Michael Joseph Moore and Another v Richard Alfred Gadd and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PETER GIBSON,LORD JUSTICE POTTER,LADY JUSTICE BUTLER-SLOSS |
| Judgment Date | 05 February 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J0205-7 |
| Date | 05 February 1997 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANI/95/1616/B |
[1997] EWCA Civ J0205-7
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE BLACKBURNE)
Royal Courts of Justice
Strand
London WC2
Lord Justice Butler-Sloss
Lord Justice Peter Gibson
Lord Justice Potter
CHANI/95/1616/B
MR DAVID OLIVER QC (Instructed by Messrs Dibb Lupton Broomhead, Leeds, LS1 5JX) appeared on behalf of the Appellants
MR NIGEL DAVIS QC & MISS SARAH HARMAN (Instructed by Messrs Sprecher Grier, London, WC1V 6LS) appeared on behalf of the First Respondent
NIGEL DAVIS QC & MR MICHAEL MCPARLAND (Instructed by Messrs Edward Lewis, London, WC1X 8NF) appeared on behalf of the Second Respondent
Farmizer (Products) Ltd. ("the Company") was incorporated in 1969. It carried on business as a grain trader including trading in the grain futures market and from 1982 also as a trader in potato futures. For the year ended 30 January 1984 its turnover exceeded £30 million. That was the last year it traded profitably. But then it encountered financial difficulties. An administration order was made and joint administrators were appointed on 29 May 1987, but the administration was unsuccessful and on 12 October 1987 the Company was placed in creditors' voluntary liquidation with an estimated deficiency of £2.7 million as regards unsecured creditors and joint liquidators were appointed. 4 1/2 years later on 13 April 1992 without prior warning the liquidators commenced proceedings under s.214 ("s.214") of the Insolvency Act 1986 ("the 1986 Act") against Mr. and Mrs. Gadd, the sole directors of the Company, claiming declarations that they knew or ought to have concluded that there was no reasonable prospect that the Company would avoid going into insolvent liquidation and that they should make a contribution to the assets of the Company. In the evidence supporting the application it is claimed that the directors had the relevant actual or constructive knowledge on 30 April 1986 and that the contribution should be at least £1.25 million, that being the alleged loss from 30 April 1986 to the date of the administration order. Delay then ensued in the prosecution of the proceedings. On 16 July 1995 Mr. and Mrs. Gadd each applied to the court for the dismissal of the proceedings for want of prosecution. Those applications were heard by Blackburne J.
It was common ground before the Judge that (1) there was power to strike out the liquidators' claim for want of prosecution if the Judge was satisfied that there had been inordinate and inexcusable delay on the part of the liquidators in prosecuting the claim and the delay gave rise to a substantial risk that it was not possible to have a fair trial of the issues or was such as was likely to cause or have caused serious prejudice to Mr. and Mrs. Gadd, and (2) the power to strike out would not normally be exercised when there was no limitation period or the relevant limitation period had not expired. The Judge identified 3 issues:
(1) Had there been any and, if so, what period or periods of inordinate and inexcusable delay on the part of the liquidators?
(2) Was any delay causative of prejudice to Mr. and Mrs. Gadd?
(3) Did any limitation period apply to the liquidators' claim and, if so, had that period expired?
The Judge dealt with the third issue first. He rejected a submission by the liquidators that no limitation period applied. He held that s.9(1) of the Limitation Act 1980 ("the 1980 Act") applied, the relevant period being 6 years from the Company going into liquidation. He then turned to the first issue and held that there had been two periods of inordinate and inexcusable delay by the liquidators, one from mid-January to mid-June 1993 and the other from December 1993 to early January 1995. On the second issue he found that the delays had caused prejudice to Mr. and Mrs. Gadd through the fading of witnesses' recollections, in particular that of Mr. Gadd. Accordingly he struck out the liquidators' claims (see [1995] 2 B.C.L.C. 462).
