Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 174
P318/10	OPINION OF LORD DRUMMOND YOUNG in the Note by THOMAS M. BURTON, liquidator of THE BEN LINE STEAMERS LIMITED Noter; for Directions as to the distribution of its surplus assets ­­­­­­­­­­­­­­­­­________________

Act: Sellar, QC; Dundas & Wilson CS LLP

Alt (Trustee of the Merchant Navy Officers' Pension Fund): S Wolffe, QC; Brodies LLP

24 December 2010

The Company

[1] The Ben Line Steamers Ltd ("the Company") was incorporated in 1919. It and its subsidiaries engaged in cargo, container, bulk and tanker shipping and latterly operated offshore oil-drilling rigs. Until 1987 it had several hundred employees. A substantial number of these were Merchant Navy officers who were members of the Merchant Navy Officers' Pension Fund ("MNOPF"). In May 1987 the company underwent substantial restructuring; it sold its container shipping business and disposed of its remaining shipping interests. As a result its workforce was reduced. A further restructuring took place in January 1995 which involved the issue of cumulative redeemable preference shares to a syndicate of lending banks, led by the Royal Bank of Scotland PLC. Those shares were issued in consideration of the cancellation by the banks of the Company's indebtedness to them in a debt/equity swap. In January 1995 the Company dismissed its remaining employees, and after that its only activities involved the winding down of its business operations. Eventually, on 17 March 2000, the Company resolved that it should be wound up voluntarily in terms of section 84 of the Insolvency Act 1986. The date of the winding up is the date of that resolution. The liquidation is a creditors' voluntary winding up in terms of section 84 of the Insolvency Act 1986; that follows from section 129 of the Act as applied by Rule 4.16 of the Insolvency (Scotland) Rules 1986. The Noter is now the sole liquidator of the Company.

[2] In the course of the winding up certain questions have arisen between the Noter and MNOPF Trustees Ltd ("the Trustee"), who are the trustee of the MNOPF. These relate to the distribution of the surplus assets remain in the Noter's hands after the payment of debts and statutory interest to various minor creditors of the Company. To have the questions resolved, the Noter has presented a note to the Court under section 112 of the Insolvency Act 1986 in which he seeks directions.

[3] The Noter has realized the assets of the Company, which amounted to £9,427,436. He has adjudicated on all claims made in the winding up except for the claim by the Trustee. Those claims amount to £1,892.43, and the Noter has the consent of the Trustee to pay them in full, together with statutory interest. It is estimated that the expenses of the winding up will amount to approximately £90,000. On that basis, the surplus assets of the company would amount to approximately £9,355,436. If the present claim is left out of account, all of that sum would be payable to the banks which hold the Company's preference shares. The Trustee, however, has submitted a claim in the winding up in the sum of £20,198,880, exclusive of statutory interest. The purpose of the present note is to determine whether that claim is admissible in the winding up, the amount of the claim and the extent to which the Trustee is entitled to be paid before any surplus assets are paid to the banks which hold the preference shares.

The Merchant Navy Officers' Pension Fund

[4] The MNOPF is an occupational pension scheme designed to provide pensions for officers of the British Merchant Navy. It was established by a trust deed and rules dated 29 October 1937. The MNOPF is an industry-wide scheme, which enables officers who satisfy the conditions of membership of the scheme to enjoy continuity in their pension provision even if they work for more than one participating employer during the course of their working lives. The scheme has never been subdivided into separate sections for each employer. In 1978 it was divided into an Old Section, which provided benefits in respect of service accrued up to 5 April 1978, and a New Section, which provided benefits in respect of service accrued on and after 6 April 1978. The Company became a participating employer in the MNOPF in 1978. At that time the scheme was governed by a trust deed and rules dated 2 January 1978. The trust deed and rules were replaced with effect from 1 December 1992 and again with effect from 27 January 1995 and yet again with effect from 25 June 1999.

[5] Employees of the Company were members of the MNOPF until January 1995, when all of the Company's employees were dismissed and all outstanding amounts relating to their employment were paid over to the MNOPF. An actuarial valuation of the members of the New Section of the MNOPF was prepared as at 31 March 1999. This disclosed a deficiency in the assets of the New Section of £55 million in respect of its past service liabilities assessed on an ongoing basis; that assumed that the New Section remained open to the receipt of contributions and the continued accrual of benefits. A further actuarial valuation as at 31 March 2000 revealed a deficit of £8 million. Rule 29.2 of the 1999 Rules provided that if as a result of an actuarial report there appeared to be a deficiency in the assets of the MNOPF, the Trustee was required to consider what action was to be taken to restore the MNOPF to solvency, whether by way of increasing contributions, decreasing benefits, amendments to the trust deed and rules or winding up the scheme. The Trustee consulted participating employers who were continuing to make contributions to the MNOPF, and decided that it would not be appropriate to fund the deficit only through increased contributions from those employers. The Trustee decided that the fairest way of dealing with the deficit was to divide liability for it among all employers who had participated in the MNOPF at any time after 5 April 1978.

[6] The Trustee formed the view that, faced with the prospect of funding the deficit, participating employers with active members of the MNOPF in their employment would attempt to leave the MNOPF by transferring those employees to other, non-participating, companies. The Trustee therefore executed a deed of amendment on 8 June 2000, nearly three months after the date of the Company's liquidation ("the 2000 Amendment"). This replaced the definition of "participating employer" contained in Rule 3 of the 1999 Rules. The new definition redefined "participating employer" to mean "such companies or firms as may have become Participating Employers in accordance with [the current provisions] or which have previously become Participating Employers under other documentation which then governed the scheme. No company or firm shall cease to be a Participating Employer either as a result of ceasing to employ Active Members on or after 8 June 2000 or otherwise as a result of ceasing to employ persons in the categories described in [the current provisions] on or after that date or otherwise...". The same amendment also introduced a new rule 5.2A which provided that each participating employer (whether or not employed active members) would be required to make such further contributions, if any, to the MNOPF from time to time as might be decided by the Trustee in order to reduce or eliminate any deficit or anticipated deficit.

[7] On 7 November 2003 the Trustee initiated proceedings in the Chancery Division of the High Court in England and Wales for a determination regarding which type of employer fell within the revised definition of "participating employer". The principal issue in dispute was whether employers who had ceased to employ active members of the MNOPF before 8 June 2000 were subject to the 2000 amendment and could be made liable to fund the deficit in the New Section of the MNOPF. On 22 March 2005 Patten J. held that all employers who had ever participated in the MNOPF, including the Company, were within the class of "participating employers" for the purposes of rule 5.2A. As a result of this decision, the Trustee determined that the deficit would be apportioned among all employers who had participated in the New Section. The judgment of Patten J. did not, however, deal with the implications of the 2000 amendment for any participating employer who was in liquidation before the date of adoption of the rule.

