England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY

		30 September 2009

1. Introduction
1. There are before the Court applications by the Defendants for summary judgment and/or to strike out the claims in two consolidated actions in effect brought by Mr Rawnsley the principal director of and a major shareholder in Canal Dyeing Company Limited ("the Company").
2. The claims arise out of the insolvency of the Company and the sale of its principal asset by the Liquidator Mr O'Hara having received valuation advice from Weatherall Green & Smith North Limited ("Weatheralls"). Mr Rawnsley believes that Weatheralls advice was negligent and that Mr O'Hara failed to market the property properly with the result that the sale was for less than the price that ought to have been achieved. He also believes that Mr O'Hara failed to institute proceedings against Weatheralls for negligence. In addition to the claims by Mr Rawnsley there is in addition a claim by the Company acting by its other Joint Liquidator - Mr Poxon.
3. Mr Rawnsley sues in various capacities; in part he sues as a shareholder; in part as a creditor pursuant to an assignment from a major creditor and in part pursuant to an assignment authorised by an order of the Court one day before the expiry of the limitation period against Weatheralls.
4. Mr O'Hara challenges the proceedings in a number of ways. He submits that the Court order did not authorise proceedings against him; in so far as the proceedings are properly brought he submits that they have no realistic prospect of success.
5. Weatheralls challenge the effectiveness of the Assignment made pursuant to the Court Order. In so far as it is effective they contend that the claims face insurmountable problems on the issue of causation.
6. Mr Rawnsley accepts that some of Mr O'Hara's challenges are unanswerable. However he maintains that it is well arguable that Mr O'Hara was negligent and that the Company thereby lost the opportunity of selling the property for a higher sum. Accordingly he submits the proceedings do have a realistic prospect of success. He disputes Weatheralls' challenge to the assignment and contends that the question of causation is essentially a matter for the trial.
7. Although Mr Poxon authorised the Company to institute proceedings against Mr O'Hara and Weatheralls he has taken no further part in the proceedings. He appears to be content to rely on the effectiveness of the Assignment in favour of Mr Rawnsley.
8. Representation
8. Mr Rawnsley has been represented by Miss Eleanor Temple instructed by Taylors of Rawlings House, Exchange Street, Blackburn, BB1 7JN. Mr O'Hara has been represented by Mr Paul Mitchell instructed by Beachcroft LLP of 7 Park Square Leeds LS1 2 LW. Weatheralls have been represented by Miss Anneliese Day instructed by WHCG LLP of 6^th Floor 40 Lime Street, London EC3M 7 AW.
9. I have received full and helpful skeleton arguments from all Counsel involved. I am most grateful to them.
10. The Underlying Facts

3.1     The Insolvency of the Company

10. One of the principal assets of the Company was property known as Old Lane Dyeworks, Old Lane, Halifax ("the property").
11. Weatheralls were well known surveyors with offices in Wellington Street, Leeds.
12. Mr O'Hara is an insolvency practitioner. Following a meeting with Mr Rawnsley on 7^th February 2002 and with the Company's accountants on 20^th February 2002, Mr O'Hara was instructed on 13^th May 2002 to assist the directors in convening meetings of members and creditors with a view to placing the Company in voluntary liquidation. On 29^th May 2002 Mr O'Hara was appointed liquidator of the Company by its members and creditors.

