In Denaxe Ltd v Cooper and Rubin the Court of Appeal has clarified that while often referred to as "immunity" the protection afforded to practitioners from future claims after the Court has approved, or sanctioned certain actions is no more than an expression of the doctrine of issue estoppel. It does not provide automatic protection to officeholders and does not constitute a standalone ground for striking out any subsequent claims.
This decision will be relevant to officeholders (such as receivers, administrators and liquidators) who may need to seek sanction from the Court. It will also be relevant to the scope and extent of sanction required.
Background
In the present case, Court appointed receivers were appointed over certain assets held by the Claimant. The assets included a majority shareholding in Blackpool Football Club, as well as the stadium, training ground and certain other assets. The receivers were appointed to sell the assets and decided to sell the assets as a single package, rather than selling them individually.
The receivers applied to the Court to obtain sanction of the sale of the assets. The Court approved the sale which totalled £8.2million and the sale completed. The receivers were subsequently discharged.
Denaxe's claim against the receivers
Shortly after the discharge, Denaxe issued proceedings against the former receivers, alleging that they had breached their duties of care in selling the assets at an undervalue. The receivers were criticised for not selling the assets separately.
The receivers applied to strike out the claim on the basis that they had immunity by virtue of the Court's sanction of their decision to enter into the sale transaction. The receivers also argued that Denaxe's claim was an abuse of process because Denaxe had not challenged the sale strategy at the sanction application but could have done so.
In the first instance decision Mr Justice Fancourt considered four grounds for why Denaxe's claim should be struck out and ultimately decided to strike the claim out on the first ground; in particular the ground that the Court's prior approval of the receivers' actions granted them immunity.
Mr Justice Fancourt also said that even if he had not struck the claim out on the first ground, he would have done so under the third ground (abuse of process).
Denaxe appealed the decision on both grounds.
The Court of Appeal's Decision
The Court of Appeal upheld the original decision.
Although the Court of Appeal agreed that the claim should be struck out, Snowden LJ provided a different reasoning for his decision in the leading judgment. He disagreed with Mr Justice Fancourt's view that the Courts prior approval of the sale transaction provided the receivers with immunity.
In Snowden LJ's view there is no separate doctrine of "immunity". It is not a freestanding concept. The fact that the receivers had obtained the court's sanction prior to the sale did not automatically prevent Denaxe from bringing a claim to challenge the sale. In Snowden LJ's view, the receivers needed to succeed on the issue estoppel or abuse of process argument to succeed in striking out Denaxe's claim.
The Court of Appeal decided that Denaxe's claim was an abuse of process because it raised issues which could and should have been raised at the time of the sanction application. In particular, Denaxe's criticisms of the sale, including the argument that the assets should have been sold separately, were all arguments that it had an opportunity to raise at the sanction hearing. Denaxe had notice of the sanction application but chose not to raise these arguments until post-sale. The Court of Appeal held that this was an abuse of process.
Practical Implications
This decision will have important practical implications for officeholders who wish to apply for the Court's sanction. Future applications will need to be carefully drafted and detailed consideration will need to be given to what issues the Court is being asked to consider in the application. Officeholders will also need to consider whether all affected parties have been properly joined to the application to ensure that they are bound by the decision.
Denaxe Ltd v Cooper and Rubin confirms that an officeholder who has obtained court approval of a particular course of action does not benefit from blanket protection or "immunity". The scope of protection will vary depending on the facts of the case.
As stated in the judgment, the Court is “not a sanctuary or bomb shelter" so officeholders will need to be careful to ensure that the scope of any future sanction applications provides them with adequate protection.
If you have any queries about sanction applications, or any of the issues raised in this article, please contact Rebecca Stratton in our Restructuring and Insolvency Team at Rebecca.Stratton@howardkennedy.com.
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