mr Chivers for Cape submitted that it was not.
44. Mr Chivers' straightforward submission was that, as the scheme does not purport to affect the rights between T&N and its EL Claimants, it is not a compromise or arrangement between T&N and the EL Claimants. Their rights against T&N remain unaltered. It is their rights against the EL Insurers, vested in them by operation of the Third Parties (Rights Against Insurers) Act 1930, which are compromised by the scheme. That is properly the subject of a compromise, whether by way of scheme of arrangement or otherwise, between the EL Insurers and the EL Claimants. In fact, there could not be a scheme of arrangement with the Syndicate, because it is a collection of individuals, not a company as defined in section 425(6)(a). Mr Chivers submitted that such a compromise cannot be achieved by a scheme of arrangement between T&N and the EL Claimants. The scheme involves also a compromise of T&N's rights against the EL Insurers, but that does not itself involve the EL Claimants and does not provide a basis for the proposed scheme. However broadly the word "arrangement" in section 425 is construed, it must be between a company and its creditors, and a proposal which leaves the relationship between the company and its creditors unaltered cannot fall within the section.
45. The first and obvious point to make is that, whatever the precise meaning of a compromise or arrangement, it must be proposed with creditors or members of a company. It is implicit that it must be made with them in their capacity as creditors or members and that it must at least concern their position as creditors or members of the company. For the reasons already given, even those EL Claimants to whom T&N's rights against the EL Insurers have been transferred by operation of the 1930 Act remain creditors of T&N. The extent to which certain other persons with EL Claims are creditors for the purposes of section 425 is considered later in this judgment.
46. The word "arrangement" has a very broad meaning. It is not defined for the purposes of section 425, except that by section 425(6)(b) it includes particular types of reorganisation of share capital. In In re National Bank Ltd [1966] 1 WLR 819, Plowman J said at p. 829:

"As regards Mr. Suenson-Taylor's second objection, namely, that the scheme really ought to be treated as a section 209 case needing a 90 per cent majority, I cannot accede to that proposition. In the first place, it seems to me to involve imposing a limitation or qualification either on the generality of the word "arrangement" in section 206 or else on the discretion of the court under that section. The legislature has not seen fit to impose any such limitation in terms and I see no reason for implying any."

47. The decision of the Court of Appeal in Re Guardian Assurance Co [1917] Ch 341 established that compromise and arrangement are separate concepts and that an arrangement need not involve a compromise or be confined to a case of dispute or difficulty. The scheme involved a merger of Guardian Assurance and Reliance Marine Insurance Company Limited. Guardian made a general offer to the shareholders of Reliance Marine to acquire their shares in consideration of a cash payment and shares in Guardian. The scheme was proposed in order to provide for the transfer of a proportion of the shareholding of each member of Guardian to the Reliance Shareholders, so as to give effect to the offer. Clearly there was no dispute or difference which was to be compromised by the scheme, although a transfer of existing shares, rather than an issue of new shares, was then an unusual proposal, and would be an unusual proposal today. At first instance, Younger J held that it was not a scheme within section 120 of the Companies (Consolidation) Act 1908, the equivalent of section 425, because there was no prior difficulty or doubt requiring resolution. He considered that, although different from a compromise, an arrangement was nonetheless analogous to a compromise.
48. The Court of Appeal reversed the decision of Younger J. A.T. Lawrence LJ said at paragraph 450:

"I do not think there is any sufficient ground for limiting the meaning of the word "arrangement" in this section. To my mind, any risk is sufficiently guarded against by the fact that the sanction of the Court must be obtained. The section is not meant to be limited merely to a compromise, it is to apply also to something that is an arrangement. This proposal seems fairly to come within the word "arrangement," and I do not see any object in limiting its meaning so as to exclude a scheme which is admittedly beneficial to all parties concerned."

49. It is fair to say that the great majority of schemes of arrangement involving members do not involve a compromise. For example, schemes providing for the acquisition of companies by a third party, whether by way of transfer of existing shares or the cancellation of existing shares and the issue of new shares to the acquiring third party, on terms that the third party provides the consideration to the members, are not compromises. But they are arrangements between the company and its members, because they involve a change in the membership of the company: see, for example, In re Savoy Hotel Ltd [1981] Ch 351.
50. A scheme of arrangement which did no more than expropriate the interest of a member or creditor would not be a compromise or arrangement within section 425: In re NFU Development Trust Ltd [1972] 1 WLR 1548. Brightman J observed that a compromise implies some element of accommodation on each side and that an arrangement implies some element of give and take. Total surrender or confiscation was not within either of them. In commenting on this decision in In re Savoy Hotel Ltd Nourse J said at p 359, that the word "arrangement" in section 425 and its predecessors is one of very wide import, a proposition which was by no means diminished by Brightman J's judgment:

"All that that case shows is that there must be some element of give and take. Beyond that it is neither necessary nor desirable to attempt a definition of "arrangement"."

As members' schemes such as that in In re Savoy Hotel Ltd show, the give and take need not be between the members and the company, but may be between the members and a third party purchaser, with the company's only function being to register the transfer of shares and thereby terminate the existing members' status as members.

51. The rights of the EL Claimants against the EL Insurers which are affected, and indeed compromised, by the EL Scheme are in no sense unconnected with T&N or the EL Claimants' rights against T&N. The claims of EL Claimants arise out of T&N's obligations to its employees and out of their exposure to asbestos in the course of their employment. As a result of such exposure claims for damages or contribution lie against T&N. The insurance cover against such claims provided by the EL Policies was purchased by T&N for its own protection and, indirectly while it remained solvent and directly once the 1930 Act applied, for the protection of those with claims against it. The claims of the EL Insurers to exclude asbestos-related diseases from cover and to avoid the policies affects the position of both T&N and the EL Claimants. If the EL Claimants were unable to enforce their claims against the EL Insurers, such claims would still lie against T&N, and its assets (including any other available insurance cover) would be diminished accordingly. Moreover, T&N has a continuing direct interest in the EL Policies because, if binding and applicable to asbestos-related claims, they would in the future respond to claims in cases where a disease has yet to start and where therefore there has not yet been any transfer of rights arising in respect of tort claims pursuant to the 1930 Act. The litigation concerning the EL Policies and its compromise therefore has a direct impact on the EL Insurers, T&N and the EL Claimants alike. As regards the litigation, this is reflected in the parties, which included not only T&N as a claimant but also Mr Laidler as a representative employee.
52. The settlement of the litigation is therefore in substance and form a tripartite matter, involving T&N, insurers and claimants. That is reflected in the proposed scheme, with T&N and the claimants as parties and with the EL Insurers appearing before the court to consent to the scheme and to undertake to be bound by its terms. It is true that the scheme has no effect on the present rights of EL Claimants against T&N. The right of claimants to assert their claims against T&N, and the right of T&N to defend those claims, are unaffected, and claimants are not obliged to proceed first against the trust to be established by the scheme. However, if a claimant establishes a claim under the trust distribution procedures and receives a payment, it will diminish the amount which T&N would otherwise be required to pay in respect of the claim, if the EL Insurers succeeded in avoiding the policies or in limiting the cover. Although not immediately affecting rights against T&N, the scheme is likely therefore to have an impact on those rights. Mr Chivers objected that these effects resulted not from the scheme but from the settlement agreement and arrangements constituted by the trust deed and trust distribution procedures which took effect outside the scheme. In my view, it is not possible to divorce the arrangements in this way. The scheme of arrangement is an integral part of a single proposal affecting all the parties, which includes also the trust and the trust distribution procedures to be established pursuant to the scheme.
53. In my judgment it is not a necessary element of an arrangement for the purposes of section 425 that it should alter the rights existing between the company and the creditors or members with whom it is made. No doubt in most cases it will alter those rights. But, provided that the context and content of the scheme are such as properly to constitute an arrangement between the company and the members or creditors concerned, it will fall within section 425. It is, as Nourse J observed, neither necessary nor desirable to attempt a definition of arrangement. The legislature has not done so. To insist on an alteration of rights, or a termination of rights as in the case of schemes to effect takeovers or mergers, is to impose a restriction which is neither warranted by the statutory language nor justified by the courts' approach over many years to give the term its widest meaning. Nor is an arrangement necessarily outside the section, because its effect is to alter the rights of creditors against another party or because such alteration could be achieved by a scheme of arrangement with that other party.
54. These considerations all go to the meaning of arrangement in section 425 and hence the jurisdiction of the court under the section to sanction a scheme of arrangement. They do not fetter the discretion as to whether to sanction a scheme of arrangement. The looser the connection between the subject-matter of the scheme and the relationship between the company and creditors concerned, the more substantial might be the objections on discretionary grounds to sanctioning the scheme.
55. Mr Chivers also submitted that a compromise of the rights of the EL Claimants against the EL Insurers cannot be achieved by a scheme of arrangement between T&N and the EL Claimants. The binding effect of the court's sanction to the scheme applies only to the parties to it, that is, T&N and the EL Claimants. While this latter point is correct, it does not establish the first point. There are mechanisms regularly used whereby a third party can be bound by and obtain the benefit of a scheme. In a typical scheme to effect a merger or takeover, the members' obligation to transfer their shares will be enforceable through the appointment of an attorney to sign the share transfers, and for its part the acquirer will undertake to the court to be bound by the scheme and can therefore be obliged to give effect to it. Likewise, in this case the EL Claimants are obliged to assign to the trustee the benefit of their claims against the EL Insurers and the fruits of any action, and authority to effect the assignment, if necessary, is conferred by the scheme on an attorney. Their covenant not to make claims against the EL Insurers is enforceable by T&N.

