Strand, London, WC2A 2LL
B e f o r e :
| In Matter of T&N Limited and Others
|- and -
|In the Matter of the Insolvency Act 1986
Robin Dicker QC and Richard Fisher (instructed by Sidley Austen Brown and Wood) for Federal Mogul Corporation and its affiliates as debtors in possession in the proceedings under Chapter 11 of the US Bankruptcy Code, the Official Committees of Unsecured Creditors and of Equity Security Holders and JP Morgan Chase Bank as Administrative Agent for the holders of pre-petition bank debts
William Trower QC and Stephen Robins (instructed by DLA Piper Rudnick Gray Cary (UK) LLP) for Lloyd's Syndicate 45/177
David Allan QC and Hugo Groves (instructed by John Pickering and Partners) for the Representative UK Asbestos Claimants
Simon Mortimore QC, James Eadie and Blair Leahy (instructed by Allen & Overy) for the Trustees of the T&N Retirement Benefits Scheme (1989)
Crown Copyright ©
Mr Justice David Richards:
"For the purposes of this Application
(1) "future asbestos claim" means any personal injury claim against a UK Debtor where:
(a) the claimant was exposed to asbestos which could cause an asbestos-related disease or diseases, and
(b) the relevant UK Debtor would be liable in respect of that exposure and any such disease or diseases, and
(c) all of the exposure to asbestos occurred prior to the relevant date or the liquidation date (as the case may be), but
(d) the claimant's cause of action, if any, against the relevant UK Debtor will accrue after the relevant date (in the case of paragraph 2 below) or the liquidation date (in the case of paragraph 3 below).
(2) "relevant date" means a date on which the Administrators propose in respect of the relevant UK Debtor a scheme of arrangement pursuant to section 425 of the Companies Act 1985 (the 1985 Act), and/or a company voluntary arrangement pursuant to the provisions of Part I of the Insolvency Act 1986 (the 1986 Act).
(3) "liquidation date" means a date on which the relevant UK Debtor goes into liquidation pursuant to the provisions of Part IV of the 1986 Act."
"3. That it may be determined and declared whether a claimant in respect of a future asbestos claim against a UK Debtor would be a "creditor" of the UK Debtor so as to be capable of being bound by any compromise or arrangement sanctioned by the Court pursuant to section 425 of the 1985 Act and/or by any company voluntary arrangement approved pursuant to the provisions of Part I of the 1986 Act.
4. That it may be determined and declared whether a claimant in respect of a future asbestos claim against a UK Debtor would be entitled to prove for a debt in the liquidation of that UK Debtor pursuant to the provisions of Part IV of the 1986 Act and/or Part 4 of the Insolvency Rules 1986."
Representation and the parties' positions
Development of asbestos-related diseases
(1) The inhalation of asbestos fibres. Following inhalation, a proportion of the fibres never reach the lungs. Some are caught in the nasal passage; others are trapped in the mucus which lines the body's airways and are eventually swallowed or expectorated.
(2) Deposit of fibres into lungs. When fibres are deposited in the lungs, the body's natural defences (scavenger cells known as "macrophages" and dissolution in tissue fluids) succeed in clearing some of the fibres or (by a coating process) operate so as to neutralise them. However, a substantial proportion survives these processes.
(3) The by-products of the body's natural defences and the bio-persistence of asbestos fibres are the cause of asbestosis. Failed macrophages die and they, and the surviving asbestos fibres, produce a chemical reaction. This reaction in turn produces an inflammation of the lung which, if sufficiently serious and prolonged, can cause fibrosis – asbestosis – to develop. It does not usually become apparent or detectable until after 20 years from first exposure.
(4) The presence of asbestos fibres in the lung increases the likelihood of the development of lung cancer, with the fibres acting in relation to at least some of the genetic mutations which result in the first malignant cell. Asbestosis is a sufficient, but probably not a necessary, condition for the development of cancer of the lung. With the other asbestos-related diseases, it shares a long latency period. However, and as with mesothelioma (as to which further below), the first malignant cell may develop some considerable time before the cancer actually becomes manifest. Once manifest, the disease is almost always fatal and death occurs within a very short period of between 12 and 18 months.
(5) Asbestos fibres can pass from the lungs and penetrate the pleura. The precise route is as yet unclear.
(6) The presence of asbestos fibres commonly causes pleural plaques to develop. These are localised areas of pleural thickening, consisting of bland fibrous tissue. The cause is not absolutely clear, although it appears to be similar to asbestosis; that is, an inflammation caused by a chemical reaction produced by pleural macrophages and the presence of asbestos fibres. As with asbestosis, pleural plaque rarely becomes apparent or detectable until after 20 years from first exposure.
(7) Pleural thickening is pleural fibrosis, extending continuously over a variable proportion of the thoracic cavity, usually involving the visceral pleura. The cause, development and latency period are similar to pleural plaques. However, unlike pleural plaques, the disease may manifest itself in the form of physical symptoms.
(8) Mesothelioma is a malignant tumour arising from mesothelial cells and is found most commonly in the pleura, and sometimes in the peritoneum. Asbestos fibres in the pleura increase the likelihood of the development of the requisite malignant cell, although it is not clear precisely at which stages of mutation the fibre operates or what precise form that development takes. The mean latency period is 40 years, although (if the end of that period is taken to be the first manifestation of symptoms) the appearance of the first malignant cell takes place within that period – about 10 years prior to the first manifestation of symptoms. The disease is fatal, death usually occurring within about 12 months after the onset of symptoms.
It is therefore not just the symptoms, but the condition itself, which may not start to develop for many years after exposure.
