Disclosure and Inspection in Insolvency Proceedings

Update 2024: see now (1) Superdrug Stores Plc v Protein World Ltd [2023] 7 WLUK 547 and (2) Re Yurov (also known as Thomas v Metro Bank Plc) [2022] EWHC 2112 (Ch); [2022] BPIR 1616, both decisions of Deputy ICC Judge Parfitt. These decisions will be considered at the end of the (original) article.

When it comes to the need for Disclosure and Inspection, one can draw obvious similarities between insolvency proceedings (i.e. winding up petitions and bankruptcy petitions) and any other ordinary civil proceedings. Parties seeking determination by the Court of contentious issues, will want the Court to view the relevant documentary material as part of that determination process, whichever of the parties initially had possession or control of that documentation. Where there is an initial imbalance in the documentation available to the parties, the law will want to rectify that asymmetry, to place the parties on an equal footing, at least in respect to referring to relevant documents. On the face of it therefore, insolvency proceedings should require, as a preparation stage, Disclosure and Inspection, just like any other ordinary civil proceedings. However, while there are undoubtedly similarities, the nature of insolvency proceedings, and the categories of parties involved, means that disclosure and inspection are not automatic. It is not usual practice to have CPR r.31 disclosure and inspection orders in insolvency proceedings.

Disclosure and Inspection

Disclosure and Inspection are crucial to ordinary civil litigation. Invariably in life, there will be an imbalance in the level of documents in the possession or control of each of the parties to litigation. One party may have generated most of the documents and kept copies, or just been more diligent at retaining copies - however the imbalance has come about, the process of Disclosure and Inspection remedies this asymmetry. Each party declares what material documents they have (‘Disclosure’; typically on an N265 form), and each will supply to the other, copies of documents the other party requests (‘Inspection’)(subject to rules of privilege etc.). After the process has been undertaken, each party should have the same documents. Going forward, as least in respect to access to documents, the parties will have a level playing field.

Governing Law - Insolvency Rules 2016, r.12.27

The CPR rules on Disclosure and Inspection are applicable to insolvency proceedings in court. They are made so through a gateway provision in the Insolvency Rules 2016, as they were in the Insolvency Rules 1986. As explained in Highberry Ltd. v Colt Telecom Group Plc [2003] 1 BCLC 290 (‘Highberry’), by Lawrence Collins J, it is r.7.60 (now r.12.27), not r.7.51[1], which acts as the gateway for incorporating CPR rules on Disclosure and cross-examination into insolvency proceedings (note the hearing of insolvency proceedings will normally be on the basis of written evidence). At paragraph 33 he said:

“Consequently in my judgment the governing provisions are the 1986 Rules which give the court power to order disclosure and cross-examination on the application of any party to insolvency proceedings. The equivalent CPR provisions are not incorporated by reference through r 7.51(1) of the 1986 Rules, because the CPR and the practice and procedure of the High Court apply to insolvency proceedings "except so far as inconsistent with these Rules," and the 1986 Rules make express provision for these matters.’

It is necessary then to turn to this gateway provision, since this empowers the Court to make Disclosure and Inspection. Insolvency Rules 2016, r.12.27 is entitled ‘Further information and disclosure’, and makes provision for the Court to make an order in accordance with CPR Part 31, as well as Part 18 Further Information (which shall be quoted below, for completeness). R.12.27 reads:

‘(1) A party to insolvency proceedings in court may apply to court for an order—

(a) that in accordance with CPR Part 18  (further information) another party—

(i) clarify a matter that is in dispute in the proceedings, or

(ii) give additional information in relation to such a matter; or

(b) for disclosure from any person in accordance with CPR Part 31 (disclosure and inspection of documents)

(2) An application under this rule may be made without notice to any other party.’

Although the wording is slightly different as between r.12.27 and the former rule, r.7.60, substantively they are the same. This is important because, in addition to readers perhaps still getting used to the transition from the Insolvency Rules 1986 to Insolvency Rules 2016, all of the currently reported case law relates to r.7.60, rather than its new iteration r.12.27. The former r.7.60 read as follows: 

‘(1) Any party to insolvency proceedings may apply to the court for an order–

(a) that any other party

(i) clarify any matter which is in dispute in the proceedings, or

(ii) give additional information in relation to any such matter; in accordance with CPR Part 18 (further information); or

(b) to obtain disclosure from any other party in accordance with CPR Part 31 (disclosure and inspection of documents).

