Mr Justice David Richards :
- This is an application by the joint administrators of T&N Limited (T&N) for declarations and directions as to the effect in certain respects of a proposed Plan of Reorganisation (the Plan) under Chapter 11 of the US Bankruptcy Code on insurance and reinsurance arrangements made by T&N in 1996 in respect of asbestos-related liabilities.
- T&N and 133 subsidiaries (the UK debtor companies) are the subject of administration orders in England and, in one case, Scotland made in October 2001. On the same day they filed for relief under Chapter 11 in the United States Bankruptcy Court for the District of Delaware (the US Court). Their ultimate holding company, Federal-Mogul Corporation, and 22 of its US affiliates ( the US debtor companies) also filed for relief under Chapter 11. Since then the Plan has been developed by a number of creditor groups as well as by the US and UK debtor companies acting by their directors and managers. The Plan seeks to address the acute problems caused to the US and UK debtor companies by the mounting volume of asbestos-related claims. For information concerning the companies, their assets and liabilities, the asbestos-related claims and the terms of the Plan reference may be made to a judgment I gave on 21 October 2004 on an application made by the administrators.
- The insurance policy relevant to the present application is an Asbestos Liability Policy (ALP) made between T&N and Curzon Insurance Limited (Curzon) in December 1996. It covers asbestos-related personal injury claims on a claims-made basis from 1 July 1996 and provides cover of £500 million excess of £690 million. Although T&N is the only insured, it indemnifies T&N for loss suffered by a number of its subsidiaries as well as itself. Curzon is a wholly-owned subsidiary of T&N, incorporated in Guernsey. It is not in administration or subject to any other insolvency procedure. Curzon's liability under the ALP is reinsured in full by three reinsurers (the named reinsurers) in equal amounts under a reinsurance agreement also made in December 1996. The negotiation of the ALP, as well as the reinsurance agreement, was conducted directly with the named reinsurers and, for regulatory reasons, the ALP with Curzon was interposed between T&N and the named reinsurers. The premium paid under the ALP was £92,046,000, of which £46,000 was retained by Curzon and the balance of £92 million was paid to the named reinsurers as the premium under the reinsurance agreement. At the same time T&N provided a contractually-binding side letter dated 30 December 1996 under which, among other things, it agreed to indemnify the named reinsurers for any failure by Curzon to fulfil and punctually perform its obligations under the reinsurance agreement and agreed that it would not, without the consent of the named reinsurers, agree to any amendment or waiver of any provision of the ALP.
- One of the named reinsurers, European International Reinsurance Company, has claimed to be entitled to avoid the reinsurance agreement. In the course of a trial of its claim in the Commercial Court, a settlement was reached on terms which are confidential and have yet to become fully effective. It has not been represented or played any part in the application before me. The other two reinsurers, Muenchener Rueckversicherungs-Gesellschaft and Centre Reinsurance International Company (the Reinsurers), have been represented and actively participated on the application. Curzon has not been represented.
- A principal feature of the Plan is the creation of an asbestos trust under provisions contained in Chapter 11. Its main assets will be a holding of stock representing just over 50 per cent of the common stock of the reorganised Federal-Mogul Corporation. Under US statutory provisions and with injunctions which the US Court will be asked to make, all asbestos-related claims against the US and UK debtor companies will be channelled to the trust and no such claims will be maintainable against the debtor companies. As a matter of US law, the Plan if approved in that form will have worldwide effect but, as I held in my judgment of 21 October 2004, it will not, as a matter of English law, affect claims governed by English law without either individual consent of the claimants or schemes of arrangement or company voluntary arrangements approved under the relevant UK statutory procedures.
- The basic mechanism provided by the Plan, summarised in over-simple terms, is that individual asbestos claims will be made against the trust. Its assets will include its holding of common stock of reorganised Federal-Mogul and the benefit of insurance policies held by debtor companies and assigned to it. It will apply its assets including any insurance recoveries in making distributions among the asbestos claimants whose claims (Trust Claims) will be assessed and quantified in accordance with procedures laid down by the Plan.
- For a number of reasons arising from the terms of the ALP and the Reinsurance Agreement, this approach is incompatible with those particular insurance arrangements. Because the ALP is recognised as being a significant asset of T&N available to meet part of the cost of asbestos claims, special provisions have been included in the Plan designed to ensure compliance with the requirements of those arrangements.