[8] A further actuarial valuation of the New Section of the MNOPF was produced on 25 March 2004. It indicated that as at 31 March 2003 a deficit of £194 million existed, calculated on an ongoing basis. In August 2005 the Trustee, relying on the judgment of Patten J., demanded payment by the Company of contributions amounting to £4,039,781. That sum was stated to represent the Company's share of the deficit in the New Section of the MNOPF, calculating in accordance with rule 5.2A of the 1999 Rules. On 16 June 2006 the Trustee executed a further deed of amendment which introduced new wording into rule 5.2A ("the 2006 Amendment"). The new wording had the effect of permitting the Trustee to calculate a participating employer's share of the deficit on an estimated buy-out basis where, inter alia, an insolvency event occurs or has occurred at any time in relation to a participating employer. An "estimated buy-out basis" means that the employer's share is calculated by reference to the estimated cost of securing the benefits due to its former employees by the purchase of annuities. "Insolvency event" is defined to include a creditors' voluntary winding up.

[9] It is a matter of agreement between the parties that the combined effect of relatively low interest rates and increased longevity has been that the cost of purchasing annuities to secure scheme benefits is usually far in excess of the cost of funding such benefits on an ongoing basis. In August 2006 the Trustee, relying on the 2006 amendment, informed the Company that its share of the deficit calculated on an estimated buy-out basis was £20,198,880 as at 24 July 2006. That is the amount that is now claimed by the Trustee in the liquidation.

[10] Following the Trustee's claim, the Noter took legal advice. That advice conflicted with the advice received by the Trustee as to the extent to which either the original claim made in August 2005 or the present claim made in August 2006 is admissible in the liquidation. The advice received by the Noter was that neither claim should be admitted in full, and that any claim by the Trustee should be admitted only in so far as it represented the liability which the 1999 Rules imposed on the Company at the date of liquidation. That would involve disregarding the 2000 amendment and the 2006 amendment. The advice received by the Trustee, by contrast, was that the claim made in August 2006 should be admitted in full.

[11] The MNOPF is governed by English law, and consequently the Noter took advice from English counsel on the pension law aspects of the Trustee's claim. That advice was that the 1999 Trust Deed gave the Trustee power to amend both the 1999 Trust Deed and the 1999 Rules so as to impose liabilities on the Company. The Trustee had used that power to amend the definition of "participating employer" and to insert into the 1999 Rules the new rule 5.2A and, in 2006, to revise the wording of rule 5.2A. As a "participating employer", the Company was bound by rule 5.2A. Furthermore as a result of the application of the English principles known as cause of action estoppel and issue estoppel, the Company could not dispute the validity of these propositions, which were founded on the judgment of Patten J. Thus it must be assumed that as a matter of English law the MNOPF claim was valid, but that left aside any effect of the Company's being in liquidation.

Directions sought

[12] In the foregoing circumstances the Noter has presented the present note to the Court, in which he seeks directions on the following matters:

(1) Whether the claim made in August 2006 (or any part of it) represents the present value of the contingent debt which the Company owed to the Trustee at the date of the winding up, and is admissible in winding up of the Company.

(2) On the hypothesis that some or all of the claim made in August 2006 was a contingent debt admissible in winding up of the Company, the amount of that claim or the criteria for determining that amount.

(3) Whether statutory interest on the claim made in August 2006 should accrue (a) from the date of the actuarial valuation disclosing the deficit; (b) from 12 August 2005 (being the date of the invoice submitted to the Company by the Trustee); (c) from the date of the commencement of the winding up; or (d) from any other date.

(4) Whether the Trustee has the right to be paid the full amount of the claim made in August 2006 or in any event, the full amount of the claim made in August 2005, so far as the surplus assets so permit, before any payment is made to holders of the preference shares as the contributories of the Company.

Counsel were agreed that it was not necessary that the third of these question should be answered, but I heard an extensive debate on the other three questions.

[13] The Trustee has lodged answers to the note, and was represented at the hearing that took place before me. The banks who form the Company's contributories have not entered the process and were not represented. In these circumstances the Noter, although his position in the dispute was fundamentally neutral, advanced arguments contrary to the position of the Trustee in order to assist the court. It appears that there is no Scottish precedent for this procedure. Nevertheless I am satisfied that the procedure followed by the Noter was entirely proper, and was of great assistance to the court in reaching a decision on the questions raised in the note; these were questions of general importance. At this point I should note one further matter. It is possible that a further claim will be raised against the Noter by the trustee of the pension scheme for ratings, another industry-wide pension scheme. If such a claim is made, it will clearly affect the final outcome of the liquidation. For the purposes of the present proceedings, however, it is unnecessary to say anything more about it.

The Trust Deed and Rules

[14] The rights of the parties are governed by the Trust Deed and Rules of the MNOPF dated 25 June 1999. This is essentially a tripartite document, the three parties being the Trustee, the various Participating Employers and the Members of the scheme, who are of course the primary beneficiaries. Clause 5.0 of the 1999 Trust Deed provides that the Fund should be held by the Trustee upon an irrevocable trust to apply the income and if necessary capital towards providing benefits in accordance with the Trust Deed and Rules. Clause 6.0 states who may become a Participating Employer, and specifies that any Participating Employer must agree to enter into a form of agreement set out in the First Appendix to the Trust Deed. Clause 6.2 provides that each Member must enter into a form of agreement set out in the Second Appendix to the Trust Deed. "Participating Employer" is defined (in Rule 3.0) in such a way as to include companies which have previously become Participating Employers.

[15] Clause 11.0 provides for the appointment of an Actuary. Clause 14.0 provides that the Trustee is to have complete control over the administration of the Scheme. Clause 21.0 provides that the Trustee is to pay out of the Fund the allowances and benefits for the time being chargeable against the Scheme. Clause 26.0 provides that the Actuary is to investigate the financial position of the Scheme at least once in every three years, or as required to comply with the relevant legislation. He is further required to report to the Trustee upon the financial position of the Scheme and to make such recommendations in respect thereof as he may think fit. This provision is clearly intended to ensure that the financial position of the scheme is kept under regular review and that if there is any difficulty professional recommendations are made to ensure that the scheme is maintained, so far as possible, in a state of solvency. In this respect the Actuary is clearly expected to make use of his professional expertise.