(2) An application under this Rule may be made without notice being served on any other party.’

Given they are substantively the same rule, the r.7.60 case law should apply equally to the r.12.27 rule.

Willingness of the Court to Exercise its Discretion

R.12.27 grants the Court a discretion whether or not to order Disclosure and Inspection.  Mr Robin Hollington QC sitting as a Deputy Judge of the High Court in Re Angel Group Ltd (also known as Davey v Croxen (Administrator)) [2015] EWHC 2372 (‘Re Angel Group’) confirmed this discretion, before going on to note that the Court takes an atypical approach to Disclosure and Inspection in respect to insolvency proceedings. He said, at paragraphs 9 and 10:

‘As to authority as to how I should exercise the undoubted discretion that I have, it is clear that I do not just proceed on the basis that this is a common-or-garden application under the CPR in ordinary proceedings. These proceedings are special, so to speak….’

The Court’s willingness to exercise that discretion in insolvency proceedings in court, depends heavily on the nature of the proceedings, as well as the issues and order sought, considered in light of the overriding objective. This was made clear by Lawrence Collins J in Highberry, when he said, at paragraph 33:

'Whether such an order will be made will depend upon the nature of the proceedings and the nature of the disputed questions. Any application for such an order must be viewed in the light of the overriding objective laid down by the CPR, which is not, of course, not inconsistent with the 1986 Rules and is incorporated by reference through 7.51(1).'

These statements by Lawrence Collins J were adopted in Re Angel Group, paragraph 10.

Whether the discretion will be exercised, will depend on whether it is desirable in the interests of justice so to order - whether it is just. This principle was recognized in Re Primlaks (UK) Ltd (No.2) [1990] BCLC 234 (‘Primlaks’), a decision of Harman J, where he said, at 239F to H (substituting ‘Disclosure’ for the old reference to ‘discovery’):

“The ordinary rule is that if application is made, even in proceedings brought by a regulating summons, and the court is satisfied that it is desirable in the interests of justice, then discovery should be ordered. That proposition in my view must apply also to applications under r 7.60 of the 1986 rules which says that any party may with the leave of the court obtain discovery. The same principles must, in my view, apply to a rule providing for obtaining the leave of the court and a rule that the court may make such order for discovery as it seems just, as under Ord 24, r 4. I cannot believe that the difference of wording in the two rules ought to be held to lead to differing burdens.’

Though in general terms Disclosure and Inspection should be ordered where it could be proper to so order, the Court will not do so were it would be unduly burdensome, oppressive or not necessary for the disposal of the issue, or issues, before the Court. This principle was recognized by Harman J in Primlaks; he said, at 239G:

Thus, once one sees that that is an issue to which discovery could properly go, in general terms discovery will be ordered unless it is unduly burdensome, oppressive or not necessary for the disposal of the issue before the court.”

These principles from Primlaks, were adopted by the Deputy Judge in Re Angel Group, paragraph 9. The upshot from this, is that the Court will ask itself, as part of its analysis, for each document sought, is it necessary for the determination of the matter that it be disclosed/inspected. For each document, would Disclosure and Inspection be oppressive or unduly burdensome to provide, including cumulatively. What is not necessary, is excessive and unreasonable, and should not be required to be disclosed. As will be apparent, applications for partial (or specific) Disclosure and Inspection, are more likely to meet this exacting criteria, than applications for full and general orders for Disclosure and Inspection.

The Nature of the Proceedings

Although touched on earlier, it would be helpful briefly to return to the nature of the proceedings in a little more detail, since the Court is very reluctant to grant disclosure in certain categories of insolvency proceedings in court. Two areas are expressed addressed in the reported authorities:

(1) in Highberry, Lawrence Collins J noted, at paragraph 28, that ‘…an order for disclosure is unprecedented in the context of a contested administration petition.’ Further, he said, at 35:

“It seems to be plain that the nature and purposes of an application for an administration order, the nature of the enquiry by the court, and the usual urgency of the application, make it inevitable that only very exceptional circumstances will justify an order for disclosure or cross-examination in proceedings for an administration order.”

