Bank of Ireland (UK) Plc v Colliers International UK Plc

The Governor and Company of the Bank of Ireland and its wholly owned English subsidiary, Bank of Ireland (UK) PLC, apply for retrospective permission to institute legal proceedings against a company in administration, Colliers International UK PLC (the company).

The application is made under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986. Paragraph 43 provides for a moratorium on the enforcement of security and on various types of legal process against a company in administration or its property, and contains the following directly relevant provisions:

“(1)

This paragraph applies to a company in administration.

(6)

No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except -

(a)

with the consent of the administrator, or

(b)

with the permission of the court.”

Similar provisions in the Insolvency Act 1986 apply to other types of insolvency proceedings. Section 130(2) provides:

“When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.”

Section 285(3) provides:

“After the making of a bankruptcy order no person who is creditor of the bankrupt in respect of a debt provable in the bankruptcy shall -

(a)

have any remedy against the property or person of the bankrupt in respect of that debt, or

(b)

before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.”

The only issue requiring any detailed consideration on the present application is whether the court has jurisdiction under paragraph 43(6) to give permission retrospectively for the commencement of proceedings.

The administrators of the company do not oppose the application and have made clear that they have no objection to the institution of the claim or the retrospective grant of permission.

The facts are straightforward. The company is a firm of property valuation surveyors which in 2006 prepared valuations of care homes let to and operated by companies in the Southern Cross group, instructed by the applicants for the purpose of providing finance for the purchase of the care homes. The valuation reports were provided in January 2006 and advances were made between 1 February and 4 July 2006. In July 2011 companies in the Southern Cross Group went into administration. Valuations obtained by the applicants in 2011 indicated much reduced values for the properties and they started to investigate whether there had been negligence in the preparation of the valuations by the company in 2006.

The company went into administration on 28 March 2012. Notification of potential claims was given by the applicants to the administrators on 23 May 2012. Disclosure of relevant information was requested by the applicants and, while the company’s solicitors have agreed to provide it, disclosure has yet to take place. A series of standstill agreements were made between the applicants and the company, with the agreement of the administrators, to prevent time running on the applicants’ claims for limitation purposes. The last of these agreements expired without an extension on 11 September 2012. Ten claim forms were issued by the applicants on 13 September 2012, claiming damages for negligence against the company.

Assuming the Court has jurisdiction, this is in my judgment a clear case for the grant of permission, having regard to (1) the position adopted by the administrators, (2) the circumstances in which it became necessary to issue the claim forms as a matter of urgency, (3) the subject matter of the claims which make it suitable to be dealt with by way of a Part 7 claim rather than the submission of a proof of debt and (4) the existence of professional indemnity insurance in respect of the claims, to which the provisions of the Third Party (Rights against Insurers) Act 1930 apply.

The issue whether there is jurisdiction to grant retrospective permission for the commencement of legal proceedings has been considered, in the context of insolvency proceedings, in a number of cases.

It appears that from the early 1890s to 1982, it had been the practice of courts not to treat proceedings commenced without permission as a nullity but, in appropriate cases, to give leave for the continuation of the proceedings: see Re Saunders [1997] Ch 60 at 70. However, Milmo J in Wilson v Banner Scaffolding Limited (The Times 22 June 1982) held that proceedings commenced against a company in compulsory liquidation without prior permission were a nullity and could not therefore be continued with permission. This was followed by Rattee J in Re National Employers Mutual General Insurance Association Limited [1995] 1 BCLC 232.

The issue arose for decision in Re Saunders, in the context of proceedings commenced against a bankrupt. Following adversarial argument over three days and a consideration of a large number of United Kingdom and Commonwealth authorities, Lindsay J came to the clear conclusion that the earlier decisions of Milmo J and Rattee J were wrong and that legal proceedings commenced against a bankrupt or a company in compulsory liquidation were not a nullity and that the court had jurisdiction to give retrospective permission for their commencement.