[16] Clause 30.0 provides for alteration of the Trust Deed and Rules. As this provision is of considerable importance, I will set out its terms in full. They are as follows:

"THE provisions of the Trust Deed or of the Rules may be varied or added to in any way by Deed executed under the seal of the Trustees. Every such variation must first be approved by a majority of the full number of Participating Employers' representatives and also a majority of the full number of the Members' representatives serving as Trustees or as directors on the board of any corporate Trustee which approval must first be signified either by a resolution passed by such majorities or by an instrument in writing signed by such majorities PROVIDED that no variation or addition shall be made which:

(a) would have the effect of changing the main purpose of the Scheme, namely the provision of pensions for Members on retirement or of giving to the Participating Employers or any of them are right to the return of their contributions or any part thereof; or

(b) would operate in any way to diminish or prejudicially affect the rights of any person in receipt of a pension or the pensionable or other rights already earned by any Member or former Member; unless the Actuary shall advise that no other course is reasonably practicable having due regard to the interests of all persons interested in the Fund; or

(c) would be contrary to the principle that the Participating Employers and the Members shall be equally represented both in the membership of the Trustees and on the board of any corporate Trustee".

The First Appendix contains the form of agreement for Participating Employers. In this, any such employer agrees "to assume and be bound by the obligation undertaken by Participating Employers [under the Trust Deed and Rules] or under any subsequent variation that may be made therein".

[17] Certain of the Rules are also of significance. Rule 5.0 deals with contributions. Rule 5.2 states that each Participating Employer shall contribute at the rate of 7.9% of aggregate Pensionable Salaries of Active Members in his employment "or at such other rate as may be decided by the Trustees, on the advice of the Actuary". Rule 29.0 compels the Trustees to instruct the Actuary to value the Scheme's assets and liabilities at least once in every three years. Rule 29.1 provides that the Trustees are to prepare, maintain and from time to time to revise a Schedule of Contributions in order to secure compliance with the Minimum Funding Requirement. (The Minimum Funding Requirement is the statutory requirement imposed by the Pensions Act 1995). Rule 29.2 then provides as follows:

"IF, as a result of the Actuary's report, it shall appear that there is a deficiency or anticipated deficiency in the Scheme's resources, the Trustees shall consider what if any action, having regard to any recommendations made by the Actuary in his report, should be taken either by way of increasing contributions or decreasing benefits to render the Scheme solvent. If necessary, the Trustees shall take such steps as are herein laid down for amendment of the Trust Deed and the Rules, or if the deficiency or anticipated deficiency cannot be made good, for the winding up of the Scheme".

[18] As narrated above, the Trust Deed and Rules were amended, first on 8 June 2000 and subsequently on 16 June 2006. It is a matter of agreement that both amendments were valid. The effect of the amendment of June 2000 was to insert a new definition of "Participating Employers" and to add a new rule 5.2A in the following terms:

"Without prejudice to rule 5.2, each Participating Employer (whether or not employing Active Members...) shall make such further contributions (if any), which may include lump sum contributions, from time to time as may be decided by the Trustees, having regard to the advice of the Actuary, in order to reduce or eliminate any deficiency or anticipated deficiency in the Scheme's resources. Such deficiency shall be calculated for this purpose by reference to the ongoing basis of calculation adopted in the then most recently completed actuarial valuation of the Scheme (that is, the basis which assumes that the Scheme remains in full operation), with such modifications, if any, as the Trustees shall determine having regard to the advice of the Actuary in order to take account of the lapse of time and any events during the intervening period. For the purposes of the calculations in this rule 5.2A, the Trustees and the Actuary shall take into account, to the extent that they consider it appropriate:

(i) the proportion of the amount of the deficiency or potential deficiency which the Scheme's liabilities attributable to employment with that Participating Employer bear to the total amount of the Scheme's liabilities attributable to employment with all of the Participating Employers;
...".

The amendment of June 2006 added new wording into rule 5.2A immediately after the words "intervening period". So far as material, that new wording was as follows:

"Where:

(i) an Insolvency Event occurs or has occurred at any time in relating to a Participating Employer;

(ii) the Trustees have reasonable grounds to believe that an Insolvency Event will occur in relation to a Participating Employer; or

(iii) a Participating Employer requests that the Trustees consent to it ceasing to be a Participating Employer in the manner contemplated in this rule 5.2A

The Trustees may, in calculating the contribution payable by Participating Employers or by a specific Participating Employer or specific Participating Employers under this rule 5.2A and without prejudice to the exercise of the Trustees' powers under the preceding part of this rule 5.2A, calculate the deficiency or anticipated deficiency in the Scheme's resources as the cost, estimated by the Actuary, of securing the Scheme's liabilities by the purchase of deferred and immediate annuities (as appropriate) from an Insurance Company, provided that, where the Trustees make such a determination, this shall not prejudice the exercise of their power under this rule 5.2A to require contributions from Participating Employers at any time to reduce or eliminate the deficiency or anticipated deficiency calculated by reference to the ongoing basis of calculation. Where the Actuary considers that it is not practicable to make an estimate of the cost of securing the Scheme's liabilities by the purchase of deferred and immediate annuities (as appropriate) from an Insurance Company, he shall estimate the cost (on the Estimated Buy-out Basis)".

The important features of the Scheme

[19] The critical features of the Scheme may be summarized as follows. First, clause 5.0 provides that the Fund is to be held for the provision of benefits in accordance with the Trust Deed and Rules; that is the fundamental purpose of the Scheme. Secondly, the Company are a Participating Employer in the Scheme. It is bound into the Scheme by contract, and is accordingly subject to the whole of the rights, duties, powers and liabilities provided for in the Scheme in respect of a Participating Employer. That is the result of clause 6.0 together with the agreement concluded by the Company in the form provided in the First Appendix to the Trust Deed. Thirdly, the liabilities incurred by the Company as a Participating Employer include those found in clause 30.0 and rule 5.2. (For the avoidance of doubt, I should state that I am using the word "liability" to signify liability to experience the consequences of another party's, in this case the Trustee's, exercise of a power. This use of the word is derived from W.N Hohfeld, Fundamental Legal Conceptions (New Haven, 1923). I think that this concept helps to clarify the Trustee's case). Clause 30.0 confers power on the Trustee to amend the Trust Deed and Rules provided that a specified procedure is followed. It is noteworthy that the procedure requires the consent of a majority of the Participating Employers' representatives and a majority of Members' representatives. The power is also subject to certain limitations which, in essence, protect the main purpose of the Scheme and the accrued rights of Members. Rule 5.2 confers a further power on the Trustee to alter the rate of contributions made by Participating Employers. In this case, the crucial limitation is that any such alteration must be on the advice of the Actuary. The Company, as a Participating Employer, is liable to suffer the consequences of the exercise of either of the foregoing powers.

