It may come as a surprise to some but until very recently no case had raised the duties of Companies House to register company information correctly. However, the High Court has now held in Sebry v Companies House that Companies House does owe a duty of care in negligence to companies in respect of information it places on the Register of Companies (the "Register").
A case of mistaken identity
The case of Sebry demonstrates how errors on the Register can cause a company substantial losses. Mr Sebry sued Companies House as assignee of a claim by Taylor & Sons Limited (the "Company"), of which he had been the managing director before it entered administration. The Company's collapse into administration occurred shortly after Companies House erroneously recording on the Register that the Company was subject to a winding up order and in liquidation.
The mistake was, in one respect, a small one; Companies House confused the Company, Taylor & Sons Limited, with a different company, Taylor & Son Limited ("T&S"). However, while the Company and T&S had very similar names, they were easily distinguishable (as all register companies are) by their unique company registration numbers. But, as it transpired, this was where Companies House made its error.
In January 2009 the High Court issued a winding up order in respect of T&S and the order was sent to Companies House for filing on the Register. However, the winding up order did not include a company number for T&S. Nor was the order accompanied by a Notice to Companies House ("NOTCH") form (which would have included T&S's company number) nor a covering letter specifying T&S's company number.
Under Companies House's own internal procedural policies, the absence of T&S's company number on the order or any accompanying documents should have lead the document examiner to reject the order and refuse to include it on the Register. However, the document examiner in question (as was apparently common practice at Companies House) did not follow that policy. Instead he chose to identify T&S's company number by searching for T&S on the Register. In doing so he mistakenly identified the Company and placed its registration number on the Order. This led the winding up order being filed against the Company and the Register was updated to indicate that the Company was in liquidation.
Although the error (which was published on a Friday) was identified and Companies House was able to correct the Register fairly quickly (on the following Monday), the error had already been widely circulated to the public. Companies House offers a subscription service of daily updates noting changes to the Register and its subscribers include credit checking agencies and companies. Importantly, although the Register had been corrected, Companies House did not correct the daily updates it had sent out to its subscribers.
As a result the credit checking agencies continued to inform their clients of the Company's apparent insolvency. Unfortunately for the Company this included a number of its customers and suppliers. As word quickly spread, the Company's suppliers and customers refused to continue doing business with the Company for fear of the apparent credit risk it presented. Shortly thereafter the Company went into administration.
Keeping the Register
The Court had to decide if Companies House could be held liable for mistakes on the Register. The Court explicitly rejected the argument that Companies House owes a statutory duty to the public at large as to the accuracy of the information on the Register. However, the Court did hold that Companies House owes a duty of care in negligence to each company on the Register and that it can be held liable for mistakes it made relating to those companies. However, the Court noted that this does not impose a duty on Companies House to verify information supplied to it by third parties – its duty is restricted to ensuring that such information is accurately recorded on the Register.
In this case Companies House had made the error of mistaking the Company for T&S and had breached its duty of care. The Company's descent into administration was held to have been directly caused by that error and, therefore, Companies House was liable to the Company.
Given (i) how influential the Register is in the operation of dealing with and between corporates; and (ii) that its contents are taken by the public at large, without question, as being accurate, this decision seems entirely fair. It may appear, at first glance, that this decision could open the flood gates to a tide of litigation against Companies House. However, the duty of care imposed by this decision is quite narrow. As noted above, Companies House does not have to ensure that information given to it for placing on the Register is accurate, it simply has to ensure that whatever information that is supplied to it is accurately recorded on the Register.
In reality, and this will come as a relief to many corporates, Companies House makes very few mistakes. Its own historical errors records show that its annual Register entry accuracy rate has varied from 96% to 98% in recent years. The mistake that befell the Company was believed to be unprecedented.