Accrual of causes of action
"It is, no doubt, proper when considering tortious liability for negligence to analyse its elements and to say that the plaintiff must prove a duty owed to him by the defendant, a breach of that duty by the defendant, and consequent damage. But there can be no liability until the damage has been done. It is not the act but the consequences on which tortious liability is founded. Just as (as it has been said) there is no such thing as negligence in the air, so there is no such thing as liability in the air. Suppose an action brought by A for damage caused by the carelessness (a neutral word) of B, for example, a fire caused by the careless spillage of oil. It may, of course, become relevant to know what duty B owed to A, but the only liability that is in question is the liability for damage by fire. It is vain to isolate the liability from its context and to say that B is or is not liable, and then to ask for what damage he is liable. For his liability is in respect of that damage and no other. If, as admittedly it is, B's liability (culpability) depends on the reasonable foreseeability of the consequent damage, how is that to be determined except by the foreseeability of the damage which in fact happened - the damage in suit? And, if that damage is unforeseeable so as to displace liability at large, how can the liability be restored so as to make compensation payable?"
"for damages for personal injuries in which there is proved or admitted to be a chance that at some definite or indefinite time in the future the injured person will, as a result of the act or omission which gave rise to the cause of action, develop some serious disease or suffer some serious deterioration in his physical or mental condition."
"This type of award has to be compensation for a penetration of the body by asbestos fibres, which penetration is permanent and of sufficient extent and maturity as to give rise to pleural plaques and to the fact of a lifetime risk of the onset of a symptomatic condition, with concomitant 'suffering' or loss of amenity in terms of anxiety. It does not have to compensate for the onset of any such conditions in terms of general damages or prospective financial loss. I reject a Defendants' submission that the fact of an award presently predicated on the basis that no such condition will in fact arise somehow adversely affects so much of the claim as invokes anxiety. Whether or not there is an immediate award that reflects the onset of such a condition and its consequences, the threat of such remains and is a potential source of anxiety."
At para 90B, Holland J, explained the approach to a final award and the submissions made on it:
"Granted that the final award has from the onset been pitched at a level higher than that for a provisional award, what is it that commands greater compensation? The only apparent factor is the actual assessed risk of the future onset of an asbestos related symptomatic, possibly terminal condition. I consider each of the three presently claimed full awards separately in due course – it is convenient presently to take Mr. Grieves as an example. In his case (as a 64 year old) that which arguably justifies a general damages award higher than that appropriate on a provisional basis are 2% risks of the future onset of diffuse pleural thickening, further or alternatively asbestosis; and 5% risks of the future development of a mesothelioma, further or alternatively lung cancer. It is the potential for the onset of one or more of these conditions that is said to merit an enhanced award. Essentially, proof on balance of probabilities that there are these risks justifies, so it is submitted, substantially higher compensation in terms of general damages."
Holland J held that Mr Grieves could not recover damages based on the possibility of an asbestos-related condition developing because it was too speculative.
Are Future Asbestos Claimants "creditors" for the purposes of schemes of arrangement and CVAs?
"It is difficult to put a meaning on sect. 2 of the Joint Stock Companies Arrangement Act, 1870, and the case is complicated by the scheme. But, on the whole, I may take it that sect. 2 is intended to apply to everybody who can be treated as a creditor of any sort, whether actual or contingent. Craig, being some sort of a creditor, within the meaning of the Act, so that he could be bound by meetings of creditors, either was bound by some order of the Court, or he had it in his power to get himself protected, and must be treated as if he were a party represented by some particular class of creditors. As one of the creditors, or of a class of creditors, he was a party to and bound by the scheme."
"Considering that that Act was passed in order to enlarge the powers conferred by sect. 159 of the Companies Act, 1862, we agree with Mr Justice Wright in thinking that the word "creditor" is used in the Act of 1870 in the widest sense, and that it includes all persons having any pecuniary claims against the company. Any other construction would render the Act practically useless" (p. 277).
"any person who [has] or claims to have any claim against the company arising out of or having its origin in any matter occurring on or prior to 14 February 1986 or arising out of any transaction, act or omission of the company or any person on or before 14 February 1986, whether the claim be present, future or contingent or whether liquidated sounding only in damages and whether in contract or in tort howsoever arising…"
The company was insolvent, but not in liquidation, and, under the applicable insolvency rules, a person with an unliquidated claim in tort was excluded from proof in the winding-up of an insolvent company, whether his cause of action accrued before or after the liquidation date. McLelland J saw no warrant for introducing this exclusion into the meaning of "creditors" in section 315 of the Companies Code, which governed schemes of arrangements in terms similar to section 425. In reaching this conclusion, he referred to the fact that such claims were provable in the winding-up of a solvent company and observed:
"It is highly unlikely that the legislature would have intended the ambit of that expression to vary depending upon whether the company was solvent or insolvent, and to exclude persons having liquidated claims in tort from the scope of sec. 315 would make little commercial sense."
"it would, in my view, be highly anomalous if company voluntary arrangements under the 1986 Act, which are intended to be an alternative to liquidation, and s.425 compromises or arrangements did not have the same potential ambit."
Knox J therefore applied by analogy the decision of the Court of Appeal in Re Midland Coal, Coke and Iron Co that "creditors" include all persons having any pecuniary claims against the company, including those whose claims are future or contingent.
"1.17(2) [Calculation of votes] Votes are calculated according to the amount of the creditor's debt as at the date of the meeting or, where the company is being wound up or is in administration, the date of its going into liquidation or (as the case may be) when the company entered administration.