[20] Fourthly, rules 29.1 and 29.2 require the Trustees to consider the adequacy of the Scheme's resources to meet its obligations; in doing so they are obliged to have regard to the statutory minimum funding requirement and to the recommendations made by the Actuary. Rule 29.2, in particular, provides that if necessary the Trustees shall take steps to amend the Trust Deed and Rules if that is necessary to provide the necessary funding to keep the Scheme solvent, in accordance with the statutory requirements. That is a very specific power to take such steps as are necessary to secure the solvency of the scheme, and it imposes a correlative liability on all Participating Employers, including the Company. The power and correlative liability extend to the possible use of the power of amendment contained in clause 30.0 for the purpose of raising additional funding (or, if appropriate, decreasing benefits). Thus the Company, as a Participating Employer, was expressly subject to the liability that the Trust Deed and Rules might be amended to increase the amount payable by Participating Employers. That is in fact what was done in the 2000 and 2006 amendments. It is possible that the power in rule 29.2 could have been used by itself to compel increased contributions from Participating Employers, but the decision made by the Trustees was to amend the Rules by introducing the new rule 5.2A and, subsequently, amending that rule. Those amendments expressly provided that each Participating Employer should make such further contributions as are decided by the Trustees, having regard to the advice of the Actuary, in order to reduce or eliminate any deficiency in the Scheme. In doing so the Trustees are obliged to take into account the extent to which the deficiency is attributable to employment with each Participating Employer; that is obviously designed to secure fairness as among the various Participating Employers. Finally, the 2006 amendment permits the Trustees, in exercising their power under rule 5.2A, to calculate the deficiency by reference to the cost of purchasing deferred and immediate annuities. It should be noted that at all times the Trustees are required to have regard to the advice of the Scheme Actuary; the intention is plainly that the contribution due from each Participating Employer should be properly calculated in such a way as to represent the cost to the Scheme of funding the pensions actually or prospectively due to that Employer's present and former employees. That will achieve an equitable distribution of the deficiency among the various Participating Employers.

Legal analysis

[21] The first issue raised by the Noter is whether the claim made in August 2006, or any part thereof, represents the present value of the contingent debt which the Company owed to the Trustee at the date of winding up. This is I think the fundamental question that arises in this case. Winding up has been described as "a process of collective enforcement of debts for the benefit of the general body of creditors": Re Lines Bros Ltd, [1983] 1 Ch 1, at 20 per Brightman LJ. The debts that may be enforced in that process are those outstanding as at the date of winding up. In the words of Selwyn LJ in Re Humber Ironworks and Shipbuilding Company, (1869) LR 4 Ch App 643, at 646-647:

"I think the tree must lie as it falls; that it must be ascertained what are the debts as they exist at the date of the winding up, and that all dividends in the case of an insolvent estate must be declared in respect of the debts so ascertained".

The debts so ascertained rank pari passu, subject obviously to the special statutory rights of preferential creditors; that is the fundamental principle of equality among creditors. The critical point is that any personal obligation of the insolvent company, if it is to be enforceable in the winding up process, must be in existence as at the date of winding up.

[22] The obligations that are ranked in this way include future and contingent obligations. This principle was stated by LP Inglis in Mitchell v Scott, 1881, 8 R 875, at 879:

"[F]uture and contingent creditors are just as much entitled to a ranking as present creditors, in a different way no doubt, and subject to different rules, but they are all entitled to claim in a sequestration. This does not depend on statute, but on the common law - on the fundamental rules of equity which underlie our whole system. If future creditors, i.e., those whose date of payment have not yet come, and contingent creditors, i.e., those whose debts are not yet payable and may never become payable, were not entitled to claim in the sequestration, their debts would be gone for ever, because the bankrupt's discharge would finally put an end to them. The statute therefore allows future and contingent creditors to claim just as much and no more than justice requires. Future debtors are allowed to rank subject only to a deduction of interest for the period between the date of sequestration and of the payment of their debt. In the case of contingent creditors, a sum is set apart to meet their claim, should the condition upon which it depends become purified".

The procedure followed in that passage, whereby sums to satisfy contingent obligations were set aside until it was discovered whether the obligation would actually become enforceable, was found inconvenient, for obvious reasons. It has accordingly been superseded by the modern statutory procedure which requires a liquidator or trustee in sequestration to place a value on contingent debts and to pay the amount of so ascertained; that may be done either under paragraph 3 of Schedule 1 to the Bankruptcy (Scotland) Act 1985 or under the general procedure for the adjudication of claims found in section 49 of the same Act; both of these provisions are made applicable with appropriate modifications to the winding up of a company by Rule 4.16 of the Insolvency (Scotland) Rules 1986.

[23] The valuation of contingent debts is normally carried out as at the date of winding up or sequestration, because that is the most satisfactory way of ensuring that the distribution among creditors is truly pari passu; the value of their debts must be compared at a single date. This is, however, subject to one important exception, the hindsight principle. If during the course of the winding up or sequestration events occur which indicate that the contingency would either have been satisfied or have failed, or which indicate the value that would have been payable in satisfaction of the contingent debt, those events are taken into account in valuing the debt: Wight v Eckhardt Marine GmbH, [2004] 1 AC 147, at paragraphs 29-33 per Lord Hoffman. The reason is that in such a case it is actually known what would have happened, and it would be wholly artificial to fail to take that into consideration; rigid logic must give way to practical sense. A simple example of this principle is found in Re Northern Counties of England Fire Insurance Co, (1880) 17 Ch D 337, where a building was insured under a fire policy with an insolvent company. It burned down during the course of the winding up, and the insured was held entitled to prove for the full loss of the building; that was, with hindsight, the value that would have been attributed at the date of the winding up had it been known that the fire would occur: see Wight at paragraph 31. It is essential, however, that the contingent obligation that is so valued should originate in a contract (or other source such as a statute) that was in existence as at the date of the winding up. The hindsight principle applies to the valuation of the obligation, but not to its source. It is accordingly essential in the present case to determine whether the obligation founded on by the Trustee has its source in contractual provisions that were in existence as at the date of the winding up.

[24] The classic definition of a contingent obligation in Scots law is that found in Erskine's Institute (3rd edition), III.1.6:

"Obligations are either pure, or to a certain day, or conditional.... Obligations in diem... are those in which the performance is referred to a determinate day. In this kind... a debt becomes properly due from the very date of the obligation, because it is certain that the day will exist; but its effect or execution is suspended till the day be elapsed. A conditional obligation, or an obligation granted under a condition, the existence of which is uncertain, has no obligatory force till the condition be purified; because it is in that event only that the party declares his intention to be bound, and consequently no proper debt arises against him till it actually exists; so that the condition of an uncertain event suspends not only the execution of the obligation but the obligation itself.... Such obligation is therefore said in the Roman law to create only the hope of a debt. Yet the granter is so far obliged, that he hath no right to revoke or withdraw that hope from the creditor which he had once given him".

In Re Sutherland, [1963] AC 235, an English tax appeal, both Lord Reid and Lord Guest stated that that passage represented an accurate description of the concept of a contingent obligation (at pages 248-249 and 262-263). Lord Guest also referred to the further definition given in Gloag on Contract at 272:

"An obligation is contingent or conditional if its enforceability is dependent on an event which may or may not happen, or if, though exigible at once, it will cease to be exigible on the occurrence of some uncertain event".

