Rawnsley and another v Weatherall Green & Smith North Ltd

Insolvency – Liquidation of company – Claim against first defendant firm of surveyors for negligence and breach of contract in valuation of property sold by liquidator – Joint liquidator assigning cause of action to first claimant director of company in return for 10% of proceeds of action pursuant to court order – Whether assignment valid – Whether cause of action capable of sale by liquidator – Application to strike out claim – Application granted in partThe first claimant was the principal director of, and a major shareholder in, the second claimant company. The second claimant went into voluntary liquidation. The second defendant liquidator sold a property that constituted one of the company’s principal assets, having first sought a valuation from the first defendant firm of surveyors. The first claimant believed that: (i) the sale was at an undervalue; (ii) its circumstances were suspicious; and (iii) the first defendant’s valuation had been negligent. Following a creditors’ meeting, a joint liquidator was appointed to investigate the circumstances of the sale. His report made criticisms of both defendants.Subsequently, a court order was obtained extending the powers of the joint liquidator so as to permit him to issue proceedings against the first defendant in the name of the second claimant and/or to assign that cause of action to the first claimant. Pursuant to that order, the joint liquidator executed an assignment of the cause of action to the first claimant in return for 10% of the proceeds of the action.In subsequent proceedings against the defendants, the first claimant sued in various capacities, including that of assignee under the court order. The defendants applied to have parts of the claim struck out and summary judgment entered in their favour. They challenged the validity of the assignment effected pursuant to the court order, contending that the cause of action held by the joint liquidator was not capable of being sold to a third party. The first claimant argued that, while claims that were personal to the liquidator could not be sold, the claim in negligence and/or breach of contract against the first defendant was vested in the second claimant company, was not personal to the liquidator, and could, accordingly, be sold.Held: The application was granted in part.There was a fundamental distinction between assets of a company and rights conferred on a liquidator in relation to the conduct of the litigation. The former were assignable by sale under para 6 of Schedule 4 to the Insolvency Act 1986, while the latter were not because they were an incident of the office of liquidator: Grovewood Holdings plc v James Capel & Co Ltd [1995] Ch 80, Re Ayala Holdings [1993] BCLC 256 and Re Oasis Merchandising Services Ltd (in liquidation) [1998] Ch 170 applied. In a case where only the fruits of the proceedings were assigned, it was not possible for the liquidator to additionally assign the power to conduct the proceedings. However, that did not affect the right of the liquidator to sell the bare cause of action. In the instant case, there had been a valid outright assignment of the cause of action to the first claimant for a consideration of 10% of the net proceeds of the action, which was an acceptable form of consideration; moreover, the entire management of the claim was vested in the first claimant. Accordingly, the first claimant’s claim as assignee against the first defendant should not be struck out: Ruffle Plant Hire Ltd v Secretary of State for the Environment, Food and Rural Affairs [2008] EWHC 238 (TCC); [2009] 1 All ER 448 distinguished.Other parts of the claim were struck out, including the first claimant’s claim against the second defendant, the cause of action for which had not been assigned to him, and claims made in his capacity as a shareholder of the second claimant.Eleanor Temple (instructed by Taylors, of Blackburn) appeared for the first claimant; Anneliese Day (instructed by WHCG LLP) appeared for the first defendant; Paul Mitchell (instructed by Beachcroft LLP, of Leeds) appeared for the second defendant.Sally Dobson, barrister