The English Electric Company Ltd v Alstom UK

This case is about who ultimately pays when an old employee injury claim appears long after a business has changed hands. The Court of Appeal had to decide whether broad indemnity wording in an internal transfer of a turbine generator business was wide enough to cover a historic asbestos-related employment claim.

The court said yes on these facts. It held that wording about claims arising on completed and uncompleted contracts was not limited to customer or trading contracts. In the context of this transfer, it was broad enough to include employment contracts too.

That does not mean every business transfer automatically carries every old liability. The lesson is narrower and more practical. If your documents use broad language and do not clearly carve out employment-related liabilities, a court may decide that those liabilities moved with the business.

The background was a tragic asbestos claim. Mr Rodney Oliver worked as an engineering student apprentice between 1956 and 1961. During that period he handled turbine generator equipment and fittings contaminated with asbestos. More than 40 years later, in August 2003, he was diagnosed with mesothelioma. He died on 8 August 2005.

On 4 August 2008, his widow brought a claim against AEI, the company that had employed him in 1961. She later obtained judgment for a basic sum of £250,000. The later court fight was not about whether AEI was liable to Mrs Oliver. That point had already been resolved.

The real dispute was between companies in the transfer chain. Mr Oliver's first employer from 1956 to 1960 was BTH at Rugby. On 31 December 1959, BTH transferred its turbine generator business to AEI, and on 1 January 1960 BTH changed its name to AEI (Rugby) Ltd. Mr Oliver's apprenticeship was also transferred to AEI.

After that, GEC acquired AEI in 1967. In 1968, GEC merged with EEC. Then, on 1 April 1970, AEI sold its turbine business to EEC as part of an internal reorganisation. Later, on 21 March 1989, EEC sold the turbine business to GEC Power Systems Ltd, the predecessor of Alstom UK.

Alstom accepted an important point. If EEC was liable to indemnify AEI under the earlier transfer, then Alstom would have to indemnify EEC under the 1989 agreement. So the key question became whether the earlier transfer wording made EEC responsible for AEI's liability to Mrs Oliver.

The difficulty was that the original 1970 agreement was not available. The only surviving evidence of that sale was a resolution of EEC's general purposes committee dated 31 March 1971. That resolution recorded the purchase and included the indemnity wording at the centre of the case.

The resolution said EEC took the benefit of all outstanding and uncompleted contracts in respect of the business, assumed the responsibilities for them as at 1 April 1970, and indemnified AEI against any claims arising on completed and uncompleted contracts as at that date. EEC and Alstom each paid half of Mrs Oliver's claim without prejudice while the court decided who should bear the liability in the end.

The central issue was contractual interpretation. The Court of Appeal had to decide whether the indemnity in the 1971 resolution covered AEI's liability for Mr Oliver's asbestos-related claim. More specifically, it had to decide whether claims arising on completed and uncompleted contracts included liabilities linked to employment contracts.

Alstom argued for a narrower reading. It said the wording should be understood in the context of the turbine generator business and should cover business contracts with customers, not contracts of employment. It also argued that the phrase subject to certain reservations mattered, because nobody could now identify exactly what those reservations were.

Alstom also relied on wider context points. It referred to a 1959 agreement under which contracts of service had been specifically excluded, and argued that the 1970 transfer should be read in a similar way. It also submitted that the language of completed and uncompleted contracts was not apt for employment contracts, which are more commonly described as terminated or unrenewed.

EEC argued that the wording was deliberately broad. In the setting of an internal transfer of a business within a group, it said the natural reading was that the undertaking moved as a whole unless the documents clearly carved something out. On that approach, employment liabilities linked to the business could fall within the indemnity.

The court therefore had to weigh the actual words used, the internal reorganisation context, the significance of the missing reservations detail, and the fact that Mr Oliver's employment had ended years before the 1970 transfer date.

The Court of Appeal dismissed Alstom's appeal. Lord Justice Longmore, with whom Lord Justice Beatson and Lord Justice Sales agreed, held that the indemnity did cover AEI's liability for Mrs Oliver's claim.

The court first rejected any suggestion that there was no agreement to indemnify AEI at all. It said the 1971 resolution expressly ratified EEC's 1970 purchase of AEI's turbine generator business. The absence of a contemporaneous 1970 document, 46 years later, was neither surprising nor legally significant in itself.

The court then focused on the wording. It said the phrase against any claim arising on completed and uncompleted contracts recognised only two categories of contracts, completed and uncompleted. Its natural and ordinary meaning was broad. The court accepted that the phrase included customer contracts, but saw no reason why it could not also include contracts of employment.

