Document zo837zzB8E8BRY06xKn2JoOJa

FILE NAME Cape Asbestos CAPE DATE 1975 Oct 3 DOC CAPE155 DOCUMENT DESCRIPTION Letter to Solicitor of Cape Industries Ltd. RE strategies to minimize exposure to litigation by transferring business to Cape Canada Legal - Tibbs Case Exhibit 53 ECTRONICAL Y ECTRONIALY FILED - 2023 Oct October 3 1975 18 12:13 PM - RICHLAND Mr. A. J. Penna Group Solicitor Cape Industries Limited - 114 Park Street London W1Y 4AB Dear Tony Re NAAC COMON PLEAS This is a private and confidential reply to the questions he was here this spring and by your letter of June 25 1975 raised by Dr. Gaze when - The objective under consideration is an attempt to limit NAAC's and Cape's ex- posure to future United States litigation At some point in the past the potential danger of working with asbestos fibers must have been publicized and became generally so well known that sales thereafter should have been at the buyers risk and not result in any 203CP41759 e further liabllity Of course anyone can file a lawsuit at very little cost even though the chance of success is minimal In the light of Dr. Gaze's coming trip to Chicago I wanted you and hin to have the benefit of the discussion herein before he leaves INSURANCE At Dr. Gaze's suggestion when he was here I immediately contacted NAAC's insurance broker and with one of our product liability experts discussed the possible extension of NAAC's insurance coverage even though the corporation might be liquidated For weeks I had no answer and finally I was advised that the insurance coverage could be continued if NAAC were to continue as a shell corporation with officers and directors even though no longer carrying on business I advised the broker that this is not really what we had in mind that he should try again to see if there could be coverage of the corporation for two years after dissolution and of the officers and direc- tors for a longer period After considerable time I checked again and was advised that the present insurance carrier would not do this but that another company might was CAPE000351 ELCTRONIAY Mr. A. J. Penna -2- 10/3/75 told that I could expect a more definite answer within a week or two but I still have not heard FILED - 2023 STATUTE OF LIMITATIONS Under Illinois law actions for damages for an injury to the person must be commenced within two years after the cause of action Oct accrued stand this The question of course is when is one of the lasues in the Yandle the year statute starts to run I undercase in Texas however the majority rule and the rule in Illinois seems to be that the cause of action accrues when the cumula- 18 12:13 tive effect of the exposures causes disablement Another way of stating the rule l^, that the claim accrues when the Injury occurs and the injury occurs when the plaintiff knows or should know of his right to sue the defendant for the Injury It does not accrue PM upon delivery of the asbestos Under separate cover I have mailed to you a Cornell - Law Review article entitled Effect of Corporate Dissolution on Products Liability RICHLAND Claims - Volume 56 - July 1971 - No. 6 This comprehensive article discusses pre- dissolution and dissolution claims The dissolution of NAAC would seem to be helpful only with respect to dissolution claims The statute of limitations on predissolution claims would expire before the year period that the corporation remains - alive for purposes of being sued after dissolution However dissolution claims might to me might COM ON be barred by the expiration of the year statute of limitations Thus it seeme that our primary concern is about liability from sales made 3 5 - 10 years ago which result in disablement to some potential claimant more than two years from now Claims for disablement prior to that time could be filed within the year period after dissolution PLEAS - NAAC LIQUIDATION Enclosed herewith is a copy of the Illinois Business Corpo- ration Act Note the following provisions Sec 80 provides that before filing Articles 203CP41759 of Dissolution all debts liabilities and obligations of the corporation must have been paid or discharged or adequately provided for including provision for the satisfaction of any judgment which may be entered against it in any pending suit Sec 94 provides that any action or proceeding on a claim existing or liability incurred prior to dissolution maymay be commenced within two years after the date of dissolution Sec 42.3 provides that 2023CP401759 the directors of a corporation who vote for or assent to the distribution of assets to share holders after filing an intent to dissolve without adequate provision for payment and dis- 203CP401759 charge of all liabilities shall be jointly and severally liable to the corporation to the extent that such liabilities are not thereafter paid and discharged Sec 42.6 provides that directors who fail to mail to a known creditor a notice of filing a statement of intent to dissolve shall be jointly and severally liable to such creditor for any loss or damage occasioned thereby Sec 42.11 provides that any director who is