Gaardsoe v Optimal Wealth Management

I have before me two applications made by the claimant under the Insolvency Act 1986 (“the 1986 Act”). Both applications are for leave to pursue existing proceedings against the defendant, the claimant's objective being to prevent his claim in those proceedings being met with a limitation defence.

The applications arise in the following circumstances. The claimant was a professional footballer. In 2005 he suffered an injury or injuries which he says brought his career to an end. He had taken steps to insure against such an eventuality through the defendant, a company that specialised in providing financial services and advice, including advising on and obtaining insurance, to sportsmen. It turned out, however, that he was not insured in respect of the type of injury he suffered. He says that this was through the defendant's negligence or breach of contract.

The defendant is now in liquidation but is itself insured against claims for negligence. The claimant wishes to take the benefit of that insurance under the Third Parties (Rights Against Insurers) Act 1930, but in order to do so he must first establish his claim against the defendant. Proceedings for that purpose were issued in the Queen’s Bench Division on 26th August 2010. Before issuing them, the claimant's solicitors did an internet search of the company's register on 23rd August 2010 which failed to reveal what was in fact the case, namely that the defendant had gone into administration on 13th August 2010. In consequence, paragraph 43(6) of schedule B1 to the 1986 Act applied. That paragraph is in the following terms:

“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.”

The claimant's advisers found out that the defendant was in administration at the end of September 2010. Correspondence ensued between the claimant's advisers and the administrators and their advisers in which the latter agreed to extend the time for service of the claim form, ultimately to the beginning of March 2011. That was expressly without prejudice to their rights to refuse consent to the commencement and continuance of the proceedings, to challenge the validity of the claim form, and to assert that the claim was statute barred.

The claim form was served on 25th February 2011, within the extended time allowed for its service, together with the particulars of claim. The defendant has not served a defence but, on 25th March 2011, it issued an application in the proceedings for the following relief:

“1.

A declaration that the court does not have jurisdiction over this claim and 2. An order that the claim form, alternatively service of the claim form, be set aside on the grounds that the defendant was in administration prior to the issue of the claim form and so the consent of the defendant's administrator, or the permission of the court was required before the claim form was issued, pursuant to paragraph 43 of schedule B1 of the Insolvency Act 1986, such consent or permission not having been sought.”

That application is due to be heard in May of this year but its outcome is likely to depend on the outcome of the applications before me. The defendant's application eventually caused the claimant to issue the first of the applications that are before me, which is an application under paragraph 43(6) of Schedule B1 to the 1986 Act for permission to continue the proceedings.

The application was issued on 21st June 2011 with a return date of 3rd August 2011. On the first of those dates the defendant was still in administration, but by the time the matter came before this court on 3rd August it had ceased to be in administration, having gone into creditors' voluntary liquidation on 28th July 2011.

The hearing on the 3rd August was adjourned and on 10th August the claimant issued the second of the two applications now before me, which seeks permission under section 130(2) of the 1986 Act to proceed with the Queen’s Bench proceedings. The subsection is in the following terms: “When a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be commenced or proceeded with against the company or its property, except by leave of the court and subject to such terms as the court may impose.”

I say at once that this second application seems to me to be misplaced. Section 130(2) does not apply to a voluntary winding-up. In a voluntary winding-up there is no bar on proceedings against the company. Instead, the company and others may apply for a stay of such proceedings through a combination of Sections 112 and 126 of the 1986 Act. It follows that if the Queen’s Bench proceedings exist at all, they may now be pursued against the company without the necessity for any permission from this court.

It is the defendant's case that the Queen’s Bench proceedings do not exist at all; that they are a nullity, since they were commenced against a company in administration without the necessary permission for their commencement being first obtained from the administrators or the court. According to the defendant, permission cannot be granted after the proceedings have been commenced: paragraph 43(6) of Schedule B1 requires consent to the institution of legal process and the reference to such process being continued with permission applies only where the proceedings have been started before the administration occurs. Moreover, if that is wrong, and permission could in theory be given retrospectively, the jurisdiction to give it lasts only so long as the administration continues. Since the company is now in liquidation it is too late for the court to intervene.