The contrary view was taken by HH Judge Kershaw QC (sitting as a High Court Judge) in Re Taylor [2006] EWHC 3029 (Ch), [2007] Ch 150. He rejected an unopposed application for retrospective permission to commence an action against a defendant who, the claimant later discovered, had been adjudged bankrupt before the issue of the claim form. In a lengthy reserved judgment, the judge reviewed all the authorities and submissions which had been considered by Lindsay J, as well as an additional decision of the Northern Ireland Court of Appeal and certain other matters, and concluded that the decision of Lindsay J in Re Saunders was wrong.

Judges at first instance have since preferred the decision of Lindsay J in Re Saunders: see Godfrey v Torpy [2007] BPIR 919, a decision of Peter Leaver QC (sitting as a High Court Judge) following adversarial argument, and Bank of Scotland PLC v Breytenbach [2012] BPIR 1, a decision of Chief Registrar Baister. The fact that in the latter case the Chief Registrar reached his decision on an unopposed application after a careful review of the relevant authorities demonstrates that uncertainty persists on this point, which appears also from commentary in textbooks: Sealy & Milman: Annotated Guide to the Insolvency Legislation (2012 15^th ed.) Vol. 1 at p.340 and Muir Hunter on Personal Insolvency at 3-740.

A requirement for permission, whether from the court or others, for the commencement of proceedings has for many years appeared in legislation in a number of very different contexts, in addition to insolvency, including charities and mental health.

In all or many of these provisions, permission is clearly stated as a requirement, but in none of them are the consequences of a failure to obtain permission before the commencement of the proceedings spelt out. The provisions do not state whether the proceedings, commenced without such permission, are a nullity or whether the failure to obtain prior permission can be cured by a retrospective grant of permission.

In Seal v Chief Constable of South Wales Police [2007] UKHL 31, [2007] 1 WLR 1910, the House of Lords considered the effect of the requirement for permission to commence proceedings under section 139(2) of the Mental Health Act 1983. At [7] Lord Bingham of Cornhill referred to the decision of the Court of Appeal in Rendall v Blair 45 Ch D 139 on a similar provision in the Charitable Trusts Act 1853, to decisions on the Limitation Acts and to Re Saunders. In all those cases the prohibition on the commencement of proceedings without permission was expressed in unqualified terms. Lord Bingham said that the variation of language between section 139(2) and those other provisions:

“is not so marked as, without more, to warrant a radically different conclusion, and the welcome tendency to prefer substance to form must generally discourage the invalidation of proceedings for want of compliance with a procedural requirement. While, therefore, I incline to favour the Chief Constable’s reading of section 139(2), I do not think the answer to a question such as this should ordinarily turn on a detailed consideration of the language used by Parliament in one provision as compared with that used in another. The important question is whether, in requiring a particular condition to be satisfied before proceedings are brought, Parliament intended to confer a substantial protection on the putative defendant, such as to invalidate proceedings brought without meeting the condition, or to impose a procedural requirement giving rights to the defendant if a claimant should fail to comply with the requirement; but not nullifying the proceedings: see R v Soneji [2006] 1 AC 340, para 23. To answer this question a broader inquiry is called for.”

In Seal, after a detailed consideration of the legislative history and context of section 139 of the Mental Health Act, the House of Lords, by a majority, concluded that proceedings commenced without prior permission were a nullity. There was a clear consensus of judicial, professional and academic opinion that lack of the required consent rendered the proceedings a nullity when the 1983 Act was enacted and Parliament must be taken to have legislated on that basis: see Lord Bingham at [15].

It is clear from the speeches of the majority in Seal that it was these particular factors which led to this decision on the mental health legislation, which differed from decisions reached on other, similarly expressed, provisions in legislation in quite different areas of the law. So, of the judgment in Re Rendall v Blair, Lord Browne of Eaton-under-Heywood said at [76]:

“The statutory context of the condition there and, more importantly, its legislative history, were markedly different from that of section 139(2) and these differences provide ample grounds from reaching different conclusions as to their effect.”

I have earlier cited from [7] where Lord Bingham referred to Re Saunders and Rendall v Blair as evidencing “the welcome tendency to prefer substance to form [which] must generally discourage the invalidation of the proceedings for want of compliance with the procedural requirement.”