EL Claimants: status as creditors

56. All employees who were exposed to asbestos by T&N in breach of duty and who have as a result developed diseases or conditions recognised as actionable damage are creditors, unless their claim has been satisfied by payment of a final award of damages or a sum in final compromise. Likewise, in the case of certain diseases, other employers who exposed the employees to asbestos in breach of duty are creditors in respect of contribution claims, although the circumstances in which they qualify as creditors is in dispute on this application. Where such employees have died, their dependants or relatives are creditors in respect of claims under the Fatal Accidents Act 1976 or equivalent legislation. These are all claimants with accrued causes of action.
57. In In re T&N Ltd [2005] EWHC 2870 (Ch) issues were raised in respect of individuals who had been exposed to asbestos by T&N in breach of duty and who would have claims in tort if and when as a result they developed a disease or condition recognised in law as actionable damage. I held that they were creditors in respect of such contingent claims (future tort claims) for the purposes of schemes of arrangement under section 425 of the Companies Act 1985 and company voluntary arrangements under Part I of the Insolvency Act 1986. I also held that, by reason of the relevant provisions of the Insolvency Rules 1986, such claims were not provable debts in a liquidation of T&N.
58. In the context of the EL Schemes, the principal significance of this decision relates to contingent contribution claims and contingent claims under the Fatal Accidents Act. Particular issues arise in respect of both categories of claims, to which I refer later in this judgment. Employees are in a different position, because not only will they be able to claim against T&N in tort or for breach of statutory duty if and when they develop a disease or condition, but they have an accrued cause of action in contract for breach of express or implied duties of care. Although only nominal damages would now be recoverable, their contingent claim for substantial damages arises out of the same cause of action and would be admissible to proof in liquidation. Irrespective of my earlier decision, they are therefore creditors in respect of such claims for the purposes of section 425.
59. I should mention two matters in relation to my earlier judgment. First, when dealing with the issue as to whether future tort claims were provable debts in a winding-up, I referred briefly to the decision at first instance in R (on the application of Steele) v Birmingham City Council [2005] EWHC 783. Two days after I handed down my judgment, the Court of Appeal heard and allowed an appeal in Steele. The approved judgments have since become available. The issue was whether an obligation to repay an overpaid allowance was a provable debt in the bankruptcy of the debtor where the obligation arose exclusively from a decision of the Secretary of State for Work and Pensions taken under the applicable statutory provisions after the commencement of the bankruptcy. The Court of Appeal unanimously held that it was not provable, by reason of the provisions governing proof of debts in a bankruptcy which are principally contained in the Insolvency Act 1986. Sir Martin Nourse based his decision on the requirement for a decision by the secretary of state before any obligation could arise, thus making it indistinguishable from the decision of the Court of Appeal in Glenister v Rowe [2000] Ch 76. In that case it was held that costs incurred before the bankruptcy in litigation against the bankrupt, which were the subject of a costs order against the bankrupt made after the commencement of the bankruptcy, were not a provable debt. I had referred to that decision and the principle established by it in paragraph 64 of my judgment. Arden LJ agreed with Sir Martin Nourse but as an additional ground held that the claim in Steele was not in any case a contingent debt within the meaning of the relevant provisions in the Insolvency Act because there was no pre-existing obligation from which it arose. In that context she considered the decisions of the majority of the House of Lords in Re Sutherland, deceased, Winter v IRC [1963] AC 235, which give a wide meaning, in a different context, to contingent liability. On the basis of the wording of the provisions governing provable debts in a bankruptcy, she was of the view that the wider meaning given in Re Sutherland did not apply. (Reliance was placed on the decision of Pennycuick J in In re William Hockley Ltd [1962] 1 WLR 555, in which Re Sutherland was not cited, but it would appear that there was not cited to the Court of Appeal the later decision of Penncuick J in Re SBA Properties Ltd [1967] 1 WLR 799 in which he adopted the approach of the House of Lords in Re Sutherland in the context of a winding-up petition). May LJ agreed with the reasons given by both Sir Martin Nourse and Arden LJ.
60. The decision and reasoning of the Court of Appeal in Steele does not affect my decision that future tort claimants are creditors for the purposes of section 425 of the Companies Act 1985 and Part I of the Insolvency Act 1986, nor of course my decision that they were not provable debts in a liquidation. Arden LJ made clear that she was dealing only with the particular context of that case:

"I would also add I am only considering the meaning of contingent liability for the purposes of section 382 of the Insolvency Act 1986. It may well have a different meaning for the purpose of other statutory provisions or for the purposes of a particular written instrument." (para 77)

61. The second matter is a judgment of the Court of Appeal of New South Wales in Edwards v Attorney-General [2004] NSWCA 272, of which counsel and I were unaware. The impact of asbestos claims is international and different legal systems are seeking means of addressing it. The case has as its background the reorganisation of an Australian group of companies which included companies engaged over many years in the manufacture and distribution of asbestos products. By a reorganisation carried out in 2001, it was sought to insulate the rest of the group from those companies and their asbestos liabilities on terms including the provision of further funds to those companies. The actuarial evidence suggested that while there were sufficient funds to meet claims in the short term, the funds would be exhausted well before many claims were formulated or adjudicated. This caused considerable public concern, and led to the appointment of an inquiry. The directors of the companies with the asbestos liabilities applied to the court for directions as to whether they should continue to pay claims in full as and when established. The applications were referred to the Court of Appeal of New South Wales which heard the application at first instance.
62. One of the legal assumptions accepted by all parties as correct and set out in the judgment of Young CJ in Eq was that future asbestos claimants (defined to include not only persons who had been exposed to asbestos by the companies in breach of duty but who had not as yet developed any actionable disease or condition but also persons who had not yet been exposed to asbestos) were not contingent creditors for the purposes of a liquidation and were not creditors for the purposes of schemes of arrangement under section 511 of the Corporations Act 2001, which is in similar terms to section 425 of the Companies Act 1985. The position is set out in paragraphs 56ff of the judgment of Young CJ in Eq, the relevant parts of which are:

"56 On the information available to the Court, the probabilities are that at least until 2040 claims will be made by persons suffering from asbestos-related illnesses or their relatives. In many cases the people concerned do not know at this stage that they have within them the seeds of destruction caused by asbestos and this will only become manifested sometime between now and 2040 or thereabouts. It is hard to see how future claimants can be protected by any scheme. The basal problem is that the class of so-called future claimants is largely comprised of people who may not yet have suffered damage as a result of exposure to asbestos products of Amaca and Amaba.

57 The legal position was well defined by counsel for the plaintiffs in their advice. Although this is a confidential document, the passage from which I have really borrowed below is acknowledged by all counsel to represent the law.