3.2     The sale of the property.

13. In order to assist with the preparation of the statement of affairs and report to creditors Mr O'Hara, as agent for the Company, instructed Weatheralls to provide a valuation of the property. The report was provided to Mr O'Hara on 23^rd May 2002 and is central to the allegations against Weatheralls.
14. Weatheralls attributed the open market value of the property at £295,000 and the Estimated Restricted Realisation Price at £175,000. The report suggested that the price of £295,000 might take 12 – 18 months to sell. The report went on to suggest a marketing strategy including direct mailing of local owners, occupiers, investors, and regional developers, advertisements in both local and regional press and (possibly) trade magazines. Particulars should be placed on Weatheralls' web site.
15. In their report Weatheralls noted the limiting effect of "the age arrangement and location" of the property. They also did not see any enhanced value being achieved through residential development.
16. On 21^st May 2002 Mr O'Hara met insurance brokers on site. On 22^nd May 2002 the brokers produced a report setting out that the main buildings were not insured but that the building was Grade 2 listed. The document does not give a quotation for the cover but Mr O'Hara has alleged that the insurance costs would have been of the order of £10,000 per month.
17. On 31^st May 2002 Mr O'Hara wrote to HSBC. In the letter he stated that he was actively marketing the property and that there was interest from prospective purchasers. The letter pointed out that he was not in a position to insure the property because of the level of the anticipated premium and the lack of funds. He advised HSBC to make its own arrangements to insure.
18. On 6^th June 2002 HSBC replied to the letter asking for details of the cost of insurance quoted to Mr O'Hara. Mr O'Hara did not respond to the letter.
19. Mr O'Hara did not market the property as suggested by Weatheralls. He set a very tight deadline for bidders to make best and final offers (by 7^th June 2002). On 10^th June 2002 he accepted an offer of £400,000 from Lazarus Properties Limited ("Lazarus"). Lazarus occupies as subtenant the same premises as those occupied by Mr O'Hara. The sale to Lazarus^[1] completed on 24^th June 2002.
20. Some months later another property developer, Britannia Developments Limited ("Britannia") became interested in acquiring the property. An offer of £1.4 million subject to residential planning consent was made in January 2003; this offer was increased to £1.7 million in February 2003. The property was in fact sold to Britannia in 2008 for £1.95 million.
21. Mr Rawnsley believes that the sale of the property for £400,000 by Mr O'Hara was a sale at an undervalue. He is suspicious of the fact that the sale was to a person occupying the same premises as Mr O'Hara. He also believes that the valuation by Weatheralls at £295,000 was negligent and significantly underestimated the hope value in the property.

3.3     Appointment of Mr Poxon as joint liquidator

22. Among the unpaid creditors of the Company is a pension fund known as The Canal Dyeing Company Limited Pension Scheme (1982) ("the Pension Fund"). Mr Rawnsley is the principal beneficiary and a trustee of the Pension Fund. The Pension Fund is the second largest creditor of the Company being owed £152,000 out a total of £627,773 owed to unsecured creditors.
23. On 22^nd May 2006 Mr Rawnsley (as a trustee of the Pension Fund and thus a creditor) applied for an order restricting Mr O'Hara's right to vote on a resolution he wished to raise at the annual creditors' meeting. The matter came before Mr James Allen QC sitting as Deputy Judge of the High Court. Mr Allen permitted Mr Rawnsley to amend the application to seek an order for the removal of Mr O'Hara from the office of liquidator.
24. The amended application came before me on 2^nd August 2006. Both Mr Rawnsley and Mr O'Hara were represented by Solicitors and Counsel. There was a compromise. As a result I made an order by consent which included recitals :

1.. That there should be a creditor's meeting on 5^th September 2006 at which Mr Rawnsley would vote against the removal of Mr O'Hara as liquidator that both he and Mr O'Hara would vote in favour of the appointment an insolvency practitioner as joint liquidator.

2.. That the responsibilities of Mr O'Hara and the Appointee would be:

1. the Appointee would investigate the circumstances of the sale of the property by Mr O'Hara and would report to the creditors no later 28^th February 2007 whether in his opinion there was a reasonable claim against Mr O'Hara and/or his agents on the basis of a sale at an undervalue and/or misfeasance and/or negligence in relation to that sale.

2. Mr O'Hara would have responsibility for all other matters in the Liquidation.

25. The creditors' meeting was duly convened on 5^th September 2006. At the meeting Mr Poxon was appointed as joint liquidator on the terms set out in the consent order.

3.4     Mr Poxon's report

26. Mr Poxon carried out his investigation and prepared a report dated 30^th March 2007 for the benefit of creditors and the Court. His report contained a number of criticisms both of Mr O'Hara and of Weatheralls.

