Financial Services Compensation Scheme Ltd v Larnell (Insurances) Ltd

Where a claim against a company remains enforceable when its winding-up begins, subsequent passage of time does not bar the claim within the liquidation. This applies whether the governing period is the ordinary limitation period or the knowledge-based period under section 14A of the Limitation Act 1980.

The rule also applies where establishing the insured company’s liability will enable the claimant to enforce transferred insurance rights under the Third Parties (Rights against Insurers) Act 1930. A single claim cannot be enforceable for proof in the liquidation but time-barred for obtaining the insurance indemnity. The 15-year long-stop in section 14B of the 1980 Act bars proceedings but does not extinguish substantive rights.

The claimant was the assignee of six investors who alleged that the defendant insurance intermediary had negligently advised them about pensions. The ordinary limitation period had expired, but the claimant alleged that the knowledge-based period under section 14A of the Limitation Act 1980 remained open when the defendant entered voluntary winding-up.

The claimant sought to establish the defendant’s liability so that it could invoke insurance rights transferred under the Third Parties (Rights against Insurers) Act 1930. David Steel J struck out the claim as time-barred in [2005] EWHC 362 (QB). The issues were whether commencement of the winding-up stopped limitation running, whether reliance on section 14A affected that result, and whether the later expiry of section 14B’s 15-year long-stop extinguished the claim.

1. Appeal allowed. Lloyd LJ delivered the leading judgment. Moore-Bick LJ agreed and gave additional reasons; Sir Peter Gibson agreed with both judgments.
2. The principle established by In re General Rolling Stock Co Ltd applies where a claim was not time-barred when a corporate winding-up commenced. The creditor’s underlying cause of action remains one in contract, tort or otherwise. The winding-up changes the method of enforcement and subjects the company’s assets to collective, pari passu administration. For that purpose, the creditor’s position is determined when the winding-up begins, and later passage of time does not defeat the right to prove.
3. The claimant’s negligence claim against the insured company was a claim within the liquidation. Rights under the insurance policy transferred upon the winding-up resolution under section 1(1) of the Third Parties (Rights against Insurers) Act 1930, but remained contingent upon establishment of the company’s liability. Establishing that liability could support both a proof in the liquidation and recovery against the insurer. The claim did not become one outside the liquidation merely because its practical purpose was to reach the insurance proceeds. A single cause of action against one defendant could not be time-barred for one purpose but enforceable for another.
4. A claim supported by section 14A of the Limitation Act 1980 is treated in the same way as one within the ordinary limitation period. If the claim was enforceable when the winding-up resolution was passed, it was then a liability for the purposes of section 107 of the Insolvency Act 1986.
5. Section 14B of the 1980 Act is procedural. Its language prevents an action from being brought after 15 years but does not extinguish the underlying substantive right. Parliament used express language elsewhere in the Act when it intended extinction of title or rights. The expiry of the section 14B period after commencement of the winding-up therefore did not defeat this claim.
6. The claimant could proceed if it proved the alleged section 14A knowledge date and established the negligence claim on its merits. The strike-out order was set aside.

1. Court of Appeal (Civil Division): The court allowed the appeal in [2005] EWCA Civ 1408 and set aside the strike-out.
2. High Court, Queen’s Bench Division: David Steel J struck out the claim as barred by limitation in [2005] EWHC 362 (QB).