5 March 2002
HARLAND AND WOLFF PLC AND DETI’S LEGAL OBLIGATION TO MEET EMPLOYERS’ LIABILITY CLAIMS - STATEMENT TO THE NI ASSEMBLY BY SIR REG EMPEY ON 5 MARCH 2002
I would like to thank Assembly members for the opportunity to address them on the matter of my Department’s obligations to Harland and Wolff Plc, the shell company left in the ownership of my Department following the privatisation of the shipbuilder Harland and Wolff in 1989.
The purpose of this statement is to inform Assembly members of a very significant potential liability in relation to employers’ liability claims that has fallen on my Department. This relates to compensation payments to the victims of asbestos related diseases who were formerly employees of Harland and Wolff, many of whom have been the subject of intense suffering and distress.
I must make it crystal clear at the outset that Harland and Wolff Plc is an entirely separate legal entity from the current shipbuilding business and that this potential liability and my statement today have nothing to do with the trading situation of the shipbuilding business or with Harland and Wolff Group Plc.
The matter of these potential liabilities was first highlighted in the Executive’s Position Report, which was presented to the Assembly by the then Minister of Finance and Personnel on 19 June 2001.
They arise because of commitments provided by Government in 1974 to Harland and Wolff and confirmed at privatisation in 1989.
These commitments have crystallised into liabilities following the insolvency of Harland and Wolff Plc’s employers’ liability insurer, Chester Street Insurance Holdings Limited, in January 2001.
As a result of the insolvency, employers’ liability policyholders, (including H&W Plc) and other organisations such as British Shipbuilders, are now required to pay out on agreed claims in relation to asbestosis and associated diseases caused by exposure to asbestos.
Before I go further with the legal and technical aspects of this case, I feel it important to spell out what all this means in human terms.
Before 1970, asbestos was a commonly used substance in the shipbuilding and other heavy engineering industries. Medical evidence became available that established that exposure to this substance could result in long-term illness or death. This is the situation that many former workers in the industry now find themselves.
This is a tragedy of huge proportions, and there is nothing in the volumes of legal papers that conveys the scale of human suffering and distress involved.
Members may have seen interviews with those who are suffering from asbestosis or other related illnesses, and the tales of those affected are distressing.
Asbestos-related conditions take a long time to manifest themselves, and experts estimate that there could be just under 3000 claims in total by 2050.
In relation to Harland and Wolff Plc, legal advice, affirmed by Counsel, has confirmed that my Department has an obligation to provide financial support to H&W Plc to meet these employers’ liability insurance claims.
An actuarial assessment by a leading London-based international firm of actuaries has confirmed that the extent of the liabilities could be approximately £10 million per year over each of the next four years. Total estimated liabilities could be as much as £190 million over the period up to 2050.
My Department has already made a provision in its accounts for the current gross cost of these liabilities as estimated by the acturaries.
DFP have confirmed with Treasury that, as a result of the current Resource Accounting and Budgeting rules, this provision will count as Annually Managed Expenditure and this resolves the main costs of the liability.
This means that on the basis of the current best estimates, the maximum cost to the Departmental Expenditure Limit which we face is our current estimate of £0.5 million this year and £10 million in 2002-03. From 1 April 2003, claims paid will not represent a new cost – as this is already reflected in the provision. In effect, the remainder of the costs will, within Treasury rules, be met outside Northern Ireland’s DEL and so will not affect the spending power of the Executive.
However, this issue is not just one of legal commitments and technicalities. The needs and rights of victims of these terrible illnesses are central.
They have faced a range of very serious medical conditions including asbestosis, mesothelioma, diffuse pleural thickening, pleural plaques and lung cancer.I understand there is currently no effective cure for many of these diseases.
They are debilitating and insidious, often taking many years to present. And responses to drugs are generally short lived.
All of this is extremely distressing and traumatic for those involved and for their families.
I am sure the Assembly will, with me, wish to acknowledge with me the sense of worry and real apprehension that they face.
It is therefore very important today that while I outline the legal obligations, actuarial assessment and expenditure implications, our debate be set very firmly in that human context.
The matter before us today is urgent for a number of reasons.
We have a responsibility to meet our obligations to victims of these diseases and their relatives who continue to suffer.
Harland and Wolff Plc is rapidly running out of cash and needs funds urgently so that it can meet claims as they fall due.
There is therefore an urgent need for an assurance that Government will confirm that sufficient funding will be made available to enable the company to trade on a proper basis.
Under company law, the directors cannot trade without an assurance that they have sufficient assets to meet all their liabilities. I intend therefore to provide an assurance to the Directors that my Department will meet its legal obligations and will ensure that sufficient funds are provided to allow the company to meet its debts as they fall due.