The liquidators now appeal with the leave of this court against the Judge's conclusions on the third and second issues. On their behalf Mr. David Oliver Q.C., who did not appear below, submits that the Judge erred on the question of limitation, Mr. Oliver's primary contention being that the 1980 Act has no application to claims under s.214 and that therefore no fixed limitation period applies. Alternatively he submits that if that is wrong, then the proceedings come within s.8(1) of the 1980 Act, applying a 12-year limitation period to actions on a specialty. The liquidators do not challenge the Judge's findings on the first issue, but Mr. Oliver submits that on the second issue the Judge erred in that the evidence did not provide any basis for a finding of more than minimal prejudice caused by the liquidators' delays. He argues that the Judge therefore wrongly exercised his discretion to strike out the claims.
Mr. Nigel Davis Q.C., who also did not appear below but appears with Miss Harman for Mr. Gadd and with Mr. McParland for Mrs. Gadd, supports the Judge's conclusion and reasoning on the question of limitation. By a Respondent's Notice Mr. Davis contends that the Judge's decision on the second issue should additionally be supported on the ground that Mr. and Mrs. Gadd, in facing so large and serious a claim and in having that claim hanging over their heads for so long a period, suffered material prejudice.
Limitation
S.214 is the third of 3 consecutive sections of the 1986 Act which are headed "Penalisation of directors and officers" and which allow proceedings to be taken in the course of the winding up of a company against the persons specified in those sections respectively. S.212 provides a summary remedy against delinquent directors, liquidators and certain other persons, enabling the court to examine into the conduct of such a person and compel him to repay, restore or account for property of the company or to contribute such sums to the company's assets by way of compensation as the court thinks fit. S.213 allows the court to declare that any persons knowingly parties to fraudulent trading by the company are to be liable to make such contributions to the company's assets as the court thinks fit.
S.214 is directed against wrongful trading. It was first introduced by s.15 of the Insolvency Act 1985 which came into effect on 28 April 1986. It is in this form (so far as material):
"(1) …. if in the course of the winding up of a company it appears that subs. (2) of this section applies in relation to a person who is or has been a director of the company, the court, on the application of the liquidator, may declare that that person is to be liable to make such contribution (if any) to the company's assets as the court thinks proper.
(2) This subsection applies in relation to a person if —
(a) the company has gone into insolvent liquidation,
(b) at some time before the commencement of the winding up of the company, that person knew, or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, and
(c) that person was a director of the company at the time;
but the court shall not make a declaration under this section in any case where the time mentioned in paragraph (b) above was before 28th April 1986."
The relevant provisions of the 1980 Act are as follows:
"8(1) An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.
(2) Subsection (1) above shall not affect any action for which a shorter period of limitation is prescribed by any other provision of this Act.
9(1) An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued.
….
39 This Act shall not apply to any action …. for which a period of limitation is prescribed by or under any other enactment (whether passed before or after the passing of this Act) …."
The Judge dealt first (at pp.471–2) with the submission by Mr. de Lacy, then appearing for the liquidators, that no limitation period was applicable to claims under s.214:
"In my view it is clear that the facts which a liquidator must prove to establish a claim for wrongful trading are those set out in sub-s(2) of s.214 and no others. The statutory cause of action created by the section accrues on the occurrence of the latest of the matters to which the subsection refers: that is self evidently when the company goes into insolvent liquidation. The phrase "it appears" in sub-s(1) means that if it appears to the court i.e. if it is established on evidence before the court to which the application under the section is made, that the ingredients of the claim are established then the court may make a declaration that the person in question is to make a contribution to the company's assets in such amount as the court shall think proper. The reference in the subsection to "in the course of the winding up of a company" is intended, in my view, to make clear that the jurisdiction conferred by the section is limited to companies which are in the course of winding up. It is true, as Mr. de Lacy pointed out, that that is in any event obvious from the reference in the subsection to the application being made by the liquidator and to the requirement in sub-s(2) that the company shall have gone into insolvent liquidation. It is to be observed, however, that the expression "if in...
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