(2) for winding up petitions proceedings, Lawrence Collins J said, at paragraph 29 of Highberry:

‘As long ago as 1883 Chitty J. said that he had had considerable experience of winding up petitions, and he had never heard of an order for general disclosure of documents: Re Hoover Hill Gold Mining Co (1883) SJ 434. He said: "the late Master of the Rolls had always emphatically refused such applications, saying that he was not going to assist a man to wreck a company by ransacking its documents.’

A wider analysis of the various categories of cases and the willingness of the Court to order disclosure (and/or cross-examination), was given by Highberry, at paragraphs 30 and 31:

‘Prior to the CPR orders for discovery and/or cross-examination were been made in proceedings under the Companies Act 1985: see, e.g Re Lifecare International plc [1990] BCLC 222 (application for order under section 428 for transfer of shares) and contrast Re Cloverbay Ltd (No. 2) [1990] BCLC 449. Orders for disclosure and cross-examination have also been made under the Insolvency Act 1986: Re Primlaks (UK) Ltd (No. 2) [1990] BCLC 234: application to set aside voluntary arrangement. But orders for disclosure have been refused because they were not necessary for fairly disposing of the matter: Re Polly Peck International plc [1993] BCC 886 (Directors Disqualification Act 1986, s. 7(2); Re Bank of Credit and Commerce International SA (No. 4) [1994] 1 BCLC 419 (application under Insolvency Act 1986, s. 130 for leave to commence proceedings).

There are some cases where the resolution of a factual dispute (e.g. as to the honesty of a director) plainly calls for cross-examination: see Re Lo-Line Electric Motors Ltd [1988] Ch 477, 487. So also there may also be extremely rare cases (as an exception to the general rule that a winding up petition on a disputed debt will be dismissed) where the existence of the debt may be resolved in the winding-up proceedings after cross-examination: Re Claybridge Shipping Co. [1997] 1 BCLC 572, 579, per Oliver LJ.’

Leave Failure to Disclose to Found Appropriate Adverse Inferences

An alternative approach is available to the Court. The Court could adopt the approach taken in Re Angel Group, where both sides made claims against the other and sought disclosure orders – on one, the Court in Re Angel Group made no order and left it to the trial judge to make what adverse inferences he chose to make from any failure to give full and frank disclosure, and on the other, the Court in Re Angel Group adjourned the application to the trial judge on the assurance that the relevant material would be brought to court by the relevant parties, to be available to produce immediately if so ordered.[2]

Update 2024

Readers should now make reference to:

(1) Practice Note on Disclosure in the Insolvency and Companies List (ChD), issued 1.10.22, here.

(2) Superdrug Stores Plc v Protein World Ltd [2023] 7 WLUK 547 ('Superdrug'); and

(3) Re Yurov (also known as Thomas v Metro Bank Plc) [2022] EWHC 2112 (Ch); [2022] BPIR 1616 ('Yurov'),

Both the authorities are decisions of Deputy ICC Judge Parfitt.

[1] In Superdrug Stores Plc v Protein World Ltd [2023] 7 WLUK 547 (‘Superdrug’), Deputy ICC Judge Parfitt had to consider two applications (paragraph 1):

(1) an injunction to restrain advertisement of a creditors winding up petition ('injunction application') founded upon a petition debt based upon unpaid invoices; and,

(2) an application for disclosure pursuant to Rule 12.27 of the Insolvency Rules 2016.

Those two applications were issued by the debtor/respondent ('debtor') to a creditor’s winding up petition, between presentation, and advertisement. Though the focus for the purposes of this article, is the second application, it will be helpful to look first at how the Court dealt with the first application.

(1) On the injunction application, the debtor said it had two grounds for warranting an injunction:

(a) the petition debt (c.£240,000), based on invoices for repayment of sums the petitioner had already paid, was, in good faith, disputed on substantial grounds; and

(b) the debtor had a cross claim (for c£1m) which met or exceeded the petition debt (paragraph 3).

