CR-2018-009110 - [2025] EWHC 2115 (Ch)

The BAT Proof of Debt (“PoD”), dated 7 March 2023 is for a sum of c.£411.5m. The basis for the claim is the indemnity granted by the Company in favour of BAT under s 12.3 of the Funding Agreement, under which the Company is obliged to indemnify BAT in respect of monies it has paid or is liable to pay towards environmental costs. Liability under the indemnity is subject to a condition precedent which is set out at s 12.3 of the Funding Agreement. This provides that:

“As of the Effective Date of the Agreement, [the Company]’s liability to BAT…shall be limited to an amount which shall not cause [the Company]’s net assets to be reduced below $25 million (the “Windward Floor”)”: s 12.3(a).

Net assets for this purpose are to be calculated “in accordance with UK GAAP.”

The Applicants make two points in this regard. The first is that there may be contractually-based arguments for disapplying the Windward Floor. I do not consider these here. The other, however, is the point that the Windward Floor is a contingent, not an absolute, bar to a claim.

There is no doubt that the Company’s current net assets, calculated according to UK GAAP, are below the Windward floor. However, the Company has – and the Administrators are pursuing – an action against the New Directors for the recovery of misappropriated property which is accepted has a maximum value of £150m. A recovery of this size, even after costs, would clearly take the assets of the Company above $25m, and therefore entitle BAT to some recovery. In order to conclude that BAT was not a creditor, the Administrators would therefore have to be reasonably certain that either that there was no prospect of any recovery at all from the New Directors claim, or that any such recovery would be less than 10% or so of the amount claimed. The first of these is clearly unsupportable – if the Administrators believed this to be the case, they could not justify their current pursuit of the action. The second is equally hard to understand – at this stage in litigation of this kind, the formation of a firm view that there is a hard cap on the amount likely to be recovered is beyond most mortals.

I therefore think that it is entirely irrational for the Administrators to have argued that it is certain that the BAT claim will be valueless. It is open to them, acting quasi-judicially and within their discretion, to ascribe a low value to this contingency. However, I can see no rational grounds for concluding that BAT was not a creditor at all, and I regard their suggestion to that effect as being motivated by other factors.

I note that it is possible that the Administrators may say in this regard that this was the advice which they received from their solicitors, and that they relied on it. This would not, to my mind, constitute a defence of any form. I would expect any competent Administrator to understand that the valuation of a contingency is a matter of judgment, and that a contingency must be valued according to the Administrators’ assessment of the likelihood of that contingency.

The Administrators also say that if BAT were to be permitted to prove on the basis suggested, it would create the possibility that BAT would receive payment from the Company when its net asset value was below $25m. This is both true and irrelevant. It is entirely clear from authority – see, for example, Ricoh Europe Holdings BV and others v Spratt and another [2013] EWCA Civ 92 – that the effect of the valuation of a contingent claim may be that the creditor receives a different amount from that which he might otherwise be contractually entitled to receive. The possibility of this outcome does not entitle the Administrators to disregard a contingent claim.

I think that it is true that if, when it came to the adjudication of this proof, if the Administrators adjudicated it as £NIL, BAT would at that moment cease to be properly regarded as a creditor until that determination was successfully challenged. I note in this regard that although the Administrators have not adjudicated this PoD, this is not for want of trying on their part – they have pressed BAT and BTI to present their claims for adjudication. I think it is clear on the facts that the reason that they have not done so is that they know what the outcome of such an adjudication would be, and they wish to preserve their position as creditors. The Administrators criticise this as showing that BTI and BAT are not acting in good faith. My feeling is rather the opposite – if an Administrator acting a quasi-judicial capacity informs a creditor that he intends to deal with his proof in way which is entirely unsupported by the law, I think it is reasonable for the creditor to respond tactically – which is what seems to have happened here.