Liability of administrators for the economic loss of a creditor

Background

The case concerned royalty payments, which a creditor had a contractual right to receive, arising from iron ore produced at a mine in Sierra Leone.

The parent company of the Sierra Leonean mining company went into administration and administrators from PwC were appointed. The creditor's director called the administrators to stress the importance of bringing the royalty payments to the attention of a third party purchaser.

The administrators subsequently sold the mine, but did not make the purchaser aware of the royalty issue.

The central issue was whether the administrators owed a duty to the creditor to procure that a purchaser of the mine continued to pay royalties. The creditor argued that the administrators had assumed responsibility to it such as to create a special relationship.

Held

The claim against PwC and the administrators was struck out at first instance, and that decision was upheld on appeal.

On the facts of this case, no special relationship existed. Whilst the administrators had listened to the creditor's problem, the court held that "no promises were made, nor [were] any alleged."

In any event, the administrators owed a duty to achieve the best realisation of the assets for the benefit of all creditors. Had they asked a third party purchaser to pay the royalties, it is a matter of commercial reality that the purchaser would have paid less for the mine.

Comment

In coming to its decision, the Court of Appeal showed a willingness to look at the commercial reality of the decisions administrators must make on a daily basis.

Fraser Turner Ltd v PricewaterhouseCoopers LLP and others [2019] EWCA Civ 1290