The court also rejected the idea that employment contracts were linguistically outside the clause. It accepted that it may be a little unusual to describe an employment contract as completed or uncompleted, but not impossible or unintelligible. Mr Oliver's apprenticeship and employment had ended in 1961, so his contract could sensibly be treated as completed.

Context mattered too, but only as part of the interpretation exercise. The court agreed that the correct starting point was an informal and internal reorganisation within a group. In that setting, the natural inference was an out and out transfer of the entire undertaking unless the contrary was specified. The court considered it unlikely that rights and responsibilities would be split in an untidy way unless the documents clearly said so.

The court was not persuaded by Alstom's reliance on the 1959 agreement. It said that agreement did not assist in construing the 1970 transfer. Nor did the court accept speculation about whether the workforce was in fact transferred in 1970, or a late argument about rationalisation in the electricity industry. The judges treated those points as unhelpful to the construction exercise on the wording before them.

Alstom also relied on the words subject to certain reservations. The court was not persuaded. It held that those reservations referred back to reservations as to trading and rights of the turbine generator business and goodwill. On that reading, they did not relate to employment contracts and did not change the result.

The court also rejected the suggestion that the indemnity should not apply because liability to an employee would arise through employer negligence. It said negligence is the most common reason why employers are liable to employees, so that point did not narrow the clause.

The practical value of this case is in how it treats transfer wording. Many business owners focus on price, assets, staff handover and customer continuity. Those points matter, but old liabilities can be just as important. A claim may arrive years later, and the real dispute may be between companies in the transfer chain rather than between the claimant and the current trading business.

The first lesson is not to assume that the word contract means only customer or supply agreements. In this case, the court read broad wording as extending to employment contracts too. If a buyer wants only trading liabilities, or a seller wants to retain employment-related risk, the documents should say that clearly.

The second lesson is to treat internal reorganisations seriously. Businesses sometimes see intra-group transfers as housekeeping and use shorter or less precise paperwork. That can store up problems. Years later, the group may have changed shape, the people involved may have left, and the surviving documents may be incomplete.

The third lesson is to review the whole chain. If your business acquired an undertaking from someone else, or the seller inherited it through an earlier reorganisation, old indemnities may still matter. A later claim can trigger arguments up and down that chain.

The fourth lesson is record retention. In this case, the original 1970 agreement was not available and the parties had to rely on a later committee resolution. Signed agreements, board or committee approvals, schedules and side letters should be stored so they can still be found long after the transaction closes.

The fifth lesson is to avoid over-reading the case. The court did not create a general rule that liabilities move with a business whenever a business is sold. The result depended on the actual words used and the internal transfer context. That means your own documents may produce a different answer if they are narrower, more detailed, or contain express exclusions.

If you are buying, selling or reorganising a business, use this case as a drafting and diligence checklist. The safest approach is to make the allocation of risk express rather than relying on assumptions about what broad wording probably means.

Review liability clauses line by line. Ask whether the transfer covers only specified assets and named contracts, or whether it also moves wider responsibilities linked to the undertaking. If the wording refers broadly to claims, liabilities, completed contracts or uncompleted contracts, consider whether that could catch former employee claims, workplace injury claims or disease claims.

If the commercial deal is that those risks stay with the seller, the documents should say so directly. If the buyer is taking them on, price, insurance and disclosure should reflect that. Also check whether later indemnities mirror earlier ones, because a later buyer may inherit the consequences of wording used years before.

Do not limit your review to the main sale agreement. In this case, a committee resolution became central. In practice, board minutes, committee approvals, schedules, side letters and implementation documents can all matter if there is a later dispute about what moved and what did not.

Where the business has a long industrial history, legacy health claims may emerge decades after the relevant work was done. That is particularly important in sectors involving manufacturing, engineering, chemicals, heavy plant or older premises. Historic exposure claims can create liability long after the original workforce has changed and long after the transaction team has moved on.

This is a Court of Appeal decision dated 23 December 2016. The court dismissed Alstom's appeal and upheld the conclusion that the indemnity wording in the 1971 resolution covered the asbestos-related liability in dispute.

The case is most useful as a drafting and due diligence lesson for business transfers. It shows how courts may read broad words in context, especially where a whole undertaking is moved within a corporate group and there is no clear exclusion for employment liabilities.

It is also a reminder that later buyers can become involved in disputes created by much earlier wording. Even where the claimant sues the original employer, the financial burden may still be fought out between later companies through indemnity chains.