1.17(3) [Limitation on voting] A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained and for the purposes of voting (but not otherwise) his debt shall be valued at £1 unless the chairman agrees to put a higher value on it."
The word "debt" is not defined for the purposes of this rule. While it might not obviously suggest a wholly contingent liability, it is clear from Re Cancol Ltd that it does so.
"all liabilities of the company (computed, as regards liabilities which have not matured at the death, by reference to the value thereof at that date, and, as regards contingent liabilities, by reference to such estimation as appears to the Commissioners to be reasonable)…"
The issue was whether the balancing charges payable on a sale of the ships was for these purposes "contingent liabilities" of the company at the date of the deceased's death.
"a liability which, by reason of something done by the person bound, will necessarily arise or come into being if one or more certain events occur or do not occur." (p 249.)
Although Lord Reid formally expressed no final view as to the meaning of contingent liability as a matter of English law, this was an English appeal on the construction of a United Kingdom statute, and there is no good basis for suggesting that it generally has a different meaning in English law.
"to this extent, that this class can only include liabilities which in law must arise if one or more things happen and cannot be extended to include everything that a prudent businessman would think it proper to provide against." (p 249)
The difference here was that by accepting the capital allowances, the company came under a statutory obligation to pay balancing charges if the ships were later sold at more than a certain amount, and it did not matter that it was a matter of choice for the company whether it sold the ships.
"It was no less a contingent liability because the sale of the ships might not take place. The true legal position was that from the moment the appellants accepted capital allowances they were at once under a liability to pay tax in the circumstances provided for in the Income Tax Act, 1952."
At p. 264, Lord Guest said, in terms which are particularly in point to the present case:
"The claim for initial allowances for what has been described as depreciation is the voluntary choice of the taxpayer, but, once he has obtained such allowances, he is automatically involved by the operation of law in the payment of balancing charges, if the assets are parted with at a price greater than the written down value in the circumstances defined in section 292 of the Income Tax Act, 1952."
"9 It is not however necessary for the purposes of rule 4.90(2) that the debt should have been due and payable before the insolvency date. It is sufficient that there should have been an obligation arising out of the terms of a contract or statute by which a debt sounding in money would become payable upon the occurrence of some future event or events. The principle has typically been applied to claims for breach of contract where the contract was made before the insolvency date but the breach occurred afterwards ( In re Asphaltic Wood Pavement Co (1885) 30 Ch D 216) or claims for indemnity by a guarantor where the guarantee was given before the insolvency date but the guarantor was called upon and paid afterwards: Jones v Mossop (1844) 3 Hare 568; In re Moseley-Green Coal and Coke Co Ltd, Ex p Barrett (1865) 12 LT (NS) 193.
10 The effect of these and similar cases was summed up by Millett J in In re Charge Card Services Ltd  Ch 150, 182:
"By the turn of the [20th] century, therefore, the authorities showed that debts whose existence and amount were alike contingent at the date of the receiving order, and claims to damages for future breaches of contracts existing at that date, were capable of proof and, being capable of proof, could be set off under the section provided that they arose from mutual credits or mutual dealings. The only requirement was that they must in fact have resulted in quantified money claims by the time the claim to set off was made." "
He held that the apparent reasoning of the Court of Appeal in Re A Debtor (No 66 of 1955) ex p. The Debtor v Waite's Trustee  1 WLR 480, that a surety under a pre-insolvency guarantee is not entitled to set-off unless he has paid the debt before the insolvency date, was wrong and continued:
"17 This means that if the Secretary of State had agreed by contract before the insolvency date to guarantee any future liability of the company to pay compensatory notice pay or make redundancy payments to employees under the 1996 Act, the contract of guarantee would have created a contingent liability on the part of the company to reimburse the Secretary of State which was a "debt" at the insolvency date and became capable of set-off when the employees were afterwards paid. The next question is whether it makes a difference that the contingent liability existed by virtue of a statute rather than a contract and, not being consensual, that it involved no direct contract or other relationship with the employees or the company.
19 If a statutory origin does not prevent set-off in the case of debts due and payable at the insolvency date, I do not see why it should make any difference that the statute creates a contingent liability which exists before the insolvency date but falls due for payment and is paid afterwards. The term "mutual debts" does not in itself require anything more than commensurable cross-obligations between the same people in the same capacity. How those debts arose--whether by contract, statute or tort, voluntarily or by compulsion--is not material."
"How those debts arose – whether by contract, statute or tort, voluntarily or by compulsion – is not material."
The example of a liability arising by application of the principle of reimbursement is likewise "by operation of law". The liability in tort which Lord Hoffmann may have had particularly in mind is illustrated by the Australian case of Gye v McIntyre 171 CLR 609, to which he referred in the context of "mutual dealings". The High Court held that a claim for damages for fraudulently inducing the insolvent company to make a contract with a third party could be set off against a liability on a loan. The loss caused by the fraud had been suffered before the liquidation date, so that there was at that date a complete cause of action in tort. This does not however mean that Lord Hoffmann's reference to tort in the passage cited above should be confined to completed causes of action.
Are future asbestos claims provable debts in a winding-up of T&N?
"[What is provable] Subject as follows, in administration, winding up and bankruptcy, all claims by creditors are provable as debts against the company or, as the case may be, the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages."
Rule 12.3(2) ("What is not provable") specifies very limited categories of claims which are not provable; it does not include contingent claims in tort.
"13.12(1) [Definition] "Debt", in relation to the winding up of a company, means (subject to the next paragraph) any of the following—
(a) any debt or liability to which the company is subject at the date on which it goes into liquidation;
(b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and
(c) any interest provable as mentioned in Rule 4.93(1).