Criticisms of Mr O'Hara

27. In paragraphs 3.8 to 3.12 of the report he deals in some detail with the marketing of the property. He makes the point that there was only 6 effective working days from the date of the appointment to the acceptance of the offer. In his view this was not a reasonable period to obtain the most favourable realisation for the benefit of the Company's creditors. Mr O'Hara ignored the advice of Weatheralls (in a letter of 30^th May 2002) that a thorough marketing campaign be adopted. It also appears that despite written assurances and assertions by Mr O'Hara Weatheralls were not instructed to market the property.
28. In paragraphs 4.1 to 4.4 Mr Poxon deals with the question of insurance. He makes the point that it may have been feasible for the Bank to ensure that the property was adequately insured prior to its eventual sale. Mr Poxon makes the point that Mr O'Hara has said on more than one occasion that there were no funds available to cover the costs of insuring the property. However Mr O'Hara appears to have failed to consider insurance cover other than on a reinstatement basis – such as "diminution in value". This would have resulted in greatly reduced premiums.
29. In paragraph 5.7 of the report there is a general criticism of Mr O'Hara to the effect that his general management was poor. In particular the point is made that the assertion he made to the Bank in the letter of 31^st May 2002 appears to have been untrue.

Criticisms of Weatheralls

30. Mr Poxon deals with the position of Weatheralls in paragraphs 5.1 to 5.5 of his report. He is critical of the enquiries made of the local planning officers. In his view the enquiries that were made were not sufficient to enable Mr O'Hara to conduct the liquidation effectively. In his view the enquiries fell below the standard reasonably to be required of a professional valuer and Weatheralls underestimated the hope value of the property.

Overall view.

31. Mr Poxon's overall view is expressed in paragraph 5.9:

In conclusion, although I believe Mr O'Hara's management of the case could have been handled more effectively, he did rely on the advice of his agents to provide a professional valuation and therefore an indication of the likely realisable value. As an offer was received by Mr O'Hara far in excess of the market value provided by Weatheralls it can be argued that Mr O'Hara acted in the best interests of creditors by not only accepting the offer but ensuring that costs were kept to a minimum. In contrast I have been advised by independent agents that Weatheralls conducted insufficient enquiries with the local authority given their expertise and experience and therefore did not provide the liquidator with a clear of the potential value of the land and buildings. In my opinion there are reasonable grounds against the liquidator's agent for negligence in providing substandard advice …

3.5     The order of 22^nd May 2008

32. There is no evidence that Mr O'Hara took any action as a result of Mr Poxon's report. In December 2007 Mr Crayton (an employee in Mr O'Hara's firm) wrote to Mr Colman (an employee in Mr Poxon's firm) describing the action of Mr Rawnsley as vexatious and stating that he intended to convene a section 106 meeting to determine the liquidation. In March 2008 he sent a further e-mail commenting that it was now a year since Mr Poxon's report and he repeated the comment that he intended to convene a section 106 meeting. On 18^th March Mr Maloney replied to the effect that Mr Poxon considered that some matters were still ongoing and he did not wish to commence closure procedure. On 7^th April Mr Colman replied by making reference to the fees charged by Mr O'Hara. It is apparent from that e-mail that Mr Poxon was in communication with Mr Rawnsley.
33. There is, however, no document before the Court which gives any indication as to what steps, if any, Mr O'Hara took on receipt of Mr Poxon's report indicating that there was a claim for negligence against Weatheralls. There is, at least, an inference that he decided to take no steps.
34. It will be recalled that Weatheralls report was provided to Mr O'Hara on 23^rd May 2002. Any claim for negligence against Weatheralls would (at least arguably) become statute barred after 22^nd May 2008.
35. On 21^st May 2008 Mr Poxon wrote to Mr O'Hara. In the letter he informed Mr O'Hara that Counsel agreed that a claim should be pursued against Weatheralls for negligence. He accordingly sent to Mr O'Hara for execution an Assignment. As there was no response to this letter at 1.24 p.m on 22^nd May 2008 the solicitors for Mr Rawnsley sent a fax to Mr O'Hara pointing out the urgency and inviting him to sign the Assignment immediately. Mr O'Hara replied by fax at 5.47 p.m on the same day. In his reply he made a number of comments. He complained he was being pressurised into signing an Assignment without taking legal advice; he made the point that the terms of the Assignment seemed inequitable because the consideration for the Assignment was only 10% of the net recovery by Mr Rawnsley. He accordingly refused to execute the Assignment.
36. Meanwhile, no doubt in anticipation that Mr O'Hara might not be willing to execute the Assignment a without notice application was made to Court. The application came before me on 22^nd May 2008.
37. I made an order extending the powers of Mr Poxon as joint liquidator of the Company to permit him to issue proceedings in the name of the Company against Weatheralls and/or to assign this cause of action to Mr Rawnsley. The order made it clear that the powers could be exercised independently of Mr O'Hara.
38. In the course of this application some criticism was made of the order. However Mr O'Hara made no application to set it aside or to appeal it. In those circumstances, as it seems to me, it stands as a valid order.

