§ Motion made, and Question proposed, That this House do now adjourn.—[Jim Fitzpatrick.]
§ 7.1 pm
§ Mr. John Battle (Leeds, West)
In October 1995, two families from Leeds, one itself a victim of deadly mesothelioma, won a ground-breaking compensation case against Turner and Newall. They proved that the company was the responsible owner of the old J. W. Roberts Armley factory that had polluted our neighbourhood.
In earlier debates here, since I first raised the issue in November 1988, I have also raised the profile of the struggle for justice for mesothelioma victims from Turner and Newall—a company that initially refused to admit it had anything to do with the J. W. Roberts factory. We showed that it owned the factory. Turner and Newall then declined to release any documents or records, arguing that it could not find them or that they did not exist. Despite denials for four years, and court orders and appeals, the company was forced to release more than 27,000 documents and records, a few weeks before the crucial trial began in 1994.
I recall the words of Mr. Justice Holland at that trial, in the Leeds High Court. In 1995, he took the unusual step of criticising the company forusing any means possible, legitimate or otherwise … to wearthe plaintiffsdown by attrition".That is from the transcript.
The judge awarded Mrs. Margereson and Mrs. Hancock £115,000 damages between them against Turner and Newall, ruling that although mesothelioma could not have been foreseen as a consequence of the asbestos dust that was blown out of the factory into the neighbouring streets until it closed in 1958, some form of pulmonary injury should have been anticipated by the company and it was therefore liable.
We had won the case—or we thought that we had won. Needless to say, Turner and Newall immediately appealed against the judgment, claiming disingenuously that it was "unsound" on the basis that a distinction could be made between "guilty" and "not guilty" bits of dust—claiming that it was just some kind of lottery when people inhaled.
That grotesque appeal, as Geoffrey Tweedale called it in his scholarly account "Magic Mineral to Killer Dust: Turner and Newall and the Asbestos Hazard", was thrown out of court, but it was another delaying tactic that bought the company a bit more time before they paid out to the plaintiffs. Tragically June Hancock died in 1997, not many months after her long heroic struggle through the courts.
Throughout the case, Turner and Newall has striven to delay and hold back future claims, trying to deny other victims the chance to claim a precedent; but the case was won, and it was forced to pay compensation.
Mr. Justice Holland referred to attrition. In 1995, I thought that the courts had settled it; but the war of attrition against the victims, sadly, is still going on.
Turner and Newall was taken over by an American company, Federal Mogul, in 1998. On 1 October last year, Federal Mogul filed for voluntary chapter 11 781 reorganisation in the United States and for administration under the Insolvency Act 1986. From that moment, Turner and Newall ceased to respond to or pay out any asbestos disease-related claims. Even cheques issued for cases settled before 1 October have bounced according to solicitors, and one former employee, 74-year-old Thomas Harrison, deposited a settlement cheque for £38,000 that was returned cancelled.
More than 60 Armley neighbourhood cases since 1995 have been completely settled through the courts; some are still in the process of settlement and some are still waiting to be filed. In other words, hundreds of cases are still outstanding. Turner and Newall now refuses to deal with them.
Federal Mogul, the parent company, employs 52,000 people in 25 countries and owns famous brands such as Champion, Glyco and Ferrodo. It is far from being bankrupt. Third quarter sales in 2001 were more than $1,289 million, and sales for this financial year are likely to be more than $5 billion. According to the brilliantly researched British Asbestos Newsletter, issue no. 45—I pay tribute to Laurie Kazan Allen's tireless and selfless campaigning on the matter—Federal Mogul's newly elected chairman and executive officer, Frank Macher, claims that despite the insolvencyFederal Mogul will continue to serve its existing customers, fulfil current contracts and secure new business.On 15 October, a corporate press release boasted that Federal Mogul had secured four new contracts, valued at £20 million, from auto manufacturers and suppliers. The chairman reiterated:Federal Mogul is continuing business operations without interruption and with the full support of our major customers.On 11 February, there will be a meeting of the creditors of J. W. Roberts and of Turner and Newall to carry that process of administration forward. Only the creditors can attend to stake their claim. The meeting is closed and is aimed at working towards a long-term global solution to all the company's asbestos claims. It is likely that the UK cases will simply be overlooked at this stage and the result will be legal paralysis for many years.