13.12(2) [Liability in tort] In determining for the purposes of any provision of the Act or the Rules about winding up, whether any liability in tort is a debt provable in the winding up, the company is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued.
13.12(3) [Debt or liability] For the purposes of references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly.
13.12(4) ["Liability"] In any provision of the Act or the Rules about winding up, except in so far as the context otherwise requires, "liability" means (subject to paragraph (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution."
"(1) [Bankruptcy debt"] "Bankruptcy debt", in relation to a bankrupt, means (subject to the next subsection) any of the following—
(a) any debt or liability to which he is subject at the commencement of the bankruptcy,
(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,
(d) any interest provable as mentioned in section 322(2) in Chapter IV of Part IX..
(2) [Liability in tort] In determining for the purposes of any provision in this Group of Parts whether any liability in tort is a bankruptcy debt, the bankrupt is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued.
(3) [References to debt or liability] For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group of Parts to owing a debt are to be read accordingly.
(4) ["Liability"] In this Group of Parts, except in so far as the context otherwise requires, "liability" means (subject to subsection (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment and any liability arising out of an obligation to make restitution."
Just as Rule 13.12 defines "debts" for the purposes of proof in a winding-up, section 382 defines debts for the purposes of proof and distribution in bankruptcy: see sections 322 and 324 of the Insolvency Act 1986.
"My Lords, the question in this case seems to me to depend entirely upon the true construction of the 31st section of the Bankruptcy Act of 1869, but before proceeding to discuss the particular words now under construction it is not unimportant to notice the gradual steps taken by the legislature to extend the application of the bankruptcy law to future and contingent debts. Mr. Eden in a treatise published in 1826 points out that one of the most important and valuable alterations effected by the 6 Geo. 4 c. 16 was the provision which it contained with respect to proof of contingent debts. Prior to that Act contingent demands could not be proved under a commission taken out before the contingencies upon which they were made payable had taken effect. Nearly eighty years before that time Lord Hardwicke expressed a wish in which Lord Eldon afterwards concurred "that some gentleman might think of a clause which might remedy and settle the matter for the future." My Lords, from that time till the year 1869 I think the legislature has been engaged in the effort to exhaust every conceivable possibility of liability under which a bankrupt might be, to make it provable in bankruptcy against his estate and relieve the bankrupt for the future from any liability in respect thereof."
"Upon the question of the right of proof I am satisfied that there can be no real question as to the intention of the Legislature. A great number of cases occurred, before the passing of the late Act, in which the bankrupt was left liable to several claims of various kinds, and the persons who had those claims were entirely excluded from any participation in the general division of the assets. Then came the Act of Parliament, which - dealing in express terms with almost every one of the cases which had ever previously occurred, and excluding nothing but demands for damages for personal torts - provided that there should be nothing whatever for which a right to proof should not be given. Every possible demand, every possible claim, every possible liability, except for personal torts, is to be the subject of proof in bankruptcy, and to be ascertained either by the Court itself or with the aid of a jury. The broad purview of this Act is, that the bankrupt is to be a freed man - freed not only from debts, but from contracts, liabilities, engagements, and contingencies of every kind. On the other hand, all the persons from whose claims, and from liability to whom he is so freed are to come in with the other creditors and share in the distribution of the assets."
"It seems to me that the House of Lords, in Hardy v. Fothergill, has laid down a rule of interpretation, or rather a rule of conduct, for the Court where it has to construe the Bankruptcy Act. It is true that the remarks of the Lord Chancellor relate to the Bankruptcy Act, 1869, but they are equally applicable to the later Act [Bankruptcy Act 1883], and may be paraphrased by saying that since the statute 6 Geo. 4, c. 16, till the year 1883, the legislature has been engaged in the effort to exhaust every conceivable possibility of liability under which a bankrupt might be, to make it provable in bankruptcy against his estate and relieve the bankrupt for the future from any liability in respect thereof."
"In the event of any company being would up under this Act, all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as is possible, of the value of all such debts or claims as may be subject to any contingency or sound only in damages, or for some other reason do not bear a certain value."
"It is a basic principle of the law that every debt or liability capable of being expressed in money terms should be eligible for proof in the insolvency proceedings, so that the insolvency administration should deal comprehensively with, and in one way or another, discharge, all such debts and liabilities."
A similar statement of principle was contained in a report of the Australian Law Reform Commission: General Insolvency Inquiry (1988):
"A comprehensive system. A basic aim of insolvency law is to deal comprehensively with all of the debts and liabilities of the insolvent. In the case of an individual insolvent, the aim is to have all claims to which the insolvent was subject at the time of the commencement of the formal administration resolved so that the insolvent can make a fresh start. This reflects the rehabilitative aim of insolvency law. In the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully would up or so that it can resume trading."
"(1) Demands in nature of unliquidated damages arising otherwise than by reason of a contract, promise, or breach of trust shall not be provable in bankruptcy.
(3) Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order, shall be deemed to be debts provable in bankruptcy.
(4) An estimate shall be made by the trustee of the value of any debt or liability provable as aforesaid, which by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value.
(6) If, in the opinion of the court, the value of the debt or liability is incapable of being fairly estimated, the court may make an order to that effect, and thereupon the debt or liability shall, for the purposes of this Act, be deemed to be a debt not provable in bankruptcy.
(7) If, in the opinion of the court, the value of the debt or liability is capable of being fairly estimated, the court may direct the value to be assessed before the court…and the amount of the value when assessed shall be deemed to be a debt provable in bankruptcy.
