Cowley v LW Carlisle & Company Ltd [2020] EWCA Civ 227
In an appeal before Lord Justice McCombe, Lord Justice Holroyde and Lord Justice Peter Jackson in the Court of Appeal, the Respondent successfully argued that the courts below were correct to grant a strike out application made on behalf of the dissolved defendant company.
The Court of Appeal also gave guidance to insurers of dissolved companies on how to proceed with claims where there has been no application to restore that company.
The Respondent was represented by Mr Simon Hughes (instructed by DWF LLP) and the Appellant was represented by Mr Dirk van Heck (instructed by Walker Prestons Solicitors Limited).
An article discussing the appeal of the first instance decision before HHJ Rawlings on 14th November 2018 can be found here.
Background
The Appellant in the original claim pursued the Respondent, and others, for damages for noise-induced hearing loss. The claims against those others proceeded, whilst the Respondent applied to strike out the claim against them. When proceedings were issued against the Respondent, L.W. Carlisle & Company had already been struck off the register of companies and dissolved. The application to strike out was therefore made by the solicitors acting for the insurers of the Respondent.
When the application to strike out came before the first instance judge, it was asserted that as a result of the failure to restore the company, the proceedings were a nullity and therefore the court should make a declaration under CPR 11 that it had no jurisdiction to hear the claim or in the alternative that the court should strike the claim out pursuant to CPR 3.4(2)(c). Importantly, by the time of the hearing, no attempt had been made by the Appellant to restore the Respondent company.
At first instance, the application to strike out was successful. Whilst the Appellant made an application for a stay of proceedings so that the restoration could take place, the judge found in favour of the Appellant in robust terms and struck out the claim.
The Appellant appealed that decision on the following grounds:
- That the Defendant (Respondent) had not complied with the requirements of filing an acknowledgement of service as required by CPR 11(2) and therefore the Claimant averred that, had DJ Etherington done so, he was wrong to decline jurisdiction;
- That the failure of the Defendant’s application under CPR 11 meant that the court was not entitled to go onto consider and application under CPR 3.4; and
- That even were the appeal to fail on the first two grounds, the exercise of DJ Etherington’s discretion was plainly wrong when one considered the effect of Peaktone and the prejudice caused to the Claimant.
The judge then found that, under CPR 3.4, the judge had exercised that discretion and had not erred in principle in making the order that he did. The judge found that the District Judge had made his order because of the Appellant's excessive delay in seeking to restore LWC's name to the register.
The Appeal
The Appellant appealed to the Court of Appeal and arguments were heard on 12th February 2020.
The Appellant argued that the use of CPR 3.4 was a backdoor means of challenging jurisdiction in a case where the procedural requirements of CPR 11 had not been complied with. The Appellant relied on the case of Hoddinott v Persimmon Homes (Wessex) Ltd. [2007] EWCA Civ 1203 for the same.
Further, the Appellant relied on Joddrell v Peaktone Ltd. [2012] EWCA Civ 1035. In that case, the Court of Appeal had ruled that, as a restoration order has the effect that the company is deemed to have continued in existence as if it had never been dissolved, the restoration of the company retrospectively validated the issuing of a claim against it and the serving of documents on it notwithstanding that at the relevant time the company did not exist. Further, Munby LJ stated, obiter, that the company’s challenge to the bringing of proceedings was a jurisdictional challenge that was required to be brought under CPR 11. The Appellant argued, relying again on Peaktone but not decided by the court, that the Respondent had effectively submitted to the court’s jurisdiction by making its application under CPR 3.4.
The Respondent argued, in response that the application brought by the Respondent was not a challenge to jurisdiction but rather a challenge based upon the Defendant’s lack of legal identity and the effect this had upon the court’s ability to case manage going forward.
Further, that in any event the failure of the Defendant to comply with the provisions of Part 11 of the CPR did not bind the hands of the court in declining to deal with the case having become aware of a problem with the proceedings. Being aware of the issue (by whatever means) the court was entitled to decline jurisdiction and strike the case out.
And finally, that under either or both of those analyses, the court retained a discretion and that discretion was reasonably exercised by the courts below.
