County Leasing Asset Management Ltd v Hawkes

The Court of Appeal considered the principles governing limitation directions made when a dissolved company is restored to the register under the Companies Act 2006, in particular the scope of the court's power under section 1032(3) to "place the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register". The court held that a limitation direction in favour of the restored company is an exceptional remedy which, if available at all, will only be exercised where the applicant demonstrates on the balance of probabilities that the dissolution was the real cause of the claimant's inability to pursue the claim and that it would be just to deprive the defendant of its limitation defence.

The court treated the dicta in Regent Leisuretime v Natwest Finance Ltd [2003] EWCA Civ 391 as part of the ratio that such directions in favour of the company itself should be confined to exceptional circumstances because they override the Limitation Act 1980 regime. Applying that test to the facts, the court concluded the judge below had erred by relying on a mere possibility of liquidator misconduct rather than probabilities and by failing to ask whether, but for dissolution, proceedings would probably have been brought in time. The appeal was allowed and the limitation direction set aside.

Background and parties: The appellant companies and individuals (including two County Leasing companies, directors and associates) were respondents to causes of action arising from a 2004 sale and leaseback transaction affecting a trading company (formerly Michael Green Plant Limited / Telerate Limited). The company went into administration and liquidation and was dissolved on 29 April 2009. The respondent, Mr Hawkes (the former sole director and shareholder), sought restoration of the company and a limitation direction suspending the running of time under the Limitation Act 1980 so that the company (or its assignee) could pursue claims which would otherwise be time-barred.

Procedural history: The company was restored in October 2011 and the new liquidator assigned the causes of action in 2012–2013. Andrews J in the Chancery Division granted a limitation direction on 11 April 2014. The defendants appealed to the Court of Appeal (Briggs LJ giving the lead judgment, with King LJ and Jackson LJ agreeing).

Nature of the relief sought: A limitation direction under the court's restoration powers (Companies Act 2006, section 1032(3)) to suspend the running of time under the Limitation Act 1980 so that claims which expired during dissolution could nevertheless be brought.

Issues framed by the court:

• Whether the court has jurisdiction to make a limitation direction in favour of the company being restored;
• If jurisdiction exists, whether the discretion should be exercised in favour of the company;
• Whether exceptional circumstances existed on the facts to justify such a direction; and
• Whether, on the causation analysis implicit in section 1032(3), the claim would probably have been pursued in time had the company not been dissolved.

Court's reasoning: The Court of Appeal concluded that the dicta in Regent Leisuretime (Jonathan Parker LJ) form binding ratio that limitation directions in favour of a company are available only in exceptional circumstances because they entirely override the detailed statutory limitation regime in the Limitation Act 1980. The court developed a causation-based approach drawn from section 1032(3): when a limitation period expires during dissolution, the court must ask whether, if the company had not been dissolved, the claim would probably have been brought in time. If the claimant cannot show that the dissolution was the real cause of the inability to pursue the claim, the direction should not be given. The burden lies on the company or its assignee to demonstrate, on the balance of probabilities, the justification for depriving a defendant of its limitation defence.

Applying those principles, the Court of Appeal concluded the judge had placed undue weight on a mere possibility that the liquidator had misconducted himself and had failed to evaluate whether proceedings would probably have been brought if the company had not been dissolved. There was no adequate evidential foundation that the dissolution was the real cause of the claims becoming statute-barred and no justification to displace the Limitation Act. The appeal was therefore allowed and the limitation direction set aside.

Appeal allowed. The Court of Appeal held that limitation directions in favour of a restored company are an exceptional remedy which override the Limitation Act 1980 and will only be made where the applicant proves, on the balance of probabilities, that the company would have pursued the claim in time but for the dissolution (so that dissolution was the real cause of the inability to sue) and that it is just to deprive defendants of their limitation defence. The judge below erred by relying on a mere possibility of liquidator misconduct and by not asking whether proceedings would probably have been brought absent dissolution; accordingly the limitation direction was set aside.

Appeal from the Chancery Division (Andrews J) HC13B01684, order dated 11 April 2014; Court of Appeal judgment [2015] EWCA Civ 1251 (04/12/2015).