- There are in particular four features which have to be accommodated. First, any assignment or transfer of T&N's rights under the ALP is prohibited without the consent of Curzon, which in turn requires the consent of the Reinsurers. By reason of the Third Parties (Rights Against Insurers) Act 1930, those rights were transferred by operation of law to asbestos claimants on the making of the administration orders. It is accepted by the Reinsurers that this transfer could not involve or result in a breach by T&N of the terms of the ALP. However, a transfer or assignment of those rights to the asbestos trust would do so. It is therefore proposed in the Plan that the rights should be re-transferred to T&N and that T&N should make claims under the ALP. The second feature is that under the combined effect of the ALP and the Reinsurance Agreement, the Reinsurers are entitled to deal with, defend and settle all claims against T&N and its subsidiaries until both the excess and the cover provided by the ALP have been exhausted. Provisions have been included in the Plan which are designed to preserve these claims handling rights of the Reinsurers. Thirdly, as the ALP is a liability policy, the liability for asbestos-related claims must remain with T&N and its subsidiaries. Accordingly, the Plan provides for the retention by them of those liabilities until both the excess and the cover under the ALP is exhausted. Fourthly, as the ALP contains a pay when paid provision which is only suspended while T&N and the subsidiaries are in administration, provision is made for them to meet liabilities to claimants.
- Again by way of over-simple summary, the Plan provisions are intended to operate as regards T&N and its subsidiaries, until the ALP cover is exhausted, in the following way:
i. Asbestos-related claims will be made against T&N or a subsidiary by the trust acting as agent for the individual claimants.
ii. Asbestos claimants assign to the asbestos trust the right to receive the proceeds of any claim against T&N.
iii. Asbestos claimants transfer back to T&N the rights currently vested in them by the Third Parties (Rights Against Insurers) Act 1930 to make claims against Curzon under the ALP.
iv. Once established against T&N (not against the trust under the Plan provisions), asbestos claims will be paid by T&N by one of a variety of means to the trust as agent for the claimant.
v. T&N will claim against Curzon under the ALP once the Ultimate Net Loss (as defined in the ALP) exceeds £690 million.
vi. Amounts recovered by T&N under the ALP will be applied as provided by article 4.5.8 of the Plan to which I refer below.
- The declarations and directions are sought on an application issued by the joint administrators on 5 November 2004. There is a somewhat complex procedural background to the application which can be summarised as follows. In December 2002 the Reinsurers commenced proceedings in the Chancery Division (the Chancery Action) against Curzon seeking declaratory relief in relation to the reinsurance agreement and the effect of the proposals as they then stood for a plan of reorganisation under Chapter 11. At the same time, the Reinsurers issued an originating application against the administrators of T&N (the Companies Court Action) seeking relief based on the same grounds as those in the Chancery Action. Curzon and the administrators issued applications to strike out these proceedings. On 26 March 2003 the Vice-Chancellor ordered that the proceedings and the strike-out applications should be heard at the same time, after the Reinsurers had had a reasonable opportunity to amend their particulars of claim in the light of future developments of the plan, in any event not before 1 May 2003. This reflected the fluid nature of the proposals as they then existed, which made it largely pointless at that stage to determine the issues raised by the Reinsurers. The expectation that by April 2003 the Plan would have been in a form to be put to creditors was not borne out and the draft Plan was not sent to creditors until July 2004. In the meantime, an application by the administrators to which the Reinsurers were parties to determine questions concerning the application of the Third Parties (Rights Against Insurers) Act 1930 to the ALP and certain other issues was heard by Blackburne J. He gave judgment on 12 February 2004. Both sides appealed parts of his order and the appeal was heard by the Court of Appeal in late October 2004, with judgment reserved. The issues raised at the appeal are not directly relevant to the issues now before me.
- In the light of the terms of the proposed Plan sent to creditors in July 2004, which is to be the subject of a confirmation hearing by the US Court starting on 9 December 2004, the Reinsurers sent draft amended particulars of claim in the Chancery Action and the Companies Court Action to the administrators and Curzon at the beginning of October 2004. These raised issues under four heads: the prohibition on the assignment or transfer of rights by T&N under the ALP, the claims handling rights, the acceleration of claims likely to result from the Plan, and the exclusive jurisdiction clause in the ALP. The issues on the application before me have been more limited but they are all raised by the amended particulars of claim. On 20 October 2004 the Reinsurers issued applications in both Actions, seeking leave to amend their particulars of claim and leave to join T&N to the Chancery Action. Orders in these terms were made by consent. By their application in the Chancery Action, the Reinsurers also sought declarations as to the effect of the Plan on the ALP and the Reinsurance Agreement under each of the heads raised by their amendments to the particulars of claim. By their application in the Companies Court Action, they sought directions that the administrators use all reasonable endeavours, in effect, to ensure that the terms of the Plan are such as not to interfere with the terms and performance of the ALP and the Reinsurance Agreement. In a witness statement in support of the application, a partner in the Reinsurers' solicitors stated that they had been raising the relevant concerns since December 2002, that the Plan would shortly be the subject of the confirmation hearing by the US Court, that T&N was or was about to be in breach of the ALP and that they wished the application to be heard before the start of the confirmation hearing.