58 On current authority, persons injured through exposure to asbestos manufactured or supplied by Amaca or Amaba do not have a completed cause of action until damage is suffered and that usually involves manifestation of the disease: Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331; 13 ANZ Insurances Cases 61-596. Indeed, some of the future claimants could be in the more extreme category where the people concerned have not yet been exposed to the asbestos such as home renovators doing future renovations or may even be people not yet born who might be involved in demolishing an asbestos ridden building somewhere in 2030. No-one can currently know the identity of the future claimant.

59 This type of liability must be distinguished from the case of a contingent creditor. A contingent creditor is a person to whom a corporation owes an existing obligation out of which a liability on its part to pay a sum of money will arise in a future event, whether that event be one which must happen or only an event which may happen: Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455; Re International Harvester Australia (1983) 1 ACLC 700 at 703. Again, the liabilities in this case must be distinguished from the case of a prospective creditor, a prospective creditor being one who is owed a sum of money not immediately payable but which will certainly become due in the future either on some date which has already been determined, or on some date determinable by reference to future events: Stonegate Securities Ltd v Gregory [1980] Ch 576; Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477.

60 The distinction is vital because whilst contingent or prospective creditors are taken into account in assessing solvency, possible future claims that might crystallise are not. The great probabilities are that if Amaca and Amaba were to go into provisional liquidation now, then the only claims that would be paid by the liquidator would be those which have crystallised and, after paying the doubtless heavy expenses of liquidation, there would be a distribution of surplus funds to the shareholder MRCF which would be used for the purpose of the alleged charitable fund. The future creditors would get nothing and this may very well be the case even if the claim matured the day after the liquidation commenced.

61 Accordingly, the choice between continuing to pay claims at present and going into liquidation will not advantage the future claimants one whit. Moreover, going into liquidation would preclude any possibility of further funds being injected into the pool to meet future claims. The material before the Court shows that there is at the very least a realistic possibility that there might be a further injection of funds into the pool.

62 It is very difficult to see any other course that could be taken other than liquidation or continuing to go on as usual. Of course, some completely unanticipated event might occur such as the large injection of funds or special legislation, but at least, short of this, there is no way in which any alternative method can protect the future claimants…

66 Further, there can be no scheme of arrangement under s 411 of the Corporations Act because any arrangement would not be between the members or the creditors as defined. It would seem also that there can be no scheme of arrangement under s 510 of the Corporations Act under which the companies could set aside a fund for future creditors as, unless all creditors consented, there could be no arrangement at all.

67 This must be so even though the authorities show that there is a lesser test as to who is a creditor for a scheme of arrangement, namely, a person with an arguable case that it is an actual or contingent creditor; see e.g. National Australia Bank Ltd v Market Holdings Pty Ltd (2000) 50 NSWLR 465, 469 and Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612, 685. The reason for this is that there is still the requirement to show an actual or contingent debt merely that it is arguable rather than established; see also Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 15 ACLC 833."

63. I have carefully considered what is said in Edwards v Attorney-General. The grounds given for the assumption that future tort claimants are not contingent creditors was at the centre of the submissions before me. While not suggesting that the assumptions are not correct as a matter of Australian law, they were not the subject of debate or submissions in Edwards. There is nothing in Edwards which causes me to revise either my conclusion or my reasons as to the status of future tort claimants as creditors for the purposes of schemes of arrangement and company voluntary arrangements, provided that they have been exposed to asbestos. I agree that a person who has not been exposed to asbestos is not a contingent creditor. One of the other assumptions made in Edwards was that if there were a surplus in a liquidation it would be payable to shareholders and would not be available to pay tort claimants whose causes of action accrued after the commencement of the liquidation. I heard submissions to the same effect as a matter of English law, which I rejected for the reasons given in paragraphs 106-107 of my judgment. Again I see no reason to revise my conclusion or reasons on that issue.

Contingent contribution claimants: status as creditors

64. Asbestos-related diseases may be divided between the malignant and the non-malignant. Non-malignant conditions, such as asbestosis and pleural thickening, are the result of a cumulative exposure to asbestos. Where a claimant with such a condition has been exposed to asbestos by more than one employer, liability is divided between each employer and the employee has a separate claim against each employer for its share of the loss. In respect of these divisible diseases, no claims for contribution between employers can arise.
65. In contrast, malignant diseases, such as mesothelioma and lung cancer, may result from a single exposure to asbestos. In the present state of scientific knowledge, it is impossible for a claimant to establish which of a number of employers is responsible for the exposure which caused the disease. In these circumstances, the House of Lords held in Fairchild v Glenhaven Funeral Service Ltd [2003] 1 AC 32 that, rather than the claim failing due to an inability to prove causation against any particular employer, the claimant was entitled to claim damages against all or any of the employers who had exposed him to asbestos, and had materially increased the risk of contracting the disease. Until the decision of the House of Lords in Barker v Corus (UK) Ltd [2006] 2 WLR 1027, it was widely thought, and the Court of Appeal in that case held, that the employee could obtain judgment for the full amount of his damages against any of the employers, who would then be entitled to make contribution claims against the other employers. The House of Lords reversed the decision of the Court of Appeal and held that the liability to pay damages to the claimant must be apportioned among the employers. There will not accordingly be contribution claims between employers where each employer has exposed an employee to asbestos if the exposure occurred on different occasions or over different periods of time. There remain circumstances in which contribution claims may be made, for example where T&N and another person are liable in respect of the same period or incident of exposure to asbestos. An example would be a case in which T&N failed to provide adequate safety equipment to an employee who was working on the premises of another person who in turn failed to provide a safe workplace or who was liable as occupier of the premises. Most claims will now be made under the Civil Liability (Contribution) Act 1978, although any case in which the relevant damage occurred, viz, the undetected commencement of the disease, before 1 January 1979 may be governed by the Law Reform (Married Women and Tortfeasors) Act 1935 which for present purposes is substantially the same.
66. The relevant provisions of the Civil Liability (Contribution) Act 1978 are sections 1(1)-(4) and 2(1)-(2):

"1. (1) Subject to the following provisions of this section any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

(2) A person shall be entitled to recover contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought.

(3) A person shall be liable to make contribution by virtue of subsection (1) above notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, unless he ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against him in respect of the damage was based.

(4) A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established.

2. (1) Subject to subsection (3) below, in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question.

(2) Subject to subsection (3) below, the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity."

