Gold Fields Mining LLC v Tucker & Anor

Given my construction of para.23.5 of the CVA that the first alternative applies to all proofs lodged after the claims date as defined, the question now arises whether in terms of para.23.5 GFL's failure to lodge its claim form earlier did not result from a wilful default or lack of reasonable diligence on the part of Peabody Energy or GFL. GFL contends that it is shown by the evidence that it did not; the supervisors submit that the evidence shows that it did.

The evidence consists of four witness statements made on behalf of GFL plus their respective exhibits, namely by Mr. Elliot and Miss Verrill on behalf of the English solicitors acting for GFL, and Mr. Klinger and Mr. Held, who were some of the American attorneys, also acting on behalf of GFL. For the supervisors there is a witness statement from Mr. Tucker (one of the supervisors) and Mr. Milsom, his assistant. There has been no cross-examination of any deponent.

The facts disclosed by that witness statement evidence is in summary as follows. In September 1996 EH3 was formed by Hanson as a holding company for its natural resources and energy businesses with a view to demerging and disposing of them in 1997. Such businesses included liabilities in respect of certain environmental pollution claims. The merger was completed in February 1997 and in the period March to May 1998 two relevant transactions took place. The first was the sale of the coal mining interests by EHL3 to Peabody Energy; the second was the sale of the shares in EH3 by Hanson (or the intermediate holding company) to TXU. As part of those transactions on 19^th May 1998 two indemnity agreements were entered into, the first by EH3 whereby it indemnified Peabody Energy against all liability arising out of the activities of companies in the group of which it was formerly a member which included liabilities in respect of environmental pollution; and secondly, by Peabody Energy in relation to other liabilities in favour of TXU.

On 19^th November 2002 TXUEL, the intermediate holding company of TXU, in which the European interests were vested and five other group companies were put into administration. At the end of 2002 and the beginning of 2003 EH3 was put into Creditors' Voluntary Liquidation. The insolvency of TXUEL and its various groups was an important event and in July 2003 TXU set up a website which was described as being for the purpose of providing creditors with information. Thereafter, a number of creditors' voluntary arrangements were devised by the administrators and liquidators of the various companies. They fall into two groups, the holding companies' voluntary arrangements and the operating companies voluntary arrangements. All the voluntary arrangements which became operative were made available on the TXU website in due course. The operating company CVAs were approved on 28^th January 2005 and became operative on 1^st March that year in relation to some 28 operating companies.

On 11^th March 2005 the holding company CVA proposals were issued and one of the holding companies was EH3; there were 15 others. On 18^th March 2005 the holding company CVA creditors meetings were advertised in the Financial Times and the Wall Street Journal. They were held on 31^st March 2005 and all the CVAs were approved by the creditors of the respective holding companies. On 7^th April 2005 further advertisements were inserted in the Financial Times and the Wall Street Journal relating to permanent injunctions under s.105 and s.304 of the United States Bankruptcy Code required in the United States to give effect to the CVAs.

Under the terms of the CVAs the date by which claims were to be lodged was 16^th May 2005, that is to say 45 days after the CVA had been approved by the creditors. Two bond holders took exception to certain holding company CVAs, including that for EH3, and instituted proceedings to set them aside under s.6 of the Insolvency Act 1986. Those applications came before Warren J. in September 2005. He gave judgment dismissing them on 28^th October. On 13^th October 2005 the holding company CVAs became operational under orders made under s.105 and s.304 of the United States Bankruptcy Code having been advertised in the Financial Times and the Wall Street Journal earlier in the month.

Between 18^th October 2005 and 5^th April 2007, the supervisors made four distributions to proving creditors out of the assets of EH3 in the aggregate sum of £320 million. On 19^th December 2006 there was a meeting between the United States advisers of GFL and Peabody Energy at which indemnity claims over in respect of pension and other payments were discussed. The United States attorneys for GFL commenced investigation of the possibility of reimbursement for certain pension payments. On 20^th December (the following day) the United States Attorneys for Peabody Energy discovered that an associated company GEF was not insolvent, but its immediate parent, EH2, was. Between 3^rd and 17^th January 2007 the United States attorneys for Peabody researched the corporate history of EH3 and other associated companies, in the course of which they received from Peabody Energy the various documents relating to the Energy Group break up in March to May 1998.