- On 25 October 2004 Etherton J gave directions for the filing of evidence for a hearing of the applications in the second half of November, but expressed some concern that the procedure adopted by the Reinsurers might not enable final relief to be obtained. In their evidence, the administrators expressed the view that the Court could not at this stage form a view on some of the matters raised by the Reinsurers, but it was not an objection raised on all the issues. They made the point that the guidance of the Court as to the validity and effect of the way that the Plan deals with the ALP would be relevant both immediately, because it may affect the terms and confirmation of the Plan, and subsequently because it might affect the terms of any scheme of arrangement or company voluntary arrangement proposed to give effect to the Plan in the UK. In order to overcome any procedural difficulties, the administrators issued their own application for directions on 5 November 2004.
- The evidence of the Reinsurers filed in response suggested that issues in three out of the four areas of concern which they had raised could not be decided, because they raised questions which could not be dealt with until some time after the Plan had been confirmed and the effect of the Plan in practice had become apparent. In view of the urgency of the Reinsurers' application dated 20 October 2004 and their expressed desire for a hearing before the confirmation hearing in December, this was a surprising development.
- Against this background, I directed the administrators to prepare a list of issues which they considered could and should be decided on this application and any declarations which they would seek. This was done and the parties' skeleton arguments and oral submissions have been directed to those issues and declarations.
- Mr Butcher, appearing for the Reinsurers, has however maintained an objection to the determination of any issue at this stage which involves a consideration of the Plan. His grounds are that (a) the Plan is not in final form, (b) it cannot be predicted how the Plan will be implemented in the US, and (c) there is no or insufficient evidence of relevant US law. The first point might well in other circumstances make this a premature application. However a significant purpose of this application is, so far as possible, to establish the position as regards the points raised by the Reinsurers on the Plan in its present form and thereby enable the administrators to seek amendments to the Plan to address any problems. In view of the significance of the ALP and Reinsurance Agreement as assets of T&N, and the decision of the Reinsurers clearly expressed in their evidence not to engage in any discussions on any possible changes to the Plan to meet their concerns, it appears to me right to proceed with the application at this stage. It is also relevant that it was the Reinsurers who issued their applications on 20 October 2004 in order to have questions arising from the proposed Plan determined urgently before the confirmation hearing in December.
- The second objection, that it cannot be predicted how the Plan will be implemented in the US, was said by Mr Butcher to relate to the practical consequences of the Plan for claims handling and to the possible application by courts in the United States of a decision of the US Court of Appeals for the Seventh Circuit in UNR Industries, Inc v Continental Ins. Co 942 F. 2d 1101 (7th Circ. 1991) (UNR). The administrators agree to a large extent on the first point and that has greatly narrowed the scope of the argument on claims handling issues, but disagree on the UNR issue which I will deal with at the appropriate point. As regards evidence on US law, both sides have filed expert evidence in the form of witness statements of US lawyers with relevant experience and expertise. Each already has a professional involvement in the Federal-Mogul/T&N cases, but neither side has objected to the evidence on that ground. I will consider the adequacy of that evidence where relevant. I therefore now consider the issues which arise on this application.
Assignment or transfer of rights
- Section III.12 of the ALP provides as follows:
"This Policy confers no rights, powers or obligations on any person or organisation other than the Insurer and the Policyholder. Neither this policy nor any of the rights, powers, or obligations of the Insurer or the Policyholder under it may be in any way transferred or assigned to any other person or organisation without express written consent by the Insurer and the Policyholder. The granting of such consent shall be at the sole and absolute discretion of each of the parties. The Policyholder consents to the Insurer transferring all of its rights and powers to its reinsurers of this Policy."