67. The definition of EL Claimant includes any person who has or may at any time in the future have a claim for contribution against T&N arising out of other types of EL Claims. Plainly any existing judgment against T&N or agreement with T&N for the payment of contribution creates a debt in respect of which the contribution claimant is a creditor. Beyond that, the following issues were raised. First, does any contingent liability exist before a judgment is entered or agreement is made to pay contribution. Secondly, in circumstances where a person has been wrongfully exposed to asbestos by T&N and by another employer but has yet to develop any disease or condition recognised as actionable damage and may never do so, so that either (applying my decision in In re T&N Ltd [2005] EWHC 2870) he is a creditor of each employer for the purposes of section 425, or as an employee he has an accrued cause of action in contract for nominal damages against each, is the other employer a creditor for the purposes of section 425 in respect of a contingent claim for contribution. Thirdly, in circumstances where the employee has yet to be exposed to asbestos by another employer or has yet to be employed by another employer who may expose him to asbestos, are such actual or potential employers creditors of T&N for the purposes of section 425 in respect of possible future contribution claims.
68. The position of the parties on these issues was a little complicated. On the third issue, only Mr Trower for the EL Insurers submitted that actual or potential employers in those circumstances could be creditors for the purposes of section 425. On the first and second issues, Mr Snowden for the administrators and Mr Trower submitted that there was a contingent liability before judgment or agreement and that the employers identified in the second issue were creditors. Mr Field provided assistance on the subject of contribution claims but did not adopt any position on the issues. Mr Chivers for Cape submitted a skeleton argument which set out arguments against the position adopted by the administrators and/or the EL Insurers on these issues, but was instructed not to pursue the arguments in oral submissions.
69. The first issue is whether even an actual contribution claimant is a contingent creditor, and thus a creditor for the purposes of section 425, before his claim has been quantified by judgment or agreement. The argument is that there is no liability of any sort until the court has exercised its discretion under section 2 of the 1978 Act, or until the parties have agreed a sum by way of contribution. The argument is based on the decision of the Court of Appeal in Glenister v Rowe [2000] Ch 76 that a party to litigation does not have a provable debt in the bankruptcy of another party in respect of pre-bankruptcy costs unless the order for costs in its favour was made before the commencement of the bankruptcy. The grounds for the decision, in which Re Sutherland was distinguished, was that the existence of any liability for costs was based on the exercise by the court of its discretion to make a costs order and that until the discretion was exercised there was no liability, actual or contingent.
70. It might be enough for present purposes to draw attention to the fact that Glenister v Rowe was concerned only with the status of provable debts in bankruptcy and not with any other and different question, such as the meaning of creditors in section 425. As I have already mentioned, this was emphasised by the Court of Appeal in R (on the application of Steele) v Birmingham City Council. Creditors for the purposes of section 425 are not restricted to creditors with provable debts in bankruptcy or liquidation.
71. In any event, I do not consider that a claim for contribution is analogous to claim for litigation costs. The right to any costs is entirely dependent on an exercise by the court of its discretion to order costs. In contrast, section 1 of the 1978 Act creates an entitlement to contribution, while section 2 is concerned with the assessment of the amount of contribution. Section 1(2) states that a person "shall be entitled to recover contribution" notwithstanding certain circumstances, and section 1(3) provides that a person "shall be liable to make contribution" notwithstanding certain other circumstances. Likewise section 1(4) states that a person who has compromised a claim against him " shall be entitled to recover contribution". The creation by section 1 of a right to recover contribution is recognised by section 10 of the Limitation Act 1980. It creates "a cause of action in its own right": Virgo Steamship Co SA v Skaarup Shipping Corporation, The Kapetan Georgis [1988] 1 Lloyds LR 352 at 357 per Hirst J. It would be a very odd result that a person who has issued a claim to enforce an accrued course of action for contribution was not a contingent creditor as regards any contribution which he might recover.
72. Section 2 of the 1978 Act is in terms directed not to the right to contribution but to determining "the amount of the contribution recoverable from any person." Such assessment must be of the amount found by the court to be just and equitable having regard (but not exclusively) to the extent of responsibility for the damage in question: Resource America International Ltd v Platt Site Services and Barkin Construction Ltd [2004] EWCA (Civ) 665 and Brian Warwiker Partnership v HOK International Ltd [2005] EWCA (Civ) 962. The court may decide to award no contribution at all, but it is telling that this is expressed in section 2(2) as a "power in any such proceedings to exempt any person from liability to make contribution". Unless exempted, the liability exists, albeit in an amount to be assessed by the court.
73. In my judgment, therefore, an actual or potential claimant for contribution is a creditor for the purposes of section 425, at the latest when it has an accrued right to claim contribution.
74. The second issue raises for consideration whether a potential claimant for contribution is a creditor for the purposes to section 425 at any earlier stage. The right to recover contribution accrues when the contribution claimant is held liable in respect of relevant damage by judgment or arbitration award or when he compromises the claim. There will be an obvious right to claim contribution, contingent on the claimant being held liable in respect of the relevant damage, once the employee has accrued causes of action against the two employers. The potential contribution claimant in such circumstances is a creditor for the purposes of section 425.
75. This assumes that the person with the principal claim has suffered the actionable damage. If that person has been exposed to asbestos by two potential defendants, but has not as yet suffered any actionable damage, he will nonetheless be a creditor of those potential defendants for the purposes of section 425: In re T&N Ltd [2005] EWHC 2870. In each case the potential defendant has been guilty of wrongful acts or omissions, in breach of common law, statutory or contractual duties of care, and its liability depends entirely on whether a disease or condition recognised as actionable damage develops as a result. The contingency is the same, whether it is the victim's claim for damages or the claim for contribution which is being considered. In these circumstances, the contribution claimants are for the purposes of section 425 as much creditors of each other as the victim is a creditor of each.
76. The third issue cannot arise under the law as settled by Barker v Corus (UK) Ltd. It related to the status of possible contribution claimants who either have yet to expose the victim to asbestos or, still more remotely, have yet to employ him. The latter cannot be creditors. The victim may never be employed again and, even if he is, his future employers are unknown and unknowable. As regards present employers who have yet to expose an employee to asbestos, they are not contingent creditors of former employers who did expose the employee to asbestos, any more than the employee is a creditor of his present employer in respect of possible future exposures. Nothing has been done by the present employer which could result in either a claim against him or a claim for contribution by him. The pre-requisite for the creation of a contingent liability as discussed in Re Sutherland is missing.

Claimants under the Fatal Accidents Act 1976: status as creditors

77. Regrettably, some of the employees of T&N who develop asbestos-related diseases will die as a result of those diseases. This is likely to be true of those who develop mesothelioma and may be true in the case of other diseases such as lung cancer. Subject to the satisfaction of certain criteria, if English law is applicable the dependants of such employees at the date of death will have a cause of action against T&N under the Fatal Accidents Act 1976 (as amended). It is a new cause of action arising on the employee's death and it is distinct from any cause of action which the deceased's estate may have under the Law Reform (Miscellaneous Provisions) Act 1934. As a matter of procedure, it is in the first instance for the executor or administrator to bring the action, but all or any of the dependants may bring an action if there is no executor or administrator or no action has been brought within six months after death. In either case such action is brought for the benefit of the dependants and only one action may be brought.
78. There are two principal heads of damages. First, damages for bereavement of an amount currently fixed at £10,000 will be awarded but only for the benefit of the deceased's wife, husband or civil partner, subject to immaterial special provisions. Secondly, there are damages for "the injury resulting from the death to the dependants respectively". This will mean pecuniary loss, either directly by the loss of actual or prospective financial support or indirectly by the loss of gratuitous services provided by the deceased. In order to qualify for a claim in respect of financial loss, a dependant must (a) come within a defined category of dependant set out in section 1(3) and (b) have been wholly or partly dependant financially on the deceased at the time of death. An action for such damages will not lie where the deceased had already recovered final damages by action or agreement in respect of his claim resulting from the exposure to asbestos. Damages in respect of funeral expenses may also be awarded.
79. It is clear that where a former employee has died, without compromising his claim, his dependants with the right to make claims under the Fatal Accidents Act against T&N are creditors for the purposes of section 425 of the Companies Act 1985. They have an accrued cause of action. It may be that some dependants do not appreciate that they have the benefit of these claims, because they are unaware that the deceased was employed by T&N or was exposed to asbestos or that such exposure caused or may have caused his death or that such claims exist in law. These are not factors which prevent their proper classification as creditors. They are factors which a court could take into account in exercising its discretion to sanction the scheme.
80. There are a number of categories of potential or contingent claimants under the Fatal Accidents Act. First, there are current dependants of employees who have developed an asbestos-related disease. They will in due course have claims as dependants, subject to three contingencies: the employee's death is caused by the disease (or a disease which develops from it), the claimants are dependants at the time of death and the employee does not compromise his claim before his death. The first is a contingency that has yet to occur. The second and third must be satisfied but they will be unless there is a subsequent change in circumstances. Applying the reasoning of my decision that future tort claimants are creditors for the purposes of section 425, the current dependants of the employee who has developed an asbestos-related disease are also creditors for those purposes.
81. Secondly, there are current dependants of an employee who was exposed to asbestos during his employment with T&N but has not as yet developed an asbestos-related disease. In the case of his dependants there is therefore the additional and prior contingency that he develops an asbestos-related disease which causes his death. Although the contingency is now more remote, the same reasoning underlying the decision that future tort claimants are creditors means that these dependants are also creditors for the purposes of section 425.
82. Thirdly, an employee, who was exposed to asbestos during his employment with T&N and who either has already developed an asbestos-related disease or may do so in the future, may at the date of his death have dependants who are not currently dependants. Obvious examples are future spouses or civil partners and children who are born in the future. Although it is likely that there will be some future dependants, the class does not by definition exist at present.
83. Mr Trower submitted that the scheme could become effective now so as to be binding on these potential claimants, as and when they become dependants with a claim under the Fatal Accidents Act, by virtue of the approval of the employees at the meetings of the EL Claimants. He correctly pointed out that, by settling his own claim against T&N, an employee deprives his dependants of their separate claim under the Act: Read v Great Eastern Railway Co. LR 3QB 555, Nunan v Southern Railway Co [1923] 2 KB 703 (Swift J) and [1924] 1 KB 223 (CA). Mr Field told me that in practice those diagnosed with mesothelioma are faced with the choice, in the year or so during which they survive, between reaching a final settlement or adjudication of their claim through the fast-track procedures which have been established to deal with these cases or letting their dependants in due course pursue their claims under the Act. If the effect of the scheme was to settle the employees' claims against T&N, this would have the effect of depriving their dependants of their statutory claims. However, as already discussed, the scheme deals with their claims against the EL Insurers, but not against T&N. Mr Trower submitted that the employees could by an appropriate provision to that effect in the scheme compromise their future dependants' claims against the EL Insurers. In my judgment they have no power to do so and such a scheme would not bind their future dependants. The statutory claims of dependants are personal to them, as are the rights in due course vested in them under the 1930 Act. The employees have no authority under the Act or at common law to compromise or waive those claims, either individually or through a scheme of arrangement.

