The effect of liquidation and restoration on limitation periods

Holmes v S&B Concrete Ltd [20.08.20]

Date published

01/10/2020

Services

Locations

Holmes v S&B Concrete Ltd [20.08.20], considered (in the context of a noise induced hearing loss action) whether the limitation period was suspended when a company was wound up.

Background

The claimant alleged noise induced hearing loss as a result of exposure to excessive noise levels during the course of his employment between 1986 to 1993. The defendant had entered creditor’s voluntary liquidation and had thereafter been voluntarily wound-up and dissolved. The claimant had successfully applied to restore the defendant in order to pursue proceedings against. At a preliminary trial on limitation the claim was dismissed on the basis the claimant’s date of knowledge was held to be mid-2007 at the latest and the judge did not find it equitable to exercise his discretion under s.33 Limitation Act 1980 to disapply the limitation period. The claimant appealed.

Issues and decision

Helpfully for defendants, this judgment confirms that where claimants bring personal injury cases more than three years after the accrual of the cause of action/date of knowledge (as applicable), they will not in the majority of circumstances be able to rely on the ruling in Financial Services Compensation Scheme Limited (FSCS) v Larnell (Insurances) Limited (in liquidation) [2005] to escape the claim being statute barred.

The FSCS case established that time does not run for the purpose of limitation beyond the date when a company enters liquidation. It further held that where a company has been dissolved and struck off the register, it must first be restored before the claimant can rely on the Third Parties (Rights against Insurers) Act 1930.

The FSCS case also confirmed that the effect of the company restoration is that the liquidation is revived and a limitation defence was therefore confined only to the period before the commencement of the liquidation.

On appeal in Holmes, the court distinguished the FSCS case on the basis that Holmes was a claim which fell within the compulsory employers’ liability insurance limit of indemnity. It was therefore a claim ‘outside of the liquidation’. In contrast, the FSCS case involved a claim within the liquidation, the effect being that limitation in Holmes had not ceased to run before the claim form was issued.

However, it is important to note that there may be circumstances where a personal injury claim is outside of the liquidation, for example, claims which exceed the indemnity limit.

In those cases, the court suggested it could be made a condition of the order for restoration that any claim against the company is to be limited to the liability of the insurer pursuant to the policy. This will keep the claim outside of the liquidation and therefore distinct from the situation in the FSCS case.

The Court of Appeal case of Smith v White Knight Laundry Limited [2001] held that the effect of a direction for restoration under the Companies Act was the same as a grant of relief under s.33 of the Limitation Act 1930 where:

  • The applicant for a restoration order was a prospective claimant in a personal injury action, and
  • Where the claim would otherwise have been statute-barred.

Section 1030(2) Companies Act 2006 provides that no order for restoration shall be made if it appears to the court that the proceedings "would fail by virtue of any enactment as to the time within which proceedings must be brought".

The court is therefore bound to consider limitation arguments when deciding an application to restore. Where a claimant’s s.33 application would not succeed, the court should not make the order to restore. However, a big problem with the present rules is that there is nothing requiring notice of such applications to be given to insurers.

Insurers therefore need to be wary to avoid there being any suggestion that they have yielded to the grant of relief or waived their right to raise limitation. Where possible, insurers should therefore make their interest known to the courts to which such applications for restoration are allocated and to notify that there may be limitation issues.

If necessary, an application to set aside the restoration order may be needed. The judge deciding the Holmes appeal has recommended the Rules Committee consider changing the rules so that notice is required to be given to insurers of applications to restore.

Comment

The Holmes decision, rightly in our view, ensures that where it would not be equitable for the court to exercise its discretion under Section 33 Limitation Act 1980, a claimant does not gain an undeserved windfall.

Read others items in Occupational Disease Brief - November 2020