3.6     The Assignments.

The Pension Fund

39. On 21^st May 2008 the Trustees of the Pension Fund executed a Deed whereby they assigned to Mr Rawnsley any right title and interest that they might have in the Claims which were defined in wide terms as follows:

All and any right or cause of action, claims, right in damages, right of compensation, rights based on negligence, misfeasance or analogous claims which the Assignor may have against (a) [Weatheralls] and/or [Mr O'Hara] … in respect of advice and/or failure to advise properly and/or loss of opportunity by reason of negligence and/or breach of duty by Weatheralls relating to their retainer by the Company and/or Mr O'Hara to advise and/or act on behalf of the Assignor in and about the disposition of its interest in the property … and/or (b) against Mr O'Hara in respect of his breach of duty and/or misfeasance in failing to achieve a proper value in the realisation of the property.

40. The consideration for the assignment was a deferred interest of 10% of the net recovery together with the sum of £1.
41. Under clause 5 the Assignor acknowledged that the Assignee (Mr Rawnsley) would from that date be solely responsible for the management of the Claims and Mr Rawnsley would in his absolute discretion be entitled to avoid, settle, compromise or appeal the Claims and to instruct lawyers and to manage and control all proceedings in relation thereto.

Mr Poxon

42. On the same day as and pursuant to the order made on 22^nd May 2008 Mr Poxon executed an assignment to Mr Rawnsley of any right title and interest that the Company and the Liquidators might have in the Claims which were defined in wide terms as follows:

All and any right or cause of action, claims, right in damages, right of compensation, rights based on negligence, misfeasance or analogous claims which the Company and/or the Liquidators may have against [Weatheralls] in respect of advice and/or failure to advise properly and/or loss of opportunity by reason of negligence and/or breach of duty by Weatheralls relating to their retainer by the Company and/or the Liquidators to advise and/or act on behalf of the Company and/or the Liquidators in and about the disposition of the Company's interest in the property

43. The consideration for the Assignment was a sum equal to 10% of the net recovery by Mr Rawnsley arising out of a successful prosecution of the claims.
44. Under clause 5 the Company and the Liquidators acknowledged that Mr Rawnsley would from that date be solely responsible for the management of the Claims and Mr Rawnsley would in his absolute discretion be entitled to avoid, settle, compromise or appeal the Claims and to instruct lawyers and to manage and control all proceedings in relation thereto.
4. The Claims
45. On 22^nd May 2008 Mr Rawnsley issued two sets of proceedings – an Originating Application against Mr O'Hara and a Claim Form.

4.1     The Originating Application

46. The Originating Application has been wrongly described as a Part 8 Claim. In fact it was an application under section 212 of the Insolvency Act 1986 by Mr Rawnsley as a creditor (pursuant to the Pension Fund Assignment) alleging misfeasance by Mr O'Hara as Liquidator of the Company. The application was supported by a 6 page witness statement from Mr Rawnsley with exhibits extending to some 140 pages.
47. Four allegations are made against Mr O'Hara:

1. That he failed properly to market the property prior to its sale thereby causing loss to the Company.

2. That he is responsible for the negligent advice of Weatheralls, his agents.

3. That on the receipt of Mr Poxon's report he failed to pursue Weatheralls for breach of duty and/or negligence.

4. That he failed to consent to the Assignment of any cause of action against Weatheralls.

48. During the course of the hearing before me Miss Temple made it clear that Mr Rawnsley was not pursuing the second allegation.