held liable under various provisions including 42.3 above is entitled to contribution from other directors who are likewise liable and from shareholders who knowingly accepted or received any such distribution of assets Sec 42.8 provides that the directors who vote or assent to any distribution of assets to shareholders probibited by this act shall be guilty of con- spiracy and may be punished under the Criminal Code To the extent that there is adequate insurance coverage it would seem that the direc- tors would be safe in distributing NAAC's assets in liquidation however it seems to me that there is a great deal of uncertainty regarding potential claims against the corporation 671592 CAPE000352 Mr. A. J. Penna 10/3/75 ELCTRONIAY Although the directors may not actually know of additional claims if they should know that there is a good chance that there will be additional claims they too must be pro- FILED vided for There have been cases where the court held that the liquidation of a corpo- - 2023 ration was not effective where claims which were known or should have been known were not provided for and thus the corporation remained in being for purposes of being sued and the claimants were not limited to the year period after liquidation Oct 18 Any claimants might have a difficult time pursuing assets if the corporation were 12:13 actually liquidated and the assets distributed out of the country In such a case how- ever it is most likely that the directors would then be named as defendants individually for permitting such a distribution to take place without adequately providing for claims PM The general rule is that directors can be sued individually only if they are negligent - beyond the scope of their duties as directors Normally only the corporation is sued if RICHLAND its assets are Intact however if its assets were distributed any claimant is almost certain to allege that directors did not adequately provide for claims that they should have known would arise and that they therefore are individually liable Further NAAC's insurance coverage extends to officers and directors only while acting within their - duties as such " COM ON There also seems to be little doubt that liability would be transferred through to any new corporate entity set up to replace NAAC particularly if it could be shown that the activities president and principal shareholders were the same This same risk PLEAS would probably also be present if the new entity were outside the United States although as will be mentioned below any claimant might have to prove his case in the courts of - the country of the new entity CASE REPLACEMENT FOR NAAC If the replacement for NAAC had an office and one or more employees in the U.S. it would have to qualify to do business in the state or states of its activities and would be subject to the jurisdiction of the U.S. courts the 2023CP4001759 203CP41759 same as if it were a U. S. corporation For example if NAAC's business were trans- ferred to Cape Canada but Cape Canada maintained the same office that NAAC has here with substantially the same employees there would be nothing gained insofar as products liability cases in the U. S. are concerned It would be the same as if the local office were an Illinois corporation as at present in fact someone in Illinois would have to be designated as agent of Cape Canada for service of process in Illinois Even if only a warehouse were maintained in the U.S. and no other office or employees it is likely that the warehouse would be considered as a place of business in the U.S. and subject the foreign corporation to the jurisdiction of U.S. courts It would be impossible to use a Mexican corporation as a replacement for NAAC because under the current foreign investment law in Mexico a sales company of the type under consideration cannot be more than 40 owned by Mexican shareholders further there are heavy penalties for Mexicans who act as nominees for Mexican shareholders The total tax rate on income including the withholding rate on dividends to get the income out of the country would be 53.6 as follows 671593 CAPE000353 ECTRONICALLY ECTRONICALLY ECTRONICALLY ECTRONICALLY ECTRONICALLY ECTRONICAL Y ECTRONICALLY ECTRONICALLY 10/3/75 ECTRONICALLY ECTRONICALLY ECTRONICALLY FILED Corporate Income Tax FILED FILED FILED Dividend withholding tax rates from 2023 15 to 20 at the rate of 20 2023 2023 2023 Total effective tax rate Oct Oct 18 There is also a Gross Receipts Tax of % 12:13 Canada too has a new Foreign Investment Review Act part of which is just becoming 12:13 PM effective However since Cape Canada is already in existence I think there would be PM no problem if it were merely to extend its activities and continue to be wholly owned by RICHLAND Canadian shareholders The following corporate Income taxes are in effect RICHLAND Canadian Federal Tax RICHLAND RICHLAND 48 RICHLAND RICHLAND RICHLAND Provincial Effective Tax % COMMON Ontario and Quebec have a 12 COMMON corporate income tax but the COMMON COMMON Canadian federal tax allows a COMMON COMMON credit of 10 PLEAS PLEAS