Burden & Anor v Ernst & Young

On a renewed application for permission to bring a second appeal, permission should be granted where the proposed appeal raises an arguable point of principle or practice, or there is another compelling reason for the matter to be considered.

The clarification of an important and recurring issue concerning the personal and vicarious liability of administrative receivers and their accounting firm constituted a compelling reason. Related proposed amendments and the joinder of the receivers personally could be considered together where they arose from the same dispute and fairness required it.

The claimants were directors of a company placed into receivership by its bank. They alleged negligence by the joint administrative receivers, who were partners of Ernst & Young, and sought to hold the partnership vicariously liable. They also sought to amend the claim to allege liability for employees involved in the receivership and to join the receivers personally.

The District Judge struck out the claim as disclosing no cause of action. His Honour Judge Taylor dismissed the claimants’ appeal on 23 May 2000. Permission for a further appeal was refused on paper by Sir Murray Stuart-Smith. The claimants renewed their application before the Court of Appeal.

The central issues were whether the proposed appeal raised a sufficient point of principle or practice, whether the amendments should be permitted after expiry of the limitation period, and whether the receivers should be added personally.

1. Permission granted. This was a renewed application for permission to appeal against the dismissal of the claimants’ appeal and the striking out of their claim. The court applied the second-appeal threshold, asking whether a point of principle or practice, or another compelling reason, justified consideration by the Court of Appeal.

2. The proposed issue concerning liability was plainly arguable. It concerned whether liability for the acts of administrative receivers acting in the ordinary course of the firm’s business was personal to the receivers, or whether section 10 of the Partnership Act could make the partnership vicariously liable. Administrative receivership represented a substantial area of professional work for accountants, so clarification of the respective liabilities of the receivers and the firm provided a compelling reason for the appeal to proceed.

3. The proposed alternative claim concerning employees of the firm was also arguable. The suggested amendment was not so materially different from the existing case that it would necessarily have embarrassed the defendant, despite the expiry of the limitation period. The issue was closely linked to the principal liability question.

4. The proposed joinder of the receivers personally would not, standing alone, have justified permission. However, fairness required the grounds to be considered together, particularly because the claimants contended that the pleading of the defence had created a false sense of security about the nature of the case advanced on the strike-out application.

5. The merits of the liability issue were not determined. The application for permission was allowed on all three grounds. Costs were ordered to be costs in the appeal.

• Court of Appeal (Civil Division): Permission to appeal was initially refused on paper by Sir Murray Stuart-Smith. On renewal, the application was allowed on all three grounds.
• Birmingham County Court: His Honour Judge Taylor dismissed the claimants’ appeal from the District Judge’s order of 24 May and struck out the claim as disclosing no cause of action on 23 May 2000.
• District Judge: The claim was struck out as disclosing no cause of action.