(8) "Liability" shall, for the purposes of this Act, include
(a) any compensation for work or labour done;
(b) any obligation or possibility of an obligation to pay money or money's worth on the breach of any express or implied covenant, contract, agreement, or undertaking, whether the breach does or does not occur, or is or is not likely to occur or capable of occurring, before the discharge of the debtor;
(c) generally, any express or implied engagement, agreement, or undertaking, to pay, or capable of resulting in the payment of, money or money's worth; whether the payment is, as respects amount, fixed or unliquidated; as respects time, present or future, certain or dependent on one contingency or on two or more contingencies; as to mode of valuation, capable of being ascertained by fixed rules or as a matter of opinion."
The effect of section 30(1) was to exclude from proof unliquidated damages in tort. Such claims therefore survived a bankruptcy and could be pursued against a former bankrupt and his after-acquired property.
"In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law bankruptcy) all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency or sound only in damages, or for some other reason do not bear a certain value."
Accordingly, unliquidated claims in tort could be proved in the winding-up of a solvent company. If, however, the company were insolvent they could not be the subject of proof and, in the absence of joint tortfeasors or insurance available to the claimant under the Third Parties (Rights against Insurers) Act 1930, the claim would remain entirely unpaid. This represents an important difference between insolvent companies and individuals. The winding-up of an insolvent company leads almost inevitably to its dissolution and there is no equivalent to proceeding against the bankrupt after his discharge.
"It has been put to us that, having regard to the elaborate rules which exist for dealing with contingent liabilities, such as annuities, it is unacceptable that tort claims should be left outside the category of provable debts. We agree. We recommend that the present rule in bankruptcy be reversed, and that all claims for damages, whether in contract or in tort, be admissible to proof in liquidation of assets, bankruptcy or winding up, provided only that the claim is liquidated by agreement or judgment before it becomes proved." (Emphasis added)
It can be seen that the Cork Report did not recommend that unliquidated claims in tort should as such be provable, which would seem to have been the solution favoured by Vinelott J in Re Berkeley Securities Ltd (Property) Ltd at pp 1611–1612 but was not open to him on the statutory provisions as they then stood. Instead, the Cork Report adopted as its recommendations the route adopted by Vinelott J as his decision, that tort claims should be admissible to proof but only after they had been liquidated by judgment or agreement.
"Notwithstanding any other enactment or any rule of law, a claim for damages or contribution in respect of a wrong shall be provable in bankruptcy where the wrong out of which the liability to damages or the right to contribution arose was committed before the time of bankruptcy."
The Cork Committee obviously considered that solution, but did not recommend its adoption. If it had been included in the Insolvency Act or Rules, there would be no doubt that future asbestos claims would be provable. Under the Irish provision, the date of accrual of the cause of action is irrelevant and all that is necessary is that a liability to damages should arise out of a wrong committed before the time of bankruptcy.
"The cut-off provisions may, in general, work reasonably satisfactorily in respect of claims based on contract. Claims arising under contractual obligations incurred before the date on which the company went into liquidation are provable. As to payments under contracts made with a company after it has gone into liquidation, for example, if goods are supplied to a company pursuant to arrangements negotiated with the liquidator, in general such payments will rank for preferential treatment as expenses incurred in the winding up. Unquantified claims for damages in tort are not so favourably treated. In the past, if a company went into liquidation before a claimant had been able to quantify his claim by judgment or agreement he was left out in the cold. In Re Berkeley Securities (Property) Ltd  3 All ER 513,  1 WLR 1589 the court struggled hard to avoid this injustice. Vinelott J held that a claim for damages in tort is excluded from proof only if it has not been liquidated at the time the claimant comes in to prove. He is not entitled to disturb prior distributions to other creditors but, as regards undistributed assets, he is entitled to a dividend enabling him to 'catch up' with distributions already made to other creditors. In Re Islington Metal & Plating Works Ltd  3 All ER 218,  1 WLR 14, Harman J pointed out the difficulties with this solution having regard to the then statutory provisions and an established line of authority. The particular problem raised in those two cases has now been addressed by winding-up rule 13.12(2):
'In determining for the purposes of any provision of the Act or the Rules about winding up, whether any liability in tort is a debt provable in the winding up, the company is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued.'
So far as it enables some liabilities in tort to be proved, this provision ensures justice to tort claimants. However, it still leaves a tort claimant without any remedy if his cause of action arose after the date when the company went into liquidation. In some instances it will be a matter of chance whether a cause of action in tort accrues before or after the date of the commencement of the liquidation. If a company sells and supplies dangerous goods, it will be a matter of chance whether they cause injury and damage pre- or post-liquidation, and it is only when the damage is sustained that the cause of action in tort accrues."
"…if after the bankruptcy order, a person suffers damage caused by the bankrupt's negligence before his bankruptcy, the injured person's claim, in so far as it is a claim in tort, will not be a bankruptcy debt."
"In general, if it is alleged that a statutory provision brings about a result which is so startling, one looks for some other possible meaning of the statute which will avoid such a result, because there is some presumption that Parliament does not intend its legislation to produce highly inequitable results."
In IRC v Hinchy  AC 748 at 768, Lord Reid said:
"One is entitled and indeed bound to assume that Parliament intends to act reasonably, and therefore to prefer a reasonable interpretation of a statutory provision if there is any choice."
In Mangin v IRC  AC 739 at 746, Lord Donovan said:
"the object of the construction of a statute being to ascertain the will of the legislature it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted."