Finally, if the defendant is wrong in these arguments, it says that permission should be withheld as a matter of discretion because of the claimant's delay in making the applications.

I deal first with the question of whether the absence of prior permission has the consequence that the proceedings were a nullity. This is, of course, the issue that arises directly in the defendant's Queen’s Bench application; but it is, in my view, necessary also for me to decide it. In my judgment the proceedings are not a nullity. They are, to quote from the judgment of Lindsay J in In re Saunders (a bankrupt) [1997] Ch 60 at 82B, "existing and capable of redemption by the late giving of leave."

The Saunders case is not a case about the effect of the inhibition on commencing proceedings against a company in administration. It is a bankruptcy case on section 285(3) of the 1986 Act, which provides that no creditor shall "commence any action or other legal proceedings against the bankrupt, except with the leave of the court."

The question was whether proceedings against a bankrupt could be retrospectively authorised, the significance being there, as here, the potential availability of a limitation defence. The point was expressed by Lindsay J as follows (at page 65C-F):

“It is [the defendant's] case that section 285(3) requires that the leave of the court to the commencement of proceedings can be given only before they commence; that in point of jurisdiction retrospective consent is not a possibility and that so-called proceedings begun without leave are a nullity which no late giving of leave can thereafter validate. On many facts such a submission would involve, if successful, only the making of a fresh start by way of the plaintiff seeking leave, obtaining it and then recommencing proceedings. Time and money would there have been wasted but nothing else. But in the cases before me there can be no effective fresh start as, if fresh proceedings were to be launched, they would assuredly be met with limitation defences to which, I think I may take it, the plaintiffs have as yet found no answer. Matters have thus been argued on the basis that if the plaintiffs' existing proceedings cannot be retrospectively validated by being given leave even at this stage, then they will all necessarily fail.”

After an impressively comprehensive and detailed study of authorities from the United Kingdom and Commonwealth jurisdictions, Lindsay J concluded that the proceedings were not a nullity. The whole judgment is illuminating, but I confine myself to quoting the passage in which the judge expressed his conclusions, occurring at page 82B-F. In doing so, in some instances I omit the names of cases which had previously been discussed by Lindsay J:

“There was a practice in England dating back at least to [1891], a practice recognised to be such at least as early as [1893], that proceedings in insolvency begun without the stipulated leave should not be regarded as irretrievably null but rather as existing and capable of redemption by the late giving of leave. Judges and counsel of great experience in England, from [1891] to [1969], treated retrospective leave in insolvency as a thing capable of being granted and as requiring no particular discussion. As the Court of Appeal emphasised in Rendall v. Blair, the legislature knows well enough how to provide that leave shall be a strict condition precedent to valid proceedings being issued and that clear words are to be used if that is intended, words perhaps even requiring a provision for the dismissal of the proceedings if the condition precedent is not satisfied. Without some such clear language being used the provision can be taken to be directory - the word used in Rendall v. Blair and in Australia. To the same effect is the view taken in [Canada] and elsewhere that a want of leave is only an irregularity. Further, the legislature in England can be expected to have observed at least the course of judicial decisions in England. Even without the persuasive analysis to such a conclusion in Nazir Ahmad v Peoples Bank of Northern India that the language used in English insolvency provisions had come, by 1913, to have a recognised legal meaning in England, I am entitled to expect the legislature in England to have had that long recognised meaning in mind when it came to legislate in 1986.”

Although, as I have said, the case was not about administration and although, in reaching his decision, Lindsay J declined to follow two previous first instance English cases that had come to a different conclusion, it seems to me applicable to the present case. The principle identified by Lindsay J applies to insolvency proceedings generally, not just to bankruptcy, and I can see no meaningful distinction between the bankruptcy requirement of leave to "commence" proceedings and the administration requirement of permission to "institute" them.

Lindsay J's decision is the more recent of conflicting first instance decisions and I should in principle follow it, unless I am persuaded that it is wrong. So, far from that, it seems to me clearly right.

