The £9 million Companies House typo

The £9 million “s”: How Companies House was successfully sued for a winding up mistake

In Sebry v Companies House and the Registrar of Companies the High Court has found that Companies House is liable at common law for a clerical error which resulted in a company’s collapse into insolvency. The quantum of damages is yet to be determined, but the amount claimed is roughly £9 million.

What happened?

Taylor and Sons Limited (clock the name, it’s important) was a steel fabricator based in South Wales. In 2009 after a few fraught years it was back on an even keel, with the prospect of some significant contracts wins on the horizon.

But a couple of hundred miles away in Manchester, Taylor and Son Limited – a completely unrelated company – was faring less well. So much so that on 28 January 2009 a winding up order was made against it in the High Court. The order against Taylor and Son Limited, which did not include a company number, was received by Companies House on 12 February 2009.

In a breach of Companies House procedures (which during evidence was found to have been common practice) the winding up order was registered despite the lack of a company number on its face. The registration took place on 20 February 2009. At this point the incorrect name was entered onto the register, by the insertion of an additional “s” at the end of the word “Son”. The Court heard evidence that a transposition error of this type in the winding up register was likely to have been unprecedented.

The effect of the typographical error on Taylor and Sons Limited was catastrophic. Credit from both suppliers and the company’s bank dried up almost immediately. Companies House corrected the error on 23 February 2009, but not before the information was resold to a number of information providers (including Experian, Dunn & Bradstreet, Equifax, Jordans and others) on 21 February. Companies House didn’t take any steps to bring the error to the attention of these providers until the second week of March, by which time it was too late, as rumours regarding the company’s solvency had by then been widely circulated. The company fell into insolvency a few weeks later.

How was Companies House found liable?

Companies House was found to be liable in negligence to Mr Sebry (the right of action of the company against Companies House had been assigned to him by its administrators) for breach of a duty of care. Companies House was not found to have breached any statutory duty in relation to the maintenance of the register.

The duty of care was expressed as an obligation to take reasonable care when entering a winding up order on the register to ensure that the order is not registered against the wrong company i.e. to enter accurately the information set out in the order on the register. In the present case, that Court found that duty had been breached. The judge deliberately circumscribed the duty narrowly, and so nothing in this case indicates how other claims brought in relation to other types of entry on the register might be decided.

In establishing this new duty, the Court was required to assess the three conditions (summarised by the House of Lords in the 2006 case of Customs & Excise v Barclays Bank plc) which determined whether Companies House was liable in negligence for pure economic loss suffered by the company, through the imposition of a duty of care:

1. Responsibility: the Registrar had assumed responsibility to maintain and update the register. It did not matter that the assumption of that responsibility was mandated by statute;
2. The Caparo tests: the three-stage test for the existence of a duty of care under Caparo v Dickman principles – foreseeability of harm, proximity and fairness and reasonableness to impose a duty of care – was satisfied; and
3. Incremental extension to an existing scope of duty: the Court found that the duty had been appropriately foreshadowed by similarly decided cases, and so this test was also satisfied.

Possible appeal?

The judgment was handed down at the end of January 2015, and an appeal is widely expected.

Osborne Clarke comment

To some extent, this is a unique case on (hopefully) unique facts. It is extremely unusual to see Companies House held liable for an avoidable clerical error; probably because not many errors have such devastating consequences. But it is:

• an interesting application by the Court of common law negligence principles to a public body;
• regrettable that Companies House took so long to tell the credit information providers about the errors; and 
• an example, should one be needed, of the power of the information sold by those credit information providers.