Re Sutherland and the definitions in Erskine and Gloag were approved by a Court of Five Judges in Costain Building & Civil Engineering Ltd v Scottish Rugby Union PLC, 1994 SLT 573, at 576-577. In the light of these definitions, I am of opinion that the concept of a contingent obligation in Scots law is in its essence relatively simple: it is an obligation whose enforceability is dependent on the occurrence of a future event that may or may not occur. Erskine, following Roman law, treats the existence of the obligation as dependent on the occurrence of the uncertain event; Gloag, by contrast, treats the obligation as existing from the moment when it is entered into but regards its enforceability as dependent on the existence of the uncertain event. I do not think that there is any practical difference between these formulations, but at a conceptual level Gloag's may be preferable, because it makes clear that a contingent obligation involves an existing legal relationship, even if the outcome of that relationship is not clear.

[25] A contingent obligation must be distinguished from two other concepts. First, as the passage cited from Erskine makes clear, it must be distinguished from, a "pure" obligation, one that is presently subsisting and enforceable, and from a future obligation, one that will definitely be enforceable at a future date. The distinction from a pure obligation is invariably clear, and in most cases the same will be true of the distinction from a future obligation; in particular, an obligation that is payable on someone's death or on an identified future date will be future and not contingent. In individual cases, however, the distinction between a future and a contingent obligation may be less clear; an example is an obligation at a future date to pay a fixed sum plus a share of profits, which is an obligation that is in part future and in part contingent. Nevertheless, conceptually the distinction is clear, and this is not affected by the existence of borderline cases. Secondly, a contingent obligation must be distinguished from a mere spes obligationis, or the hope or expectancy of an obligation yet to emerge. This is explained by Lord Reid in Re Sutherland as follows (at 247-248):

"[I]f I see a watch in a shop window and think of buying it, I am not under a contingent liability to pay the price: similarly, if an Act says I must pay tax if I trade and make a profit, I am not before I begin trading under a contingent liability to pay tax in the event of my starting trading. In neither case have I committed myself to anything. But if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event".

The critical point is that some sort of obligation, normally either contractual or statutory, is required before there can be said to be a contingent obligation.

[26] One further point calls for comment. Contingencies can arise from various different sources. In many cases, an obligation will be contingent because it is conditional upon the occurrence of some possible future event. In other cases, an obligation may be contingent because someone has the power to determine whether or not it is to be due, or to determine its amount. An insurance policy is an example of the former; it is payable in the event that the sum insured against happens. The classic example of the latter is a guarantee payable on demand, which is payable in the event that it is called up by the creditor. Another example is a call made on shares: The Creswill Ranche and Cattle Co Ltd v Balfour Melville, 1901 9 SLT 356. The critical point, illustrated by these examples, is that the contingency may arise from the existence of a liability to the exercise of a power by another person.

[27] I was referred to a large number of other decisions, mostly English, on the meaning of the expression "contingent obligation". In deference to the careful arguments presented by counsel, I will consider these below. Nevertheless, I am of opinion that the essential features of a contingent obligation in Scots law emerge clearly from the definitions in Erskine and Gloag, and that is enough for the decision in the present case. As at the date of the liquidation, 17 March 2000, the Company was a member of the MNOPF. It had entered into the elaborate system of contractual rights, obligations, powers and liabilities contained in the Trust Deed and Rules in order to provide benefits for its employees following their retirement. The Scheme was an important element in the remuneration of those employees, and indeed an important element in the Company's general business arrangements. The provisions of the Trust Deed and Rules were binding on the Company, so far as they imposed obligations on Participating Employers. Likewise, the liabilities (in the sense stated in paragraph [19] above) to which the Company was subject under the Trust Deed and Rules were also binding on it; they were part of the contractual scheme, and indeed an important part of that scheme, because they were essential to ensure that the MNOPF remained solvent so far as that was possible. The Company was accordingly subject to those liabilities as at the date of winding up. That included the liability, arising out of rule 29.2 and clause 30.0, to the amendment of the Trust Deed and Rules if that should be necessary to meet the statutory minimum funding requirement. On that basis, I am of opinion that the Company's contractual relationship with the Trustee at the date of winding up included liability to amendment of the Trust Deed and Rules in order to provide for further payments by Participating Employers, including the Company, to secure the solvency of the Scheme. That means that the first question raised by the Noter must be answered in the affirmative. The claim made in August 2006 was made through the exercise of the powers in rule 29.2 and clause 30.0 and, following that amendment, rule 5.2A, and thus represented the present value of the contingent obligation which the Company owed to to the Trustee at the date of winding up.

[28] The second issue raised by the Noter proceeds on the hypothesis that the first question is answered in the affirmative, and seeks a direction on the amount of the claim or the criteria for determining that amount. The latest claim made by the Trustee, that made in August 2006, is for £20,190,880. The hindsight principle applies, and the claim is accordingly made on the hypothesis that that sum represents the value of the Company's indebtedness to the Scheme as at the date of winding up. The sum claimed is said to be the Company's share of the deficit calculated on an estimated buy-out basis as at 24 July 2006. The calculations that underlie the claim have been made by the Scheme Actuary. The Noter must obviously adjudicate on that claim in terms of section 49 of the Bankruptcy (Scotland) Act 1985, and in doing so he may require actuarial advice as to the basis of calculation. I have not heard actuarial evidence, and accordingly I am unable to express any view on the matter at this stage. Nevertheless, I am of opinion that the criterion that must be applied is whether the amount so claimed is, on an actuarial basis, the Company's share of the Scheme's deficiency of assets, calculated in accordance with rule 5.2A. If it is, the sum claimed is due by the Company, and represents the amount of its indebtedness at winding up.

The Trustee's alternative argument: payment of creditors' claims in an otherwise solvent winding up
[29] The fourth issue raised by the Noter is whether the Trustee has the right to be paid the full amount of either the claim made in August 2006 or the claim made in August 2005, so far as the surplus assets available to the Noter permit, before any payment is made to the holders of the Company's preference shares, as its contributories. That question relates to an alternative argument presented by counsel for the Trustee to the effect that considerations of public policy applicable to insolvency provided an overriding justification for admitting the Trustee's claims, whether or not they were technically to be regarded as contingent obligations as at the date of winding up. The argument presented was that a fundamental rule in Scottish insolvency law is that a debtor's assets should be available to meet the claims of all of his creditors before any surplus is returned to the debtor; authority for that was found in Mitchell v Scott, supra. That policy applied particularly strongly where the claim of a creditor had, following insolvency, developed into a prestable obligation. In the present case, any return of funds would be not to the debtor itself (the Company) but to its contributories. It is not strictly necessary in the present case to decide whether that principle has the overriding nature contended for by counsel for the Trustee, because I am fully satisfied that the Trustee's claim is properly to be categorized as a contingent claim as at the date of winding up. Nevertheless, I am of opinion that in the particular circumstances of the present case the alternative argument for the Trustee is correct.