On 18^th January 2007 Miss Verrill of Addleshaw Goddard's was instructed by the United States Attorneys for Peabody Energy to obtain further information. 29^th January 2007 is the date by which, according to the supervisors, GFL and Peabody knew of both the creditors' meeting and the approval of the EH3 CVA. The supervisors' contention is made in reliance on the witness statement of Miss Verrill herself. There followed a meeting on 6^th March 2007 between the solicitors for Peabody Energy and Mr. Tucker, one of the supervisors, and that, in the light of the conversations that took place at the meeting is the latest date, according to the supervisors, on which Peabody had notice of the approval by EH3's creditors of the Creditors' Voluntary Arrangement.

On 30^th March Peabody Energy commenced its investigation of a claim against EH3 as described by Mr. Held, one of the deponents from the United States on behalf of GFL in para. 43 of his witness statement. Previously the focus had been on the pension payments made by another company but now it was on the environmental pollution claim payments made by Peabody. Thereafter, Miss Verrill was instructed to investigate how to make a claim. On 16^th April a draft claim form was supplied to Miss Verrill by the United States attorney for Peabody Energy and in May and June 2007 work was continued in the United States designed to particularise and quantify the claim to be made by that form. On 19^th June 2007 the benefit of the claim was assigned by Peabody Energy to GFL and on 26^th June 2007 the completed form in the name of GFLwas sent by the United States attorneys to Miss Verrill. On receipt by her it was then submitted to the supervisors as a completed claim form on 9^th July 2007. On 16^th October 2007 the solicitors for the supervisors rejected the claim on the ground that it was out of time under para.23. They took the view that the provision relating to wilful default and reasonable diligence did not apply to a creditor who did not have notice of the original meeting approving the CVA. There was subsequent correspondence but that did not satisfy GFL and on 5^th November 2007 the application now before me was issued in compliance with the dispute resolution procedure set out in annex 9 of the EH3 CVA.

The evidence for GFL in support of the application dealt with the facts relevant to the point of construction, which I have already decided and the third issue to which I shall come in due course but only touched on the question of reasonable diligence. On 3^rd March 2008 the witness statements of Mr. Tucker and Mr. Milsom on this application were duly made and filed. They went into the question of delay, wilful default and due diligence at some length. In addition, they dealt with the lack of merit, as they perceived it, of the claim GFL now seeks to advance under the indemnity. On 16^th, 28^th and 29^th May 2008 GFL filed the witness statements of Miss Verrill, Mr. Klinger and Mr. Held respectively the English and American solicitors or attorneys for Peabody and GFL. They dealt in detail with the investigation of the claim and preparation and lodging of the claim form but not with the merits of the underlying claim.

In these circumstances the submissions for GFL can be summarised as follows. First, reasonable diligence requires no more than what is reasonably required having regard to considerations of expense and difficulty, the onus is on the supervisors to demonstrate its lack. Secondly, the investigation of the claim has been particularly complex, this was the opinion of Mr. Held (the United States attorney) as expressed in para.65 of his witness statement. Thirdly, there have been no periods of inactivity since the possibility of the claim had been discovered in December 2006/January 2007. Indeed, this is demonstrated by the detailed chronology prepared by counsel for the supervisors. There was some activity in either England or the United States or both for the entire period from December 2006 to July 2007. Fourthly, GFL and Peabody, through whom it claims, reasonably expected the supervisors to inform them of their right to submit a claim for consideration. It is common ground that no notice of the original creditors' meeting relating to the EH3 CVA was given by the proposers of it to Peabody, nor did anyone on its behalf attend the meeting on 31^st March 2005. Fifthly, the attempts of the supervisors in their witness statements in answer to fix GFL or Peabody with knowledge of the claim at an early date was shown to be factually incorrect by Mr. Klinger's witness statement made on 16^th May 2008.

