When a duty of care does arise in tort – suing Companies House

8 February 2015 by David Hart KC

Sebry v Companies House and The Registrar of Companies [2015] EWHC 115 (QB) – read judgment

Paul Rees QC and Neil Sheldon of 1 Crown Office Row represented Companies House in this case. Neither has had anything to do with the writing of this post.

Cases about whether someone owes a duty of care in tort can be surprisingly difficult to decide. Kate Beattie has just posted on the Michael case here, where no duty was held to arise, despite (it appears) the police control room being told by the doomed Ms Michael that her ex-boyfriend had just told her that he was just about to “fucking kill you”. He was as good as his word, within 20 minutes, and the family now sues the police. How much more direct can  you be than that? And yet the family lost 5-2 in the Supreme Court.

The facts of the present case are much less graphic. A muddle in Companies House meant that Mr Sebry’s long-established company (Taylor and Sons Limited) was marked on the official Registry as being in liquidation, whereas the true insolvent company was Taylor and Son Limited – just one Son. Companies House corrected the error quickly, but key creditors and suppliers had heard about the false information, and withdrew credit – such that within 2 months Mr Sebry’s company had gone into administration.

Administrators assigned this cause of action from the company to Mr Sebry. Mr Sebry seeks in the region of £9m for the losses caused by the company being put into administration.

The case came before Edis J, on preliminary issues concerned with whether Companies House owed a duty of care, and on one element of causation, whether the going into administration was caused by the erroneous information. Issues as to how long the company would have kept going (as it had financial problems any way), and the amount of the loss, are for later determination.

A little more about the muddle. Edis J, in deciding that there was a duty of care, examined this in considerable detail; his conclusion was that it would not have taken much to avoid causing the error. An experienced Companies House employee received notification that “and Son” had gone into liquidation, but without the all-important company number. The employee searched, but did not spot the difference between “and Son” and “and Sons”, and so listed the wrong company. The error was corrected on Companies House within 3 days, but it took some weeks longer for it to be corrected on various databases run by licensees of Companies House, and it seems to have been the further delay which caused the problems.

Edis J found that the error could have been avoided if the entry had not been made until the matching company number had been obtained, and indeed if the employee had followed the standard training guide as to how about making such entries. Indeed, he found that no similar error had ever been made before.

The law

There are two slightly different routes to establishing a liability in the tort of negligence.

1. Establish that there is a “special relationship” between defendant and claimant such that there is an “assumption of responsibility” by one to the other.

2. Show that it is fair just and reasonable to impose a duty, and there is “proximity” – the Caparo principles.

Assumption of responsibility

The classic cases of assumption of responsibility are where there are some dealings between the parties, though law students will remember the leading case of White v. Jones, about the duty owed by a solicitor to the beneficiaries under a will (with whom the solicitor may have had no dealings at all other than that they are listed in the will).

Edis J thought that Companies House assumed a responsibility to the companies whose information was registered there (and to those companies alone) to take reasonable care in maintaining the accuracy of that information. It did not have to verify the information provided to it by others, but it did have to make sure that it did not introduce new errors into the information provided to it. He contrasted the position concerning the considerable number of users using Companies House online services, to whom he thought Companies House would owe no duty, though it was not unlikely that users might suffer loss if that information was wrong. He pointed out that each would have a different route to losses. The registered company would suffer loss without any reliance by it on the erroneous information, whereas the user would only suffer loss through its own reliance.

The judge was astute to limit the duty of care in this way. It meant that the duty was significantly narrowed, and the possible number of claims resulting was equally narrowed so as not to amount to a significant counter to the imposition of liability.

But the trickiness of deciding whether there is or is not an assumption of responsibility can be seen when one recalls that the Supreme Court in Michael held that it was untenable that what the call handler said to Ms Michael gave rise to an assumption of responsibility.

Caparo principles

Here proximity was inferred from the limited duty owed by Companies House when it entered information about one specific company, and the duty owed solely to that company. There were no reasons for denying a remedy in those circumstances.

Now to analogy and incrementalism, namely the requirement that a court should be loathe to extend liability significantly beyond that found in previous cases. Whilst there were no identical cases, there was the 1970 case of Minister of Housing v. Sharp where a clerk had provided an inaccurate certificate to a prospective purchaser, such that the purchaser took free of a charge hitherto held by the Minister. Edis J said that both Sharp and his case were not cases of omissions. The clerk came up with a false certificate; Companies House entered false information on the Register. Whilst the cases were not identical, there was sufficient closeness between them for the judge to decide that the shift was an incremental one.

Comment

I think most people will find the decision in Michael instinctively surprising, in that there was really was sufficient closeness for liability to arise – on the facts assumed by the Court. Sebry may, I suspect, elicit differing reactions, certainly in comparison to Michael. Why should Sebry’s company recover for the economic loss caused because its creditors had indirectly received erroneous information, which had been corrected at Companies House? And yet Ms Michael’s family should not?

The main reason in my view for the differing results is the consequence of imposing liability in each case. However one defines it, police liability for failing to prevent murder or serious injury would have a significant impact on police resources. (Perhaps it ought to, but that is a difficult argument in an area in which the Courts are reluctant to tread). Contrast, on the evidence, the one-off error which Companies House would be liable to compensate – albeit at a cost of £9m, if Mr Sebry’s estimate is an accurate one.

That said, the Sebry decision amounts to the imposition of liability in a new area, and it would be far from surprising if the Court of Appeal ended up being asked to review Edis J’s decision on the law.

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