Irwin and another v Lynch and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Wilson,Lord Justice Gross |
| Judgment Date | 06 October 2010 |
| Neutral Citation | [2010] EWCA Civ 1153 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 October 2010 |
| Docket Number | Case No: A3/2010/1660 and 1981 |
[2010] EWCA Civ 1153
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
(HIS HONOUR JUDGE COOKE)
Before: Lord Justice Lloyd
Lord Justice Wilson
and
Lord Justice Gross
Case No: A3/2010/1660 and 1981
Mr Avtur Khangure QC (instructed by Cobbetts LLP) appeared on behalf of the Appellants.
Mr James Morgan (instructed by Wragge & Co LLP) appeared on behalf of the Respondents.
Lord Justice Lloyd
Daniel Lynch Limited is a company of which Daniel Bernard Lynch (the first respondent) and Jane Olwyn Lynch (the second respondent) are the two directors. It went into administration, the administrator being appointed by the directors on 30 December 2004. Mr Gerald Irwin, the appellant, is the administrator. The administration has been extended a number of times.
On 14 August 2007 Mr Irwin issued an ordinary application against the respondents, seeking relief arising from three separate matters, only one of which is in issue on this appeal. The respondents bought a property called Barrells Hall, which required a great deal of work to be done to it. In October 2002 they and the company entered into a building contract under which the company would do the necessary work to make the property habitable. The contract was, it seems, amended in April 2003. Mr Irwin says that the contract was a transaction at an undervalue, because the fixed price was far too low for the work involved. By the application he sought a declaration that it was a transaction at an undervalue and that the respondents were guilty of misfeasance and breach of trust in causing the company to enter into the contract and therefore were liable to compensate the company.
The other aspects of the claims are, first, a claim that certain payments to the first respondent amounting to £850,000 in the year preceding the administration were voidable preferences within section 239 of the Insolvency Act 1986 and were therefore repayable. The second remaining claim was that certain dealings with a related company were a voidable preference or a transaction at an undervalue and that the respondents were responsible for those dealings and were therefore liable to compensate the company.
No exception is taken to the claim as against the £850,000, although it is resisted on its merits. As for the other aspects of the claim, it was said that the consequential claim for compensation against the respondents personally was not one which Mr Irwin, as administrator, could make. An administrator is not someone who, under section 212 of the Insolvency Act, can bring a misfeasance claim. That is restricted to the Official Receiver, a liquidator, a creditor and a contributory (see section 212 (3)). One may wonder why that is so. The answer may be that an administrator is not normally expected to remain in office for long so that, unless the company emerges from administration as a viable undertaking, there would be a liquidator in place before long who could bring a claim under section 212. At all events, it is accepted that Mr Irwin cannot make the claims for compensation in these respects, although he can pursue claims under section 238 and 239 as such because of the definition of “office-holder” in section 238(1).
On this basis the respondents applied to strike out the claim against them personally as regards the Barrells Hall contract and also as regards the intercompany dealings. That application was made in December 2009 or January 2010. Mr Irwin's response was to apply for leave to add and/or substitute the company as a claimant under Civil Procedure Rules, rule 17.4(4) and rule 19.The respondents resisted this, but ultimately only as regards the Barrells Hall contract, the difference being that for that claim (but only for that claim) the respondents contended that the claim was already time-barred under the Limitation Act.
HHJ Cooke, sitting in the Birmingham District Registry of the Chancery Division, accepted that submission. In his order made on 29 January this year he permitted the amendment only on the basis of striking out the reference to the Barrells Hall contract in the personal claim against the respondents. He gave permission to appeal himself.
The grounds of appeal and the original skeleton argument settled by counsel who appeared below for Mr Irwin complained of the judge's misapplication of CPR rule 19.5(3) (b). Later Mr Irwin instructed Mr Khangure QC, who argued the case on appeal. He put in a fresh skeleton argument raising two additional points. The first is that the case was within the ambit of the rules about substitution of parties in cases of mistake; and the second is that, the personal claim being for breach of trust, it would not in any event have been barred by limitation.
At a very late stage Mr Irwin's solicitors applied for permission to amend their grounds of appeal to rely on these additional points. We have heard argument on the original grounds of appeal. For my part, I am satisfied that the appeal should be allowed on those grounds. It is therefore unnecessary to consider the application to amend the grounds of appeal. The appeal has been argued in a commendably succinct and well-focused way, especially, if I may say so, by Mr Morgan for the respondent.
The case requires us to revisit CPR rule 19.5 and the law concerning amendment after a limitation period has expired. This area of law has been considered in a good many cases since the Limitation Act 1980 set out a new regime in section 35. The most relevant recent case is Parkinson Engineering v Swan [2009] EWCA Civ 1366. That was a case, in a sense, the converse to the present. The company there was in liquidation. The company brought proceedings against its former administrators. They had the benefit of a release under the Insolvency Act, section 20. That was a cast iron defence to the claim by the company. However, if an exactly similar claim were brought on behalf of the company by the liquidator under section 212 and if the court granted permission, that claim could continue despite the statutory release. The judge in that case permitted the liquidator to bring proceedings under section 212 and to be substituted by amendment as the claimant in the existing proceedings, thereby overcoming the limitation defence which was otherwise available.
The distinction between this case and that is that in that case the company had a claim against the defendants but the defendants had a complete defence to it, whereas here Mr Irwin does not have a relevant claim against the respondents because section 212 does not give him the necessary locus standi to bring it. The company, on the other hand, does have a good claim, subject to proof on the merits.
The relevant law starts with section 35 of the Limitation Act 1980. For the purposes of that section a claim by the company is for the same cause of action as that asserted by Mr Irwin, but involves the additional substitution of a new party, so it is a new claim as defined in section 35(2). Therefore, if it were allowed to be made under section 35(1), it would be deemed to be commenced at the same date as the original claim and would therefore not be open to a limitation defence by contrast with proceedings brought for the first time now. Accordingly, it is subject to subsection 35(3) and to the rules of the court made for the purpose. One has to read the rules with the section. Conditions in subsection (5) have to be satisfied as well as any imposed by the rules. The relevant condition in subsection (5) (b) is explained in subsection (6) (b). These provisions are as follows:
“(5) …
(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.
(6) The addition or substitution of a new...
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