It is important to note, in the light of the Reinsurers' arguments, that this provision prohibits the transfer or assignment of T&N's "rights, powers or obligations" under the ALP. Article 4.5.4 of the Plan provides that "each holder of an Asbestos Personal Injury Claim will be deemed to have assigned to Reorganized T&N any right respecting the Hercules Policy…. being rights transferred to him/her by operation of law under the Third Parties (Rights Against Insurers) Act 1930". The Hercules Policy is the defined term used in the Plan for the ALP. It is not suggested by the Reinsurers that this provision infringes Section III.12.
- They base their argument on articles 4.5.3 and 4.5.8 of the Plan which provide as follows:
"4.5.3 Subject to Section 4.5.8 hereof, the Hercules Policy and the EL Coverage shall remain in full force and effect following the Effective Date. On and from the Effective Date, the liability of the Reorganized Hercules-Protected Entities for Asbestos Personal Injury Claims and for any costs and interest awarded in relation thereto shall continue in full, but recourse to the assets of the respective Reorganized Debtors in respect of such liability shall, automatically and by operation of the Plan, the Scheme of Arrangement and/or Voluntary Arrangement and the Confirmation Order, be limited in and to (i) all amounts actually recovered by Reorganized T&N under or with respect to the Hercules Policy (including all amounts actually recovered to the extent of the £500m layer of coverage under the Hercules Policy), (ii) the outstanding amount of the Stock Repayment Obligation and (iii) such sums as may have been provided to the relevant Reorganized Hercules-Protected Entity by the Trust or any other person, whether by loan or otherwise, for the purpose of enabling Asbestos Personal Injury Claims to be paid, and shall otherwise be without recourse as to the applicable Reorganized Hercules-Protected Entities and all of their property and interests in property. From and after the Hercules Policy Expiry Date, the discharge of T&N Limited and the other Debtors that are Hercules-Protected Entities under Article IX of the Plan shall automatically and without further order of Court become full and complete (other than with respect to Claims covered by the indemnity provisions of the EL Coverage and for which indemnity is actually recoverable under the EL Coverage, to the extent so recoverable).
4.5.8 Reorganized T&N will hold any amount received from the Hercules Insurers in respect of an established Asbestos Personal Injury Claim (including any amount received by virtue of the reassignment to it of the holder's rights under the Third Parties (Rights Against Insurers) Act 1930 of the United Kingdom pursuant to Section 4.5.4 hereof) in trust to meet any claims handling costs or expenses incurred by or on behalf of Reorganized T&N or any other Reorganized Hercules-Protected Entity. Subject to that, Reorganized T&N will hold all amounts received from the Hercules Insurers in respect of an Asbestos Personal Injury Claim in trust to repay to the Trust the amount borrowed by Reorganized T&N or other Reorganized Hercules-Protected Entity to fund the payment of that Asbestos Personal Injury Claim pursuant to Section 4.5.7 hereof. Reorganized T&N will hold any balance of the amounts received from the Hercules Insurers in trust, at the direction of the Trust, to pay further Asbestos Personal Injury Claims established by settlement or judgment. Until the Hercules Policy Expiry Date, all such amounts received from Hercules Insurers under the Hercules Policy shall be kept in a separately designated bank account in the name of Reorganized T&N pending application in accordance with the trusts established under this Section 4.5.8. Upon (i) the occurrence of the Hercules Policy Expiry Date and (ii) satisfaction of the payments to made under the foregoing trusts established under this Section 4.5.8, Reorganized T&N shall be entitled to any outstanding balance received from the Hercules Insurers absolutely; in that event Reorganized T&N will pay to the Trust a sum equivalent to the amount of the outstanding balance retained by Reorganized T&N (but without creating any trust affecting such outstanding balance). Any payment by the Hercules Insurers under the Hercules Policy or by any EL Insurer under an EL Policy to the holder of an Asbestos Personal Injury Claim pursuant to judgment or settlement of a Claim shall be held by the holder of the relevant Claim in trust for the sole and exclusive benefit of (in the case of a payment by the Hercules Insurers under the Hercules Policy) Reorganized T&N and (in the case of a payment by any EL Insurers under an EL Policy) the Trust (specifically, the T&N Worldwide Fund as defined within the Trust Documents), and paid to Reorganized T&N or, as the case may be, the Trust at its request, and the holder's recovery against the Trust shall be determined solely under and in accordance with the Asbestos Personal Injury Trust Distribution Procedure and other Trust Documents."