In R (on the application of Edison First Power Ltd) v Central Valuation Officer  4 All ER 209 concerning, in effect, double taxation, Lord Millett said at paras 116-117:
"The courts will presume that Parliament did not intend a statute to have consequences which are objectionable or undesirable; or absurd; or unworkable or impracticable; or merely inconvenient; or anomalous or illogical; or futile or pointless. But the strength of these presumptions depends on the degree to which a particular construction produces an unreasonable result."
In the same case, Lord Hoffmann said at para 25 that the strength of presumptions against unreasonable consequences:
"depends upon the degree to which the consequences are unreasonable, the general scheme of the legislation and the background against which it was enacted."
"(b) any debt or liability to which the company may become subject after that date by reason of an obligation incurred at the time the cause of action accrued."
So read, rule 13.12(1)(b) would permit any possible future tort claim to be proved, even if all the elements of the tort occurred after the liquidation date. Mr Sheldon accepted that this construction was not free from difficulty and submitted that it should be read subject to an implied limitation that the company's tortious acts were committed prior to the liquidation date. There would have to be a solid basis for the possibility of a future claim before any value could be placed on a proof submitted in the liquidation.
"In determining for the purposes of any provision of the Act or the Rules about winding up, whether any liability in tort is a debt provable in the winding up…"
This language is more obviously consistent with a provision which will define the circumstances in which a liability in tort will be admissible to proof, rather than with a provision which will do no more than extend the meaning of another provision.
"The word "deemed" is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible."
In the decision of the High Court of Australia in Hunter Douglas Australia Pty Ltd v Perma Blinds (1969-1970) 122 CLR 49 Windeyer J said at p 65:
"the verb "deem", or derivatives of it, can be used in statutory definitions to extend the denotation of the defined term to things it would not in ordinary parlance denote. This is often a convenient device for reducing the verbiage of an enactment. But that the word can be used in that way and for that purpose does not mean that whenever it is used it has that effect. After all, to deem means simply to judge or reach a conclusion about something…The words "deem" or "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has – the way in which it is to be adjudged. This need not import artificiality or fiction. It may be simply the statement of an indisputable conclusion, as if for example one were to say that on attaining the age of twenty-one years a man is deemed to be of full age and no longer an infant. Hundreds of examples of this usage of the word appear in the statute books."
At p 67 he said:
"There is no presumption, still less any rule, that wherever the word "deemed" appears in a statute it demonstrates a "fiction" or some abnormality of terminology. Sometimes it does. Often it does not. Much depends upon the context in which the word appears…"
"So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with Convention rights."
The duty imposed on the court by this section requires the court to reach, if possible, a construction of legislation which is compatible with Convention rights, although it may not be justified by the usual principles of statutory construction. But it is engaged only where the construction arrived at by the application of those principles produces a result which is not compatible with Convention rights. The court must therefore first, as I have done, reach its conclusion without recourse to section 3. It must then decide whether that construction is incompatible with Convention rights. Only if it decides that it is incompatible, does section 3 apply. See Poplar Housing Association v Donoghue  QB 48 per Lord Woolf LCJ at para 75.
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by the law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions of penalties."
The proponents submit that the potential tort claims of the future asbestos claimants are "possessions" for the purposes of A1P1 and that the effect of rule 13.12, as I have construed it, violates A1P1, not in the sense that the claimants are deprived of their potential claims altogether but in the sense that there is an interference with their enjoyment of them. Alternatively, if potential tort claims are not "possessions" for these purposes, it is submitted that asbestos claims arising from accrued causes of action are possessions and that, in the case of those accruing after the liquidation date, the inadmissibility of such claims to proof involves an interference with the enjoyment of such claims. It is in each case an interference, not a deprivation of the claimants' rights: it is only a right to prove in a winding-up and to participate with other creditors in a distribution which is denied to them. Their claims are not extinguished and in all other respects are enforceable. However, the practical effect is likely to be substantial because, except to the extent of any available insurance cover (which in this case will be inadequate) or claims against other producers or distributors of asbestos products, they will in practice recover nothing.
(i) Future asbestos claims: A1P1
"(c) An applicant can allege a violation of Art.1 of Protocol No.1 only in so far as the impugned decisions related to his "possessions" within the meaning of this provision. "Possessions" can be either "existing possessions" or assets, including claims, in respect of which the applicant can argue that he or she has at least a "legitimate expectation" of obtaining effective enjoyment of a property right. By way of contrast, the hope of recognition of a property right which it has been impossible to exercise effectively cannot be considered a "possession" within the meaning of Art.1 of Protocol No.1, nor can a conditional claim which lapses as a result of the non-fulfilment of the condition. (see Prince Hans-Adam II of Lichtenstein v Germany [GC], no 42527/98, §§ 82 and 83, ECHR 2001–VIII and Gratzinger and Gratizingerova v The Czech Republic (dec) [GC], no 39794/98, § 69, ECHR 2002–VII)."
"48…The "legitimate expectation" identified in Pressos Compania Naviera SA was not in itself constitutive of a proprietary interest; it related to the way in which the claim qualifying as an "asset" would be treated under domestic law and in particular to reliance on the fact that the established case law of the national courts would continue to be applied in respect of damage which had already occurred.
49 In a line of cases the Court has found that the applicants did not have a "legitimate expectation" where it could not be said that they had a currently enforceable claim that was sufficiently established…"
The judgment concludes on this aspect at paragraph 52:
"52 In the light of the foregoing it can be concluded that the Court's case law does not contemplate the existence of a "genuine dispute" or an "arguable claim" as a criterion for determining whether there is a "legitimate expectation" protected by Art.1 of Protocol No.1. The Court is therefore unable to follow the reasoning of the Chamber's majority on this point. On the contrary, the Court takes the view that where the proprietary interest is in the nature of a claim it may be regarded as an "asset" only where it has a sufficient basis in national law, for example where there is settled case law of the domestic courts confirming it."