4.2     The Claim Form

49. The Claimants are named as the Company and Mr Rawnsley; the Defendants are named as Mr O'Hara and Weatheralls. The brief details of the claim allege negligence by Weatheralls in the report of 23^rd May 2002 and a failure by Mr O'Hara to market the property and/or pursue Weatheralls for negligence.
50. Mr Rawnsley alleges that he brings the claim in his capacity as a shareholder of the Company and as a creditor by way of Assignment pursuant to the order of 22^nd May 2008. Mr Poxon expressly authorised the claim to be brought in the name of the Company. However no further steps have been taken by Mr Poxon to prosecute the claim.
51. On 19^th September 2008 Mr Rawnsley served a Particulars of Claim. It is an 11 page document and is supported by a Statement of Truth. As was made clear at the hearing before me it was not a document served with the authority of or on behalf of Mr Poxon. It is not necessary to give more than the briefest of summaries of the allegations. After setting out the history in some detail it alleges negligence by Weatheralls in the report of 23^rd May 2002. It alleges negligence against Mr O'Hara in the selection of Weatheralls, in failing to follow Weatheralls' advice, in failing to market the property. It alleges a breach of fiduciary duty based on the fact that the sale to Lazarus was a sale at an undervalue to a purchaser whose office was in the same building as that of Mr O'Hara. It alleges a substantial loss.

4.3     The Order of District Judge Lord

52. The matter came before DJ Lord on 13^th January 2009 who ordered that the 2 claims be consolidated and should proceed as a Part 7 Claim.
5. Mr O'Hara's application to strike out

5.1     The Part 7 Claim

53. Mr Mitchell made a number of submissions in relation to the Part 7 Claim which turned out to be uncontroversial.

1. He submitted that Mr Rawnsley's claim as a shareholder against Mr O'Hara was bound to fail. He referred me to the rule against reflective loss as stated by Lord Millett in Johnson v Gore Wood [2001] 2 AC 1 at 62E and as stated by Neuberger LJ in Gardner v Parker [2004] EWCA Civ 78 at paragraph 33. Miss Temple acknowledged that the rule applied and that Mr Rawnsley's claims as shareholder (against either Mr O'Hara or Weatheralls) were bound to fail.

2. He submitted that Mr Rawnsley's claims against Mr O'Hara made as Assignee of the Liquidator's or the Company's claims were bound to fail. First he submitted that the order of 22^nd May 2008 authorised the assignment of claims against Weatheralls but not against Mr O'Hara. It followed that Mr Poxon had no power to assign claims against Mr O'Hara. He also submitted that, as a matter of construction the Assignment did not in fact assign claims against Mr O'Hara. Miss Temple accepted that the order of 22^nd May 2008 did not purport to assign claims against Mr O'Hara and that Mr Rawnsley's claims against Mr O'Hara in the Originating Application had to be struck out. She did not, however, concede Mr Mitchell's point on the construction of the Assignment. In the light of the concession the point is academic. For what it is worth I agree with Mr Mitchell's submission.

3. He submitted that the Company's claims against Mr O'Hara should be struck out because of the failure by Mr Poxon to prosecute the claims. He relied on the fact that the Particulars of Claim served by Mr Rawnsley was not authorised by Mr Poxon on behalf of the Company, that no steps had been taken by Mr Poxon to prosecute the claim following the issue and service of the Claim Form and that Mr Poxon had not chosen to attend to defend the application to strike out the claim. Miss Temple readily accepted that she was not instructed on behalf the Company and therefore could not make submissions on its behalf. She suggested that Mr Poxon was content to rely on the validity of the Assignment and thus the Company had no interest in the proceedings. In the light of the non-attendance by the Company I agree that the claims by the Company fall to be struck out for want of prosecution.