The Reinsurers deduce from these provisions that the only entity that will benefit from any recovery made under the ALP is the trust. The trust is itself the agent of asbestos claimants for the purpose of asserting the personal injury claims against T&N and its subsidiaries and it is envisaged that those claims will in turn give rise to a claim under the ALP. Accordingly, they submit, these provisions effect a transfer of all the benefits of the ALP to the trust. Although not an assignment, the Plan will operate as a transfer within the wide meaning of that word in section III.12 of the ALP.
- Mr Butcher submitted that, as section III.12 was a provision in a commercial agreement, the court was required to look at the substance of the matter, so that the creation of a right for the trust to receive all the benefits of a claim by T&N under the ALP was a transfer of T&N's rights under the ALP within the meaning of section III.12.
- In my judgment, there is nothing either in the terms of section III.12 or its context in the ALP which could justify reading it as applying more widely than its express terms. It prohibits the transfer or assignment of "the rights, powers, or obligations of the ….. Policyholder" under the ALP. It says nothing to restrict the Policyholder's freedom to deal, or to bind itself to deal, with the proceeds of any exercise of those rights or powers. Under the Plan, the rights and powers will be re-vested in T&N and retained by it. There will be no transfer of its rights but it will be bound to deal with any recoveries in the manner provided by article 4.5.8.
- The distinction between the transfer of rights and a dealing with recoveries resulting from an exercise of those rights was recognised by Lord Browne-Wilkinson in Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85, with whose speech three of the other members of the House entirely agreed. At p.104 he referred to a Note by Professor R.M. Goode on Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262 and continued:
"In that case a contract contained a clause prohibiting the contractor from assigning the contract "or any benefit therein or thereunder." The contractors assigned to the plaintiffs the right to a liquidated sum of money then alleged to be due to the contractors under the contract. Croom-Johnson J held that the plaintiffs, as assignees, could not sue the employers to recover the sum of money.
In his Note, Professor Goode rightly pointed out that where a contract between A and B prohibits assignment of contractual rights by A, the effect of such a prohibition is a question of the construction of the contract. There are at least four possible interpretations, viz., (1) that the term does not invalidate a purported assignment by A to C but gives rise only to a claim by B against A for damages for breach of the prohibition; (2) that the term precludes or invalidates any assignment by A to C (so as to entitle B to pay the debt to A) but not so as to preclude A from agreeing, as between himself and C, that he will account to C for what A receives from B; In re Turcan (1888) 40 Ch. D 5; (3) that A is precluded not only from effectively assigning the contractual rights to C, but also from agreeing to account to C for the fruits of the contract when received by A from B; (4) that a purported assignment by A to C constitutes a repudiatory breach of condition entitling B not merely to refuse to pay C but also to refuse to pay A.
Professor Goode then expressed the view that construction (2) (being the Helstan case itself) was permissible and effective but that construction (3) to the extent that it purported to render void not only the assignment as between B and C but also as between A and C was contrary to law.
I am content to accept Professor Goode's classification and conclusions, though I am bound to say that I think cases within categories (1) and (4) are very unlikely to occur."
Construction (2) and the rejection of construction (3) are applicable in the context of this case. Mr Butcher drew attention to the slightly odd expression "contrary to law" as regards construction (3). Like him, I think it must mean contrary to the proper construction of the relevant contract. I accept Mr Butcher's submission that this question is a matter of construction of the relevant provision, but section III.12 on its proper construction is not in my judgment infringed by the Plan. The above-cited passage also shows that an assignment contrary to a contractual prohibition invalidates the assignment rather than constituting a breach of contract, unless the contract provides otherwise.
- I therefore consider it appropriate to make the declaration suggested by the administrators that on a true construction of the ALP, the Plan does not involve a transfer or assignment of T&N's rights or powers under the ALP in breach of section III.12 thereof.
Claims handling
- Section III.4 of the ALP makes provision for dealing with asbestos claims against T&N and its subsidiaries. The basic scheme is that, unless either an Insolvency Event (as defined) affects T&N (which currently it does) or the Ultimate Net Loss (as defined) reaches the retained limit of £690 million, T&N has exclusive authority to handle claims, subject to requirements to do so in the spirit of good faith and fair dealing, having regard to the legitimate interests of T&N, Curzon and the Reinsurers and subject to more specific provisions in paragraphs (b) to (d). Paragraph (f) provides as follows:
"In the event of either an Insolvency Event in relation to the Policyholder or Ultimate Net Loss reaching the Retained Limit, the Insurer shall have (and shall retain until the first to occur of exhaustion of the Limit of Insurance, commutation or the Insurer so determining) the full, exclusive and absolute authority, discretion and control, which shall be exercised in a businesslike manner in the spirit of good faith and fair dealing, having regard to the legitimate interests of the parties to the Policy and of the reinsurers thereof, of the administration, defence and disposition (including but not limited to settlement) of all Asbestos Claims, including but not limited to the appointment of one or more Claims Handling Designees."