Composition of classes

84. The issue here is whether, as the administrators propose, there should be a single meeting of all EL Claimants, in the case of each company, or whether they divide into two or more classes, so requiring separate meetings.
85. Separate meetings are required only if there are separate classes of creditors. It is the rights of creditors, not their separate commercial or other interests, which determine whether they form a single class or separate classes: In re BTR Plc [1999] 2 BCLC 675, In re Hawk Insurance Co Ltd [2001] 2 BCLC 480, In re UDL Holdings Ltd [2002] 1 HKC 172 at 184-185 per Lord Millett NPJ. Conflicting interests can be taken into account when considering whether, as a matter of discretion, to sanction the scheme. The rights of those included in a single class need not be identical, provided they are "not so dissimilar as to make it impossible for them to consult together with a view to their common interest": Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 at 583 per Bowen LJ.
86. The application of this test requires a consideration of (a) the rights of creditors in the absence of the scheme and (b) any new rights to which the creditors become entitled under the scheme. If there is a material difference between the rights of different groups of creditors under (a) or (b), they may constitute different classes for the purposes of section 425. Whether they do so will depend on a judgment as to whether such differences make it impossible for the different groups to consult together with a view to their common interest: see In re Anglo American Insurance Ltd [2001] 1 BCLC 755, In re Hawk Insurance Co Ltd, and In re Telewest Communications Plc [2005] 1 BCLC 752.
87. In considering the rights of creditors which are to be affected by the scheme, it is essential to identify the correct comparator. In the case of rights against an insolvent company, where the scheme is proposed as an alternative to an insolvent liquidation, it is their rights as creditors in an insolvent liquidation of the company: In re Hawk Insurance Co Ltd [2001] 2 BCLC 480. Those rights may be very different from the creditors' rights against a company which is solvent and will continue in business. In the latter case the creditors' rights against the company as a continuing entity are the appropriate comparator: In re British Aviation Insurance Co Ltd [2005] EWHC 1621 (Ch).
88. In the present case, although the schemes will be proposed between the companies and their respective EL Claimants, it is the EL Claimants' actual or potential rights against the EL Insurers, arising as a result of the operation of the 1930 Act, which are to be compromised. Those rights are themselves subject to the insurers' coverage and avoidance claims. It is the existence of disputed rights against the insurers which provides the appropriate comparator. Without the scheme, the litigation with the insurers is not compromised and the EL Claimants, whether or not they yet have rights against the EL Insurers and whatever stage any claims against T&N or the EL Insurers have reached, share an interest in the litigation and its resolution.
89. It is important to note that the scheme will put in place a run-off, against the trust fund, with claims being paid at a percentage designed to ensure so far as possible that all admissible claims are treated equally over the term of the run-off. In contrast to a cut-off scheme, such as sanctioned in In re Hawk Insurance Co Ltd and proposed in In re British Aviation Insurance Co Ltd, contingent claimants will not be required to value their claims and actual claimants will not be paid in competition with values attributed to contingent claims. Accordingly, in my judgment, EL Claimants with the benefit of existing judgments against T&N or final agreements with T&N are not in a different position from those who have made claims which have not yet been adjudicated or from those who could make claims but have yet to do so. The provisions which require claimants with claims as yet unestablished to follow the review procedures set out in the trust distribution procedures, in place of ordinary litigation, does not put them in a significantly different position in the context of this schemes from claimants with the benefit of judgments or settlement agreements. Nor in the context of this scheme, which establishes a run-off, is there a significant difference between those with present claims and those who may have claims in the future. It is a core objective of the scheme to treat their claims, once made, on an equal footing.
90. None of the parties before the court on this application submitted that the differences discussed above led to the conclusion that there were separate classes.
91. Recently the administrators have included in the trust distribution procedures (TDP) provision for regular reviews every five years of the values for the different diseases included in the TDP of the expedited review process and for the maximum values applied under the individual review process. In this way, adjustments can be made on a regular basis by reference to changes in the amounts of damages awarded by the courts. There is nothing in this aspect of the proposals which requires the creation of separate classes, and it would in any case be impossible to do so, because the date at which any individual may develop a disease is unknown.
92. There was however one issue as to classes on which there were opposing submissions. This related to the treatment of contribution claims under the TDP. Mr Chivers for Cape submitted that the contribution claimants constituted a separate class from the other EL Claimants. Their claims would be subject to a "contribution claimants' formula" which was based on the relative duration and nature of exposure during different periods of employment. After applying the payment percentage, there would be a further deduction of any sums already paid out of the fund in respect of the employee whose claim gave rise to the contribution claim. It was in particular this last feature at which the main part of Mr Chivers' submissions was directed. The argument on this issue was heard before the House of Lords gave judgment in Barker v Corus (UK) Ltd. In the light of the judgment in Barker v Corus (UK) Ltd the relevant parts of the TDP are no longer appropriate and the administrators have deleted them. Instead, in those cases where contribution claims are made, and it is not presently anticipated that there will be many of them, the claims will be determined by an individual review by the trustees so as to establish an appropriate apportionment factor on the facts of each case. The provision for a further deduction has also been removed.
93. While the claim of an employee is for damages and depends only on the present or future development of a disease or other personal injury, the claim of an employer is for contribution and depends on an employee who has suffered personal injury making a successful claim against the employer. Mr Chivers accepts that this contingent aspect of the employers' claims does not of itself make them a separate class. The nature of the claims against the EL Insurers, both of employees and employers, is for payment in accordance with the policy terms as and when the claims are established. It makes no significant difference that the claims are for damages or for contribution or, in relation to both employees and employers, that some are actual and others are contingent. Mr Chivers also accepted that it made no difference that some creditors in a class might have other means of recovering their claims, for example a claim against another person, provided that their rights against the company or, in this case, the EL Insurers were not so dissimilar as to require separate classes.
94. Mr Chivers had two grounds for his submission that there should be a separate class comprising contribution claimants. First, their claims arise only if employees, who are other members of the proposed single class, make claims against them. He submitted that where the claims of some creditors depend on action against them by other creditors, the rights of these two groups of creditors are so dissimilar as to make it impossible for them to consult together in one meeting. In effect, one group of creditors can shift the burden of loss on to another group. This is not, in my judgment, a distinction which requires the creation of separate classes. The effect of the scheme is to compromise claims against the EL Insurers. All members of the proposed single class have the same claim against the EL Insurers, that is, to be paid their claims for damages or contribution. Likewise all such rights are equally vulnerable to the coverage and avoidance issues taken by the EL Insurers. It makes no difference to those rights whether the claims are made by employees or by other employers.
95. The second and principal submission of Mr Chivers related to the further deduction from claims of amounts, if any, already paid in respect of the underlying claim. As this feature has now been deleted, it is no longer necessary to consider it in detail. My conclusion was, for the reasons outlined below, that it did not result in the creation of a separate class of contribution claimant.
96. If the effect of the scheme was that other employers would always receive either nothing or a lesser percentage of their claims than employees, it would result in separate classes and meetings. There would be a clear and significant difference of treatment between the two groups when compared with their present position as against the EL Insurers. However, only in certain circumstances would the deduction have fallen to be made. If the employee's claim was paid first by the other employer, its contribution claim against the fund would not be differently treated. In a different example, if the claim was made first against the fund and the fund paid to the employee more than its apportioned share of the liability, it would on normal principles have a contribution claim against other employers. However, under the terms of the scheme and the trust deed, no contribution claims would be made by the fund. Because most of the other employers were confined to a fairly small group, this provided a counter-balancing advantage to them. The balance was not, however, level because it was likely on the whole that employees worked longer for scheme companies than for other employers. A more general benefit was that the greater the payments by the fund to employees, the lower the claims which then may be made against other employers.
97. A further factor was that the scheme did not compromise or affect claims against T&N itself. Other employers who had contribution claims which were not satisfied in whole or in part by the fund would still be able to make their claim against T&N. Depending on T&N's financial position, T&N might be able to make a payment which eliminated or reduced any difference in treatment between contribution claimants and other claimants.
98. Miss Bryant for the administrators relied on all the matters referred to above but her principal submission in favour of one class and hence one meeting was that the fundamental question facing employees and employers alike was whether the scheme represented a sensible way of dealing with their claims against the EL Insurers, all of which are subject to the same risk that the EL Insurers might succeed in avoiding the policies or limiting the coverage. She submitted that the admittedly different treatment of their respective claims in certain circumstances was not significant in comparison and did not involve such dissimilarity in rights as to prevent them all consulting together with a view to their common interests as creditors.
99. In my judgment, Miss Bryant was correct in her approach. She was right that the basic issue facing all claimants is whether the litigation should be compromised on the proposed terms. The comparator in the absence of the scheme is not the claimants' rights against the insurers but their disputed claims. They are not exchanging a clear right against insurers for their rights under the scheme. The prospect of different treatment in certain events should not mask that in other circumstances there would be identical treatment, that it could not be known whether such difference would arise regularly or rarely, and that there were counterbalancing benefits of some value under the scheme. I concluded that the possibility of different rights under the scheme was not such as to require a separate meeting of the contribution claimants. Their rights under the scheme, viewed as a whole, and their common interest in the litigation with the insurers enables them to be part of a single class with the employees for the purpose of considering the scheme with a view to their common interest. Submissions on the fairness of this aspect of the scheme can be made at the sanction hearing. By recording their votes, the views of contribution claimants can be assessed.
100. The changes to the proposals mean that all contribution claims will be subject to individual review so as to determine the appropriate apportionment on the facts of the case, whereas other claims will be subject to the expedited review procedure unless a claimant elects for an individual review. The lower costs of the expedited procedure is reflected in a small financial advantage in using that route, but an expedited procedure is not appropriate to the possible contribution claims, whose assessment will very much depend on their own facts. These changes have not, as I understand it, been notified to Cape. The administrators submit, and I accept, that this difference does not have a significance which would require the creation of separate classes, particularly in the light of the factors discussed in the preceding two paragraphs.