In all these circumstances, counsel for GFL submits that it is clear that its failure to lodge the claim form until 9^th July 2007 was not the result of wilful default or lack of reasonable diligence on its part. On behalf of the supervisors counsel submits that GFL and Peabody must demonstrate a lack of wilful default or reasonable diligence in failing to lodge its claim earlier than 28 days after becoming aware of the CVA. The supervisors assert that the onus is on GFL. They submit that it is necessary to assume a desire to investigate the possibility of the claim, that the claim arises out of liabilities of Peabody, which Peabody has been paying since 1998, by virtue of an indemnity arising from the very same documents on which it now relies and has always had in its possession. They submit that Peabody Energy was aware of the EH3 CVA by 29^th January 2007 at the latest, but nothing at all was done in the ensuing 28 days because it was only on 30^th March 2007 that Peabody Energy began to investigate a claim under the EH3 indemnity. They contend that in the period from May 1998 to March 2007 Peabody Energy did not consider that it had any claim over against EH3 and conducted itself as though it was solely liable for the claims which it had paid out. Counsel for the supervisors submits that such conduct demonstrates a lack of reasonable diligence. In addition he submits that the delay from 29^th January 2007 to 9^th July in the same year demonstrates wilful default.

In oral argument counsel for the supervisors initially sought to rely on the whole period from May 1998 to July 2007 as indicating a lack of reasonable diligence in that all the documents and all the facts on which its claim depends were known to Peabody when it first arose in 1998. Later, he modified his submission so as to take as his starting point the approval of the EH3 CVA in March 2005. Nevertheless, he submitted that in March 2005 Peabody must be assumed still to have had the documents and knowledge it had had in 1998 as a party to those which are relevant and that all relevant facts still existed in its corporate memory. Later still, he confined his case to the period from March 2005, when the CVA was approved, to December 2006 when the investigation of possible claims by Peabody against EH3 commenced. He pointed out that the evidence is silent as to what, if anything, occurred in that period. He submitted that the lack of any evidence at all is consistent only with a want of reasonable diligence. He pointed out that when the point was raised it took but a few hours or days to uncover the claim.

Counsel for GFL complained that had the supervisors done initially what para.23.5 of the EH3 CVA required them to do, that is consider the question I am now determining before rejecting the claim, the point they now make would have duly emerged in their reasons for refusing to extend time. He complained in addition that the oral submissions of counsel for the supervisors are quite different to those made in their written argument. I accept both those points but counsel for GFL did not ask - as well he might have done - for time to put in further evidence. He took his stand on the existing evidence and that is the basis on which I must resolve this issue.

As will be apparent there is an issue between the parties as to who bears the onus of demonstrating either reasonable diligence or its absence. On the one hand it might be said that the onus lies on he who asserts the positive (i.e. the supervisors), on the other hand the relevant facts are all, or mostly, within the knowledge of the creditor GFL. Each side merely asserted that the onus was on the other without engaging in any argument or legal submission to justify it. In my view no question of onus of proof arises, there has been no cross-examination. The issue is clear and I have to decide it on the basis of the witness statements and exhibits I have. Only if I am unable to come to a clear conclusion on that material can questions of onus arise; as will be seen that is not the case.

The issue requires an investigation why the claim form was not lodged earlier. It is, in my view, axiomatic, that there can be no question of wilful default or lack of reasonable diligence unless and until the creditor knows or with reasonable diligence would know of both the underlying claim and the opportunity (if not need) to lodge a claim form in respect of its claim if it wishes to receive distributions in the CVA. This consideration immediately excludes the period from May 1998 to March 2005 on which counsel for the supervisors initially relied. Until the latter date there was no EH3 CVA of which Peabody could be aware. Accordingly, it is clear that that period cannot give rise to any question of wilful default or want of due diligence insofar as the opportunity or need to lodge a claim is concerned.

