Challenging Limitation in Proceedings Against Liquidated Defendants: Holmes v S & B Concrete Ltd [2020] EWHC 2277 (QB)

What happens to the limitation clock when a prospective defendant to litigation has previously been wound-up (dissolved by entry into liquidation)?

This issue was recently deliberated over in the case of Holmes v S & B Concrete Ltd [2020] EWHC 2277 (QB), which regarded a claim for noise-induced hearing loss (NIHL).

The claimant was employed by the defendant between 1986 and 1993 as a joiner. In the course of his employment, it was alleged that he had been exposed to excessive noise levels, resulting in latent NIHL.

Shortly after his employment with the defendant ended, the defendant went into creditor’s voluntary liquidation. Thereafter, the company was voluntarily wound-up, pursuant to s.106 of the Insolvency Act 1986, and dissolved.

Thus, when the claimant started occupational disease proceedings decades post-exposure (in 2018), he applied for a s.1029 (Companies Act 2006) order restoring the defendant to the Register of Companies (where it would continue in liquidation), so that he could commence action against the defendant’s historic employers’ liability (EL) insurer, under the Third Parties (Rights against Insurers) Act 2010.

With restoration having been granted (the application was not served on the EL insurer and was therefore unopposed), a limitation-only trial was listed before HHJ Owen QC.

At trial, the judge identified that the claimant’s date of knowledge (awareness of significant hearing loss, which was attributable to workplace exposure), for the purposes of s.11 and s.14 of the Limitation Act 1980, had materialised by mid-2007, at the latest.

The claim was dismissed, on account of the fact that it was not equitable for the judge to exercise his discretion (reserved under s.33 of the 1980 Act) to disapply the limitation period, at the request of the claimant. As such, the claim remained statute-barred.

Aside from standard submissions on s.33, the claimant also contended that the action had not in fact been brought out of time (even though proceedings were commenced 10-years after the date of knowledge), because, following Financial Services Compensation Scheme (FSCS) Limited v Larnell (Insurances) Limited (in liquidation) [2005] EWCA Civ 1408:

‘… if [a claim] is not time-barred at the commencement of the … winding-up, it does not become time-barred by the passage of further time thereafter’.

Given that the effect of restoration is retrospective, i.e. as if dissolution never occurred [see s.1032(1) of the 2006 Act)], it was purported that the defendant should be treated as having remained in creditors’ voluntary liquidation since 1995. For the claim to be statute barred, the cause of action would have to have materialised prior to 1992 (3-years in the run-up to liquidation).

Naturally, the defendant contested that, should the FSCS case apply, it would produce the ‘remarkable and hitherto unknown outcome that whatever inequitable conduct by a claimant, the defendant would have no means of challenging the claim on the grounds of limitation’.

Favouring the defendant’s position on this separate issue, HHJ Owen QC ensured that the claim remained time-barred. He was not persuaded by FSCS, but was bound to apply the Court of Appeal’s approach in Smith v White Knight Laundry Limited [2001] EWCA Civ 660, which, as defendant counsel averred, encouraged the court to consider limitation and restoration simultaneously as part of a balancing exercise [envisaged by s.1030(2) of the 20016 Act], i.e. if the claimant’s s.33 application were to fail on its merits, the court would naturally refuse to restore the company:

‘Standing back it is not surprising that this argument [using FSCS as precedent] has not been previously raised by personal injury practitioners or that counsel in the short time available apparently to them had been unable to discover any other decision which would support or make good that broad proposition which underpins the claimant's application’.

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On appeal to the High Court, the question for determination was whether the 1st instance judge had erred in failing to find that the limitation period stopped running between the creditors’ voluntary liquidation and restoration, per the FSCS ruling, with the consequence being that the action was not statute barred?

The claimant, reasserting FSCS and its predecessor authority, Re General Rolling Stock Company [1872] LR 7 Ch App 646, attempted to distinguish Smith, on the premise that the 2001 case involved a company which had been dissolved without liquidation and could not benefit from the guaranteed FSCS limitation bar. Concisely, the effect of restoration in Smith was that the company was never dissolved, i.e. always active, as opposed to existing in liquidation.

Mr. Justice Spencer did not accept this line of argument, though. The High Court judge reasoned that Parliament, when debating Companies Act provisions, could not have foreseen that in litigation advanced against formerly liquidated companies (and their insurers):

‘… the restoration of the company to the Register would be automatic, the effect would be to mean that the limitation period had never run, and there would then be no need to direct that the period between the dissolution of the company and the making of the order to restore was not to count for the purposes of the Limitation Act’.

What is more, Spencer J distinguished FSCS from the present case, as the former regarded a claim which was seen to be ‘inside the liquidation’, whereas the latter was ‘outside the liquidation’. The differentiation, of course, is brought about by the fact that compulsory defendant EL cover is set at a minimum statutory level of £2 million, which is sufficient to indemnify the ‘vast majority’ of personal injury claims. For higher value personal injury actions, distinction from FSCS on this ground could be protected by limiting the liability of the insurer to the terms of its policy as a pre-condition to restoration.

Fundamentally, the outcome reached on appeal was described as ‘desirable’, seeing that it did not allow a claimant to gain an ‘unexpected and undeserved windfall by virtue of the application of the rule set down in a 19th century case which … was never intended to apply’.

For the avoidance of any doubt, Spencer J implored the Civil Procedure Rules Committee (CPRC) to enact a change in the rules, ‘requiring such notice of restoration application to be given to a relevant insurer when such an application is made for restoration’ so that any possible limitation defence can be considered at that stage of proceedings.

If limitation is contested, the correct approach would see the s.1029 application set aside, so that the insurer may be heard on any s.33 application that the claimant may make.

Full text judgment can be accessed here.