T&N Ltd & Ors, Re Insolvency Act 1986

Persons exposed to asbestos by a company before a scheme, CVA or liquidation may be creditors for the purposes of a scheme of arrangement or company voluntary arrangement even though they have not yet suffered compensatable injury or acquired a tort cause of action. The company is subject to a contingent liability where its relevant acts are complete and liability will arise automatically if the disease develops.

That wider meaning of creditor does not govern proof in a winding-up. Under the Insolvency Rules 1986, a contingent tort claim is provable only where the cause of action accrued before liquidation. A pre-liquidation duty of care or breach, without damage, is not an obligation incurred for that purpose. This exclusion does not infringe article 1 of the First Protocol, alone or with article 14.

The administrators of T&N Ltd and associated companies sought directions on issues central to proposed arrangements for companies facing substantial present and future asbestos liabilities. The proposed UK arrangements were intended to bind both existing and future asbestos claimants.

The court considered whether persons already exposed to asbestos, but who had not yet sustained compensatable injury and therefore had no accrued tort claim, were creditors capable of being bound by a scheme under section 425 of the Companies Act 1985 or a CVA under Part I of the Insolvency Act 1986. It also considered whether their claims would be provable in a hypothetical liquidation, and whether exclusion from proof would be incompatible with Convention rights.

1. The issues were determined in part in favour of the administrators. Future asbestos claimants as defined in the application were creditors for a scheme under section 425 of the Companies Act 1985 and for a CVA under Part I of the Insolvency Act 1986. Their claims were not, however, provable debts in a winding-up.

2. For schemes and CVAs, “creditors” was not confined to persons with provable debts. The expression included persons with contingent pecuniary claims. Applying the analysis of contingent liabilities in In re Sutherland, decd, Winter v IRC, the company’s completed exposure of persons to asbestos gave rise to contingent liabilities. If an exposed person later sustained compensatable loss and the other elements of negligence were established, liability in damages would arise automatically by operation of law.

3. The conclusion was limited to the asbestos facts. The relevant acts or omissions were complete, exposure had occurred, and the remaining contingency was the development of an asbestos-related condition. The reasoning did not extend to cases where material events necessary for tort liability had yet to occur.

4. For winding-up, rule 12.3 of the Insolvency Rules 1986 had to be read with rule 13.12. Rule 13.12(1)(b) admitted post-liquidation liabilities only where they arose by reason of an obligation incurred before liquidation. Rule 13.12(2) supplied the special rule for tort: the relevant obligation was deemed incurred when the cause of action accrued. It followed that contingent tort claims were provable only if the cause of action had accrued by the liquidation date.

5. A duty of care, or a breach of it, before loss did not constitute an obligation incurred for rule 13.12(1)(b). In negligence, compensatable damage was essential to both the claim and the obligation to compensate. The broader conception of a contingent liability used for schemes and CVAs did not displace the express timing requirement for provable debts.

6. The resulting exclusion did not breach Convention rights. A future tort claimant had no possession under article 1 of the First Protocol because, absent damage, the claim had no sufficient basis in domestic law. A tort claim accruing after liquidation was defined from its inception by the absence of a right to prove. The difference between tort and contractual claimants was not discrimination based on a personal characteristic for article 14 purposes.

not stated in the judgment.