So the earliest starting point for consideration in respect of both the elements to which I have referred is the time when the meetings of creditors of EH3 were being convened in March 2005 in accordance with s.3 of the Insolvency Act 1986 and Insolvency Rule 1.11. It is common ground that, for whatever reason, no notice of the meeting was given to Peabody. Peabody did not attend the meeting, yet it is bound by the terms of the CVA (see s.5(2)(b)(ii)). The supervisors submit that Peabody was aware of the EH3 CVA by 29^th January 2007 at the latest. The only reason for contending that with reasonable diligence Peabody should have found out about the EH3 CVA earlier is based on the advertisements in the Financial Times and the Wall Street Journal appearing on 18^th March and 7^th April 2005, and the material on the TXU website at the relevant time.

The evidence before me does not indicate the personnel of Peabody to whose notice the advertisements might have been expected to come. If it was not sufficiently clear to those convening the meeting of creditors of EH3 that notice should be given to Peabody, I see no reason to infer that the responsible officials in Peabody should have spotted the advertisements and realised that they presented Peabody with an opportunity to realise its claim by sharing in distributions made under the CVA.

Similarly, in my view, reasonable diligence does not require periodic visits to websites to ascertain what might be there in the absence of circumstances indicating the need to do so. The evidence does not indicate that in the period May 2005 to December 2006 there were any such circumstances.

Given that Peabody was not aware of one of the key elements to which I have referred – namely, the existence of the EH3 CVA and its terms – the contention that the failure of Peabody to lodge its claim in the period from March 2005 to the discovery of the EH3 CVA in January 2007 is due to wilful default or any lack of reasonable diligence must be rejected.

So, the contention for the Supervisors boils down to the period from January to July 2007. The written argument for the Supervisors suggested that in the period from January to 30^th March, 2007 there was a lack of reasonable diligence in that nothing was done by Peabody to investigate the claim under the indemnity of which it then knew. But, this contention is undermined by the chronology prepared by counsel for the Supervisors, which clearly shows considerable activity in that period both this side of the Atlantic and the other. I do not have to go into any further details given what it shows, and the fact that in the oral argument of counsel for the Supervisors this period was not relied on.

The last period which was referred to in the written argument of counsel for the supervisors is that which elapsed between 1^st April and 9^th July, 2007. But, again, the chronology emanating from counsel for the Supervisors demonstrates considerable activity in that period in collecting the details of the claim and its quantification, both here and in the United States. Once again, this period, though relied on in the written argument for the Supervisors, was not pursued by counsel for the Supervisors in his oral argument. Suffice it to say, I see no sign of wilful default or lack of reasonable diligence in the whole of the period from January to July 2007.

In all these considerations it has to be borne in mind that the standard is one of reasonable diligence only. Counsel for GFL submitted that the submissions of counsel for the Supervisors was more appropriate to a requirement for exceptional diligence. I do not have to go so far as to accept that submission, but the fact that with a bit more effort a few days or weeks might have been saved is, in my view, not the test.

I have considered each of the four periods on which at one time or another counsel for the Supervisors have relied. In none of them, whether individually or collectively, was there, in my judgment, demonstrated any wilful default or lack of reasonable diligence to account for the late lodgement of GFL’s claim form.

For all these reasons I conclude that the claim form lodged on 9^th July, 2007 is capable of ranking for distributions under the CVA and it is the duty of the administrators to adjudicate it. I will so declare.

Given my decisions on the first and second issues, the third – namely, whether s.7(3) of the Insolvency Act confers a discretion on the court which should be exercised so as to allow GFL to share in any future distribution as would be the case in a liquidation - does not arise. Nevertheless, I should say something about it, lest this case goes further.

Section 7(3) is in these terms:

“If any of the Company’s Creditors or any other person is dissatisfied by any act, omission or decision of the Supervisor, he may apply to the court and on the application the Court may (a) confirm, reverse or modify any act or decision of the Supervisor; (b) give him directions; or (c) make such other order as it thinks fit”.

