Parkinson Engineering Services Plc ((in Liquidation)) v Swan and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Sullivan,Lord Justice Sedley |
| Judgment Date | 21 December 2009 |
| Neutral Citation | [2009] EWCA Civ 1366 |
| Date | 21 December 2009 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2 2009/1415 |
[2009] EWCA Civ 1366
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Floyd
HC09C01190
Before: Lord Justice Sedley
Lord Justice Lloyd and
Lord Justice Sullivan
Case No: A2 2009/1415
Jonathan Hough (instructed by Mishcon de Reya) for the Appellants
Peter Shaw and Joseph Curl (instructed by Moon Beever) for the Respondent
Hearing date: 1 December 2009
Lord Justice Lloyd:
This appeal raises again the scope of the court's power to permit an amendment as regards parties outside a limitation period. The amendment in this instance was to substitute one claimant in place of another, namely the liquidator of a company instead of the company itself. The principles are well established. The difficulty is in applying them to a new situation. The resolution of the appeal was assisted not only by the clear and economical presentation of their arguments, in writing and orally, by both Counsel, but also by the exemplary preparation of the bundles, especially that containing the authorities relied on.
Parkinson Engineering Services plc was the subject of an administration order on 7 May 2003, made by Laddie J. The defendants were appointed as joint administrators. The purposes for which the order was made were (a) the survival of the company and the whole or part of its undertaking as a going concern (b) the approval of a voluntary arrangement and (c) a more advantageous realisation of the company's assets than would be effected on a winding-up. On 14 November 2003 Park J discharged the administration order and ordered that the company be wound up. Under that order the administrators were to be released from liability under section 20 of the Insolvency Act 1986 with effect from 13 February 2004 except in relation to claims against them notified to them in writing by then.
The liquidator of the company is Mr Abdulali. On 17 April 2009 he caused the company to issue proceedings in the Chancery Division against the defendants, claiming damages for negligence in the performance of their duties as administrators, amounting to £1,968,780. By their Defence, served on 19 May 2009, the defendants pleaded, among other things, that the claim was barred by the effect of the statutory release under section 20 of the Insolvency Act 1986.
In order to overcome this plea, the liquidator then applied on 3 June 2009 for an order permitting the amendment of the existing proceedings by substituting himself as claimant, and an order under section 212 of the Insolvency Act 1986 permitting him to proceed against the defendants despite their release, and other relief. That application came before Floyd J on 12 June 2009. In substance he acceded to it, but he granted permission to appeal to the defendants. This is their appeal.
Amendment after the end of the limitation period
Section 35 of the Limitation Act 1980 deals with the effect of limitation as regards new claims in existing proceedings. By section 35(2), the liquidator's claim under section 212 is a new claim, because it involves the addition or substitution of a new party. If it is permitted to proceed by way of an amendment of the existing proceedings, it is deemed to have been commenced on the same date as the original proceedings: section 35(1). For that reason, no limitation defence would be available, whereas if the liquidator had started fresh proceedings in June 2009, any claim based on breaches of duty committed before the corresponding date in June 2003 would be barred by limitation. Section 35(3) precludes the making of a new claim in such circumstances, unless permitted by section 33 (not now relevant) or by rules of court. By section 35(4) rules of court may allow a new claim to be made but only if conditions laid down in subsection (5) are satisfied.
The relevant condition is in section 35(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.”
In turn, subsection (6) provides (as relevant to this case) that the addition or substitution shall not be regarded as necessary for the determination of the original action unless “any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action”. A determination of the original claim means its determination on the merits, however they may be found to be at trial.
The relevant rule of court is now CPR rule 19.5, of which the relevant provisions, paragraphs (2) and (3), are as follows:
“(2) The court may add or substitute a party only if –
(a) the relevant limitation period was current when the proceedings were started; and
(b) the addition or substitution is necessary.
(3) The addition or substitution of a party is necessary only if the court is satisfied that –
(a) the new party is to be substituted for a party who was named in the claim form in mistake for the new party;
(b) the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant; or
(c) the original party has died or had a bankruptcy order made against him and his interest or liability has passed to the new party.”
The text is not quite the same as that of the section, but the rule must be construed as being no wider than is permitted by the section. The effect, on the facts of this case, is that paragraph (3)(b) has to be satisfied, it being shown “that the claim cannot properly be carried on by or against the original party” without the substitution.
Mr Hough's main point for the appellants can be put quite succinctly. He argued that the circumstances do not satisfy this test, or that in the section, because the original claim cannot be successfully maintained at all. It is doomed because of the statutory defence under section 20.
The claim under section 212
Mr Shaw's principal response to this is based on the proposition that, although a proceeding under section 212 is distinct in a number of respects, it nevertheless asserts exactly the same cause of action as was set up in the original proceedings, and it is therefore the same claim, albeit made by a different claimant. Section 212(1) to (4) reads as follows:
“(1) This section applies if in the course of the winding up of a company it appears that a person who –
(a) is or has been an officer of the company,
(b) has acted as liquidator, administrator or administrative receiver of the company, or
(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company,
has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.
(2) The reference in subsection (1) to any misfeasance or breach of any fiduciary or other duty in relation to the company includes, in the case of a person who has acted as liquidator or administrator of the company, any misfeasance or breach of any fiduciary or other duty in connection with the carrying out of his functions as liquidator or administrator of the company.
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him –
(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.
(4) The power to make an application under subsection (3) in relation to a person who has acted as liquidator or administrator of the company is not exercisable, except with the leave of the court, after that person has had his release.”
Mr Shaw referred us to Re Eurocruit Europe Ltd [2007] EWHC 1433, a decision of Blackburne J. In that case the question was whether proceedings under section 212 brought by the liquidator against a former director of the company were barred by limitation, having been brought just within 6 years after the resolution for creditors' voluntary liquidation, but more than 6 years after the last date on which any breach of duty relied on was alleged to have been committed. The judge held that the cause of action accrued on the date of the breaches, not when the company went into liquidation, so that the claim was brought too late. The judge said at paragraph 24:
“In my judgment, Mr Wilson's submissions [for the liquidator] on this point do not pay sufficient regard to the significance of the fact, made clear by the authorities, that section 212 is procedural in nature. The true significance of that fact is that the section merely provides an alternative means, in terms of procedure, of enabling the company, to which the defaulting director's duty was owed, to obtain recompense from the director for his breach of duty. If the liquidator chooses to name himself as the formal claimant in lieu of the company, his claim is by application, or (as appropriate) originating application, in the liquidation rather than by a claim form under CPR Part 7. The procedure is...
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