There is no suggestion in Seal that Re Saunders was wrongly decided; quite the reverse. It is to be noted that Re Taylor was cited in argument.

The general approach to provisions requiring leave for the commencement of proceedings was restated by the Court of Appeal in Adorian v Commissioner of Police of the Metropolis [2009] EWCA Civ 18, [2009] 1 WLR 1859. This concerned section 329 of the Criminal Justice Act 2003, which applies when a person claims that he was subject to an act amounting to trespass to the person and he has been convicted of an imprisonable offence committed on the same occasion as the alleged act. Section 329(2) provides that civil proceedings relating to the claim may be brought only with the permission of the court.

The judgment of the Court of Appeal, delivered by Sedley LJ, identified a number of reasons why a failure to obtain prior permission under section 329 did not involve “the drastic step of nullifying proceedings” [40]. These included the effect on limitation periods ([26]-[28]) and the procedural consequences ([29]-[32]), which are both equally applicable to claims against bankrupts or companies in compulsory liquidation or administration. There were lacking the special considerations applicable to proceedings covered by section 139 of the Mental Health Act, as to which the Court said at [34]:

“A need to invalidate such proceedings unless leave is first obtained is undoubtedly exceptional and may be unique. Certainly, as their Lordships were careful to stress in Seal’s case, the imposition of a jurisdictional bar on access to the courts is a drastic measure, in contrast to a requirement that proceedings, once instituted, can be struck out if they do not pass muster, whether on specified statutory criteria or because they have no realistic chance of success.”

The Court of Appeal was referred to Re Saunders but not, it would appear, to Re Taylor. The Court clearly considered Re Saunders to have been correctly decided: see [22] and [33].

The general approach to provisions requiring permission for the commencement of proceedings and the factors relied on in Adorian are equally applicable to the relevant provisions in the Insolvency Act and strongly support the decision in Re Saunders. Equally, there are not applicable to those provisions of the Insolvency Act any special factors analogous to those relied on by the House of Lords in Seal.

What were the factors relied on for the decisions that proceedings brought without prior permission as required by the Insolvency Act were void? It appears from the brief report of Wilson v Banner Scaffolding Ltd that Milmo J relied on the terms of section 231 of the Companies Act 1948, the forerunner of section 130 of the Insolvency Act, as being “absolute and unqualified”. Following Seal and Adorian, this is clearly an insufficient basis for concluding that proceedings commenced without permission are a nullity. Milmo J observed that section 231 was “intended to protect the interests of the creditors of a company in liquidation” and that the parties to the proceedings could not themselves waive compliance with the requirements of the section, both points to which I shall return.

In Re National Employers Mutual General Insurance Association Limited, Rattee J approved and adopted the decision of Milmo J, largely basing himself on the absolute and unqualified terms of section 132 of the Insolvency Act 1986.

In Re Taylor, Judge Kershaw QC also fundamentally based his decision on the unqualified language of section 285 of the Insolvency Act: see [58]. He considered that this conclusion was supported by the judgments of the Court of Appeal in Seal: see [53] – [54]. He was unimpressed with the practical consequences of treating proceedings commenced without permission as a nullity, which formed significant parts of the reasoning of Lindsay J in Re Saunders and the Court of Appeal in Adorian.

Judge Kershaw QC was influenced by a point which had not been taken in any previous case but which he regarded as “an important aspect”. This point was that insolvency set-off is wider than legal or equitable set-off, with the result that a claimant could obtain a judgment for a sum which, for the purposes of proof in the insolvency, could after the application of the insolvency set-off be reduced or extinguished. With respect to the judge, I am unable to see any difficulty in that. The judgment would not be enforceable without the leave of the court. It would, however, fix the quantum of the liability of the company or bankrupt to which, assuming it was a provable debt, insolvency set-off would then be applied.

