THE LIMITATION PERIOD, PERSONAL INJURY AND THE RESTORATION OF A COMPANY: A HIGH COURT DECISION

In  Holmes v S & B Concrete Ltd [2020] EWHC 2277 (QB)  Mr Justice Martin Spencer considered the issues surrounding the claimant’s argument that the limitation period in a personal injury action was suspended when a company was wound up.

 

“It is unfortunate that, in the present case, the Defendant company was restored to the Register without notice of the application being given to the Company’s insurers who were the ultimate target for the Claimant in making his application for restoration, and that the order was made without, apparently, consideration being given to the resolution of any issue between the Claimant and the Defendant’s insurers in relation to a possible defence under the Limitation Act 1980. I would encourage the Rules Committee to give consideration to a change in the rules, requiring such notice to be given to a relevant insurer when such an application is made for restoration.”

THE CASE

The claimant brought a claim for industrial deafness. He was employed by the defendant between 1986 and 1993. The defendant was voluntarily wound up in 1995. In 2018 the claimant applied for and was granted an order restoring the defendant to the register of companies. That application was served on the registrar of companies but not the defendant’s insurer.

THE FINDING OF THE CIRCUIT JUDGE

The Circuit Judge rejected the claimant’s argument that the winding up of the company meant that the limitation was suspended.

THE CLAIMANT’S LACK OF SUCCESS ON APPEAL

Mr Justice Martin did not accept the claimant’s argument on appeal.

    1. In my judgment, it is appropriate to take as a starting point the relevant provisions of the Companies Act 2006. These are:
“1029 (1) An application may be made to the court to restore to the Register a company –

a) That has been dissolved …

b) That is deemed to have been dissolved ….

Or

c) That has been struck off the register ….

1030 (1) An application to the court for restoration of a company to the
register may be made at any time for the purpose of –

a) Bringing proceedings against the company for damages for personal injury;

b) An insurer (within the meaning of the Third Parties (Rights against Insurers) Act 2010 bringing proceedings against a third party in the name of that company in respect of that company’s liability for damages for personal injury.