In a written reply recently, the Economic Secretary stated:Since 1 October, Turner and Newall have been operating under an Administration Order and as a consequence all legal actions against the company have been stayed. They are continuing to trade. We understand the driver for the administration is to crystallise asbestos claims in the US and UK in a consistent and fair manner so the company can arrange for their payments.I submit that "crystallise" is an infelicitous choice of word in this case, and it can take years for crystals to form. It can also take years to allocate funds to pay out claims through administration procedures. What will the victims be left with?
The Economic Secretary's reply continued:The administrators are exploring ways of trying to resolve this problem, and if necessary will seek direction from the courts".—[Official Report, 19 December 2001; Vol. 377, c. 330–31W.]But in the Armley cases, we have already had crystal clear direction from the courts. The unequivocal order was, "Pay up now." In other words, the resort to administration looks like a rearguard action of complex corporate gamesmanship to avoid responsibility for paying out legitimate court-won compensation awards. It is not therefore a question of establishing liability, but simply of whether the company has the means to pay.
782 Federal Mogul cannot claim that Turner and Newall had no money to pay its compensation debts. If it had remained a UK company, Turner and Newall would without doubt have continued to pay out. Why, we are entitled to ask, was Turner and Newall made insolvent? It was a perfectly viable company in the UK. What information was presented to the judge in arguing the case for administration? Could it be that there is a massive question mark over Turner and Newall's insurance cover? Any lack of insurance cover must be of major concern.
In the past, there were doubts about insurance cover. I have the minutes of the board meeting of Turner and Newall on 10 February 1977, which spelled out that it recognised it was not covered. The minutes say:When the Employers' Liability (Compulsory Insurance) Act came into force we found ourselves in some difficulty.They key question is whether the company has been properly covered since that time.
As I understand it, in 1996—after the trial—an insurance policy package was agreed with a consortium of European reinsurers to cap Turner and Newall's asbestos liabilities. The company paid for £500 million of cover, which kicked in after it had paid out a certain amount—I think it was some £373 million—from its own funds. This top-up cover was announced after the verdict on the Margereson-Hancock case in Armley. We are entitled to ask what has happened to that fund. What will happen to it now that we are in the administration process?
At the time, the chairman of Turner and Newall, Sir Colin Hope, said:The proposals are intended to bring to an end the uncertainty surrounding the asbestos issue that has overshadowed the group for so many years. Together with the provision already in the balance sheet we now have over £1 billion of cover—about three times the central estimates of the present value of liabilities.Why do my constituents and other victims not now have access to that insurance fund with their claims? Should they not have first claim on that fund? They have gone through the court procedures to get justice. They have legal proof that they are entitled to compensation for negligence, and they ought to receive first call on that insurance money immediately. Where is it? Why cannot it be ring-fenced and made available?
More recently, Turner and Newall has claimed to be "self-insured", or covered by what I understand is called captive insurance—its own in-house arrangements. According to solicitors, before the administration order on Turner and Newall was approved, the company paid out the asbestos claims itself. The cheques were issued by Turner and Newall, not by an insurance company. That is unusual. In other words, the company's insurance cover is indeed like murky water—far from transparent.
Furthermore, questions about that insurance cover have now been ruled out of order as commercially confidential. Even under administration, why cannot the insurers be traced, named and contacted by the victims' representatives? This issue is crucial: has Turner and Newall provided proper insurance cover for itself, or not?
If it has not, why has the company not been investigated for failing to comply with the law? Why is it allowed to sidestep its legal insurance responsibilities? Did it ever apply to Government Departments for exemption from insurance? If it does have insurance, why are payments to those owed compensation now being denied?