Judgment
At paragraphs 3 and 4 of the judgment, the court deals with the preliminary issue of whether or not the Respondent company had in fact been restored. The matter arose in argument that, whilst it was not known to the judges below, an application had been made to the High Court on behalf of the Appellant for an order restoring the Respondent company. Indeed, it further arose that on 5 February 2019, the High Court had ordered that restoration.
The court swiftly dealt with the Appellant’s arguments in relation to the case of Hoddinott and found that Hoddinott was a case in which the defendant making the application was a fully functioning company which had not been struck off.
In relation to the Appellant’s grounds of appeal involving the case of Peaktone, the court held that whatever the retrospective effect of the order restoring L.W. Carlisle & Company to the register may have been, the court had to judge whether the orders below were properly made on the basis of the facts before them. In fact, when those orders were made, L.W. Carlisle & Company had been struck off, dissolved, and not restored. As it is stated in paragraph 30 of the judgment – “The company no longer existed, and the judges had to work on that basis.”
Given the above, the court was able to narrow the issues substantially. At paragraph 32 it is stated, “The only question that arises, therefore, is whether the District Judge was entitled to strike out the claim under CPR 3.4 and whether he was correct to do so.”
The court commented that because the Respondent didn’t exist at the time of the application, there was no company to give its insurers authority to make said application and any authority under the contract of insurance may have lapsed at the time of dissolution. The Respondent submitted in argument that its authority revived upon restoration. The court considered that it was not necessary to decide the point for the purposes of the appeal.
The court held that whether the application by the insurers was properly brought or not, the first instance judge was entitled to consider how best to progress the action before him, in the exercise of his case management powers. At paragraph 33 of the judgment it is stated,
“he was entitled to consider whether the overriding objective was properly served by the continued presence in the action of the name of a non-existent company. He was entitled to consider whether he should exercise the power to strike out the claim purportedly brought against LWC and he did not err in principle in making the strike out order that he did for the short reasons that he gave. The good reasons for making that order were also properly articulated by Judge Rawlings in the passages of his judgment which we have quoted above.”
The appeal was therefore dismissed on the basis that the first instance judge could not be faulted for striking out the claim against the Respondent.
At paragraph 36 of the judgment, the court went on to address the, “difficult position facing insurance companies” where their insured is dissolved. The court gave the following advice,
“Without being prescriptive, we think that the wise course would be for such an insurer to notify the claimant of the dissolution of the company (if he or she did not know of it already) and to invite/require him or her to make an application for restoration of the company to the register and to apply to the court seised of the main claim for a stay of the substantive proceedings in the interim. In the absence of co-operation in this respect on the part of the claimant, the insurer should write to the court notifying it of the situation and asking it to consider making an order for a stay of its own motion until notified of any order for restoration. Following such a stay, if nothing is done after a sensible time, it would (we think) be open to the insurer to invite the court (of its own motion) to strike out the proceedings.”
The court concluded its judgment by ordering that the Appellant’s solicitors, rather than the Appellant personally, bear any of the costs of any part of the proceedings. It was stated, “those costs were occasioned essentially by the misguided commencement of proceedings by the solicitors against LWC at a time when it was known that that company had been dissolved and was not in existence and without taking prompt steps to pursue the restoration of the company to the register.”
Comment
This case is important in clarifying the position of judges faced with strike out applications such as the instant application, the Court of Appeal having now confirmed that the court does have the power to strike out a claim under its general case management powers, independently of jurisdiction arguments. The Court of Appeal further approved the criteria which the judges below had used when exercising that discretion. Those factors being proportionality, the absence of evidence of an application to restore, any delay and the effect of a stay on other Defendants.
The case provides a stark warning to Claimant solicitors who push on with proceedings against dissolved Defendants in the face of objection and without taking proper and prompt steps to regularise the position. In Cowley, the Claimant’s solicitors were personally ordered to pay the costs of the Appeal and the hearings below. The total bill, which is currently subject to assessment, was in the region of £25,000.
The case has also provided guidance to insurers in a position such as this one, and expressly recognised it as a difficult. Whilst the court did provide guidance (noted above) it did not state that other approaches were wrong – such as that of filing an acknowledgement of service and making an application. As with all things it will be interesting to see the approach the first instance courts take to such applications and the way that the Court of Appeal non-prescriptive guidance functions in practice.
Simon Hughes & Isabelle Knight
Civitas Law
18th March 2020