In parallel with this assurance my officials in conjunction with DFP will seek to ensure the maximum recovery of expenditure possible from Treasury and from the Financial Services Compensation Scheme - the FSCS.
The FSCS was set up to protect policy holders and others where insurers are unable to meet their liabilities under policies issued and is funded by levies made on insurance companies. I will provide more detail on this later in my statement.
I must, however, give members further background on how this situation has arisen.
In 1975 Harland and Wolff was taken into public ownership with its share capital acquired by the then Department of Commerce, now the Department of Enterprise, Trade and Investment.
Following fourteen years in Government ownership, the company was privatised in September 1989 through an employee and management buy-out supported by Norwegian ship-owner and industrialist, Mr Fred Olsen.
After disposal at privatisation of its shipbuilding trade to what has today become the ‘new’ Harland and Wolff Group plc, the ‘old’ company (i.e. Harland and Wolff Plc) remained in the 100% ownership of my Department.
At privatisation, however, certain assets and liabilities remained with the ‘old’ H&W Plc - in particular, all liabilities which existed at the time of the sale resulting from the conduct of the business prior to transfer. This was similar to arrangements with other privatisations.
As I have stated, the current position has arisen through the insolvency of Chester Street Insurance Holdings (formerly the Iron Trades Group), which acted as employers’ liability insurer for H&W Plc and for other leading UK companies, including the British Shipbuilders Corporation and British Steel.
This situation therefore has UK wide implications. In addition, it is likely that a number of the claims will relate to H&W Plc workers who were employed and domiciled in GB.
Legal advice has now confirmed that, as part of the contractual arrangements at privatisation, the Department has retained an obligation to guarantee funding in relation to employers’ / public liability claims, for which Chester Street acted as insurer.
My officials have consulted Departmental Solicitor’s Office at each stage of this process and have taken legal advice from Lovells, a leading international London-based firm of lawyers who acted for Government at the time of the privatisation in 1989 and have provided ongoing advice in relation to other H&W matters since then. Their opinion has been confirmed by Counsel.
As I stated earlier the matter of these potential liabilities was highlighted in the Executive’s Position Report, which was presented to the Assembly by the Minister of Finance and Personnel on 19 June 2001.
The extent of the potential liability was at that stage unclear and an actuarial assessment of H&W Plc’s potential future exposure was not completed until December last year.
This actuarial assessment was undertaken by William M Mercer Limited, a leading London-based international firm of actuaries. Their final report has concluded that potential claims over the period to approximately 2050 could amount to £190 million gross.
Mercer’s analysis assumes that there is the potential to recover up to £49m of the £190m from the Financial Services Compensation Scheme (FSCS). The FSCS was set up to protect policy holders and others where insurers are unable to meet their liabilities under policies issued and is funded by levies made on insurance companies.
Employers’ liability cover became compulsory in Northern Ireland in 1975 and FSCS meets the balance of claims, after recoveries are made from other sources (e.g. Chester Street) for exposures from this date onwards. However, any potential recovery from the Scheme is dependent on the eligibility of H&W Plc as an applicant company. This is being investigated.
The FSCS arrangements apply to companies in Northern Ireland only in respect of agreed claims covering periods of exposure after 1975, being the date at which employers’ liability insurance became compulsory in Northern Ireland.
Mercer’s view is that the majority of exposure at H&W Plc occurred before 1975.
The latent period for asbestosis related disease to present could be anything up to 40 years. However, while the time lag on settlements payment could reach as far out as 2050, the expected peak of claims will arise in the next few years.
If my Department were not to confirm to the directors of H&W Plc that it will meet its obligations, then the directors would have no alternative but to seek a winding up of the company.
In these circumstances, the Receiver/Liquidator would still look to government to fulfil its legal obligations to H&W Plc on foot of the undertakings given in 1974 and 1989. There would also be a further period of uncertainty and distress for the claimants.
This situation is extremely regrettable but has arisen due to commitments in 1974 and at privatisation and the unforeseen insolvency of Chester Street.
I can assure members that I will make certain that my officials take every step to monitor the situation to minimise the liabilities and to ensure that maximum recovery is obtained from all available sources.
I have outlined to members the obligations that have fallen on my Department due to arrangements at privatisation and the insolvency of Chester Street.
I have highlighted the urgency of the situation in relation to the company and ensuring that it is provided with sufficient funds to meet these obligations.
But I have also emphasised this morning the very acute human dimension and very real difficulties faced by those affected by these serious asbestos-related conditions.
My Department has a clear duty as owners of Harland and Wolff plc, and on the basis of professional advice taken to respond plainly and unequivocally today and remove uncertainty for sufferers of these very harrowing conditions.
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