International Law

CAMAC has published its report  Long?tail liabilities: the treatment of unascertained future personal injury claims (pdf).

The report puts forward proposals to improve the position of potential personal injury claimants whose claims against a company may not emerge for a long time. The adequacy of legal arrangements for the protection of these claimants was called into question in the  Report of the Special Commission of Inquiry into the Medical Research and Compensation Foundation (September 2004) (the James Hardie inquiry).

The problem arises with claimants whose personal injury or illness only comes to light well after relevant activities ? such as the sale of a product for which a company is responsible ? have taken place. Their prospects of recovering damages will depend, apart from anything else, on the continuing existence and financial strength of a company over the period in question. The issue at stake is whether, and to what extent, special provision should be made for these claimants against the possibility of the company getting into financial difficulty.

The report makes a series of recommendations including:

• Solvent companies. The share capital reduction, buy-back and financial assistance provisions should be amended to require that a proposed transaction not materially prejudice the company?s ability to pay its creditors or meet its contingent or other liabilities, including liabilities to future injury claimants. Also, a solvent company with anticipated liabilities of this nature that may render it insolvent at some future time should have the right to seek a court order confirming a plan to deal with these claims as they arise. 
• Voluntary administration.  A person representing future injury claimants should have standing to challenge in court a proposed deed of company arrangement on the basis that it would be unduly detrimental to the interests of these claimants.
• Schemes of arrangement.   The scheme provisions should be amended to permit schemes involving a company and an identified class of these claimants.
• Liquidations.   The court should have a power to order the setting aside of funds in trust for personal injury claimants, where the court considers that this is worthwhile, taking into account the distributable assets available for unsecured creditors.

The Committee did not support the suggestion that these protections should be available only where a mass future claim was afoot. Also, the Committee was not persuaded of the need for a specific anti-avoidance provision.

The report notes the importance of companies complying with their existing obligations to disclose contingent and other liabilities, which can include unascertained future personal injury claims. The proper identification and disclosure of these anticipated claims, whether or not related to personal injury, should be part of the responsible management of a company as required by applicable accounting standards.