[30] A fundamental principle that underlies insolvency law is that all creditors as at the date of bankruptcy or winding up are entitled to share equally in the debtor's funds. If a person is a creditor at that date, even if he is merely a contingent creditor, he is entitled to share equally with the other creditors. If, however, he is not a creditor in any sense at that date, he cannot participate in the division of the assets among the creditors. Thus a person who has a mere spes obligationis would have no locus to participate in such a division. The specialty of the present case, however, is that, apart from some relatively minor debts and expenses, which it was agreed should be ignored, the whole of the funds will go either to the MNOPF (and possibly the ratings' pension fund) or to the contributories. Apart from the claims by the pension funds, the liquidation would be likely to end up solvent. Thus there is in effect a competition between a single creditor (or pair of creditors) and the contributories. In that situation I am of opinion that the liquidator, the Noter, must pay all of the Company's debts before anything can be returned to contributories. It would be an extraordinary result if funds could be returned to a company's contributories without paying the whole of the company's debts, whether or not they arose prior to winding up. Whether a debt is in existence prior to winding up is of critical importance in a competition among creditors, but once the issue becomes a competition between creditors and contributories that matter is irrelevant; the company must pay its debts before the contributories get anything, just as an individual debtor cannot walk away with his remaining assets without his trustees' paying the whole of his creditors in full.

[31] Support for this approach is found in Wood v MacKay's Tr, 1936 SC 93. In that case a heritable creditor, after deducting the value of his security, ranked in a sequestration and received payment in full of the balance ranked for. It was held that he was not thereby precluded, so long as the trustee remained undischarged and held undistributed assets, from revaluing the security and cleaning to be ranked for further dividends. The ratio of the decision was stated by Lord Hunter (at 99-100):

"The duty of the appellant, as trustee upon a sequestrated estate, is to distribute among the creditors, who are primarily those on whose behalf he holds the bankrupt's estate, all that estate until they have received 20s. in the £, always assuming, of course, that the bankrupt has not received a discharge upon a composition, or an arrangement has not been made with the bankrupt to which both the trustee and the creditors have been parties".

[32] In my opinion a similar principle must apply in a case of corporate insolvency. I note that a similar result was suggested by David Richards J. in Re T & N Ltd, [2006] 1 WLR 1728, at paragraph 107:

"It would indeed be extraordinary if a company's assets could be, and were required to be, distributed to shareholders without paying tort claims which had accrued since the liquidation date, or other claims not provable in liquidation, such as costs incurred in litigation against the company before the liquidation date but not then the subject of an order. In my judgment, this is not the position.... [W]here all provable debts had been paid in full and there is a surplus otherwise available for shareholders, I can see no reason why the court would restrain a tort claimant from obtaining or executing a judgment".

In my opinion that represents common sense.

Further issues raised in argument

[33] The foregoing analysis of the legal issues is sufficient to decide the questions asked by the Noter. Nevertheless, I heard an extensive and able argument from both counsel that ranged over a considerable number of issues, and I propose at this stage to deal with those issues. First, I should note an argument that was presented by counsel for the Trustee. She submitted that the obligation of the Company to make an additional payment to the MNOPF was properly categorized as a future but illiquid obligation rather than a contingent obligation. She drew an analogy with an obligation to pay rent subject to a rent review clause under which the rent is to be reviewed in line with a specified price index. In such a case, it is known that rent will be payable at a particular level but the precise amount is not known. In the present case, the payment required from the Company would be based on an actuarial opinion, which would determine its amount and its apportionment among the various participating employers. It should accordingly be valued as a future debt as at the date of winding up. In my opinion this argument must be rejected. It is, I fully accept, difficult in many cases to distinguish a future obligation from a contingent obligation. An example given by Millet J. in Re Charge Card Services Ltd, [1987] 1 Ch 150, at 169, is an obligation to pay 20% of the profits of the business with a minimum of a specified sum. In such a case the obligation to pay profits is contingent, because it is dependent on the existence of profits, but the obligation to pay the specified sum can be regarded as future. Nevertheless, while difficult cases may occur, the basic distinction appears to me to be fairly clear: a future debt is one that will undoubtedly become payable, albeit at a future date, whereas a contingent debt is one that may never be payable. So far as the present case is concerned, it is quite correct the Trustee must act in accordance with the advice of the Scheme's Actuary, and that that advice will inevitably be based on proper calculations. Nevertheless, the calculations must be carried out on the basis of the then current financial position of the Scheme. That can depend on many factors, including investment return, economic conditions and the life expectancy of the scheme membership. All of these vary over time, and consequently the result will inevitably depend upon the time when the calculation is carried out. Thus it is most unlikely that a calculation carried out at the date of winding up, on the basis of conditions then prevailing, would produce exactly the same result as the calculation carried out by the Scheme Actuary in 2006; economic conditions had changed; no doubt the performance of the Scheme's investments had changed; and it is quite possible that the life expectancy of the scheme membership had changed. That in my view points clearly to the conclusion that the debt was contingent, not future.

[34] Counsel for the Noter submitted that the question of what is a contingent debt for present purposes should be determined in accordance with paragraph 3 of Schedule 1 to the Bankruptcy (Scotland) Act 1985. Paragraph 3, as adapted for winding up by Rule 4.16 of the Insolvency (Scotland) Rules 1986, is in the following terms:

"(1) Subject to sub-paragraph (2) below, the amount which a creditor shall be entitled to claim shall not include a debt in so far as its existence or amount depends upon a contingency.

(2) On an application by the creditor-

(a) to the [liquidator]; or

(b) if there is no [liquidator], to the [court],

the [liquidator] or [court] shall put a value on the debt in so far as it is contingent, and the amount in respect of which the creditor shall then be entitled to claim shall be that value and no more".

Counsel for the Trustee, by contrast, submitted that the Trustee's claim as made in 2006 was an application for adjudication under section 49 of the 1985 Act; it should be treated as a claim made for a present rather than a contingent debt because by that time the condition had been purified, and the hindsight principle operated to backdate that to the date of sequestration.

