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Broadly Pleaded Claims Based On Date Of Knowledge In Misfeasance And Wrongful Trading Claims Struck Out (Chandler v Wright) – Insolvency/Bankruptcy


Restructuring and Insolvency analysis: The respondents to a
claim brought by the joint liquidators of BHS Group companies have
successfully struck out parts of claims brought under sections 212
and 214 of the Insolvency Act 1986 (IA 1986) on the basis of
open-ended pleadings as to the relevant date of knowledge that
insolvent liquidation was inevitable and trading should have
ceased.

Chandler v Wright and others [2022] EWHC 2205 (Ch)

What are the practical implications of this case?

This is a useful judgment offering guidance to office-holders
bringing misfeasance claims under IA 1986, s 212 and wrongful
trading claims under IA 1986, s 214. It confirms that the question
of what is required by way of a proper pleading is case sensitive
and will vary from case to case.

However, there is general principle that office-holders are
afforded greater leeway than other litigants in terms of the
strictures of the pleading. When wrongful trading claims in
particular, are tried, courts enjoy a degree of flexibility in
fixing the relevant date by which the respondents knew or should
have known that there was no realistic prospect of the company
avoiding insolvent liquidation and this may be different from the
date pleaded.

While there was no obligation on the office-holder to plead one
or a number of specific dates of knowledge, what is not permissible
is the pleading of a broad time period in which the relevant date
is said to have arisen. The court cited with approval the dicta of
Mr Justice Cockerill in King v Stiefel [2021] EWHC 1045
(Comm) in which three functions of pleadings were noted:

  1. to enable the other side to know the case it has to meet

  2. to ensure the parties can properly prepare for trial, and

  3. to operate as a critical audit for the claimant and its legal
    team that it has a complete cause of action or defence

What was the background?

This is an appeal in relation to an interim matter in ongoing
proceedings brought by the joint liquidators of four companies
within the BHS Group. The claims are brought against former
directors of those companies under IA 1986, ss 212 and 214.

In respect of the IA 1986, s 212 claims, it is alleged that the
defendants breached their duties to the companies and that those
breaches led to a deterioration of the financial positions of those
companies. In respect of the IA 1986, s 214 claims, the central
allegation is that the defendants wrongfully allowed the companies
to continue to trade when they knew or should have concluded that
there was no reasonable prospect that the companies would avoid
going into insolvent liquidation.

The sums claimed in the proceedings are in excess of
£163m.

One defendant, Mr Chandler, applied to strike out parts of the
pleaded claims against them, specifically those parts which related
to five alternative grounds for alleged wrongful trading. The
object of the strike-out application was to restrict the claim to a
claim based on the relevant date of knowledge (in relation to the
unavoidability of insolvent liquidation) of 17 April 2015. Mr
Chandler argued that the alternative claims were not properly
pleaded and it was not appropriate (as they had) to leave the
relevant date of knowledge open-ended.

The application came before Deputy Insolvency and Companies
Court Judge Schaffer at a case management conference in December
2021. The strike-out application was dismissed and Mr Chandler
sought permission to appeal. A rolled-up hearing was ordered to
consider both the application for permission to appeal and, if
permission was granted, the substantive appeal itself.

What did the court decide?

The appeal was brought on four grounds. They were:

  1. that the judge misdirected himself as to the issue which he had
    to determine on the strike-out application

  2. that the judge failed to address the so-called ‘Overarching
    Case’ which, it was argued, seeks to pursue a claim pursuant to
    IA 1986, s 214 without specific reference to the date of
    knowledge

  3. that the judge erred in applying a different standard to claims
    pleaded by office-holders than claims brought by ordinary
    litigants, and

  4. the judge erred in finding that there was no unfairness caused
    to Mr Chandler in allowing the proceedings to continue in the
    current form

Mr Justice Edwin Johnson granted permission to appeal on all
four grounds and granted the appeal on grounds 1, 2 and 4.

After reviewing the authorities, Edwin Johnson J concluded that
there was no requirement that claims under IA 1986, s 214 must
always be pleaded by reference to a specific date or dates. Nor is
it the case that where a specific date is pleaded and that date is
not established as the correct date of knowledge at trial that the
claim must fail. The court enjoys a degree of flexibility in such
circumstances.

However, when it comes to pleading the case, claimants cannot
simply leave the relevant date of knowledge at large over a broad
period of time. The claimants here were entitled to rely on a
pleaded case that the date of knowledge was 17 April 2015 or one of
a number of alternative dates specified. Insofar as the pleading
left open a broader range of dates, it stood to be struck out.

The same logic applies to the part of the IA 1986, s 212 claim
which pleads to the date on which the defendants would have caused
the companies to cease to trade if they had not been in breach of
their duties.

The claims based on the alternate dates were, however, also
defective in their pleading, as the Points of Claim fail adequately
to plead causation and quantum based on those alternate dates.

The third ground of appeal, however, lacked merit. The judge was
right to note that the extent to which matters needed to be pleaded
is case-sensitive and there will be flexibility from case to case,
including where claims are brought by office-holders. In any event,
the third ground was based upon comments made by the judge in
refusing permission to appeal and not in the judgment itself.

In terms of relief, Edwin Johnson J was prepared to afford the
claimants an opportunity to retrieve the position by giving them a
period of time in which to apply for permission to amend their
pleadings and properly introduce their claims based on the
alternative, specific dates.

Case details

  • Court: Business and Property Courts of England and Wales,
    Chancery Appeals

  • Judge: Mr Justice Edwin Johnson

  • Date of judgment: 19 August 2022

Article by Phillip Patterson – first published by
LexisNexis

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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