Single typo costs Companies House £8m

Companies House liable for mistakenly saying Company had been wound up

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Background

Companies House has been held responsible for the financial collapse of Taylor & Sons Ltd, of Cardiff, a 124 year old engineering company. On 20 February 2009, Companies House mistakenly recorded on the register that a winding up order had been made against it. But there was a typo; it was an entirely unconnected company with a very similar name, “Taylor & Son Ltd” that had been wound up. After 3 days the error had been corrected. By then it was too late.

Companies House had sold the records to credit reference agencies. Customers and suppliers wouldn’t trade with the blameless and solvent Taylor & Sons Ltd; they lost business, income and credit. Within two months the business, which employed 250 people collapsed and it was forced in to Administration.

 

Negligent Misstatement

 The Co-Owner and managing director of Taylor & Sons Ltd, Philip Sebrey took proceedings against Companies House, an executive agency of the Department of Business, Innovation and Skills. His claim was based on the law of negligence, which has been developing continuously since the leading 1963 Case of Hedley Byrne v Heller[i], extending the law of negligence. Where a careless statement is made which causes economic loss, the victim can claim damages. That now includes cases involving the careless exercise of statutory powers.

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Decision

After a 4 year battle, the claim for compensation succeeded. Sebry v Companies House [2015] EWHC 115[ii]. Although damages have not yet been decided, the claim is for approximately £8m.

The Judge, Mr Justice Edis said that the long standing 3 stage test in Caparo[iii] applied:

  • Forseeability: this was “obvious”
  • Proximity: the duty was owed to one individual company whose identity was readily discoverable. To say that it was also owed to every other company on the Register is only to say for example that a hospital owes a duty to each patient which it treats, and may come to owe duties to many thousands of people in the course of a year. Whilst true, this is not a reason for denying that the hospital ever owes any duty. Very large organisations such as hospitals who impact on the wellbeing of a very large number of people owe a very large number of duties to a very large number of people. The class is limited and its members ascertainable at the stage when treatment is given
  •  Whether it is fair, just and reasonable to impose a duty: The Judge could find no proper ground on which to conclude that it would not be fair, just and reasonable to impose a duty to avoid foreseeable harm to a sufficiently proximate victim.

Conclusion

“…..the Registrar owes a duty of care when entering a winding up order on the Register to take reasonable care to ensure that the Order is not registered against the wrong company. That duty is owed to any Company which is not in liquidation but which is wrongly recorded on the Register as having been wound up by order of the court. The duty extends to taking reasonable care to enter the Order on the record of the Company named in the Order, and not any other company. It does not extend to checking information supplied by third parties. It extends only to entering that information accurately on the Register….”

Ultimately, Edis J could see no legal principle or policy excusing Companies House for its negligence. Where there is a legal wrong, there ought to be a remedy. If Companies House had escaped liability, Mr Sebrey would have had no redress. The previous understanding of the law has been applied, and moderately extended under the doctrine of “incrementalism”.

For liability to be established, a claimant has to prove that it suffered losses directly as a result of reliance on a negligent misstatement. An executive agency carrying out a statutory function was not immune. However, the liability in these particular circumstances did not extend to other, less proximate or easily identifiable parties, including lenders and employees.

 

[i] [1963] 2AC 465

[ii] http://www.bailii.org/ew/cases/EWHC/QB/2015/115.html

[iii] Caparo Industries v Dickman [1990] 2 AC 605

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Court of Appeal Decision: Assessing Damages on a Freezing Order Cross-Undertaking

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The Court of Appeal has for the first time given guidance on how damages are to be awarded on a cross-undertaking in damages on a freezing order. This clarifies recent uncertainty on the principles in first instance decisions.

Whenever the Court makes an interim order pending trial, such as a freezing order, search order or injunction, invariably the Court requires an undertaking from the Claimant. This “cross-undertaking” makes the Claimant pay damages to the Defendant if it is later decided that the Claimant should not have been granted the interim order.

The Court of Appeal has reiterated the analogy of contractual principles that should apply to assessment of damages under a cross-undertaking. That is with the proviso that there is in reality no contract and there has to be room for exceptions.

In Abbey Forwarding Ltd (in liquidation) and another v Hone and others (No 3) [2014] EWCA Civ 711; [2014] WLR (D) 236  giving the lead judgment of the Court of Appeal, McCombe LJ held

‘When determining questions of compensation for loss arising as a result of a freezing order and the undertaking in damages therein, the correct approach was that the remote consequences of obtaining an injunction were not to be taken into account in assessing damages but that logical and sensible adjustments might well be required simply because the court was not awarding damages for breach of contract but was compensating for loss caused by the injunction which was wrongly granted.’

This was the correct approach where a Defendant who is the victim of an unfair injunction should be compensated for their loss. However, a Claimant should not be fixed with liabilities that no reasonable person could have foreseen, unless the Claimant knew or ought to have known of other circumstances that were likely to give rise to that type of loss.

Terms such as “common law damages” and “equitable compensation” did not assist.

The aggreived Defendants contended that they had been successful entrepreneurs with a track record of commercial and investment success which had been impeded for some 20 months because of the wrongful freezing order.  On appeal it was confirmed that whilst principles of remoteness of damage in contract ought to apply in the circumstances, there should be flexibility so as to allow logical and sensible adjustments. This was because the Court was not awarding damages for breach of contract, but was compensating for loss caused by the injunction.

Vos LJ added that general damages could also be included within the cross-undertaking in some cases where appropiate, for stress, loss of reputation and general loss of business opportunities and disruption caused by inappropriate policing of the injunction.

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