Before leaving this aspect of the case I should refer to a decision which does deal directly with the inhibition on instituting proceedings against a company in administration. It is Carr v. British International Helicopters Limited [1993] BCC 855, a decision of the Employment Appeal Tribunal relating to a claim brought without prior permission by an employee who said he had been made unfairly redundant by a company in administration. At page 864E-F the Tribunal said this, in a passage also quoted by Lindsay J in the Bristol & West case:

“In our view, the purposes of the insolvency legislation can quite well be served without requiring that a summons served, or an application made, without prior consent should be considered to be a nullity or incompetent. The purpose of the legislation is, in general terms, to prevent the liquidators' or administrators' task being made more difficult, by a scramble among creditors to raise actions, obtain decrees or attach assets. We cannot, however, see that there is any reason why it should be necessary for the provision of such protection to treat any proceedings which may, for one reason or another be commenced without consent as null, and, therefore, incapable of proceeding further.”

As I have indicated, I accept the views expressed in that passage and by Lindsay J. I would only add this, that paragraph 43(6) of Schedule B1 to the 1986 Act contains an inhibition both on instituting and on continuing proceedings. If proceedings have been commenced before the start of the administration there can be no question that they are valid. The fact that permission is necessary for their continuance during the administration cannot have the consequence that they become a nullity until permission is obtained. The purpose of the legislation is achieved, as the Employment Appeal Tribunal pointed out in the Carr case, by a suspension of proceedings unless the administrators or the court consider that they should proceed. It seems to me highly unlikely that the legislature would have considered that the commencement of litigation without permission should have the different consequence that the proceedings were altogether void. In both cases all that is necessary is that they should not be proceeded with unless and until permission is obtained.

Before dealing with the question whether, on the basis that the proceedings are not a nullity, it is now possible to give retrospective permission for their commencement, I must consider whether any permission is now necessary. In my view it is not. The proceedings were, as I have said, not a nullity when commenced: they had an existence, although because they could not have been pursued at any point during the period of the administration without permission being granted they were for that period in suspense. Once the administration ended and was replaced by a regime under which there was no bar on litigation, however, the procedural inhibition on their prosecution came to an end. There is, in my judgment, nothing now to prevent them continuing. They do so as proceedings commenced by the claim form issued in August 2010.

In case I am wrong about that, however, I turn to consider whether it is now possible to give retrospective permission for the commencement of the Queen’s Bench proceedings. In my view, there is jurisdiction to do so. The defendant relies on paragraph 43(1) of Schedule B1 to the 1986 Act, which says "This paragraph applies to a company in administration", as precluding the grant of permission once the administration has ceased. It seems to me, however, that those words do no more than set out the ambit of the paragraph. Indeed, without them it would not be clear that the paragraph 43(6) inhibition applies only in administration. Paragraph 43(6) does not itself say when permission may be granted and I do not read paragraph 43(1) as imposing any time limit.

It will no doubt be exceptionally rare that the court will be asked to give permission after the administration is over, not least because there will seldom be any point in doing so, but the jurisdiction nevertheless in my view exists to do so in an appropriate case. I therefore find that I have a discretion and I think it appropriate to exercise it in the claimant's favour. There has undoubtedly been delay in issuing the applications, amounting in total to some 11 months, but some of that was taken up in the discussions I have mentioned and the rest was attributable to a misunderstanding of what was required in this unclear area of the law.

The claimant cannot be blamed for starting his proceedings in ignorance of the administration and he did issue his first application during the currency of the administration. Moreover, there is no suggestion that the delay has caused prejudice to the defendant. It was said that other creditors may suffer because of the defendant's excess on its own insurance. That is something that was not referred to in the evidence; but that, it seems to me, is something that can be dealt with, if the liquidators think that it is a serious concern, by an application for a stay of the proceedings. It is not in my view a sufficient reason to prevent the grant of the relief that the claimant seeks. Accordingly, and on the basis that it may be necessary to do so, I give the retrospective permission for the commencement of the proceedings sought by the claimant's first application.