[35] In my opinion the argument for the Trustee is correct. The purpose of paragraph 3 is to alter the earlier practice, referred to in Mitchell v Scott, supra, at 8 R 879, whereby a sum was set aside to meet any claim for a contingent debt and was held by the trustee of sequestration until the contingency was purified. That caused practical difficulties, and the current rule, set out in paragraph 3, is that a contingent creditor is not entitled to make a claim in a sequestration or liquidation unless he applies to the trustee or liquidator to have the debt valued. The amount so valued is then treated as a claim in the insolvency. There is no obligation to follow this procedure, however; paragraph 3(2) confers an option on the contingent creditor as to whether to make an application for valuation. If he wishes, the contingent creditor can simply wait to discover whether the condition is purified, broadly along the lines of the old procedure except that no sum is set aside to meet his claim, and if there is a distribution to creditors a contingent creditor whose claim has not been valued will receive nothing. In this case, the Trustee made no application under paragraph 3(2) to have its claim valued and waited until the powers contained in rule 29.2 and clause 30.0 and, thereafter, the new rule 5.2A had been exercised. Once that was done, the amount of the debt due by the Company to the Scheme was ascertained according to the procedures set out in the Trust Deed and Rules. At that point the debt became a present debt, in accordance with the hindsight principle, and the Trustee was entitled to make an ordinary claim for adjudication on that debt in accordance with section 49.

[36] Counsel for the Noter further submitted that for present purposes the concept of a contingent debt must be determined in accordance with its meaning under the specific insolvency legislation that was applicable. He presented this argument on the basis that the relevant statutory provision was paragraph 3 of Schedule 1. Notwithstanding the conclusion that I have reached in the last paragraph, paragraph 3 undoubtedly applied at the date of winding up; at that point the Trustee's claim was contingent, and accordingly no claim could be made until a value was put on the Company's debt by the Noter. Counsel submitted that the correct meaning of a contingency in this context was crucial. It was, he submitted, a contingency which at the liquidation date applied "directly" to the obligation to pay. Put negatively, a contingency in this context did not include one which came to apply directly to that obligation only after the liquidation date. He contrasted this definition with a definition that permitted the contingency to apply directly to the obligation to pay at any time, whether before or after the liquidation date. In the present case, when the Company was wound up the Trustee did not have any claim against the Company for further contributions. The Trustee was only able to make that claim because following the winding up it exercised the power of amendment contained in clause 30.0 in such a way as to introduce the new rule 5.2A; the claim was then made under the latter rule. If this is analyzed in Hohfeldian terms, I think that it amounts to saying that a relevant contingency can only include a liability if that liability, together with its correlative power, is in existence as at the date of winding up. If, on the other hand, the liability that exists at winding up is a liability to have a new power created, that does not amount to a contingency.

[37] In my opinion there is no basis in principle for such a distinction. The critical point is that a contingency can be dependent on the exercise of a power by the creditor in a contingent obligation, or indeed a third party; the existence of such a power creates the correlative liability in the debtor. In my opinion it is immaterial that the power involved is a "double" power, in the sense that the creditor can exercise one power to enable itself to exercise a second power: in this case, to exercise of power of amendment to enable the making of a monetary claim. Both of those powers are contained within the terms of the MNOPF Scheme, and are contractually binding on the Company. Indeed, it is very easy to see the practical reason for both of those powers, in view of the difficulties that pension funds have had in maintaining solvency in recent years and the critical importance to their members that they should attempt to remain solvent. The distinction suggested by counsel for the Noter does not appear to me to have any basis in legal principle, and could cause great practical difficulties for complex contractual arrangements such as the typical pension scheme.

[38] Counsel for the Noter submitted that the correct approach to the present problem is to start with the scheme of legislation applicable to insolvent liquidation as found in the Insolvency Act 1986. The critical question was the meaning of the expression "contingent debt" as found in that legislation. In that respect he contrasted his approach with that of the Trustee, which tended to emphasize the legal position at common law, as laid down by the institutional writers and earlier Scottish cases such as Mitchell v Scott, supra. It is clearly correct that the winding up of the Company is governed by the 1986 Act and those parts of the Bankruptcy (Scotland) Act 1985 that are incorporated by the Insolvency (Scotland) Regulations. Nevertheless, the scheme of insolvency legislation, in both Scotland and England and Wales, is generally to respect and give effect to the rights that arise under the general law, whether the common law or other statutes. Indeed, on insolvency rights, obligations and the like arising at common law or under general statutory provisions are frequently tested in a very rigorous manner, using the procedures in the insolvency legislation. What is involved is, generally speaking, not the minute construction of expressions used in the insolvency legislation but the rational application of general legal principles in a systematic fashion. Consequently I do not think that the expression "contingent debt" should be regarded as having any special meaning under the insolvency legislation, whether paragraph 3 of Schedule 1 to the 1985 Act or any other provision. Instead, the expression should be given its meaning at common law, as explained by Erskine and Gloag and in Re Sutherland, supra.

[39] A further matter that was touched on in argument is the application of the British Eagle principle (British Eagle International Air Lines Ltd v Compagnie Nationale Air France, [1975] 1 WLR 758). In essence, this amounts to a rule that it is impossible to contract out of the pari passu principle; a party whose rights are merely contractual cannot contract in such a way that, in the event of the debtor's insolvency, it is placed in a more favourable position than other creditors. A contracting party can of course have a security for its debt, but that must be either proprietary or possessory in nature or must come from a third party, as with a guarantee. In the present case, however, I am of opinion that the British Eagle principle is not infringed. The Trustee exercised two powers. First, it exercised the power to amend contained in clause 30.0 of the Trust Deed in order to introduce and subsequently amend the new rule 5.2A. The purpose of that amendment appears clearly from the terms of rule 5.2A: the amendment was designed to create a power to levy further contributions "in order to reduce or eliminate any deficiency or anticipated deficiency in the Scheme's resources". Secondly, the Trustee exercised the power so created. That act was obviously intended to achieve exactly the same purpose, the reduction or elimination of the deficiency. Moreover, the power in rule 5.2A expressly required that the Trustee should take the advice of the Scheme Actuary, and should take into account the extent to which the amount of any deficiency of potential deficiency arose from liabilities attributable to employment with each Participating Employer. Thus the level of contributions demanded from the Company is designed to make up the deficiency so far as attributable to its former employees. That does not involve putting the Trustee in a better position than it would have been in but for the insolvency; the Trustee's rights would have been the same even if the Company had not been insolvent. Finally, it should be noted that, even if the Company's insolvency is taken into account, the case involves what is in effect a clash between two insolvencies. In that situation, there is no obvious justice in favouring the Company's contributories over its former employees in their capacity as members of the Scheme.

[40] I was also referred to a substantial amount of case law dealing with the meaning of the expression "contingent debt" in a wide range of contexts. In my opinion the principles that are critical to the decision in the present case are set out clearly in the cases referred to above, notably Re Sutherland and Mitchell v Scott. It is not therefore necessary to consider the other cases in great detail. Nevertheless, in view of the very full and careful submissions made by counsel, I should refer to the most important of the cases cited.