By article 4.1 of the Reinsurance Agreement, Curzon irrevocably transferred to the Reinsurers all its rights and powers pursuant to the ALP including (without limitation) those in paragraph (f) of section III.4.
- Article 4.5.5 of the Plan includes the following:
"In recognition of the Hercules Insurers' asserted claim handling rights: (i) the reorganized Hercules-Protected Entities will, to the extent required by the Hercules Policy, refer Asbestos Personal Injury Claims to the Hercules Insurers or their appointed claims handling designee for their further administration, defense and disposition and the Hercules Insurers will be entitled to exercise all claims handling rights under the Hercules Policy in relation to such proceedings, including defense or settlement of the Claim; and (ii) the claimant's action against the Reorganized Hercules-Protected Entities shall be allowed to proceed to judgment or settlement, but the claimant will not be permitted to enforce any judgment or settlement except in accordance with the provisions of this Section 4.5 hereof, including the claimant's assignment of his/her rights to proceeds from such claim to the Trust."
It is common ground that certain difficulties which the Reinsurers anticipate might in practice arise in the defence of asbestos-related claims, such as obtaining full disclosure from individual claimants in some jurisdictions and the possibility that in some jurisdictions the valuation of Trust Claims in accordance with the Plan will lead to the same result in the claim against T&N, turn on questions of future fact which are presently speculative and cannot now be decided.
- The administrators restrict their application at this stage to a declaration that the terms of the Plan, on their construction and as a matter of law, do not in and of themselves amount to a breach of section III.4 of the ALP by depriving Curzon of claims-handling rights in breach of the ALP or to a breach by Curzon of Article 4.1 of the Reinsurance Agreement.
- The reinsurers submit that the court should refuse to make such a declaration, for three reasons. First, the wording of the Plan has yet to be finalised. This is true but, for the reasons which I have already given, not an objection to this application at this time.
- Secondly, the issue depends on the true construction of the Plan and Article 11.13 provides for its governing law as follows:
"Except to the extent that federal law (including, but not limited to, the Bankruptcy Code and the Bankruptcy Rules) is applicable or where the Plan provides otherwise, the rights and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof"
- It is objected that the court has no, or insufficient, evidence of the relevant principles of the applicable law. Mr Moss for the administrators submits that insofar as there is any gap in the expert evidence I should proceed in the usual way of assuming that foreign law is the same as English law. Given that it was the Reinsurers who raised issues on the Plan by their applications of 20 October 2004 and that both sides have filed expert evidence, it cannot be said that the Reinsurers have not had an adequate opportunity to put evidence of relevant principles of construction before the Court. I accept Mr Moss' submissions.
- Thirdly, there would be an infringement of the Reinsurers' rights if in the future a court in the United States were "for example" to construe the Plan in such a way as to give rise to the UNR result. The UNR result is shorthand for a decision that a confirmed plan of reorganisation would constitute a judgment or settlement against T&N in the amount of the Trust Claim admitted under the terms of the Plan.
- The UNR result is in fact the only example which has been put forward by the Reinsurers of a decision adversely affecting their claims handling rights which could arise from a construction of the Plan. Their concern, as expressed in paragraphs 37–38 of the statement of their expert, is based on article 10.7 of the Plan which so far as relevant reads:
"[T]he Trust shall be deemed to be the successor to the applicable Debtors with respect to all Asbestos Personal Injury Claims and the indemnitee under any Asbestos Insurance Policy… The opportunity to participate in the resolution and defense of such Claim shall be in all respects subject to the Asbestos Personal Injury Trust Distribution Procedures provided for in the Trust Agreement and limited to contentions that the Claim should not be Allowed or should be Allowed in a lesser amount under such procedures. Except as provided in Article IV of the Plan, an Allowed Asbestos Personal Injury Claim shall be, and shall be deemed to be, a judgment against the Trust (as successor for all purposes to the liabilities of the applicable Debtors in respect of Asbestos Personal Injury Claims) in the Allowed Amount of such Claim for purposes of determining the liability of any insurer or indemnitor in respect of such Allowed Asbestos Personal Injury Claim"
While the last sentence, excluding the words "[e]xcept as provided in Article IV of the Plan", might well produce the UNR result, those words would appear to be critical in that Article IV makes clear that Trust Claims and claims against T&N are entirely separate. All that the Reinsurers' expert says as regards these opening words is in a footnote: "The phrase…does not mitigate the Reinsurers' concerns that a UNR-type acceleration may be attempted". I do not find that a strong basis for a submission that any real risk of a UNR result arises under the Plan.
