Asbestos: why are UK courts so hard on its victims?

Two cases, two very different stories. Brendan Malkin finds the US putting the UK to shame

Troubled engineering group ABB has put aside almost $1bn (£642.3m) to cover asbestos litigation liabilities in the US arising from subsidiary Combustion Engineering (CE). ABB is now considering placing CE into voluntary bankruptcy.

Another US company, Federal-Mogul, has considerable UK asbestos liabilities arising out of its ownership of Turner and Newall, once one of the UK's largest manufacturers of asbestos. Federal-Mogul filed for administration last October.

These are two companies that clearly show the very different treatments of asbestos litigation on either side of the Atlantic.

In contrast to ABB's situation if CE goes bankrupt, since Federal-Mogul entered administration and asbestos cases against it were stayed – now over a year ago – it has hardly paid a penny to asbestos victims and claims have reached something of an impasse.

This is extraordinary, because usually, after a company enters administration, it gets a three to six-month breathing space before creditors can expect payments. Federal-Mogul's breathing space already extends to 13 months and counting.

The courts are partly to blame. They determine the length of time a company is protected from creditors, dependent on the company's plans for rescuing itself. When the courts stayed the asbestos claims against Federal-Mogul, they would have been aware that, in allowing an extraordinary length of time before the asbestos victims are paid, most would be dead before any money is released.

In such extraordinary circumstances, the courts should also have ensured that the asbestos victims were top of the list for compensation, even though this would have meant turning the administration system on its head. Given that litigants as unsecured creditors would normally be the last to be paid, it would still have been an absolutely valid move.

While criticism has been levelled against the US system for allowing its lawyers to soak up large percentages of compensation payments, Irwin Mitchell in the UK is racking up large fees because the English legal system has effectively barred any compensation from being paid within a reasonable time. The longer discussions continue between Irwin Mitchell and Federal-Mogul (which, according to Colin Ettinger, a personal injury partner at the firm, have made “no real progress”), the less money the families of UK victims are going to receive, and the more will go to lawyers.

It is appalling that it has been allowed to get to this stage. The situation is part and parcel of a system that, in marked contrast to the US, does not favour the claimant. First, asbestos trials in the US are heard before juries, which are likely to be swayed in favour of victims suffering from mesothelioma, while judges who rely on case law and statute handle claims in the UK. Second, compensation is almost always far higher in the US, because unlike the UK it has the concept of punitive damages, in which private fines are levied by juries over and above compensation for injury for reprehensible conduct and to deter its future occurrence. Third, it is much easier for US litigants to secure funding, insurance and a lawyer before they reach court.

The one area in which the UK tort system gets one over on the US is its provision of criteria for qualification to enter the claims group. Americans who are not even ill can lodge a claim, which explains the country's large number of frivolous claims. Courts in Pennsylvania and Massachusetts have begun to resolve this by creating a registry of people who might eventually be able to file a tort claim for exposure to a toxic substance, yet this is considered to be only a partial solution.

Lessons hopefully will be learned on both sides of the pond from the current round of asbestos claims, which in the US are rising by 50,000 new claims a year. However, this will be of little comfort to those victims in the UK looking at the vast US payouts with grim despair.

Colman's resolution

October was a resounding month for advocates of alternative dispute resolution (ADR), thanks to Mr Justice Colman. He upheld a party's request for a stay of proceedings in order to enforce ADR clauses in contracts between Cable & Wireless and IBM UK.

This may not seem earth-shattering, and it is dependent both on future requests being made at an early stage and, of course, both parties actually having ADR clauses in their contracts, but it is nevertheless still likely to have some impact.

Simon Stebbings, the Freshfields Bruckhaus Deringer partner acting for IBM, who made the request to Colman, predicts that far more bank disputes, which tend mainly to be subject to full litigation proceedings, will be mediated in the future. It also shows that judges are not just lazily paying lip service to the Woolf reforms.

Colman's decision changes the age-old principle of English law that it does not enforce an agreement to agree. Indeed, this is a principle that the critics of what Colman has just done have been relying on for many years. His decision also follows on the heels of Dunnett

Railtrack, in which Railtrack, which won at appeal, was denied payment of costs by the other side because it had dismissed the idea of ADR despite requests from the claimant and the court.

Colman was swayed in Cable & Wireless

IBM UK by IBM's counsel, Michael Crane QC, who said that the authority for proceedings to be stayed to enable enforcement of an ADR agreement, rests in 19th century common law and the Arbitration Act 1996. Colman also interpreted the Centre for Eff-ective Dispute Resolution's (Cedr) current model mediation procedure to mean “a certain minimum participation” in ADR if parties have signed a relevant clause.

Only time will tell whether Colman's landmark decision will impact on the number of cases litigated. You can rest assured, though, that The Lawyer will be keeping a close eye on any developments.

brendan.malkin@thelawyer.com