783 Why should funds set aside to pay out to victims who take the company to court and win compensation be held back now in administration? Surely that is a defiance of the legal process for justice. As it is, lawyers representing victims cannot contact the insurer. Turner and Newall claims that it is self-insured and it is in administration. This is tantamount to an insurance self-protection racket.
Turner and Newall should have proper cover and should be able to pay. If not, it seems that we are facing devices to reassure investors rather than to protect and compensate victims. No wonder the insurance industry weekly journal—called the Post—is proclaiming in its headlines "Asbestos purse closed". This is not about benevolent funds and donations; it is about justice, and justice that has already been won against the company in the courts. Obviously, the war of attrition goes on; resisting the pay-outs to reassure the funding markets seems to be the priority.
I wish now to put some specific questions to the Minister of which I have given her notice. At the time Turner and Newall was purchased by Federal Mogul, were any investigations undertaken by Government Departments into the terms of the sale? With regard to insurance, although several solicitors representing asbestos plaintiffs have attempted over the years to see copies of the certificates issued to the company under the Employers Liability (Compulsory Insurance) Act 1969, they have not succeeded. Why is it not possible for claimants' representatives to see the certificates? Why cannot we know about the history of Turner and Newall's employer's liability coverage? Has the Health and Safety Executive over the years been satisfied that Turner and Newall has had insurance that is compliant with legislation? Who were the insurers? What were the dates and nature of the policies? Can the insurance information be put in the Library of the House of Commons so that I can see where my constituents stand?
Does the arrangement under which a company is self-insured and has a so-called captive insurer comply with the Employers Liability (Compulsory Insurance) Act 1969? Finally, under the administration order, why cannot insurance funds be ring-fenced so that UK victims of UK companies who have won their cases in court can have first call on it? Is it lawful to bounce compensation cheques when a company is still trading? Is there any way for funds to be released so that claims can be paid out in cases that have been won?
I do not expect my hon. Friend the Minister to give detailed, chapter-and-verse answers to all those questions, which serve to highlight the issues. However, I should like her to tell me that her Department is to set up an immediate public inquiry into all the issues arising from the application to put J. W Roberts and Turner and Newall plc into administration in the UK.
The effect of that action has been to prevent victims from getting justice. A public inquiry is needed to unlock any funds specifically set aside now, as asbestos victims are both vulnerable and totally innocent. Mesothelioma means that they die of the worst form of cancer imaginable. They do not bring that on themselves, and they deserve compensation. Tragically, those victims do not have years to live and cannot afford to wait.
784 If a company such as Federal Mogul has found a way of using administration and bankruptcy procedures to ditch its asbestos liabilities and to refuse to pay anything more to victims, that is a scandal that the Government must address. Making the polluters pay obviously means not only that responsibility must be proved, which we have done, and that the moral and legal arguments must be won—we have done that too; it now means taking on the high-level, international corporate gamesmanship that continues the war of attrition against asbestos victims.
I shall close with words from the heartfelt letter that I received from Mrs. Hancock's daughter. She wrote:The recent announcement that Federal Mogul has filed for Bankruptcy has, as I am sure you will understand, come as a great shock to myself and the rest of June Hancock's family. To call this a scandal is an understatement and I am writing to urge you to take immediate Parliamentary action on behalf of those innocent victims of Armley who have died, or who are suffering, who will die in the future, as a result of exposure to asbestos that Turner and Newall have been legally held responsible for. My mum battled through her last painful years to achieve legal recourse for compensation for those exposed to environmental asbestos … how can it ever be acceptable for a company to ring fence its assets while at the same time using … a convenient loophole for washing its hands of its well known asbestos liabilities??? Federal Mogul are clearly very proud that they are 'continuing to serve its existing customers, fulfil current contracts and secure new business'. What about the human suffering? I know, sadly, too well the pain and grief caused by the deadly disease mesothelioma because I have lost my Mum and Grandma to it … victims cannot be left in the position of not being able to take legal action, is that not a violation of one's Human Rights?The situation must be addressed by your Government now, and I would ask you to use your position and influence to bring this local, national and international disgrace to the forefront of the political agenda.This is a struggle for a just society that must be won. I urge my hon. Friend the Minister to move the whole machinery of Government to see that justice is done as well.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson)
I start by congratulating my hon. Friend the Member for Leeds, West (Mr. Battle) on securing the debate, and on the way in which he continues to represent his constituents in this most important and serious matter. The Government fully understand the concerns that he raises. Those who suffer from this dreadful condition have my utmost sympathy, as do those who may have come into contact with asbestos in the past and who still live with the uncertainty that they may be affected in the future by its potentially lethal legacy. I fully recognise the anxieties of those affected, and I welcome this opportunity to respond to the issues raised by my hon. Friend.