But on the facts, the Deputy Judge found that there was no good faith, nor substantial dispute, to the invoices. This was because:

(a) there had been delay in raising the dispute - the debtor had not raised the dispute before insolvency proceedings commenced (paragraph 8);

(b) there was no meaningful material to back up the debtor’s assertion. ‘…the [debtor] has been unable to provide any meaningful substance to back up its assertion that the petition debt is disputed, and even less in relation to the supposed cross-claim of £1 million. This is surprising, given that it must have been clear to the [debtor] from a long time ago, if there really was a substantial dispute, that these invoices being rendered were being wrongly rendered.’ (paragraph 9)

(2) On the specific disclosure application, the Deputy Judge noted that the debtor had raise an argument that this was a ‘chicken and egg’ situation (paragraph 10). That the debtor ‘…was unable to prove that there was a substantial dispute because they did not have the documents and if it had the documents it would then be able to prove it…’ (paragraph 10). As to this, the Judge said, at paragraph 11:

‘It seems to me that the approach the [debtor] has taken here is to use the disclosure exercise as a fishing expedition to attempt to gather material to support a claim that does not presently exist, a claim of the most ephemeral nature which, if it had any substance, would be capable of being proved from documents that would already be in the [debtor’s] possession. In an appropriate case this court has the power to order disclosure, even in a winding-up petition, albeit that the jurisdiction is sparingly exercised, particularly in the context of proceedings such as this. I have had cited to me a number of decisions, including my own decision in Re Yurov and a decision of Lawrence Collins J, as he then was, in Highberry v Colt Telecom. That was an administration application. [Counsel for the debtor] said that the disclosure in that case was sought on the question of solvency and in the context of an urgent application for administration which made it considerably less likely that disclosure would be ordered. For his part, [counsel for the petitioner] draws more of a parallel with the Highberry v Colt situation and it seems to me that that parallel is rightly drawn. Proceedings on a creditor's winding-up petition are summary; they do not involve a full and detailed enquiry. If there is a need for a substantial enquiry that tends to demonstrate that there is a bona fide dispute on substantial grounds, which would be enough to prevent the petition from proceeding. A winding-up petition is supposed to be dealt with in a fairly summary process and, contrary to [counsel for the debtor’s] submission, it is a process that requires a speedy resolution. For as long as there is a petition outstanding the [debtor’s] trading is imperilled…’[3]

After referring to the fact that, should the company enter liquidation, the company's trading since presentation of the winding up petition will be rendered void (unless a validation order is made), the Deputy Judge said, at paragraphs 12 to 13:

'That is a reason for proceeding on an expeditious basis with a winding-up petition. Moreover, invoking of the winding up jurisdiction involves seeking a class remedy. The entire class is awaiting the outcome of this petition and it is incumbent on this court and on the petitioner to prosecute the petition with the diligence that would be expected of someone seeking a class remedy.

It follows, in my judgment, that a winding-up petition is much closer to an administration application in terms of its urgency and that is a factor that I weigh in the balance when considering whether it is in accordance with the overriding objective to order disclosure in this particular case.'

As will be apparent, the Court has confirmed that it has jurisdiction to make a specific disclosure order, in insolvency proceedings. But in winding up petition proceedings (at least):

(1) this jurisdiction, should be exercised sparingly; and

(2) to order disclosure/inspection, potentially goes against the nature of winding up process - that is, a process that requires a speedy resolution; It is suppose to be a fairly summary process, not requiring a full and detailed enquiry.

On the facts in Superdrug, the Deputy Judge refused to make the disclosure order sought. He said, at paragraph 14:

'The overriding objective requires me to deal with cases justly and at proportionate cost. It seems to me that this case can be justly disposed of without an order for disclosure, and that is all the more apparent when one looks at the wide terms of the disclosure that is sought. The draft order the company is seeking would involve five years of documents relating to the entirety of the trade between [the petitioner] and [debtor] being disclosed. It would put a heavy burden on [the petitioner] to carry out a reasonable search and to provide disclosure of a vast array of documents and information, not all of which are guaranteed to exist, going back all the way to 2016, a time period when on any normal basis a contractual claim for breach of contract would now be out of time. It seems to me that the very width of the disclosure sought and the disproportionate exercise that the company invites me to order demonstrates why it is not in accordance with the overriding objective to order the disclosure sought by the company.' [bold added]