Employers' Liability (Compulsory Insurance) Act 1969 (the 1969 Act)

101. The 1969 Act imposes on employers an obligation to insure against liability for personal injuries sustained by employees in the course of their employment Section 1(1) provides:

"1. (1) Except as otherwise provided by this Act, every employer carrying on any business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business, but except in so far as regulations otherwise provide not including injury or disease suffered or contracted outside Great Britain."

Section 5 creates an offence:

"5. An employer who on any day is not insured in accordance with this Act when required to be so shall be guilty of an offence and shall be liable on summary conviction to a fine not exceeding two hundred pounds; and where an offence under this section committed by a corporation has been committed with the consent or convenience of, or facilitated by any neglect on the part of, any director, manager, secretary or other officer of the corporation, he, as well as the corporation shall be deemed to be guilty of that offence and shall be liable to be proceeded against an punished accordingly."

The offence created by section 5 is one of strict liability. The 1969 Act does not create any civil liability for breach of statutory duty: Richardson v Pitt-Stanley [1995] QB 123.

102. Two issues were raised in relation to the 1969 Act. First, would the scheme combined with the compromise of the claims of and against the EL Insurers involve a contravention of the Act. Secondly, as a result of my ruling that future dependants of employees were not creditors for the purposes of section 425, it was proposed to amend the EL Policies to exclude claims under the Fatal Accidents Act 1976 by future dependants from cover under the policies but on terms that they would be entitled to claim against the trust fund as if they were EL Claimants. The issue was whether this amendment to the EL Policies would contravene the 1969 Act.
103. The essential features of the proposed arrangements for present purposes are as follows. The rights of the EL Claimants against the EL Insurers in respect of EL Claims will be assigned to the trustees. EL Claims mean, in short, present and future asbestos-related claims. The rights against the EL Insurers are either presently vested in the EL Claimants, as regards liabilities which have been incurred within the meaning of the 1930 Act, or would in the future be vested in EL Claimants if T&N were in administration or liquidation when liability to them was incurred. The EL Claimants will be entitled to make claims against the trust fund and will agree not to make claims against the EL Insurers. The trustees and T&N will also agree not to make claims on the policies in respect of the EL Claims. In addition, as I have mentioned, consideration has been given to whether the EL Policies could be amended to remove cover for claims under the Fatal Accidents Act by future dependants, but on terms that they will be entitled to claim against the trust fund as if they were EL Claimants.
104. As regards the first issue, there are two points to note. First, there is nothing in the 1969 Act which curtails the right of an insurer who has issued an approved policy within the meaning of the Act from avoiding the policy on grounds of non-disclosure. The Act imposes obligations on employers; it does not restrict the legal rights of insurers, although the Act is no doubt relevant to the construction of a liability policy taken out in compliance with the Act. In Dunbar v A&B Painters Ltd [1986] 2 Lloyd's LR 38, the problems associated with avoidance were noted, but the right of an insurer to avoid was not doubted. Secondly, there is nothing in the 1969 Act which curtails the rights of employees to compromise claims of or against insurers where the employer's rights against insurers have been transferred to employees under the 1930 Act. There is no basis for suggesting that an individual employee could not by agreement compromise his claim against insurers and the effect of the scheme is to bind all EL Claimants to a compromise of their actual or potential claims against the EL Insurers to the same extent as if by individual agreement. Nor can it be the case, if the EL Claimants compromise the rights transferred to them by the 1930 Act but the liability of T&N to them remains, that T&N is thereafter in breach of the 1969 Act for failure to insure or maintain insurance against that liability.
105. The second issue raises a different question. It involves not a compromise binding on EL Claimants by reason of a scheme of arrangement but an amendment to the policies agreed by the employer and the insurers to exclude a certain class of potential claim. The amendment under consideration will not in substance treat the relevant potential claimants any differently from the EL Claimants bound by the scheme. They will be able to claim against the fund as if they were EL Claimants and their claims will be subject to review and assessment under the TDP in the same way as EL Claims.
106. Submissions were made on this issue by Mr Stanley for the administrators, by Mr Field on behalf of employees and dependants, and by Mr Terry for RSA as one of the EL Insurers. All submitted that the proposed amendment would not involve a contravention of the 1969 Act, but on a number of different grounds and there was in some respects dispute between them.
107. There were two principal and separate strands to the submissions. The first was concerned with whether the claims to be excluded were required by the 1969 Act to be covered by insurance. Section 1(1) requires employers to insure "against liability for bodily injury or disease sustained by his employees". It is common ground that this is not restricted to claims by employees. Mr Field submitted that "bodily injury or disease" did not include death, while claims under the Fatal Accidents Act 1976 are in respect of wrongful death. He drew attention to the statutory scheme for compulsory road traffic liability insurance which considerably pre-dates the 1969 Act. Now contained in the Road Traffic Act 1988, section 145(3)(a) requires that the policy must cover liability in respect of death or bodily injury. Mr Field submitted that the absence of any reference to death in section 1 of the 1969 Act was telling. In the context of a statute which makes breach of section 1 an offence of strict liability, it was appropriate to construe the section strictly and to resolve any ambiguity in the employer's favour. However, sections 145(4)(a) and 145(4A) of the Road Traffic Act 1988 suggest an assumption that liability in respect of death would be covered by employers' liability insurance under the 1969 Act and it has generally been assumed that claims under the Fatal Accidents Act are covered by the 1969 Act. As death in this context will usually, though not invariably, be preceded by bodily injury or disease, and as the Act is not confined to claims by employees, it is surprising if death is not intended to be covered. There is no apparent policy reason for not doing so and, as a matter of ordinary language, bodily injury could include death.
108. Mr Stanley did not support Mr Field's submission but submitted that it was at least arguable that a liability to dependants under the Fatal Accidents Act was not within section 1 of the 1969 Act, unlike the deceased's claim which survives his death and can be maintained by his personal representatives by virtue of the Law Reform (Miscellaneous Provisions) Act 1934. He pointed out that a claim under the 1976 Act is a claim to compensate the dependants, principally for their loss of the deceased's support. It is a claim for their economic loss, and not the economic loss of the deceased or his estate. Damages may also be awarded for bereavement, which, while not an economic loss, is a distinct loss suffered by the dependants. It was, therefore, arguably not a claim "for bodily injury or disease". Although liability under the 1976 Act depended on death caused by the defendant's acts or omission, damages are awarded not for the death or the personal injury which preceded it but for the distinct losses suffered by the dependants. Mr Stanley identified arguments on the language of the Act and on the policy considerations underlying it, both in support of and against this approach. In particular, as the Act is not confined to claims by employees, the most obvious class of other claimants are the dependants of deceased employees. Moreover, as Mr Field submitted, damages for economic loss are a principal head of damages recoverable by a personal injury claimant, but they are as much damages "for bodily injury" as general damages for pain, suffering and loss of amenity, and it is artificial to differentiate between claims under the Fatal Accidents Act and claims for personal injuries on the basis of the component parts of the award.
109. I am strongly inclined to the view that claims under the 1976 Act are not excluded from the scope of the 1969 Act on either of the bases suggested by Mr Field and Mr Stanley but, in light of the view which I take on the other principal submission on this issue, it is unnecessary to form a concluded view on these arguments.
110. The other principal submission was that the proposed amendment to the policies as part of, and on the terms of, an overall compromise of the EL Insurers' coverage and avoidance claims did not contravene the 1969 Act. This was Mr Stanley's main submission and it was supported by Mr Terry, although their analysis of the construction of the Act to some extent differed. Mr Field submitted that this aspect of the compromise could well contravene the Act, if the Act applied to claims under the Fatal Accidents Act.
111. The apparently straightforward provisions of the 1969 Act give rise to some difficult issues of construction. This is principally because, as Mr Stanley identified, section 5 does not sit altogether easily with section 1. They must however be construed as co-extensive, because the Court of Appeal held in Richardson v Pitt-Stanley [1995] QB 123 that the Act operates only in the sphere of criminal law.
112. A liability insurance policy will usually relate to a fixed period, typically one year. This is recognised in section 4(2) of the 1969 Act which requires the compulsory certificate of insurance to be displayed and available for production and inspection "during the currency of the insurance and such further period (if any) as may be provided by regulations."
113. The cover does not cease at the end of the policy period but continues in respect of the insured events which occurred during that period. Different policies may provide cover against different categories of events occurring during the policy period. Many indemnity policies provide cover against claims made during the policy period, but that was not conventionally the case with employers' liability insurance in 1969 nor does it appear to be what is contemplated by section 1(1), although the precise requirement of the section is by no means clear. More commonly, employers' liability insurance provided cover against liability for injuries sustained during the policy period. This is in fact the nature of the cover provided by the EL Policies issued by the Syndicate. It is not, however, the only type of cover which might be provided. The EL Policies issued by RSA or its predecessor provide cover against "bodily injury or disease caused during the period of insurance and arising out and in the cause of his employment." A disease may be "caused" long before it is "sustained".