My hon. Friend spoke about Turner and Newall. I can confirm that, on 1 October 2001, partners of the accountancy firm Kroll Buehler Phillips were appointed by the court as administrators of 133 out of 182 of the Federal Mogul UK group of companies, as part of a global rescue plan in parallel with chapter 11 proceedings in the United States of America. The company known as Turner and Newall Ltd. is the largest trading company in this UK group of companies.
The Federal Mogul group, which I will refer to as the FM group, is an automotive and vehicle parts manufacturer which carries on business from approximately 295 785 locations in 53 countries. It is the sole-source provider of one or more critical components for most automobiles produced in the USA and Europe. The business, as my hon. Friend says, is indeed profitable. Global turnover for 2000 was approximately US․6 billion, with 31 per cent. of the total sales made in Europe. The UK group of companies had a turnover in the year to 31 December 2000 of approximately £400 million. It currently employs about 4,500 people.
I understand that the FM group's involvement in the UK commenced, to a significant extent, with the acquisition of Turner and Newall Ltd. in November 1997. That acquisition greatly increased the FM group's exposure to asbestos-related claims from claimants in both the USA and the UK. It is my understanding that those actual and contingent asbestos-related liabilities are threatening the solvency of the FM group. As of 30 June 2001, the FM group estimated its future total asbestos-related liability at US․1.6 billion.
The administration order has been made for the purpose of achieving one or more of the following—the survival of the company and the whole or any part of its undertaking as a going concern, the approval of an arrangement or compromise with creditors, and/or better realisation of the company's assets than would be achieved on a winding-up.
Administration is a collective insolvency procedure involving all creditors and giving all creditors a say. Proposals are put to creditors for their approval in the initial stages. Creditors also have ongoing rights during the course of the administration procedure. They may set up a committee to represent them, for example, and the committee may require the administrator to attend its meetings to give it information.
The creditors also have the power to apply to the court if they consider that the company's affairs are being managed by the administrator in a manner that is unfair or prejudicial. In this case, the administrators of the UK group consider that it is in the best interests of the creditors that the companies should survive so that they can pay their debts from future income—as I have sketched out, there is clear future income and profit in this case—and that the companies should continue to be managed as a group.
In consultation with the administrators, the FM group intends to commence discussions in relation to the development of an agreed global plan or reorganisation, designed to be approved by all classes of creditors. It is expected that this plan will provide a mechanism for managing the asbestos liabilities and propose an arrangement for payment or compromise of all claims.
I am told that the FM group decided to file for chapter 11 protection in the USA because of a growing number of asbestos-related law suits in which the plaintiffs claim to have suffered injury owing to exposure to products containing asbestos. In most cases, the defendants are companies that were acquired by the FM group through merger and acquisition.
In the USA, those members of the FM group that have the bulk of the asbestos liabilities, including Turner and Newall, are defendants in more than 300,000 pending asbestos-related personal injury claims, as of 30 June last year. Additionally, Federal Mogul Corporation, as the current corporate parent of these entities, is named in certain of these law suits, as are several other companies 786 in the FM group. Certain members of the FM group, particularly Turner and Newall, are also defendants in a substantial number of asbestos-related actions in the UK.