5.2     The Misfeasance Claims

54. As I understood his submissions Mr Mitchell accepted the validity of the Assignment by the Trustees of the Pension Fund of its claims against Mr O'Hara. He accordingly accepted that Mr Rawnsley was entitled, as a creditor, to bring misfeasance proceedings against Mr O'Hara.
55. He, however, contended that the proceedings were bound to fail and that the Court should give summary judgment in favour of Mr O'Hara pursuant to Part 24 CPR. He reminded me in his Reply that DJ Lord had ordered that the misfeasance claim be treated as if it were a Part 7 Claim so that the provisions of Part 24 applied to it.

The failure to market

56. In paragraphs 35 to 37 of her witness statement in support of the application Ms Collins submits that the documents demonstrate that Mr O'Hara's decision to sell the property quickly arose from the concern that he could not realistically afford to retain ownership of it. She accordingly submits that there is no real prospect that a court will find that Mr O'Hara was in breach of duty in selling the property at a price in excess of Weatheralls' valuation.
57. In his submissions Mr Mitchell referred me to the decision of Millett J (as he then was) in Re Charnley Davis [1990] BCLC 760 at 775 f – h. He accepted that Mr O'Hara's duty was to take reasonable care to obtain the best price that the circumstances as he perceived them permitted. He referred me to the insurance position and the fact that the offer was in excess of the valuation and submitted that there was no real prospect that a Court would reach any different conclusion.
58. I respectfully disagree. In my view the question of whether Mr O'Hara's admitted failure to market the property amounted to a breach of duty is well arguable and not suitable for summary determination. On any view Mr O'Hara acted contrary to Weatheralls express recommendation. There is no reason to believe that HSBC would not have paid any necessary insurance premium. At the moment there is no explanation for Mr O'Hara's failure to follow up the correspondence relating to insurance. In any event as Mr Poxon pointed out it might have been possible to insure the property at a premium significantly less than the £10,000 per month now suggested by Mr O'Hara. There is in fact no evidence to support Mr O'Hara's figure. Furthermore there is no explanation of Mr O'Hara's apparent lie to HSBC that he was actively marketing the property when he was not.
59. There are also clear triable issues on the question of causation and the extent of any loss. Mr O'Hara lost the chance of obtaining a higher figure on the sale by the failure to market the property. There are triable issues in the assessment of that loss of chance.

Failure to issue proceedings against Weatheralls

60. Mr Mitchell suggested that any failure to prosecute Weatheralls lay with Mr Rawnsley and/or Mr Poxon. He made the point that there was no suggestion that he issue proceedings against Weatheralls in the report or in correspondence. He also suggested that there was no loss as proceedings have been issued against Weatheralls within the limitation period.
61. In my view the question of what steps were taken by Mr O'Hara following Mr Poxon's report merits investigation. Mr O'Hara was, after all the Liquidator with a duty to collect in the assets of the Company. It may be he had no funds with which to commence proceedings. However this is a matter that needs to be investigated. Furthermore he could have sought an indemnity from either Mr Rawnsley or another creditor.
62. It has to be remembered that Weatheralls are seeking to challenge the validity of the Assignment pursuant to the Court Order. If that challenge succeeds either in this Court or in the Court of Appeal the loss flowing from a failure to issue proceedings against Weatheralls could be very significant.
63. In all the circumstances this allegation does have realistic prospects of success and I would not strike it out.

Failure to execute the Assignment

64. This is a very small claim as the only loss would appear to be the costs of the application to this Court. Furthermore Mr O'Hara was given very short notice of the request to execute the Assignment. However it is in the nature of a Liquidator's task that he occasionally has to make speedy decisions. It was made apparent to him that the limitation period for the claim against Weatheralls expired within 24 hours. In those circumstances it is to my mind arguable that the failure to respond more promptly was negligent.
65. I would not strike out this allegation.
66. Mr Mitchell also suggested that Mr O'Hara would obtain relief under section 1157 of the Companies Act 2006. I cannot accept this argument either. It is to my mind seriously arguable that a liquidator is not within the ambit of section 1157. Even if he is the question of whether he should obtain relief is plainly fact sensitive and should be determined at a trial. In any event Mr O'Hara was a professional liquidator who was earning substantial fees from the liquidation. He chose to ignore advice from Weatheralls, not to follow up the insurance correspondence and (on one view) to lie to HSBC over the extent of the marketing that he was carrying out. In those circumstances I would have thought he might well have an uphill task in seeking to persuade any court to grant him relief under section 1157.
67. In all the circumstances I would not strike out any of the allegations now pursued by Mr Rawnsley. The application for summary judgment by Mr O'Hara is refused.
6. Weatheralls' application to strike out.