The principal question for the court was therefore "whether there was a sufficient basis in domestic law, as interpreted by the domestic courts, for the applicant's claim to qualify as an "asset" for the purposes of Article 1 of Protocol No 1". As Mr Eadie submitted, it is difficult to see how a claim can constitute a possession within the meaning of A1P1 if under the relevant domestic law the claim is not maintainable. There is a clear link in this context with rights of access to the courts under article 6, but the criterion for a possession under A1P1 may be expected to be stricter than for a right of access under article 6.
"65 The Court reiterates that, according to its case-law, an applicant can allege a violation of Article 1 of Protocol 1 to the Convention only in so far as the impugned decisions relate to his "possessions" within the meaning of that provision. "Possessions" can be "existing possessions" or assets, including, in certain well-defined situations, claims. For a claim to be capable of being considered an "asset" falling within the scope of Article 1 of Protocol No 1, the claimant must establish that it has a sufficient basis in national law, for example where there is settled case-law of the domestic courts confirming it. Where that has been done, the concept of "legitimate expectation" can come into play."
It was accepted that the claim was sufficiently established under French law to constitute a "possession" and that there had been an interference with the right to peaceful enjoyment of it. It was held that the interference was not justified and that there had been a breach of A1P1.
"The Court recalls that a proprietary interest in the nature of a claim can only be regarded as a possession where it has a sufficient basis in national law, including settled case-law of the domestic courts confirming it." (para 129)
(ii) Future asbestos claims: A1P1 and article 14
"The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status."
Article 14 does not create autonomous rights, but rather a principle of non-discrimination in the enjoyment of Convention rights and in the enjoyment of additional rights, falling within the general scope of Convention rights, which the State has voluntarily decided to provide. This does not diminish its importance, as it is fundamental to the values which the Convention is intended to protect: A and X v Secretary of State for the Home Department  QB 335 per Lord Woolf LCJ at para 8. The application of article 14 does not necessarily require the violation of a Convention right. It is necessary, but also sufficient, for the facts of the case to fall "within the ambit" of one or more Convention articles: Stec v United Kingdom (Grand Chamber decision as to the admissibility of applications 65731/01 and 65900/01, 6 July 2005).
"In cases, such as the present, concerning a complaint under Article 14 in conjunction with Article 1 of Protocol 1 that the applicant has been denied all or part of a particular benefit on a discriminatory ground covered by Article 14, the relevant test is whether, but for the condition of entitlement about which the applicant complains, he or she would have had a right, enforceable under domestic law, to receive the benefit in question."
(iii) Asbestos claims accrued after the liquidation date: A1P1
"106 Article 1 of the First Protocol has a similar character. It does not confer a right of property as such nor does it guarantee the content of any rights in property. What it does instead is to guarantee the peaceful enjoyment of the possessions that a person already owns, of which a person cannot be deprived except in the public interest and subject to the conditions provided for by law: Marckx v Belgium (1979) 2 EHRR 330, 350, para 50. Here too it is a matter for domestic law to define the nature and extent of any rights which a party acquires from time to time as a result of the transactions which he or she enters into. One must, of course, distinguish carefully between cases where the effect of the relevant law is to deprive a person of something that he already owns and those where its effect is to subject his right from the outset to the reservation or qualification which is now being enforced against him. The making of a compulsory order or of an order for the division of property on divorce are examples of the former category. In those cases it is the making of the order, not the existence of the law under which the order is made, that interrupts the peaceful enjoyment by the owner of his property. The fact that the relevant law was already in force when the right of property was acquired is immaterial, if it did not have the effect of qualifying the right from the moment when it was acquired.
107 The rights of property which are in issue in this case are those set in an agreement which is regulated by the 1974 Act. The Act subjects the rights of the creditor to restrictions in some circumstances. Section 65 declares that a regulated agreement which is improperly executed cannot be enforced by the creditor except by means of an order of the court, and section 127(3) declares that it is not to be enforceable at all except upon the condition which it lays down. The agreement which was entered into in this case was from the outset an agreement which was improperly executed. So it was always subject to the restrictions on its execution which sections 65(1) and 127(3) of the 1974 Act set out. I would hold that FCT's Convention rights under article 1 of the First Protocol are not engaged in these circumstances."
Lord Scott of Foscote was of the same view:
"168 First, article 1 of the First Protocol is directed to interference with existing possessions or property rights. FCT never had, at any stage in the history of the loan agreement, the right to enforce against Mrs Wilson the repayment of the £5,000. Neither the 1974 Act as a whole nor section 127(3) in particular constituted an interference with a pre-existing right of FCT to enforce repayment by Mrs Wilson of the £5,000. The Act, and section 127(3) prevented FCT from ever possessing that right. No authority has been cited to your Lordships for the proposition that a statutory provision which prevents a transaction from having the quality of legal enforceability can be regarded as an interference for article 1 purposes with the possessions of the party who would have benefited if the transaction had had that quality. In my opinion, the proposition should be rejected."