Counsel for GFL submits that in the circumstances that GFL does not seek to disturb previous distributions, the Supervisors have not identified any prejudice arising from any culpable delay on behalf of GFL and s.7(3)(c) of the Insolvency Act confers a discretion on the court it should be exercised in favour of his clients. He submits the court should order the Supervisors to adjudicate on the claim of GFL and admit it to share in future distributions, notwithstanding that it was lodged out of time under para. 23.5 of the EH3 CVA.

Counsel for GFL did not seek to rely on Article 1 of Protocol 1 to the European Convention on Human Rights. He sought to justify the relief he sought by the width of the discretion conferred by the sub-section and by analogy with the position in most insolvencies that time limits for lodging proofs are hortatory or directory rather than confiscatory or expropriatory. I was referred to Harrison v Kirk [1904] AC 1, and Ray Brooks v NSW Grains Board [2002] 43ACSR, 657 at 671 for the general proposition.

The application was opposed by counsel for the supervisors on the simple ground that s.7(3) did not enable the court to re-write the CVA any more than s.7(4) did. He relied on the decision of the Court of Appeal in Re. Alpha Lighting Ltd. [1997] BPIR, 341 which established that limitation in respect of the latter subsection. If it had arisen, I would have been disposed to reject the submission of counsel for GFL on the ground that s.7(3) could not apply to enable an order of the sort which he seeks.

The jurisdiction exists in relation to dissatisfaction with ‘any act, omission or decision’ of the supervisors. Its exercise would be sought in circumstances where it had been indisputably determined that the late lodgement of the claim was the result of wilful default or a lack of reasonable diligence on the part of the creditor so that the time bar contained in para. 23 applied. But, in that event the dissatisfaction of the applicant would be with the terms of the CVA, not with any act, omission or decision of the Supervisors. A challenge to para. 23 might have been made under s.6 on the basis that it was unfairly prejudicial, but such an application is now well out of time (see s.6(3)).

It seems to me that the remedy, if any, of a creditor whose debt is defeated by a time bar such as that contained in para. 23.5 must be sought on a wider basis than that on which counsel for GFL put his case before me. As I have already observed it is not necessary for me to reach any conclusion on the third issue and I do not do so.

In the circumstances, in the light of my decisions on the first and second issues, this application succeeds. I will make orders in terms of paras. 1, 2, and 3 of the application notice and I will hear counsel further on any point as to the form of the order and as to costs.

Mr. Crystal on behalf of the Supervisors now seeks permission to appeal from my order. He gives five reasons which I will come to in a moment, but he does not refer to the Rule which requires me to be satisfied if I am to give permission to appeal either that there is a real prospect of success or there is some other compelling reason why the matter should be considered by the Court of Appeal. I am not satisfied on either point and I refuse permission.

I will deal with the points that Mr Crystal makes in the order in which he makes them. He says that my judgment, although given on a simple point of construction in relation to a paragraph in a CVA which is by no means a standard form, and on whether, on the facts of the case, there was any wilful default or lack of reasonable diligence, is open to misinterpretation. That is not, within the rule, as entitling me to grant permission to appeal.

He submits that there are large sums of money involved. That is true. That, again, is not a reason for granting permission to appeal. He submits that if I granted permission to appeal it would shorten the procedure which might otherwise have to be followed if he had to seek permission to appeal from the Court of Appeal at this time of year and then proceed thereafter, if he were successful, either by an appeal to the Chancery Division on the adjudication of the proof or by the alternative procedures set out in Annex 9. The fact that Mr Crystal may require or wish to get things on quicker may or may not be a good reason for seeking expedition from the Court of Appeal, it is no good reason for me granting permission to appeal.

Finally, Mr Crystal refers for the first and only time to the only test which I can properly apply, namely a real prospect of success. He submits that the real prospect of success is demonstrated by, and only by, the fact that on previous occasions he has appeared on a successful appeal from another judge who holds the office that I do. That, with the greatest respect, even if true, is not a good reason for me to grant permission to appeal in this case and I refuse it.