Irwin and another v Lynch and another
| Jurisdiction | England & Wales |
| Judgment Date | 2011 |
| Date | 2011 |
| Court | Court of Appeal (Civil Division) |
Practice - Parties - Substitution - Directors of company entering into contracts with company prior to company going into administration - Administrator alleging contracts transactions at undervalue and claiming compensation from directors - Directors applying to strike out claim on ground administrator lacking necessary standing - Administrator applying after expiry of limitation period to add or substitute company as claimant - Whether jurisdiction to allow substitution - Whether substitution to be allowed -
The directors of a company entered into a contract with that company under which the company would carry out work to a property belonging to the directors. The company subsequently went into administration and the directors appointed an administrator. The administrator applied for, inter alia, a declaration that the contract was a transaction at an undervalue and that the directors were guilty of misfeasance and breach of trust in causing the company to enter into the contract and were therefore liable to compensate the company. The directors applied to strike out the claim against them personally on the ground, inter alia, that the administrator was not entitled to make such a claim by reason of section 212 of the Insolvency Act 1986. In response the administrator applied for leave to add or substitute the company as claimant under CPR rr 17.4(4) and 19.5F1. The judge accepted the directors’ submission that, since the claim was statute-barred under the Limitation Act 1980F2, the substitution or addition of the company under section 35(6)(b) of the 1980 Act and CPR r 19.5(3)(b) should not be permitted, and he struck out the personal claim against them in respect of the contract.
On the administrator’s appeal—
Held, allowing the appeal, that CPR rr 19.5(2)(3)(b) had to be construed in the light of section 35 of the 1980 Act and in accordance with the normal principles of construction; that the test which had to be satisfied was that the claim could not properly be carried on by or against the original party; that in applying rule 19.5(3)(b) no distinction needed to be drawn between a case where the original claimant had a cause of action but there was a cast iron defence on the basis of which the claim could be struck out, and one where there was a proper cause of action but the claimant was not the right party to bring it, so the claim could be struck out for lack of standing; that in the present case the substitution was necessary for the determination of the original claim because the particular claim could not be maintained unless the company were substituted as claimant; and that, accordingly, it was possible and appropriate for the court to exercise its discretion under CPR r 19.5 to allow the joinder of the company (post, paras 12–14, 19, 21, 24–26, 28, 29, 30).
The following cases are referred to in the judgment of Lloyd LJ:
Adelson v Associated Newspapers Ltd
Kent v La Communauté des Soeurs de Charité de la Providence [
Parkinson Engineering Services plc v Swan
Roberts v Gill & Co
No additional cases were cited in argument.
The following additional cases, although not cited, were referred to in the skeleton arguments:
Eurocruit Europe Ltd, In re
Gouriet v Union of Post Office Workers [
Gregson v Channel Four Television Corpn [
Gwembe Valley Development Co Ltd v Koshy (No 3)
Horne-Roberts v SmithKline Beecham plc
International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corpn of India [
Kesslar v Moore & Tibbits
Lands Allotment Co, In re [
Merrett v Babb
Miller v Bain (Director’s Breach of Duty) [
Mullarkey v Broad
Parsons v George
Sardinia Sulcis, The [
Yorkshire Regional Health Authority v Fairclough Building Ltd [
APPEAL from Judge Cooke sitting as a High Court judge
By an ordinary application Gerald Irwin as administrator of Daniel Lynch Ltd, sought, inter alia, declarations that (i) a building contract entered into in October 2002 between the company and it directors, Daniel Bernard Lynch and Jane Olwyn Lynch, under which the company would carry out work to a property belonging to the directors, was a transaction at an undervalue and that the directors were guilty of misfeasance and breach of trust in causing the company to enter into the contract and were therefore liable to compensate the company; and (ii) certain dealings with a related company were a voidable transaction or a transaction at an undervalue and that the directors were responsible for those dealings and were therefore liable to compensate the company. The directors applied, inter alia, to strike out the claim against them personally in respect of the building contract and the inter-company dealings. The administrator applied for leave to add and/or substitute the company as a party under CPR rr 17.4(4) and 19.5. By an order of 29 January 2010 Judge Cooke sitting as a High Court judge in the Birmingham District Registry of the Chancery Division refused to permit the substitution or addition of the company under section 35(6)(b) of the Limitation Act 1980 and CPR r 19.5(3)(b) and allowed an amendment striking out the reference to the building contract in the personal claim against the directors.
By an appellant’s notice filed on 19 February 2010 and pursuant to permission of the judge the administrator appealed on grounds that the judge had erred in his application of CPR r 19.5(3)(b).
The facts are stated in the judgment of Lloyd LJ.
Avtar Khangure QC (instructed by
James Morgan (instructed by
6 October 2010. The following judgments were delivered.
LLOYD LJ
1 Daniel Lynch Ltd is a company of which Daniel Bernard Lynch (“the first director”) and Jane Olwyn Lynch (“the second director”) are the two directors. It went into administration, the administrator being appointed by the directors on 30 December 2004. Mr Gerald Irwin is the administrator. The administration has been extended a number of times.
2 On 14 August 2007 Mr Irwin issued an ordinary application against the directors, seeking relief arising from three separate matters, only one of which is in issue on this appeal. The directors 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...
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