Gencor settlement talks deadlock

Gencor settlement talks deadlock

By Stewart Bailey

January 9 2003

© Mineweb 1997-2003

Johannesburg ­ Negotiations aimed at reaching an out-of-court settlement between investment house and ex-asbestos miner Gencor and victims of lung disease have deadlocked and days away from being called off, Richard Spoor, an attorney for the plaintiffs in the case told Mineweb. Spoor has also threatened to up the ante in the case by increasing the scope of the lawsuit against Gencor to include the claims of lung disease sufferers beyond South Africa's borders, if the settlement figure proposed by Gencor is not increased.

Spoor had previously estimated the claims of his clients to be worth about R1.5 billion and R2 billion, but highly placed sources close to the negotiations said the current Gencor offer was considerably lower.

Gencor's plan to distribute its main asset - a 46 percent stake in Impala Platinum worth $2 billion - to shareholders, has been challenged by lawyers representing ex-employees who allege they contracted terminal lung disease working on mines operated by Gencor's subsidiaries. The sufferers of the lung diseases asbestosis and mesothelioma, contend that the proposed cash pile to be left behind in Gencor after its unbundling would be insufficient to pay their claims if their law suit against the company proved successful. Initially, Gencor denied any culpability and vowed to fight each of the claims being made in both UK and South African courts, but has since entered into negotiations aimed at settling the matter.

Press reports earlier in the week, which quoted a Gencor spokesman as saying "there seems to be a convergence of views regarding a number", raised hopes of an imminent settlement. Johan Marais, Gencor's official spokesman echoed the view. He told Mineweb yesterday (Wednesday) that talks between the parties had reached an advanced stage and were "very close to a settlement".

Spoor less optimistic

Spoor, however, is less optimistic. "There has been some progress to agreeing the quantum of a settlement, but there are still substantial obstacles in the way," he said. "These problems may be overcome if Gencor put up more than is currently on the table. The way things look right now I'm not sure there will be a settlement."

Spoor said that although the settlement figure proposed by the two parties did not differ substantially, the negotiations had "reached a dead-end". In a clear display of brinkmanship, Spoor said the next move in negotiations would need to be made by Gencor, or the matter would "end up in the judge's hands". An interdict to prevent the unbundling, which has the tacit support of the South African government, has been heard in the supreme court and Spoor expects a ruling early next month. If successful and the impasse remains unbroken, the case by asbestosis victims against Gencor will go to trial.

"If, as we anticipate, the judge rules that there must be a trial to judge the extent of Gencor's liability, it would be in our best interests to determine the extent of the liability," said Spoor. He has also threatened to broaden the scope of the proposed class action suit beyond the current group of claimants, comprised mainly employees that worked on the Gefco and Msauli asbestos properties in the Northern Cape since the 1960s. Spoor claims that the both Gefco and Msauli were controlled by Gencor.

"Until now we have focussed narrowly on one group of victims with occupational exposure. If there is no conclusion now, we must extend the web and draw in other people and extend the scope of their liability. We are in a position to escalate this and if needs be, we will" said Spoor. He said potential claimants include families of workers, communities around the mines, harbour workers in South Africa and abroad - given that most of the asbestos was exported - construction workers and end-consumers."Of all the mesothelioma cases in the world, one in three could be attributed to asbestos handled by Gencor," said Spoor.

A fly in the settlement ointment

While paying up and making the legal threat disappear would be in the best interests of most parties, reaching agreement may not be as easy as paying off Spoor and his clients. Another group of claimants, 7000 in all, led by UK law firm Leigh Day and Company, are attempting to make Gencor co-defendants in a similar class action against another ex-Northern Cape asbestos miner, London-listed Cape plc. Cape reached a £21 million settlement with Leigh Day last year, but has since reneged on the deal amid financial difficulties and corporate fraud allegations against senior executives at the company. In the intervening period, Gencor has been drawn into the melee.

According to sources close to the negotiations, Gencor has been horse trading with both Spoor and Leigh Day in the hopes of reaching a single settlement, but has had difficulties in satisfying the needs of both groups. The twist in the tale, however, is that if there is a new settlement with Cape plc in the interim - and an offer is believed to be on the table - Cape's insurer CGNU, has stipulated that, as part of the settlement, Leigh Day and Company must have no further recourse against Gencor. If this proves to be the case, it would be in Gencor's best interests to hold out for Leigh Day to accept the Cape offer, which could potentially put it in the clear on one front at least.

According to the same sources, the terms of the proposed Gencor offer are not palatable to Leigh Day. While Spoor's plan is to put the whole wad of settlement cash in a fund and dole it out to legitimate claimants for years to come, his co-litigants see it differently. "Our view is that this is a group action and those Cape claimants with legitimate claims against Gencor would be able to draw from the fund. But they (Leigh Day) don't see it that way," said Spoor.

Spoor is talking a tough game and will certainly be heartened by his success in attracting Gencor to the negotiating table. Gencor (and Impala) shareholders will be keen to put the legal battle behind them before it escalates to the level that forced US auto spares company Federal Mogul - also the defendant in an asbestos-related lawsuit - to file for bankruptcy. In a single year the litigation turned a $500 million profit into a $250million loss.

A settlement offer may yet come to the rescue of Gencor as far as its potentially larger and more organised UK claim is concerned, freeing it to a deal with Spoor.