Brown (t/a All Kent & Sussex Tarmacadam) v W J Burke Ltd

Where a company is subject to a compulsory winding-up order, proceedings in the Court of Appeal are stayed by virtue of section 130(2) of the Insolvency Act 1986. The court cannot proceed with the hearing while the stay operates. It may nevertheless give provisional reasons where that would help the liquidator understand the dispute, although the merits remain undecided. Apparent inconsistencies in first-instance findings about contractual breach and fitness for purpose may create serious difficulties for damages assessment and causation. The court should recognise the stay and may grant liberty to apply for its removal.

The claimant carried out tarmacadam work as a subcontractor for the defendant under an oral contract. The defendant withheld £5,000, alleging breaches of express and implied contractual terms, and counterclaimed for lost profits.

The county court dismissed the claim and entered judgment for damages to be assessed on the counterclaim. Permission to appeal was later granted, but the appeal required an extension of time. Before the application was heard, the defendant was compulsorily wound up. The central issue was the effect of that winding-up order on the proceedings.

Sir Martin Nourse delivered the principal judgment, with Lord Justice Brooke agreeing.

1. Statutory stay. The defendant had been compulsorily wound up on 7 February 2001. By virtue of section 130(2) of the Insolvency Act 1986, the proceedings in the Court of Appeal were stayed. The court therefore could not proceed with the hearing.
2. Provisional consideration. The court considered that it could usefully deliver judgments at that stage so that the liquidator could understand the nature of the dispute. Sir Martin Nourse was provisionally of the view that the extension of time would be granted. He also considered that the appeal had a realistic prospect of success, but made no final determination of its merits.
3. Uncertainty in the first-instance judgment. The trial judge had found that the claimant failed to do what he had undertaken to do, but also found that the deficiencies were not sufficiently substantial to make the track unfit for use as a go-kart track. That apparent conflict created uncertainty about the breach relied on for the counterclaim and possible difficulties concerning the causation of loss. If the appeal proceeded and succeeded, a retrial was likely.
4. Order. The court declared that the proceedings were stayed pursuant to section 130(2). Either party had liberty to apply to remove the stay.

1. Court of Appeal (Civil Division): The proceedings were declared stayed under section 130(2) of the Insolvency Act 1986 following the defendant’s compulsory winding-up. The court did not hear the appeal.
2. County Court, Liverpool: Her Honour Judge Bernstein dismissed the claimant’s claim, entered judgment on the defendant’s counterclaim for damages to be assessed, ordered the claimant to pay the defendant’s costs, and refused permission to appeal.