6.1     The order of 22^nd May 2008

68. In her helpful skeleton argument Miss Day criticises the order that I made on 22^nd May 2008 on the ground that I was not informed of the correspondence from Mr O'Hara. However, as I have noted there was no application to set aside the order or to appeal it. In my view it stands as a valid order. It is perhaps also worth commenting that the fax from Mr O'Hara appears to be timed at 5.47 p.m that is to say after the hearing of the application before me.

6.2     The Assignment

69. The principal point taken by Miss Day is that the Assignment is invalid in the light of the principles contained in Ruttle Plant Ltd v Sec of State for Environment Food and Rural Affairs [2008] EWHC 238. Miss Temple does not accept this analysis. In paragraph 5 of her skeleton argument Miss Temple draws to my attention a liquidator's power of sale under paragraph 6 of Schedule 4 of the Insolvency Act 1986. She contends that that power includes the right to assign causes of action which are the property of the Company. She accepts that claims that are personal to the Liquidator (such as claims under section 214 of the Act) cannot be sold but that is not this case. In her submission the claim in this case - a claim in negligence and/or breach of contract against Weatheralls – was vested in the Company and was not personal to the liquidator and could accordingly be sold. In her supplementary skeleton Miss Day describes this analysis as "brave but hopeless".
70. Part III of Schedule 4 of the Act deals with the powers of a Liquidator exercisable without sanction in a voluntary winding up. By paragraph 6 there is power to sell any of the Company's property.
71. Before looking at the authorities on this area of the law (including the decision in Ruttle) it is perhaps worth looking at the commentary of Professor Key and Louis Doyle in the 2009 Edition of their Commentary on the Insolvency Legislation
72. At page 779 there is a commentary on paragraph 6:

'Property' here includes causes of action vested in the Company at the time of the liquidation (Seear v Lawson (1880) 15 Ch D 426 at 432 – 433; Grosvenor Holdings plc v James Capel & Co Ltd [1995] BCC 760). So a sale of a bare cause of action is permissible, as is a transfer of a half beneficial interest or other share in recoveries in return for financing the action (Grovewood at 764; Ruttle Plant … at paragraph 25. But an assignment by the liquidator to a third party of the fruits of proceedings with the power to initiate or continue legal proceedings brought to enforce a cause of action, is not permissible as it is champertous (Grovewood Holdings at 765; Ruttle Plant at paragraph 43) A liquidator cannot surrender his fiduciary power to control proceedings commenced in the name of the Company (Ruttle Plant at paragraph 43). Liquidators are not permitted to assign actions that are granted to them as liquidators, such as under s 214 or s 239 because they are actions given by statute to them personally in the position of liquidator: Re Oasis Merchandising Services Ltd [1995] 2 BCLC 493 affirmed on appeal [1997] 1 AER 1009.

73. There is a full and very helpful review of this area of the law in the decision of Robert Walker J (as he then was) in Re Oasis at pp 497 – 499. I do not intend to lengthen this judgment by setting it out in detail. In summary:

1. In Seear v Lawson the Court of Appeal upheld an outright legal assignment of a cause of action by a company in liquidation for monetary consideration.

2. In Guy v Churchill (1888) 40 Ch D 481 there was an assignment on terms that the assignee would continue the action in his name and pay to the trustee in bankruptcy 25% of any net recovery. The Court of Appeal upheld the assignment. The decision was followed by the Court of Appeal in Ramsey v Hartley [1977] 2 AER 673 where the trustee assigned a cause of action to the bankrupt in consideration of receiving 35% of any net recovery.