[41] A number of cases involve various forms of court decree, where the action was raised before the sequestration or winding up but the court's order was not pronounced until afterwards. In Miller v McIntosh, 1884, 11 R 729, it was held that an illiquid claim for damages is properly categorized as a present debt, not a contingent debt, and that the same is true of an award of expenses in such an action. The debt in such a case is uncertain in amount, and indeed it is not clear that it will be due until the court pronounces decree or the action is settled. Nevertheless, the effect of the decree is to determine that a sum is already due by the defender to the pursuer: hence the analysis as a present debt. In Crighton v Crighton's Tr, 1999 SLT (Sh Ct) 113, it was held that a capital sum awarded in an action of divorce was a contingent obligation as at the date of sequestration, the obligation being contingent on the court's granting decree of divorce and awarding a capital sum. The obligation to share the matrimonial property arose when the action was raised craving payment of a capital sum. In Forbes v Whyte, 1890, 18 R 182, it was held that a claim for expenses in an action in the Court of Session for which the successful party had obtained decree for interim execution was a contingent debt, in that it might never become due or payable. In Downs v Wilson's Tr, 1886, 13 R 1101, a claim for aliment against the father of an illegitimate child was held to be a contingent debt in the father's bankruptcy. In Garden or Fraser v McIver, 1860, 22 D 1190, it was held that a contingent claim might be ranked even though it was such that a value could not reasonably be put upon it. The last of these cases emphasizes the width of the concept of a contingent claim at common law. Apart from that, however, I do not think that the cases on court decrees are of great assistance in the present case.

[42] The same is true of English cases on court judgments. I was referred to Re William Hockley Ltd [962] 1 WLR 555 and Re SBA Properties Ltd, [1967] 1 WLR 799. In the latter case, an action had been raised in the name of a company without authority, giving rise to a possible liability in expenses to the defendants. One of the defendants claimed that, in the event that the company's liquidator ratified the action, that liability would become a debt of the company, which would be related back to the beginning of the action. It was held that at the date when the question arose, prior to winding up, the possibility that the company would be liable to pay the expenses did not amount to a contingent debt, as it depended on ratification by the liquidator, if he chose to do so. That case is readily distinguishable from the present: there any ratification would be the act of the liquidator, acting under powers that were quite independent of the contractual relationship between the bank and the company. In the present case, by contrast, the actings of the Trustee have been under express powers contained within the contract linking the Company and the MNOPF Scheme. I was also referred to Glenister v Rowe, [2000] Ch 76, where it was held that in order for costs made against the debtor after his discharge from bankruptcy in proceedings that began before the bankruptcy was not a contingent liability at the date of bankruptcy. The reason (Mummery LJ at 84) was that the discretionary nature of the court's power to order costs indicated that there was no liability, contingent or otherwise, in the absence of a court order. In Scottish terminology, that amounts to a holding that the possibility of an order for costs is a mere spes until the order is actually pronounced. I do not think that the decision is of great assistance in the present case.

[43] Yet further cases have been concerned with claims made under various statutory schemes. In R (Steele) v Birmingham City Council, [2006] 1 WLR 2380, the claimant was declared bankrupt and thereafter the Secretary of State for Work and Pensions had made a determination that he had been overpaid jobseeker's allowance and began to recover the overpayment. It was held that until the Secretary of State had made his determination there was no obligation on the claimant to repay the overpaid benefit, and consequently there could not be a contingent liability for the purposes of the insolvency legislation. Glenister was followed. In relation to this case I should observe that Arden LJ, in her concurring opinion, referred to Re Sutherland and expressed the view that the holding of the majority in that case, including Lords Reid and Guest, gave a very wide meaning to the concept of a contingent debt. She thought, however, that it did not follow that the concept of a contingent liability had the same meaning for all purposes; it was not a term of art, and its meaning depended on the context. That may be correct as a matter of English law, but in my opinion it does not represent Scots law. In Scotland the expression "contingent obligation", together with cognate expressions such as "contingent liability", has a very clear and well established meaning, dating back to one of the most eminent institutional writers. Moreover, it is a meaning that is quite straightforward, and indeed intellectually elegant. In my view, both at common law and under any relevant statutory provisions, the expression "contingent obligation" should be given its established meaning as laid down by Erskine and Gloag unless there are compelling contextual reasons to the contrary. A contingent obligation in the Scottish sense must, of course, be distinguished from a mere spes, and the entitlement of the Secretary of State to make a determination that a statutory allowance had been overpaid clearly falls into that category. In Haine v Day, [2008] 2 BCLC 517, a protective award was made under employment legislation in order to enforce an employer's obligation to make certain payments to employees. The employer subsequently went into insolvent liquidation. It was held that the award was a contingent debt, Glennister being distinguished. In this case the award arose directly from a breach of the employer's duties prior to insolvency. In that respect it can be seen as analogous to an award of damages, or at least to a contingent debt as understood in Scots law. Finally, in Secretary of State for Trade and Industry v Frid, [2004] 2 AC 506, a case involving set off of debts under the English Insolvency Rules, it was held that set off was possible if there was "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" (paragraph 9). An example given was a claim for damages for breach of contract, which of course is not treated as a contingent debt under the Scottish definition. In my view the case turns on the scheme of statutory set-off in English law, and is of no assistance in determining what a contingent debt is in Scots law.

[44] I was referred to two further cases in England, both at first instance, Re T &N Ltd, supra, and Re Federal-Mogul Aftermarket UK Ltd, [2008] Bus LR 1443. In the first of these cases, David Richards J. considered the nature of a contingent liability at some length (paragraph 48 et seq), and concluded (paragraphs 60 and 111) that a liability to pay damages to those who had been carelessly exposed to asbestos through the actions of the insolvent company was a contingent obligation. As explained above, in Scotland such an obligation would generally be regarded as a present obligation that required to be quantified in the future, the underlying theory being that the award of damages represents an indebtedness that arose at the time of the wrongful act. Re Federal-Mogul is of interest because it relates to a deficiency in a pension scheme. Claims under the Pensions Act 1995 were made against a number of insolvent companies subject to creditors' voluntary arrangements. It was agreed that the claims were contingent, and the hindsight principle applied so that when the claims were valued account was taken of everything that had actually happened between the time of insolvency and the moment when it became necessary to ascertain what, on that date, was the state of accounts between the creditor and the insolvent company. In my opinion the application of the hindsight principle in such a case is clearly appropriate, and it is in accordance with the application of that principle in the present case.

Conclusion

[45] For the reasons already stated, I am of opinion that the questions posed by the Noter should be answered as indicated at paragraphs [27]-[29] above. I was asked to answer the questions and then to have the case put out by order in order that parties could consider what further procedure is necessary. I will accordingly pronounce an interlocutor to that effect. In conclusion, I should thank counsel for both parties for their excellent submissions in a case that combined great intellectual interest with practical importance.