DOMINIC LEONARD MARK CHANDLER v ANTHONY JOHN WRIGHT & Ors

The appeal concerned an application to strike out parts of the liquidators’ pleadings which sought to rely on alternative Knowledge Dates (for a s.214 wrongful trading claim) and alternative Cessation Dates (for a s.212 misfeasance claim) within a specified period. The court reaffirmed that claims under s.214 and s.212 require pleading of the essential elements of the cause of action, including loss, causation and the basis of any remedy or quantum where those matters are essential to the cause of action.

The judge below was found to have misdirected himself by focussing on whether the defendant had notice of alternative dates rather than whether the alternative-date claims sufficiently pleaded causation and quantum. The court held that it is not permissible in the circumstances of this complex, high-value case to leave the Knowledge Date or the Cessation Date at large over the entire specified period without pleading the opposing party’s case on causation and quantum for each alternative date relied on.

Accordingly the appeal was allowed and the order below set aside; the court ordered that the impugned parts of the pleadings be struck out unless the liquidators applied promptly for permission to amend to cure the pleaded defects.

Background and parties: The proceedings arise from the collapse of the BHS group. The applicants are the joint liquidators of four companies in the group and the companies themselves. The proceedings assert claims under Sections 212 and 214 of the Insolvency Act 1986 against four former directors, including the appellant, seeking substantial contributions and equitable compensation for alleged misfeasance and wrongful trading during the period of Retail Acquisitions Limited ownership.

Nature of the application: The appellant applied to strike out parts of the liquidators’ pleadings which, it was said, left the relevant Knowledge Date (for s.214) and the Cessation Date (for s.212) open-ended within a specified period (17 April 2015 to 25 April 2016) and failed to plead loss, causation and quantum in relation to each alternative date. The judge below dismissed that strike-out application and refused permission to appeal. The present hearing was an application for permission to appeal and, subject to permission, the substantive appeal.

Issues framed by the court: (i) whether, as a matter of pleading, the liquidators could validly leave the Knowledge Date and/or the Cessation Date at large across the whole specified period rather than identifying particular alternative dates; (ii) whether the pleaded case adequately set out causation and quantum in respect of each alternative date relied on; and (iii) whether the judge below applied an incorrect test by giving liquidators special pleading latitude and by asking whether the defendant had fair notice rather than whether the pleaded case disclosed reasonable grounds.

Reasoning and decision: The court analysed authorities on pleading, particulars and the requirements of s.212 and s.214. It reiterated that s.214 claims require proof of loss causally connected to continued trading and that s.212 claims based on negligence or breach of fiduciary duty similarly require proof of loss and causation. The court concluded that in this complex, high-value litigation it was not permissible to leave the Knowledge Date or the Cessation Date at large for the whole specified period without pleading how causation and quantum would be made out by reference to each alternative date. The judge below had asked the wrong question and misapplied the relevant principles by treating notice to the defendant as a sufficient answer to the pleading deficiencies.

Remedy ordered: The appeal was allowed, permission to appeal granted, the judge’s order dismissing the strike-out application was set aside, and an unless order was made: the specified parts of the liquidators’ pleadings were to be struck out unless within a short period they applied for permission to amend to cure the defects (the judge indicated a period no longer than 28 days), leaving the court to determine any application to amend and associated costs.

Appeal allowed. The judge below misdirected himself by focussing on whether the defendant had notice of alternative dates rather than whether the alternative-date claims pleaded the essential elements (loss, causation and quantum) required for claims under s.214 and s.212. In the circumstances of this complex and high-value litigation the Knowledge Date and the Cessation Date could not be left at large across the whole specified period without adequate pleading of causation and quantum. The dismissal of the strike-out application was set aside and an unless order was directed so that the liquidators may apply promptly to amend and cure the pleaded defects.

On appeal from Deputy ICC Judge Schaffer’s order of 9 December 2021, delivered with reasons in the judgment of 9 December 2021 ([2021] EWHC 3501 (Ch); [2022] BCC 457). Permission to appeal had been refused by the Judge; the appellant renewed the application and the matter was listed before Edwin Johnson J who heard argument on the permission application and, subject to permission, the substantive appeal.