3. In Grovewood v Capel there was no outright assignment of the cause of action but a sponsorship arrangement under which the action was pursued in the name of the Company but at the expense of the sponsors and with the assistance but not subject to the control of the liquidator. In the result the action was stayed as champertous

4. At page 501 Robert Walker J cited with approval passages from the judgment of Knox J in Re Ayala Holdings [20 May 1993]

But Knox J referred to--

'an important distinction between property of the company, on the one hand, and the rights and powers of a liquidator on the other. The property of a company includes rights of action against third parties vested in a company at the commencement of winding up and to that extent the principles in Ramsey v Hartley undoubtedly apply and such rights can, as I see it, be sold by a liquidator pursuant to para 6 of Sch 4. What is to be distinguished in my view are the statutory privileges and liberties conferred upon liquidators as such . . . who are officers of the court and act under the court's direction.'

…

Knox J reiterated:

'the fundamental distinction between assets of a company and rights conferred upon a liquidator in relation to the conduct of the litigation. The former are assignable by sale under para 6 of Sch 4, the latter are not because they are an incident of the office of liquidator.'

74. When I consider the Assignment in the light of these authorities it seems to me quite plain that there is here an outright Assignment of the cause of action to Mr Rawnsley for a consideration of 10% of the net proceeds of the action. That is a form of consideration approved in the cases cited above. It is also plain from clause 5 that the whole of the management of the claim is vested in Mr Rawnsley.
75. I turn therefore to the decision of Ruttle relied on by Miss Day. In my view that case is not in any way inconsistent with this analysis. In paragraphs 29 to 40 Ramsey J cited extensively from the Oasis decision including much of the material I have summarised above and the decision of Knox J in Ayala. There is nothing in his judgment to suggest that he had any criticism of the law as set out in those authorities.
76. The distinction between this case and Ruttle emerges from paragraphs 40, 41 and 43 of the judgment. In Ruttle there was an assignment of the fruits of the proceedings (which was not objectionable) and an assignment of the Liquidator's discretionary power to prosecute the proceedings that was objectionable. It is thus distinguishable from this case where the assignment is of the cause of action itself and not of the fruits of the proceedings.
77. Where the fruits of the proceedings are assigned it is not possible in addition for the Liquidator to assign the power to conduct the proceedings. This does not, however, affect the right of liquidator to sell the bare cause of action – unless, as in Re Oasis, it is a claim given to the Liquidator such as a claim to bring proceedings under section 214 of the Act.
78. Thus I consider that the statement of law in the commentary to paragraph 6 is accurate. I also consider that Miss Temple's submission is neither brave nor hopeless but to be preferred.
79. I accordingly reject this ground to strike out Mr Rawnsley's claim.
6. 3. Causation
80. I can deal with this point very briefly. Miss Day submits that Mr Rawnsley cannot show that Weatheralls' valuation advice had any causative effect. She relies on the failure by Mr O'Hara to market the property and the delay between the time the advice was given and the eventual further sale to Britannia.
81. To my mind these matters are matters for the trial. Miss Day realistically accepts that there are triable issues as to whether Weatheralls were negligent. It is simply not possible to say summarily that the (assumed) negligence did not make a significant contribution to the Company's (assumed) loss. It may be that Weatheralls will establish this at the trial but it is not a point suitable for summary determination.
82. It follows that I refuse to strike out the claim by Mr Rawnsley against Weatheralls.
6. 4. The claim by the Company.
83. As already noted Mr Poxon has taken no steps to prosecute this claim other than the issue and service of the Claim Form. On that basis I agree with Miss Day it falls to be struck out.
7. Conclusion
84. I would strike out the claims by the Company against Mr O'Hara and Weatheralls and the claims by Mr Rawnsley in his capacity as a shareholder. I would however not strike out the claims by Mr Rawnsley in his capacity as an Assignee pursuant to the Order of 22^nd May 2008 against Weatheralls or in his capacity as an Assignee of the Pension Fund against Mr O'Hara.

JOHN BEHRENS

Wednesday 30 September 2009

Note 1   In fact the property was transferred to Basilton Properties a company associated with Lazarus.    [Back]