- However, there are practical limitations on the ability of this court to make findings on US federal or state law at this stage. Moreover, one of the aims of cooperation between this court and the US Court, for which a formal framework has now been approved by both courts, is to allocate between each court those matters which are best suited for its determination. Mr Moss in reply offered a proviso to the declaration which would provide a saving in the event of an adverse decision by a court in the United States. I think a proviso to that effect should be added. I will also direct the administrators to raise with the US Court the concern of the Reinsurers that the Plan may infringe their claims handling rights with a view to the addition of further language in the Plan to strengthen the preservation of their rights and, if the US Court considers it appropriate to do so, to give such ruling or guidance on the relevance of the UNR decision to the Plan as it sees fit.
- Accordingly I will make the declaration sought by the administrators with the addition of the proviso suggested by Mr Moss and I will give directions to the administrators as indicated above.
Acceleration
- Section III.1(a) of the ALP provides:
"No Insolvency Event affecting the Policyholder or any Subsidiary and no act of any liquidator, receiver, administrator, trustee in bankruptcy or other person administering the estate of any of the foregoing as a consequence of any Insolvency Event (each of which is hereinafter referred to as a "Liquidator") shall cause any liability of the Insurer hereunder to become due earlier or for a higher amount than would have been the case if such Insolvency Event had not occurred or if such act had not been committed; and for this purpose the question of whether an act of any Liquidator would (but for this provision) cause any such liability to become due earlier or for a higher amount if such act had not been committed shall be determined by comparing the conduct and practices employed by the Liquidator with those employed by the Policyholder or the relevant Subsidiary or the relevant Claims Handling Designee (as the case may be) prior to the appointment of the Liquidator, and having regard to the effect of other relevant circumstances (except for the Insolvency Event affecting the Policyholder and/or any Subsidiary or any act of any Liquidator)."
This is a provision of considerable commercial importance. It is obvious that in assuming the risk covered by the ALP for a premium of £92 million, the Reinsurers were making assumptions as to the likely volume and quantum of claims and the periods during which they would be made and dealt with. It was also apparent, as this provision demonstrates, that T&N or its subsidiaries could subsequently become subject to an "insolvency event", most obviously if, as has happened, the then current assumptions regarding asbestos claims were undermined by later events. It was likely that an insolvency event would significantly change assumptions on the volume, quantum and timing of asbestos claims. This provision was therefore included to protect the position of the Reinsurers in that event.
- The effect of Section III.1(a) is to protect Curzon and hence the Reinsurers against the effects of acceleration by providing that their liability will not become due earlier or for a higher amount than would otherwise have been the case and setting out a mechanism to determine the effect of acceleration. The acceleration of claims against T&N and its subsidiaries which may result from the occurrence of an insolvency event are not breaches of the ALP or the Reinsurance Agreement.
- The Reinsurers concur in this analysis and are therefore content for the court to make the only declaration sought on this topic by the administrators, that if T&N or, it may be added, a subsidiary is, as a result of an insolvency event and the Plan, found liable earlier or in a larger amount than it would have been found liable in the absence of such an event, T&N will not be in breach of section III.1(a) of the ALP.
Jurisdiction
- The ALP is governed by English law and section III.10 provides that T&N and Curzon "hereby submit to the exclusive jurisdiction of the English Courts in relation to this Policy". This clause is mirrored in the Reinsurance Agreement.