2) No order shall be made on such an application if it appears to the court that the proceedings would fail by virtue of any enactment as to the time within which proceedings must be brought.
3) In making that decision the court must have regard to its power under section 1032(3) (power to give consequential directions etc) to direct that the period between the dissolution (or striking off) of the company and the making of the order is not to count for the purposes of any such enactment.
1033(1) The general effect of an order by the court for restoration to the register is that the company’s deemed to have continued in existence as if it had not been dissolved or struck off the register. …
(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.”
It seems to me clear that, in enacting these provisions, parliament cannot have had in mind the effect of Financial Services or its predecessor, the General Rolling Stock case, as interpreted by the Claimant in the present case: otherwise, for a large number of cases such as the present, the restoration of the company to the Register would be automatic, the effect would be to mean that the limitation period had never run, and there would then be no need to direct that the period between the dissolution of the company and the making of the order to restore was not to count for the purposes of the Limitation Act. However, if Mr Penman is right as to the effect of restoration to the Register of a company which had been in liquidation, then whether or not Parliament can have had this effect in mind is neither here nor there.
    1. In my judgment, Mr Kent QC is right that the decision of the Court of Appeal in Financial Services can and should be distinguished, and it does not have the effect contended for by Mr Penman. In that case, six investors alleged that the defendant company, their financial adviser, had given them negligent advice over a period of about three years but they did not acquire the relevant knowledge for the purposes of the Limitation Act until some eight years or so later. In the meantime, the defendant’s shareholders had resolved to wind-up the company. The defendant was insured under an indemnity policy against liabilities to third parties and, as a consequence, the defendant’s rights against its insurers under the indemnity policy were transferred to and vested in the investors as the third parties to whom the liabilities had been incurred pursuant to section 1 (1) of the Third Parties (Rights against Insurers) Act 1930. This provided:
“Where, under any contract of insurance a person (hereinafter referred to as the Insured) is insured against liabilities to third parties which he may incur, then … (b) In the case of the Insured being a company, in the event of … a resolution for a voluntary winding-up being passed, with respect to the company … if, either before or after that event, any such liability as aforesaid is incurred by the Insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred.
(4) Upon a transfer under subsection (1) … of this section, the insurer shall, subject to the provisions of section 3 of this Act, be under the same liability to the third party as he would have been under to the Insured, but … (b) if the liability of the insurer to the Insured is less than the liability of the Insured to the third party, nothing in this Act shall affect the rights of third party against the Insured in respect of the balance.”
The six investors assigned their rights to the Financial Services Compensation Scheme which brought the claim in negligence against the defendant with a view to establishing the defendant’s liability – as a preliminary to claiming against the insurers under the insurance policy. The defendant applied to strike out the claim on the ground that it was statute-barred. At first instance, the judge granted the application holding that, since the underlying claim was directed at the rights under the insurance policy, rights which were not available to the defendant’s creditors generally, the claim had not been a liability at the time of the winding-up and therefore limitation periods had not ceased to run when the winding-up occurred. The claimant’s appeal was allowed, it being held that, if successful, the Claimant’s claim would establish the liability of the defendant to the claimant both for the purposes of triggering the claimant’s rights under the 1930 Act to indemnity under the insurance policy and also for the purposes of any claim against the funds in the liquidation; that, so far as the claim in the liquidation was concerned, if the claim was not statute-barred when the winding up resolution was passed it did not become so barred by the passage of further time; that a claim which was not statute-barred for the purposes of claiming in the liquidation could not be statute-barred for the purposes of founding a claim under the 1930 Act against the insurer; that, therefore, if the claimant’s claim had not been statute-barred at the time of the winding up it had not become statute-barred by the passage of further time thereafter; that, further, it did not matter what provision or combination of provisions of the 1980 Act the claimant relied upon to show that the claim was not statute-barred at the time of the winding up; and that, accordingly, the claimant was entitled to seek to rely upon section 14A
    1. At paragraph 28 of his judgment, Lloyd LJ referred to the consideration by the judge below of the decision in In re Benzon [1914] 2 Ch 68 where he had considered the meaning of the words “in the bankruptcy” as distinct from the words “outside the bankruptcy”. The judge below had said:
“It seems to me that the judgment of the Court of Appeal in In re Benzon is binding authority on me in that there is nothing to indicate that it was based on any false premise. The result of that Court of Appeal decision is that the statute of limitations, having begun to run against the claimant before the commencement of the bankruptcy, continues to run, notwithstanding the bankruptcy, in respect of a claim in relation to a fund pursued outside of the bankruptcy.”
This led Lloyd LJ to state, at paragraph 36, as follows:
“How can a single claim, in respect of one cause of action, against one defendant, be barred by limitation for one purpose and not for another? Separate causes of action of one claimant against the same defendant may be treated differently as regards limitation, as may causes of action against two defendants, for example if one defendant goes into bankruptcy or winding-up and another does not, and the claimant may have rights outside the bankruptcy or winding-up as well as inside it, for example a secured creditor who may have to prove for a shortfall. But the claimant in the present case, in respect of each of the six investors whose rights have been assigned to it, sues the single defendant on one cause of action, in tort, for one item of loss. It is difficult to imagine how the plea of limitation would be treated on the statements of case, and indeed how it would be dealt with when giving judgment for the claimant (assuming that it proves its case and gets over the limitation defence on the facts by virtue of section 14(a).
37. In my judgment Mr Tolley’s proposition faces insuperable difficulties. Given that the first stage for a third party such as the claimant is to establish the liability to it of the insured, which is necessarily being administered in insolvency, seems to me that the third party’s claim against the insured is one to which the normal principles apply, namely that, if it is not time barred at the commencement of the bankruptcy or winding-up, it does not become time barred by the passage of further time thereafter. I therefore respectively disagree with the judge on this, the main point in the case.”
  1. Mr Penman relies strongly on this passage as showing the principle to be applied because, he says, there may be cases where the liability of the insurer under the Third Party (Rights against Insurers) Act 2010 (or its predecessor, the 1930 Act) is insufficient to satisfy the judgment with the result that there is a residual claim against the company within the liquidation, as there was in Financial Services. He submits that there should therefore be no distinction between that case and the present case purely on the basis that the present case is a personal injury case.
  2. In the vast majority of personal injury cases, the liability of the insurance company will fall well within the statutory minimum level of insurance of £2,000,000. Thus there will generally be no difficulty in satisfying the full claim from the funds made available by the insurance company. In that case, the claim can, in my judgment, be seen to be “outside the liquidation” and therefore to be distinguished from the position in Financial Services. However, in the rare case where the liability of the insurance company may not be sufficient to satisfy the claim, it could be a condition of the order restoring the company to the register that any claim made by the claimant against the company is to be limited to the liability of the insurer pursuant to the policy. In that way, the claim can be kept outside the liquidation and therefore distinct from the situation in Financial Services.
  3. In my judgment, this is also a desirable outcome. It means that a claimant whose claim is otherwise unmeritorious because he acquired the necessary knowledge more than three years before the issue of proceedings and in respect of whom it would be inequitable for the court to exercise its discretion under section 33 of the Limitation Act 1980 (the situation in the present case) would not gain an unexpected and undeserved windfall by virtue of the application of the rule set down in a 19th century case which, it seems to me, was never intended to apply to a case such as the present. Furthermore, in my judgment, the decision of the Court of Appeal in Financial Services was never intended to apply to the situation which has arisen in the present case and there was no intention to contradict the decision of the Court of Appeal in Smith v White Knight Laundry Limited [2001] EWCA Civ 660, a decision which was not cited in Financial Services. In Smith v White Knight Laundry Limited, the Court of Appeal held that where the applicant for a restoration order was a prospective claimant in a personal injuries action in circumstances where the claim would otherwise have been statute-barred, the effect of a direction under section 651 of the Companies Act 1985 (the predecessor to section 1030 of the Companies Act 2006) was the same as a grant of relief under section 33 of the Limitation Act 1980 ; and that, since the section 651 direction was made in the absence of the defendant and it was by no means clear that the claimant would succeed if she made an application pursuant to section 33 of the 1980 Act, justice required that the section 651(1) direction be set aside so that the defendant’s insurers could be heard on any application the claimant might make pursuant to section 33. It should make no difference whether or not the Company was in liquidation at the time it was dissolved.
  4. It is unfortunate that, in the present case, the Defendant company was restored to the Register without notice of the application being given to the Company’s insurers who were the ultimate target for the Claimant in making his application for restoration, and that the order was made without, apparently, consideration being given to the resolution of any issue between the Claimant and the Defendant’s insurers in relation to a possible defence under the Limitation Act 1980. I would encourage the Rules Committee to give consideration to a change in the rules, requiring such notice to be given to a relevant insurer when such an application is made for restoration.
  5. As to the appropriate procedural course in the present case, I could, if necessary, grant the insurers permission to apply in the proceedings which were before the Manchester Business Court for permission to appeal against the order of District Judge Richmond, grant such permission, allow that appeal and overturn the decision to restore the Defendant to the Register on the basis of Judge Owen’s adjudication of the merits in relation to the Limitation Act 1980, an adjudication which is not contested and must be taken to have been right. However, Judge Owen QC having taken the course that he did, the simpler course now for me is simply to dismiss this appeal.