114. The issue which arises is whether the 1969 Act is contravened if, after the expiry of the policy period, the policy is terminated or the terms of the policy are amended so that the policy no longer complies with the Act. Termination may occur as a matter of agreement. The policy might be commuted by the payment of a lump sum by the insurer or terminated with a partial return of premium. This might be agreed in relation to a policy such as that written by the Syndicate on the basis of an assessment of the likelihood of claims being made in respect of injuries or diseases sustained during the policy period. More probably it would occur with a policy like RSA's, on the basis of an assessment of the likelihood of diseases developing as a result of causative events during the policy period. Alternatively, termination might involve no agreement by the employer. The insurer might exercise a right to avoid the policy for misrepresentation or non-disclosure, or the insurer might go into insolvent liquidation and the liquidator disclaims the policy.
115. In these circumstances, does termination or amendment after the expiry of the policy period involve a breach of the obligation to "insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers" and, in any event, does section 1 impose a continuing obligation to replace it with insurance which complies with the Act?
116. On one construction of the Act, the requirement is restricted to having in place on each day on which an employer is carrying on business a policy covering events, whether it is injuries and diseases sustained or injuries and diseases caused, on that day. The requirement that an employer "shall insure…under one or more approved policies" refers to taking out the policy, and the requirement to "maintain insurance under one or more approved policies" refers to keeping the policy in place, for example by paying periodic premiums, during the policy period. So construed, it fits easily with section 5 which provides that an "employer who on any day is not insured in accordance with this Act when required to be so shall be guilty of an offence" and liable to a fine. If a policy is avoided or otherwise terminated during the policy period, and there is then a period during which the employer does not have the required insurance, he commits an offence on each day in that period. If the obligation were not only to have insurance in place on that day but also thereafter to maintain the cover in respect of events which occurred on that day, the employer would be committing an offence on each subsequent day unless he could purchase replacement cover. This would apply after the end of the policy period as well during it. It could very easily prove impossible to obtain replacement insurance, particularly if the policy was terminated after the policy period. It is almost certainly impossible to obtain retrospective cover in respect of asbestos-related diseases. Section 5 is an offence of strict liability and, unless section 1 is confined as indicated above, an employer in these circumstances would either have to cease carrying on business or commit a new offence on each subsequent day for the indefinite future. It is true that this would permit employers to terminate policies voluntarily after the end of the policy period, which are needed for the continuing protection of past and present employees against past events, without committing an offence under the Act. Although this is unattractive, it would be impossible to confine the effect of section 5 on the termination of policies after the end of the policy period to such cases.
117. It was on grounds such as these that Mr Stanley submitted that the 1969 Act was not directed to the continuing force of policies after the expiry of the policy period. It was a more modest measure, introduced as a private member's bill and designed to deter employers from carrying on business without current employers' liability insurance. The Act is capable of being easily applied and understood if the effect of the Act is confined in this way, and the creation of a strict liability offence by section 5 is in those circumstances reasonable.
118. Mr Field submitted that the obligation to maintain insurance should be read as having a greater significance than keeping the policy in place during the policy period. He drew attention to the requirement under section 1(1) to maintain insurance against liability not only for bodily injury but also disease. While an accident and injury normally coincide, that is not the case with disease. The development of a disease will rarely coincide with the breach of duty and, as with asbestos-related diseases, may occur many years later. This was well-known in 1969. The growing incidence of asbestosis had led to the Asbestos Industry Regulations 1931 and appreciation that mesothelioma could result from exposure to small quantities of asbestos dust led to the Asbestos Regulations 1969.
119. Mr Field submitted that these considerations should inform the construction of the obligation to maintain insurance. If the obligation to maintain insurance is restricted to the policy period, it provides little or no protection to those employees who develop diseases, nor does it add to the obligation to insure. Mr Field submitted that it should be read as dealing with the mischief presented by the possibility of a consensual termination of a policy or an amendment restricting the cover provided by the policy. It should be construed as an obligation both to do all acts necessary to keep the cover in place and not to do any acts which would bring it to an end. Section 1 therefore imposes two duties. One is to be insured on each day in respect of occurrences on that day. The other is to maintain, in the sense just described, the relevant policy thereafter. Accordingly, a unilateral termination by the insurer after the policy period, for example by avoidance, would not involve or lead to a breach of obligation or an offence by the employer, whereas a consensual termination or amendment would do so. I should add that Mr Field made clear that, in his submission, the duty to maintain insurance under an approved policy after the end of the policy period presupposed an existing policy and it did not impose a duty to take out a retrospective policy.
120. How then is that approach applied to a compromise of a claim by the insurer to avoid the policy? Mr Field submitted that it depended on whether the insurer's claim was well-founded. If it was, the policy was at an end by reason of the insurer's unilateral act and the compromise was a mitigation of its consequences involving no contravention of the Act. If, by contrast, the claim to avoid was not well-founded, then it would be the compromise which terminated the policy and there would accordingly be a breach of the obligation to maintain insurance.
121. If correct, this submission would prevent any compromise of a claim to avoid or restrict the coverage provided by a policy taken out in compliance with the Act. It would be impossible to know whether an offence was committed until the dispute had been finally determined, by which time it would be too late to compromise it. As Mr Stanley and Mr Terry submitted, this could be highly disadvantageous to the employees intended to be protected by the Act, and it is hard to imagine that Parliament intended to make the bona fide compromise of a bona fide dispute a criminal offence.
122. Mr Terry explained the particular concerns of the EL Insurers that the scheme, and the amendments to the policies, should not involve the commission of an offence on the part of T&N or the insurers as accessories. Equally they are concerned that the validity of the compromise and the amendments to the policies should not be open to attack. Mr Terry supported the approach taken by Mr Stanley, that the absence of insurance under an approved policy on a particular day to cover events occurring on that day would involve an offence on that day, but not on subsequent days. If a policy were terminated during the policy period, the Act would require a replacement policy for the remainder of the period but if the policy is terminated for whatever reason after the policy period the Act does not require the employer to obtain replacement insurance. Otherwise it might require the employer to achieve the impossible. Alternatively, and to deal with the mischief of a voluntary commutation after the policy period, Mr Terry submitted that section 1 could be construed as prohibiting a commutation or voluntary amendment, but not as prohibiting either a unilateral avoidance or a termination or amendment as part of a genuine compromise. A compromise after the end of the policy period would neither itself involve the commission of an offence nor lead to the commission of an offence in the future as a result of the absence thereafter of the insurance required by the Act.
123. I am of the view that Mr Stanley's construction of the Act is correct. I accept, as he does, that it is surprising that an employer could with impunity allow a valid policy to be terminated after the end of the policy period, but the wording of section 5 allows little or no room for distinguishing between different causes for the absence of insurance. If section 5 is construed as applying in such a case, it will apply in the other cases in which, for whatever reason, the employer no longer has cover under an approved policy after the end of the policy period. The Act does not prohibit insurers from avoiding policies, but avoidance may deprive an employer of insurance for which no replacement is available. Parliament cannot have intended the employer to be thereafter guilty of an offence in such circumstances, nor can it have intended to preclude bona fide compromises. Moreover, there is no material to suggest that the risk of voluntary commutations was seen as a mischief requiring legislative action.
124. It is not necessary in this case to reach a final conclusion that a voluntary commutation would not involve or cause a breach of the 1969 Act. It is enough to say that there is nothing in the Act which precludes a genuine compromise of a genuine dispute, even if that involves an amendment of the policy as proposed in this case as regards future dependants. Nor is T&N thereafter committing an offence by not having a replacement policy to provide against possible liability to future dependants. Still less can it be said that the EL Insurers would be guilty of an offence as accessories by entering into a genuine compromise, having in good faith asserted a right to avoid the policies or to limit the coverage. None of this is academic so far as concerns the court's role in relation to the proposed schemes. If they involved or caused the commission of offences, I cannot envisage that the court would sanction the schemes.