PLEAS Dividend withholding tax at 15 PLEAS PLEAS Effective Tax Rate CASE CASE CASE CASE There is also a Canadian federal sales tax of # 2023CP4001759 approximately 12 22002233CCPP44000011775599 e 2023CP4001759 2023CP4001759 If the Canadian corporation were subject to U.S. taxes under the treaty between 2023CP4001759 2023CP4001759 Canada and the United States the Canadian company would get a credit against the 2023CP4001759 2023CP40 1759 Canadian taxes for the U. S. taxes paid The corporate rates in the two countries are 2023CP4001759 substantially the same The Canadian corporation would probably not be subject to U.S. 2023CP4001759 2023CP4001759 taxes on the sales in Mexico although it would be subject to Canadian taxes So far NAAC has been successful in not subjecting itself to Mexican taxes Presumably a Canadian corporation could continue in the same manner If it were possible to operate without an office or employees in the United States it would seem to be better to operate directly from some company in England the min- ing companies in South Africa or if an office is needed near North America from some Caribbean or Central American country that has very low income tax rates 8. Nether- lands Antilles Mr. Morgan's predecessor Robert Cryor and I used to talk occasion- ally about such an operation and we considered the tax savings that might result however it was always decided that it was not possible to operate in the United States with out an office here or at least without an employee traveling regularly in the United 571594 CAPE000354 LECTRONICALY Lokd , Lokd BisseLL & BROOK ! Penua LECTRONIALY States with authority to negotiate contracts ThTis his would result in the profits being FILED - subject to U.S. taxes and therefore there appeared to be nothing to be gained by operating from a country outside the United States 2023 ENFORCEMENT of U.S. JUDGMENTS by FOREIGN COURTS The U.S. Oct courts are continuing extending the length of their long arm jurisdiction It has 18 reached the point where merely selling into a state without any other activities in the state will give rise to jurisdiction of the state court if the product sold results 12:13 in damage in that state Along with a copy of the Cornell Law Journal article on PM product liability and the Illinois Business Corporation Act I have also sent under - separate cover the current issue of the Corporation Journal containing an article on Long Arm Jurisdiction RICHLAND Many countries have a reciprocal enforcement of foreign judgments law Many including South Africa do not In a country which does not have such a provision the defendant can usually raise in the suit on the judgment all of the defenses he could have raised at the original trial in the U.S thus in taking a default judgment in the U.S. on the judgment all defenses can still be raised in the suit in the foreign court COMON PLEAS Your information with respect to Quebec law is apparently correct A foreign default judgment is not executory in Quebec Any defense which might have been raised in the original action is available in an action on the judgment thus if - it is decided to operate in the U.S. through Cape Canada it may well be desirable to transfer Cape Canada from Ontario to Quebec SUMMARY It is possible that some protection as to future actions could 203CP41759 be obtained by liquidating NAAC and operating in the future through a Canadian or other foreign corporation however no protection would be obtained if it were necessary to have an office or employees in the United States or even to have a nonresident employee who continually travels in the U.S. with authority to conclude contracts There would be no protection as to suits which might be commenced in the next two years and it is a judgment question as to whether in the light of the now public knowledge with respect to asbestos fibers it is likely that there will be daims accruing and suits arising more than two years from now will try to have more definite information on insurance coverage by the time Dr. Gaze arrives late this month but there appears to be danger to the directors who approve the distribution of assets in liquidation unless they can show that they do not have a reasonable expectation that additional claims against the company exist or might be filed in the future 671595 671595 CAPE000355 LORD BISSELL & BROOK ( -6J. J. Penna ELECTRONICALLY ELECTRONICALLY ELECTRONICALLY ELECTRONICALLY ELECTRONICAL Y ELECTRONICAL Y ELECTRONICALLY ELECTRONICAL Y 10/310//37/755 ELECTRONICALLY ELECTRONICALLY ELECTRONICALLY FILED FILED a We re looking forward to Dr. Gaze's visit and hope to discuss these FILED FILED matters further at that time 2023 2023 2023 Sincerely 2023 Oct Oct 18 12:13 12:13 PM PM RICHLAND RICHLAND RICHLAND RICHLAND RICHLAND RICHLAND RICHLAND COMMON COMMON COMMON COMMON COMMON COMMON PLEAS PLEAS PLEAS PLEAS PLEAS CASE CASE CASE CASE # 2023CP4001759 2023CP4001759 2023CP4001759 2023CP4001759 2023CP4001759 2023CP4001759 2023CP4001759 2023CP4001759 2023CP40 1759 2023CP4001759 2023CP4001759 2023CP4001759 671596 CAPE000356