Judge Kershaw QC also relied on the decision of the Northern Ireland Court of Appeal in Boyd v Lee Guinness Limited [1963] NI 49, which had not been cited in Re Saunders. It is not, in my view, a case which provides support for the judge’s conclusion in Re Taylor. The issue was whether for the purposes of obtaining permission for the service of a concurrent writ out of the jurisdiction of the courts of Northern Ireland, on a defendant in England, the action had been “properly brought” against a company served at its registered address for service in Northern Ireland. The company, which was incorporated in England, had been the subject of a compulsory winding-up order made before the issue of the proceedings. Permission for the commencement of the proceedings against it had not been obtained under section 231 of the Companies Act 1948. It was conceded for the plaintiff that if section 231 applied to proceedings brought in Northern Ireland, the absence of permission meant that the proceedings had not been “properly brought” against the company. The only issue argued was whether section 231 had any effect in Northern Ireland.

There was no argument, nor any discussion in the judgments, as to whether the failure to obtain prior permission rendered the proceedings a nullity. The concession that the proceedings were not properly brought if section 231 applied involved no concession that the proceedings were a nullity, as demonstrated by the plaintiff’s reliance on The Brabo [1949] AC 326 as the basis for its concession. Proceedings brought without the permission required by statute can be treated as not “properly brought”, without being a nullity.

The decisions of the House of Lords in Seal and the Court of Appeal in Adorian required the court in cases such as the present to look beyond the language of the section to the entire context of the provision, its purpose, and the consequences of a decision as to its effect, with a general pre-disposition that the lack of prior permission should not render the proceedings a nullity.

Having regard to those considerations, there is little to support a conclusion that proceedings brought without the permission required by various provisions of the Insolvency Act are a nullity and much to support the contrary conclusion. The relevant consideration are precisely those relied on by the Court of Appeal in Adorian and by Lindsay J in Re Saunders, as well as the views taken in a large number of judgments in England, the rest of the United Kingdom and the Commonwealth reviewed in the latter case.

In addition to the consequences of holding that proceedings are a nullity, it is clearly relevant to have regard to the purpose of the provisions in the context of insolvency. It is important to note that the requirement for permission for the commencement of proceedings applies to insolvency proceedings under the control of the court: bankruptcy, winding-up by the court and administration. It does not apply to a company in creditors’ voluntary winding-up. This suggests that the real purpose of these provisions is not so much the protection of creditors as the purpose identified by Black LJ in Boyd v Lee Guinness Limited:

“This section is one of a series of provisions designed to ensure that when a winding-up order has been made by the court the whole of the task of supervising the collection and distribution of the company's assets should be committed to the winding-up court and, accordingly, that all proceedings having any bearing upon the winding-up of the company should remain under the supervision and control of that court.”

Given that purpose, it is hard to see why the court should not be permitted to grant retrospective permission if in the circumstances it is appropriate to do so.

There is, in the case of administration, the additional consideration that consent may be granted by the administrator. I can think of no convincing reason why an administrator should not be permitted to grant retrospective consent. While this might be said to distinguish administrations from other insolvency proceedings for this purpose, I regard all the other factors earlier identified as requiring the same conclusion for all the relevant provisions in the Insolvency Act.

The decision in Re Saunders has been preferred to that in Re Taylor in subsequent judicial decisions, as earlier noted, and by at least one specialist textbook: see Muir Hunter on Personal Insolvency at 3-740.

I have come to the clear conclusion that Re Saunders was correctly decided and that retrospective permission can be given for the commencement of proceedings, whether under section 130(2) or section 285(3) of the Insolvency Act 1986 or under paragraph 43(6) of Schedule B1.

It was pointed out in Bank of Scotland PLC v Breytenbach that on a strict application of paragraph 6 of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001, Re Taylor should not be cited in court because it was a decision on an application attended by one party only. The application before me was not opposed by the administrators and was attended by one party only. Nonetheless, in the light of the continuing uncertainty as to the availability of retrospective permission under the relevant provisions of the Insolvency Act, I make clear for the purposes of the Practice Direction that this judgment is intended to resolve those uncertainties and to establish the principle that retrospective permission may be given.

Accordingly, I give permission retrospectively for the commencement of the proceedings to which the present application relates, on terms that the applicants may not enforce any judgment against the company without the permission of the court.