- Article 11.3 of the Plan provides:
"In addition to the foregoing, the Bankruptcy Court shall retain jurisdiction for each of the following specific purposes after Confirmation of the Plan, which in the case of the UK Debtors, shall be exercised subject to the concurrent jurisdiction of the UK Court:
11.3.13 to hear and determine the Asbestos Insurance Actions, any similar claims, causes of action or rights of Reorganized T&N against the Hercules Insurers…, to construe and take any action to enforce… any settlement with the Hercules Insurers…"
The Hercules Insurers means Curzon, and Asbestos Insurance Actions is defined in the broadest terms to include virtually any action against an insurer under a policy providing cover for asbestos claims and liabilities. It excludes the ALP but the words in article 11.3.13 "any similar claims, causes of action or rights of Reorganized T&N against the Hercules Insurers" have the same effect.
- This provision is entirely inconsistent with the exclusive jurisdiction clause in the ALP. Nonetheless, Mr Moss submitted that confirmation of the Plan with the support of T&N would involve no breach of that clause, on two grounds.
- The first ground was that as a matter of relevant US law, article 11.3.13 did not create any jurisdiction which would not already exist. In dealing with this the administrators' expert on US law stated that:
"…article 11.3 does not create any jurisdiction in the Bankruptcy Court. All that the article does, or could do, is to preserve jurisdiction that the Bankruptcy Court currently has by operation of applicable law. Neither the Bankruptcy Court nor the Plan Proponents have the power to expand the existing jurisdiction of the Bankruptcy Court."
This seems to be consistent with the words used in article 11.3 that the Bankruptcy Court "shall retain jurisdiction… after Confirmation of the Plan", suggesting that but for this provision the Bankruptcy Court would no longer have such jurisdiction after confirmation of the plan.
- I am not satisfied that I have sufficient evidence of relevant US law to understand fully the jurisdiction asserted by the US Court as regards the ALP or the effect of article 11.3 on its continuation after confirmation of the Plan.
- However, even if article 11.3.13 has no effect on the US Court's jurisdiction, an application by T&N to the US Court or a request by it to confirm the Plan in a form which includes that article, followed by confirmation of the Plan, involves a submission by T&N to the jurisdiction of the US Court as regards the ALP. Mr Moss submits that an exclusive jurisdiction clause involves only two obligations. The first is an obligation to permit proceedings to be brought in the chosen jurisdiction and the second is an obligation not to bring proceedings in any other jurisdiction. No-one would dispute that those are essential and usual consequences of an exclusive jurisdiction clause. But there may be ways other than the commencement of proceedings which involve a submission to the jurisdiction of a different court. In my judgment, a request by T&N that the US Court confirm the Plan in the present form does involve a submission by T&N to the US Court's jurisdiction over the subject-matter of the ALP. It could hardly later object to the assertion of such jurisdiction by the US Court, although of course it does not follow that the US Court would choose to exercise it or that T&N would be precluded from arguing that it should not do so.
- The submission to the exclusive jurisdiction of the English Courts contained in section III.10 of the ALP necessarily means that neither party will submit to the jurisdiction of any other court. For the reasons given, T&N will in my judgment be in breach of section III.10 if it seeks or supports the US Court's confirmation of the Plan including article 11.3 in its present form.
- Mr Butcher made additional submissions. First, he submitted that T&N would be in breach of section III.10 even if it did not seek or support the confirmation of the Plan. His submission was that by filing for Chapter 11 protection, T&N started a chain of events which will have led to the confirmation of this Plan. However, there was nothing inevitable about this Plan emerging from the Chapter 11 proceedings and I am unable to see how, simply by filing under Chapter 11 in October 2001, T&N would be responsible for the Plan so as to make the Plan's confirmation by the US Court a submission by T&N to the jurisdiction of the US Court in respect of the ALP.
- Secondly, Mr Butcher accepted that confirmation of the Plan in its present form would not be breach of warranty, in the technical sense used in insurance law, such as to discharge Curzon from any further liability under the ALP. He submitted that section III.10 was an innominate or intermediate term, so that Curzon might be entitled to treat a breach of it as repudiatory, depending on the circumstances of the breach. However, while he accepted that it could not now be said to be a repudiatory breach and that the position would be the same, in the absence of any material intervening event, if and when the Plan were confirmed, he submitted that subsequent events could entitle the Reinsurers to argue that confirmation of the Plan had involved a repudiatory breach. I did not hear detailed argument on this issue.
- I will accordingly make a declaration to the effect that if T&N supports the confirmation of the Plan in its present form, it will be acting in breach of section III.10 of the ALP. I will also make a declaration dealing with the points in the previous paragraph. Mr Moss raised both in his skeleton argument and in his reply various possible amendments to the Plan to deal with this point on jurisdiction. I will consider any suggested amendments which the administrators wish to put forward.
