Oldham & Ors v Kyrris & Anor

An administrator appointed under the Insolvency Act 1986 owes no general common-law duty of care to unsecured creditors concerning the conduct of the administration. A separate duty may arise where special circumstances create a direct relationship, such as an assumption of responsibility to the individual creditor. The statutory misfeasance remedy supports that conclusion.

An alleged equitable charge should proceed at the interlocutory stage where the agreement and incomplete factual background make it realistically arguable that the creditor had a present right to have property made available as security. Futurity or uncertainty may be addressed through contextual construction and an implied reasonable-time term.

Administrators of a partnership appealed against orders refusing to strike out equitable-charge claims brought by Mrs Kyrris and Mr Royle. The claims arose from letters concerning charges over leasehold restaurant premises securing a loan and unpaid salary.

Mr Royle cross-appealed against summary judgment on his alternative claim that, as an unsecured creditor, the administrators owed him a general duty of care. Mrs Kyrris cross-appealed against refusal of permission to amend her pleading to make a similar claim. The High Court had allowed the equitable-charge claims to proceed but rejected the general negligence claim. The central issues were whether the alleged charges were arguable and whether administrators owe unsecured creditors a direct duty in the absence of special circumstances.

Disposition. The Court of Appeal unanimously dismissed the administrators’ appeals and the respondents’ cross-appeals. The equitable-charge claims therefore remained for trial, while the unsecured-creditor negligence claim and proposed amendment remained struck out or refused.

Equitable charges

1. On a strike-out or summary-judgment application, factual allegations must be assumed to be true where they are not manifestly untrue. The court should not finally determine issues dependent on incomplete evidence or disputed surrounding circumstances.
2. The test for an equitable charge, drawn from National Provincial and Union Bank of England v Charnley [1924] 1 KB 431, is whether, in a transaction for value, the parties intended existing or future property to be available as security for a debt and the creditor had a present right to have that security made available. The fact that enforcement could occur only later did not prevent a charge.
3. For Mrs Kyrris, the existing property and debt, together with the surrounding correspondence, made it realistically arguable that a present security was intended. Uncertainty concerning repayment, the date for execution and interest could potentially be resolved by further evidence or an implied reasonable-time term. Whether the administrators had sufficient knowledge to be liable to account was a trial issue.
4. The same reasoning applied to Mr Royle’s claim. The fact that solicitors were not to be instructed immediately did not necessarily show that only a future right was intended. It was arguable that a reasonable-time term could be implied, and notice to the administrators was a factual issue for trial.

Duty of care to unsecured creditors

1. Whether the approach in Caparo Industries plc v Dickman [1990] 2 AC 605 or the assumption-of-responsibility approach in Henderson v Merrett [1995] 2 AC 145 HL was adopted, the result was the same. Absent special circumstances, an administrator appointed under the Insolvency Act 1986 owed no general common-law duty of care to unsecured creditors concerning the administration. The administrator’s duties were ordinarily owed to the partnership or company.
2. The statutory management powers under sections 8(2) and 14(1) reinforced the analogy with directors’ duties. A direct duty could arise only where special circumstances created a separate relationship involving features such as assumption of responsibility, trust, confidence or loyalty. No such circumstances were pleaded, and Mr Royle claimed only loss shared with the unsecured creditors generally.
3. The class remedy under section 212 of the Insolvency Act 1986, requiring restoration or contribution to the insolvent estate, was a further indication that creditors had no general personal claim for damages. Knowles v Scott [1891] 1 Ch 717 was consistent with that conclusion. The creditor claims recognised in Pulsford v Devenish [1903] 2 Ch 625 and James Smith & Sons (Norwood) Ltd v Goodman [1936] Ch 216 depended materially on the company’s dissolution and did not establish a general pre-dissolution duty.

1. Court of Appeal (Civil Division): In [2003] EWCA Civ 1506, dismissed the administrators’ appeals against refusal to strike out the equitable-charge claims and dismissed the respondents’ cross-appeals concerning the unsecured-creditor duty and proposed amendment.
2. High Court, Chancery Division, Leeds District Registry: On 23 January 2003, HHJ Behrens refused to strike out the equitable-charge claims, entered summary judgment for the administrators on Mr Royle’s alternative claim, and refused Mrs Kyrris permission to amend her pleading.