In December of last year, the Court of Appeal handed down its decision in English Electric Company v Alstom.
The background to this case was as follows:
Rodney Oliver had worked for Associated Electrical Industries (“AEI”) between 1956 and 1961. Over the course of his employment he had handled turbine generator equipment that was contaminated with asbestos. Unfortunately, this exposure led to him dying of mesothelioma in 2005. A claim was successfully presented against AEI by his widow in which she was awarded damages of £250,000.
In 1970, AEI had sold its turbine business to its sister company the English Electric Company Ltd. (“EE”). This sale was documented in a resolution of EE’s general purposes committee in 1971, within this it was recorded that EE agreed to indemnify AEI against any claims arising on completed and uncompleted contracts as at 1 April 1970. This agreement was expressly stated to be ‘subject to a number of reservations’ which were not listed in the resolution. EE then sold the business on to Alstom UK Limited in 1989. This sale also contained an indemnity clause to the effect that Alstom were liable to indemnify EE under the agreement.
The question at first instance was whether EE were liable to indemnify AEI in respect of the claim brought by Mr Oliver’s widow under the 1971 resolution. It was common ground that if EE were liable to indemnify AEI then Alstom were liable to indemnify EE under the 1989 sale and purchase agreement. HHJ Mackie QC found that EE was liable to indemnify AEI such that the claim against Alstom succeeded.
Alstom appealed, its primary submission was that on a true construction of the 1970 agreement to sell the indemnity provision could not have been intended to apply to claims arising from AEI’s contracts of employment with its workforce. The nature of the agreement was such that its purpose related to taking the benefit and burden of outstanding and uncompleted contracts in respect of the business and its customers. The indemnity must be read as relating to the business contracts as opposed to the contracts of service with employees. It was also argued that as the 1971 resolution referred to there being ‘certain reservations’ and that those reservations had not been before the court, EE could not prove that it was liable to AEI under the terms of the indemnity.
The appeal was dismissed. Lord Justice Longmore gave the leading judgment. He found that as the 1971 resolution involved an inter-company transfer within a group of companies it could be inferred that there would be a transfer of the entire undertaking. The indemnity was expressed as being ‘against any claim arising on completed and uncompleted contracts as at 1st April 1970’. As such, it only contemplated two categories of contract. Giving the indemnity its natural meaning it must be taken to refer to ‘all contracts to which the transferor is or has been a party’. There was therefore no reason why it could not include contracts of employment. If the parties had not intended this outcome then other rights and responsibility would not have been fully transferred. Looking at the agreement in the round as well as the express wording, all liability incurred up to 1970 had been transferred. In any event, Mr Oliver’s employment contract was ‘completed’ by 1970 as he had left his employment in 1961.
As to the appellant’s submissions on the ‘reservations’ in the agreement, it was found that the ‘reservations’ mentioned in the 1971 resolution related to trading and rights of the business, they were not related to contracts of employment. The reservations referred back to a section of the resolution in which EE ratified the purchase ‘subject to certain reservations as to trading and rights of the turbine generator business and goodwill carried on by AEI’. In those circumstances there would no reason for the transferor to wish to make reservations in relation to any contracts of employment, such reservations would be against its own interest. Moreover, the reservations appeared to refer to outstanding and uncompleted contracts. Mr Oliver’s contract did not fall into these categories, thus rendering the reservations irrelevant.
This is an interesting case on whether responsibility for historic asbestos claims can be passed up chains of sale and purchase agreements. Given the latency inherent in mesothelioma claims, it is not uncommon for the original tortfeasor company to undergo numerous transfers, changes in identity and other such corporate gymnastics. The longer the latency period the more complex these transfers are likely to be. This case is a useful illustration of the extent to which the construction of transfer agreements can be a contentious issue long after the original claim has finished. Claimant’s and Defendants alike will need to be alive to these potential issues. This is particularly relevant in circumstances where a potential party to the claim has no insurer, the possibility of passing liability around in these circumstances may be crucial.