Parkinson Engineering v Swan

The Court of Appeal held that substitution of the liquidator for the company as claimant was permissible under section 35 of the Limitation Act 1980 and CPR rule 19.5 because the original action could not be determined on the merits while the statutory release in section 20 of the Insolvency Act 1986 operated against the company. The liquidator sought to pursue the identical cause of action under section 212 of the Insolvency Act 1986; minimal changes to the statement of case were required and the claim remained the same in substance. The judge had jurisdiction to permit substitution and to grant leave under section 212(4), and his exercise of discretion (taking into account merit, potential benefit to the estate, delay and prejudice to the defendants) was not shown to be unlawful or perverse.

This was an appeal against a decision of Floyd J in the Chancery Division allowing an application to amend proceedings so that the liquidator of Parkinson Engineering Services plc be substituted for the company as claimant and for leave under section 212 of the Insolvency Act 1986 to pursue claims against the former administrators.

Background and parties

• The company had been placed in administration on 7 May 2003; the defendants were joint administrators. The administration was discharged and the company was wound up on 14 November 2003. The administrators were released under section 20 of the Insolvency Act 1986 with effect from 13 February 2004 except as to claims notified in writing by that date.
• The liquidator, Mr Abdulali, issued proceedings on 17 April 2009 in the name of the company for negligence against the former administrators. The defendants pleaded the section 20 release as a defence.

Nature of the application and procedural posture

• On 3 June 2009 the liquidator applied to amend the proceedings to substitute himself as claimant and for permission under section 212(4) Insolvency Act 1986 to proceed despite the administrators’ release. Floyd J granted the application but gave the defendants permission to appeal. The matter came before the Court of Appeal.

Issues before the Court of Appeal

1. Whether substitution was permissible in the light of section 35 Limitation Act 1980 and CPR rule 19.5, in particular whether the addition/substitution of a new party was "necessary for the determination of the original action".
2. Whether the judge erred in the exercise of his discretion in granting leave under section 212(4) and in allowing the substitution, having regard to delay, forum, form and merits.

Court's reasoning

• The court analysed section 35 and CPR rule 19.5 and concluded that the rule must be construed no more widely than the statute. Paragraph 3(b) of rule 19.5 and section 35(5)(b) require that the claim cannot properly be carried on by or against the original party.
• The court accepted that the liquidator's section 212 claim asserted the identical cause of action as the company’s original claim; the proposed amendments made only minimal changes to reflect the claimant’s identity and relief under section 212.
• The court held that the company’s original action could not be determined on the merits while the section 20 release operated. Consequently, substitution was necessary to enable the identical cause of action to be pursued; the statutory scheme contemplates that the liquidator may, with leave, pursue such a claim despite a prior release.
• Procedural differences (forum, form, originating application versus Part 7 claim) were held to be immaterial in this context. The judge had to and did consider the discretion under section 212(4), including merit, potential benefit to the estate and delay. He was entitled to conclude that permission should be granted and that substitution was appropriate, balancing prejudice to defendants against the fact that the defendants had been on notice of the claim before the limitation period expired.

Authorities considered included Merrett v Babb; Martin v Kaisary; Weston v Gribben; Adelson v Associated Newspapers Ltd; Roberts v Gill & Co; Re Eurocruit Europe Ltd; Brown v Beat and The Sardinia Sulcis. The judge’s exercise of discretion was held not to be one that this court could overturn.

The Court of Appeal dismissed the appeal. It held that substitution of the liquidator for the company was open under section 35 of the Limitation Act 1980 and CPR rule 19.5 because the company’s claim could not be maintained in view of the section 20 release, and that the judge had lawfully exercised his discretion in granting leave under section 212(4) and in allowing the amendment.

Appeal from Floyd J, Chancery Division, High Court of Justice (HC09C01190). Permission to appeal granted; appeal heard in the Court of Appeal and dismissed ([2009] EWCA Civ 1366).