Rawnsley & Anor v Weatherall Green & Smith North Ltd

The court considered applications by the defendants for summary judgment and/or strike out of claims arising from the sale of a company property in liquidation, and the validity of assignments of causes of action. Key legal principles applied were the liquidator's power to sell company property (including causes of action) under paragraph 6 of Schedule 4 to the Insolvency Act 1986, the rule against reflective loss for shareholder claims, the distinction between assignable company causes of action and statutory rights or the liquidator's personal powers, and the requirements for summary disposal under the Civil Procedure Rules.

The judge held that: (a) claims brought by the company were struck out for want of prosecution; (b) claims by Mr Rawnsley as a shareholder were bound to fail by reason of the rule against reflective loss; (c) the order of 22 May 2008 validly empowered the joint liquidator to assign company causes of action and the consequent assignment to Mr Rawnsley was effective; and (d) there were triable issues of negligence, causation and loss of chance against the liquidator and Weatheralls which made summary disposal inappropriate on those allegations, so the strike out/summary judgment applications on those points were refused.

This was a first instance interlocutory hearing on applications by the defendants for summary judgment and/or strike out in two consolidated actions arising from the insolvency and sale of the principal asset of Canal Dyeing Company Limited (the property known as Old Lane Dyeworks). The claims alleged negligent valuation by Weatheralls and breaches of duty and misfeasance by the liquidator, Mr O'Hara, including inadequate marketing and failure to pursue a potential claim against Weatheralls.

Parties and procedural posture:

• The principal claimant was Mr Rawnsley (a major shareholder and a creditor by assignment) and the Company (by its other joint liquidator, Mr Poxon). The defendants were Weatherall Green & Smith North Limited and Mr O'Hara (in his capacity as liquidator).
• There had been an earlier consent order and the appointment of Mr Poxon as joint liquidator to investigate the sale; Mr Poxon produced a report criticising both the liquidator and Weatheralls. An order dated 22 May 2008 authorised the joint liquidator to issue proceedings or to assign the cause of action to Mr Rawnsley; consequential assignments were executed the same day.
• Defendants applied to strike out or obtain summary judgment on various grounds, including the rule against reflective loss, invalidity of the assignment, want of prosecution, causation and that the claims had no realistic prospect of success.

Issues framed:

• Whether shareholder claims were barred by the rule against reflective loss.
• Whether the order of 22 May 2008 authorised assignment and whether the assignments to Mr Rawnsley were valid or champertous.
• Whether claims by the Company should be struck out for want of prosecution.
• Whether the misfeasance and negligence allegations against the liquidator and Weatheralls had any realistic prospect of success, including causation and loss of chance.

Court’s reasoning and conclusions:

• The judge accepted that shareholder claims were bound to fail by reflective loss and struck those claims out.
• The judge held that paragraph 6 of Schedule 4 to the Insolvency Act 1986 permits sale or assignment of company property including bare causes of action; distinguishing assignments of the fruits of proceedings or the liquidator's personal statutory powers, the court found the assignment to Mr Rawnsley valid and not inconsistent with Ruttle Plant. Consequently the assignment was not struck down on champerty grounds at this stage.
• Claims nominally brought by the Company were struck out for want of prosecution because the joint liquidator, Mr Poxon, had taken no active steps after issue other than initially authorising proceedings.
• As to allegations that the liquidator failed properly to market the property, failed to take reasonable steps on insurance and failed to pursue Weatheralls promptly, the judge found triable issues of breach, causation and quantification of loss of chance; summary disposal or strike out was inappropriate. The application for summary judgment by the liquidator was refused in respect of those allegations.

The judgment thus resolved procedural questions on assignment and reflective loss, struck out claims for want of prosecution and left negligence and causation issues for trial.

First instance: The court struck out the Company’s claims for want of prosecution and struck out claims advanced by Mr Rawnsley in his capacity as shareholder (reflective loss). The court upheld the validity of the 22 May 2008 order and the consequent assignment to Mr Rawnsley of company causes of action and refused to strike out or give summary judgment on the remaining allegations against Weatheralls and Mr O'Hara, concluding there were triable issues on breach, causation and loss of chance. Rationale: valid assignment under paragraph 6 of Schedule 4 Insolvency Act 1986; reflective loss doctrine bars shareholder claims; factual disputes on negligence, causation and mitigation require trial.