Provision for future amendment

125. The trust deed contains a provision enabling the trustee to amend any part of the TDP, except section 1 which sets out the core objective. The power may be exercised only "to take account of advances in scientific or medical knowledge or other changes in circumstances or in the law insofar as such advances or changes affect EL Claims under the TDP". In an application by Cape to convene meetings to consider the scheme of arrangement which it is promoting for the purposes of dealing with asbestos liabilities, I held, after full argument, that the court has jurisdiction to sanction a scheme where either the scheme, or documents which are an integral part of the arrangement, contain provisions for amendment after the scheme has been sanctioned. Similarly, the court would in my judgment have jurisdiction to sanction the scheme to be promoted by the administrators in this case, with the trust deed containing the amendment provision.
126. Consideration of all aspects of the fairness of the scheme is a matter for the hearing to sanction the scheme. It is nonetheless appropriate to say at this stage that the amendment provision is not such as would inevitably result in the court declining to sanction the scheme. The TDP is intended to operate over a long period, of 40 years or more. It is highly likely that there will be scientific or medical advances in that time which have a material impact on the operation of the TDP. The same is true of changes in the law, as demonstrated by the recent decisions of the Court of Appeal in Rothwell v Chemical & Insulating Co Ltd [2006] EWCA Civ 27 and the House of Lords in Barker v Corus (UK) Ltd. "Other material changes" could include, for example, significant changes in projected rates of return. In order to achieve a fair distribution of the trust fund over its expected life, it is almost inevitable that some adjustments to the TDP will be required. It would be impracticable to seek to make them through further schemes of arrangement. The decision as to any changes to be made will be taken by the trustee, which is intended to be a trust company owned by the firm in which the administrators are partners. The trustee is properly regarded as independent and it will be bound by its fiduciary powers in the exercise of the power of amendment.

Directions as to the meetings

127. I have referred to the impossibility of assembling a comprehensive and reliable database of the names and addresses of former employees of the scheme companies. The best database of retired employees and their surviving spouses is that maintained by the trustees of the T&N pension fund and notice will be sent to each person whose name and address appears in it and who is identified by the administrators as being within the class of EL Claimants. It will also be sent to each other person known to the administrators as an EL Claimant. Each solicitor known by the administrator to be acting for an EL Claimant will be sent the notice in place of the claimant.
128. It is vitally important that all reasonable steps are taken to bring the proposed scheme and the meetings to the attention of those who will be affected by it. As the current addresses of many former employees and their dependants are unknown, the role of advertisements and similar measures is very important. The administrators intend to advertise in a wide range of newspapers, both national and local in areas where scheme companies had factories and other workplaces. There will also be advertisements in specialist legal and other publications. Although not part of the court's directions, notification will be given to trade unions, firms of solicitors who regularly act for claimants, asbestos support groups and others to whom possible claimants may turn for help or who may be able to contact possible claimants.
129. The administrators are also taking steps to ensure that the documents sent to possible claimants are as comprehensible as possible, with a question and answer document and a list of organisations which may be able to help them, as well as an explanatory statement in compliance with section 426. The more complex and formal documents will be readily available to possible claimants, as well as being sent to solicitors and others, but will not be sent to EL Claimants unless requested. I will direct that a copy of the scheme itself need not be included in the documents to be sent to possible claimants. This is unusual, although not unprecedented. However, I consider it appropriate in the particular circumstances of this case, having regard to the complexity of the legal arrangements and the inevitably technical character of the terms of the schemes and other documents. Their terms are fully explained in the documents which will be sent out and a copy of the scheme and other documents will be supplied on request.
130. In view of the common characteristics of the proposals for all the companies, the meetings will be preceded by a question and answer session open to the EL Claimants of all companies. The individual meetings will then follow, and I will direct that it is for the chairman to decide whether, in respect of the meeting of EL Claimants of each company, those attending other meetings can remain in the hall. The conduct of meetings convened pursuant to section 425 is subject to the court's direction and it is open to the court to give directions on matters which would generally be for those present at the meeting to decide. Under the general law, it is for those who are both present and entitled to be present at a meeting to decide whether persons not entitled to be present should remain, although assent will be presumed in the absence of objection: Carruth v Imperial Chemical Industries Ltd [1937] AC 707 at 761 and 767. In the circumstances where fifty-eight meetings are to be held, the right course in my view is to give discretion on this issue to the chairman. I shall likewise give the chairman discretion to adjourn any of the meetings if for whatever reason he considers it to be the right course.