I make these points because I understand that the increasing amount of litigation has been due to a number of factors, including the filing of chapter 11 petitions by numerous other parties alleged to be potentially responsible for the injuries suffered by asbestos plaintiffs; many of the former are co-defendants with the FM group in numerous lawsuits. The resulting stay of litigation against such parties has placed increased financial pressure on the group in the form of higher settlement demands from plaintiffs as well as efforts to force it to cover the contributions of now bankrupt co-defendants in existing settlement agreements.
As I said, as of 30 June 2001, the FM group estimated its total asbestos-related liability at ․1.6 billion for claims pending and those that can reasonably be expected to be asserted in the future, with ․350 million of such liability payable within the following 12 months. The FM group further estimated that more than ․900 million of that amount would not be covered by insurance.
The point of going through the detail is to show that, on that basis, it is not difficult to see that the cost of the litigation could overwhelm the FM group. I am told that the magnitude of the litigation left it with no realistic alternative but to seek reorganisation under chapter 11 of the bankruptcy code in the United States and administration under the Insolvency Act 1986 in the United Kingdom.
I understand my hon. Friend's concern and his arguments about attrition and the history of the case. However, there has been a change and I have set out the circumstances that now face those who are trying to achieve their just compensation.
The costs faced by the FM group are greater owing to the approach adopted by the US legal system. It allows individuals to receive compensation even though they are not and may never become ill—there is a marked difference between the US and the UK, as here, only those who are ill receive compensation. Furthermore, in the US, the cases of those who show no signs of illness are grouped with those who have been diagnosed and already show signs, in the hope that juries will sympathise with and award compensation to all, which cannot happen in the UK. Also, large punitive damages to punish a company's activity are awarded in the US even though asbestos production stopped in the early 1970s, which does not happen in the UK. Those factors all drain money away from that available to pay people suffering from asbestos-related illnesses, both in the US and the UK.
I appreciate the fact that my hon. Friend is representing many people who are already suffering the effects of the illness.
§ Mr. Battle
I appreciate the detail in my hon. Friend's response, but what worries me is that cases won already in Leeds and elsewhere will be swamped by those yet to come in America. Will it be possible for her, perhaps with her officials, to meet the lawyers who represent people who have already won cases, to see if we can find a way through this? Administration can take between two and 11 years and all the people claiming will be dead before they get any further forward.
§ Miss Johnson
I appreciate my hon. Friend's concern about the urgency for those affected. Initially, I will be 787 happy to meet him and discuss those matters in further detail. He has made a number of points about the nature of administration. The compensation cheques that are already outstanding bounce even though a company can still be trading. When a company goes into administration, all payments to creditors are stopped. That is a feature of the administrative arrangements.
I appreciate my hon. Friend's concern about the fact that the administration could take a long time, but we believe that it is in the best interests of all those with outstanding claims for the company to continue to trade, and that a way is found through administration for that to happen.
I cannot say much about the insurance position, which is extremely complex. My hon. Friend endeavoured to sketch out some of that. The legal specialists are working hard to resolve it. There are a number of possibilities and I am assured that the administrators will make a formal announcement as soon as they can. The Employers Liability (Compulsory Insurance) Act 1969 made it mandatory for certain firms to take out policies when it came into effect in 1972. I understand that Turner and Newall has assured the administrators that it has always complied with its obligations in that regard.
788 The administrators are working hard to establish the full position as regards both employer's and public liability insurance.
I would like to restate that the Government understand and sympathise with the concerns expressed in the debate about those who are suffering from asbestos-related diseases. I hope that my hon. Friend will agree that the group is profitable and successful—I believe that we have both said so—and that the interests of claimants will not be served by driving it into liquidation.
The approach adopted by the FM group seems to us the most sensible in the circumstances, but what is important is that the administrators and those representing the interests of all concerned get on with the job quickly. With that in mind, I have asked my officials in the Department's insolvency service to keep me in close touch with the progress of the case, and in response to the arguments that he has made, I invite my hon. Friend to come and discuss further with me in the Department the aspects to which he wants to draw attention.
§ The motion having been made after Seven o'clock, and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at twenty-nine minutes to Eight o'clock.