2020-02-17
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A costly mistake; Sebry v Companies House and another

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Posted by Gemma Carson on 11 February 2015

Gemma Carson Partner - Head of Dispute Resolution

In January 2015, the High Court considered whether Companies House and the Registrar of Companies owed a duty of care to the claimant who was the Managing Director of Taylor & Sons Limited (“the Company”) in the case of Sebry v Companies House and another.

Background

On 28 January 2009, the Chancery Division of the High Court made a winding-up order under the provisions of the Insolvency Act 1986 against Taylor and Son Limited.  On 20 February 2009, the Order was incorrectly registered on the Companies House computer system against Taylor & Sons Limited.

On 23 February 2009, the Company accountant discovered from online information that the Company was showing as being in liquidation. The Company contacted Companies House and notified them that the Companies’ Register was incorrectly showing the Company as being in liquidation. Companies House removed all references to the winding-up order on the Register’s online systems on the same day. The corrections were made before the winding-up petition was submitted to the London Gazette for publication.

Despite the references to the Company being in liquidation being removed from the Register’s online systems the same day, the information that the Company was in liquidation had come to the attention of an unknown number of people who had accessed the Register online before it had been removed. A number of the Company’s creditors and suppliers acted on the information that had spread by word of mouth.

The Company went into administration in April 2009.

Legal position

The claimant brought a claim for damages for negligence and breach of statutory duty against Companies House and the Registrar of Companies (“the defendants”) for incorrectly registering the Company as being in liquidation. The claimant alleged that the publication of this information caused the Company to go into administration.

The High Court was asked to determine three preliminary issues:

  1. Whether the defendants owed the Company a duty of care under statute or common law to take reasonable care and skill amongst other things to ensure that in discharging their functions and/or maintaining and/or altering the Company Register, incorrect information was not entered on the Register relating to the Company and not to enter and/or record on the Register information relating to a different company;
  2. If any such duties were so owed, whether the defendants breached any duty; and
  3. Whether any breach of duty by the defendants caused the Company to enter into administration.

The decision

The High Court ruled that a Registrar owed a common law duty of care when entering a winding-up order on the Register to take reasonable care to ensure that the order was not registered against the wrong company. The duty was owed to any company which was not in liquidation but was wrongly recorded on the Register as having been wound up. The court further concluded in this case that there was a ‘special’ relationship between the Company and Companies House at the time when the liquidation document examiner entered the winding-up order against it and that there was an assumption of responsibility to the Company. As foreseeability of harm was obvious, it was fair just and reasonable to impose a common law duty of care.

As to whether the error had caused the Company to go into administration, on the evidence before it, the High Court accepted that the Company had gone into administration as a result of a cash shortage which was caused by the rumour that the Company was in financial trouble. The court heard evidence that the rumour caused the Company’s bank to refuse to lend and its suppliers to refuse to supply goods and services without payment in full for all past and future supplies causing the Company to lose an essential line of credit. The High Court concluded on the evidence that the Company’s financial downfall was caused by rumours caused by the false publication of information that the Company had gone into liquidation. The court held that there was no evidence of any other precipitating factor and that the defendants’ suggestions that the actions of others or of the Company in addressing the error were new causes which broke the chain of causation between the error and the administration were without foundation. 

Commentary

This case shows that a simple administrative error can have catastrophic consequences for an innocent victim of the error. It also illustrates that where appropriate the court will make a finding that a ‘special’ relationship exists between two parties to the effect that one party has assumed responsibility to another.

No award of damages has been made as yet. However, it is reported that the claim for damages made by the claimant is estimated at £8.8 million.

About the author

Gemma Carson

Partner - Head of Dispute Resolution

Gemma specialises in commercial litigation and has a wealth of experience in dealing with all types of commercial contract dispute.

Gemma Carson

Gemma specialises in commercial litigation and has a wealth of experience in dealing with all types of commercial contract dispute.

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