"51 The Court does not share the Government's view that the operation of the legislation is to be regarded as an incident of, or limitation on, the applicants' property right at the time of its acquisition, such that Article 1 ceased to be engaged when the relevant provisions took effect and the property right was lost after 12 years of adverse possession. It is true that the relevant provisions of the legislation existed at the time the property was acquired by the applicants and that the consequences for the applicants' title to the land of 12 years adverse possession were known. However, Article 1 does not cease to be engaged merely because a person acquires property subject to the provisions of the general law, the effect of which is in certain specified events to bring the property right to an end, and because those events have in fact occurred. Whether it does so will depend on whether the law in question is properly to be seen as qualifying or limiting the property right at the moment of acquisition or, whether it is rather to be seen as depriving the owner of an existing right at the point when the events occur and the law takes effect. It is only in the former case that Article 1 may be held to have no application."
But the court goes on to say at para 52:
"The provisions are also different from those examined by the House of Lords in Wilson v. The First County Trust Ltd  UKHL 40 – also invoked by the Government - in which the majority held that the relevant legislation regulating the enforceability of loan agreements "bit" at the moment the transaction was concluded and that the lender accordingly had no right to enforce repayment of the loan of which he could be deprived under Article 1. By contrast, the 1925 and 1980 Acts are in the view of the Court to be seen as "biting" on the applicants' property rights only at the point at which the Grahams had completed 12 years' adverse possession of the applicants' land and not as delimiting the right at the moment of its acquisition. Accordingly, the Court rejects the Government's argument that, on this ground, Article 1 was not engaged in the present case."
This passage involves no criticism of the majority view in Wilson v First County Trust Ltd, but appears to endorse it.
"On this analysis the court must look at the substance of the claimed right to see whether the bar in this case to the exercise of the tenant's right is a delimitation of the right or whether it represents a deprivation of rights."
Applying that test to the business tenant's statutory rights, Arden LJ held that the relevant provision in that case was more accurately analysed as a deprivation of a right rather than a delimitation.
(iv) Asbestos claims accrued after the liquidation date: A1P1 and article 14
"not every difference in treatment will amount to a violation of this Article. Instead, it must be established that other persons in an analogous or relevantly similar situation enjoy preferential treatment, and that there is no reasonable or objective justification for this distinction."
The court accepted that the applicant building societies were in an analogous if not identical situation as Woolwich Building Society with respect to the tax regulations but, because only Woolwich Building Society had taken proceedings, it rejected the contention that they were in fact in a relatively similar situation to Woolwich Building Society.
"The court first points out that Article 14 prohibits, within the ambit of the rights and freedoms guaranteed, discriminatory treatment having as its basis or reason a personal characteristic ('status') by which persons or groups of persons are distinguishable from each other."
"46 This question is important because if the different treatment is not on a relevant ground for the purposes of article 14, then this article is not applicable. In any event, identification of the ground for different treatment is material to the question of justification.
47 The different treatment afforded to the appellants and comparators was on the ground that the former had already provided samples and fingerprints to the police in a criminal investigation while the comparators had never been required to do so.
48 The list of grounds in article 14 is not exhaustive, and necessarily includes each of the specifically proscribed grounds as well as "other status". The European Court of Human Rights has interpreted "other status" as meaning a personal characteristic: Kjeldsen, Busk Madsen and Pedersen v Denmark (1976) 1 EHRR 711, 732-733, para 56. I do not understand Lord Woolf CJ  1 WLR 3223, 3238 to have expressed a different view in paragraph 47 of his judgment. On the other hand, the proscribed grounds in article 14 cannot be unlimited, otherwise the wording of article 14 referring to "other status" beyond the well-established proscribed grounds, including things such as sex, race or colour, would be unnecessary. It would then preclude discrimination on any ground. That is plainly not the meaning of article 14.
49 It is, therefore, necessary to examine whether the ground for different treatment in this case amounts to a status in the sense of a personal characteristic within the meaning of article 14."
"52 It will be apparent that the grounds of discrimination prohibited by article 14 extend a good way beyond sex and race. Its enumeration of grounds does not in terms include residence (the ground of complaint in Mrs Carson's case) or age (the ground of complaint in Ms Reynolds' case). The residual group, "or other status" (in the French text, toute autre situation), is far from precise. The respondent Secretary of State does not contend that the grounds of residence and age cannot be included within the scope of article 14. But it is clear from the jurisprudence of the Strasbourg court that the possible grounds of discrimination under article 14 are not wholly unlimited; nor are all possible grounds of equal efficacy in establishing unlawful discrimination. These points call for some explanation, since they are relevant to these appeals.
53 In Kjeldsen, Busk Madsen and Pedersen v Denmark (1976) 1 EHRR 711, an early Strasbourg decision concerned with compulsory sex education in state primary schools, the court, at pp 732-733, para 56, interpreted "status" in article 14 as "a personal characteristic ... by which persons or groups of persons are distinguishable from each other". The fact that a number of parents objected to their children receiving sex education at school was not accepted as equivalent to a religious belief so as to make the complainants a group for the purposes of a claim under article 14 taken together with article 2 of the First Protocol.
54 It was suggested in argument that the Kjeldsen test of looking for a personal characteristic is no longer part of the Strasbourg jurisprudence. But it has recently been followed by the Fourth Section of the European Court of Human Rights in two admissibility decisions, Budak v Turkey (Application No 57345/00) (unreported) 7 September 2004 and Beale v United Kingdom (Application No 16743/03) (unreported) 12 October 2004. In Budak the only relevant difference was in the criminal procedure adopted for two different types of offence. In Beale it was the different investigatory procedures appropriate for the police (on the one hand) and trading standards officers (on the other hand). In neither case was there any personal characteristic of the claimant which could be a ground for discrimination contrary to article 14. Moreover this House has recently applied Kjeldsen in R (S) v Chief Constable of the South Yorkshire Police  1 WLR 2196, 2213, para 48, per Lord Steyn."