[2] In Yurov, Mr Yurov was made subject to: (a) substantial English judgment (c.USD900m)(paragraph 6); and (b) a freezing order (paragraph 8). Later, he was adjudged bankrupt and trustees in bankruptcy were appointed ('TIBs')(paragraph 10). The TIBs' issued a s.366 of the Insolvency Act 1988 Application (the 's.336 Application')(paragraph 2), against 4 banks, seeking an order that the 4 banks disclosure to the TIBs, copies of all bank statements since 2016 in relation to all bank accounts held with them, by Mrs Yurov (paragraph 13), Mr Yurov's wife (paragraph 1). Mrs Yurov was, in substance, treated as a respondent to the s.366 Application (paragraph 4). The basis for s.366 Application was (amongst other things - paragraph 14) that 50% of the balances in Mrs Yurov's bank accounts, would 'belong' to Mr Yurov (though perhaps now vested in the TIBs) as a matter of Russian law (the 'Belonging Contention'). In support of this Belonging Contention, the TIBs evidence included reliance on legal advice received on matrimonial law in Russia (paragraph 15). In essence, that under Russian law, '...funds that are on a bank account in the name of one spouse during marriage, are jointly acquired property and are subject to division between the spouses in equal shares' (paragraph 15/71). This was, in essence, the s.366 Application.

However, the evidence containing that reliance, was TIB witness statement, which stated (paragraph 14/66-67):

'The [TIBs] have received legal advice regarding the legal regime of spousal interests in the assets, acquired by the spouses during the marriage.

I do not waive privilege in that advice but in summary, the [TIBs] have been advised that...'

Mrs Yurov contended that (paragraph 19):

(a) despite stating that privilege was not waived, by relying upon the legal advice in the evidence, privilege had in fact been waived; and

(b) demanded a copy of the said Russian law advice.

The TIBs responded (paragraph 20):

(a) denying privilege had been waived, but

(b) supplying a 3 page extract from the Russian law advice (in the spirit of co-operation)(the 'Extract')

The Extract though, was not complete (the TIBs witness statement refered to advice which was not in the Extract).

Mrs Yurov issued an application for disclosure of the Russian law advice (paragraphs 23 and 1).

Under the heading 'The principles', the Deputy Judge said, at paragraphs 28 to 32:

'It is unusual for there to be an application for disclosure by a respondent to a s. 366 application. The point of a s. 366 application is for the trustee in bankruptcy to obtain information or property from a person who appears to have it. The court can require such a person to provide a witness statement or to produce any documents in his possession or under his control relating to the bankrupt, or the bankrupt's dealings, affairs or property. That is recognisable as a form of disclosure, but it arises under statute rather than the Civil Procedure Rules, and operates against the respondent in favour of the [TIBs].

The Disclosure Application is in substance an application for specific disclosure under CPR 31.12. The CPR applies to insolvency proceedings pursuant to Rule 12.1 of the Insolvency (England and Wales) Rules 2016 (the "2016 Rules"), which applies the provisions of the CPR with any necessary modifications, except so far as disapplied or inconsistent with the 2016 Rules. Rule 12.27 of the 2016 Rules expressly provides that a party to insolvency proceedings in court may apply for an order (inter alia) for disclosure from any person in accordance with CPR Part 31. Thus, in contrast to multi-track proceedings under the CPR in which disclosure is to take place unless the court orders otherwise (pursuant to CPR Rule 31.5(2)), in insolvency proceedings such as the s. 366 Application there is only disclosure to the extent that the court positively orders it. [Counsel for the TIBs/s.366 applicants] stressed that an application for specific disclosure in a s. 366 application was not like an application for specific disclosure arising in civil proceedings governed by the CPR. That is certainly true, and is reflected in cases such as Highberry v Colt Telecom Group plc (No. 1) [2003] 1 BCLC 290 in which disclosure and cross-examination of witnesses were refused on an administration application. For there to be disclosure at all, the court must order it, and must be satisfied that it is appropriate to make such an order. But the court has the power to order disclosure in an appropriate case pursuant to Rule 12.27 and CPR 31.12.

In deciding whether to order disclosure in a particular insolvency application, the court is required to have regard to all the relevant circumstances, giving effect to the overriding objective of dealing with cases justly and at proportionate cost. There will be cases where disclosure is manifestly appropriate, for example in high value adversarial litigation between an officeholder and a company's directors which may take the form of an application under the 1986 Act but which in many cases will involve the full machinery of the CPR including points of claim, disclosure, witness statements and a full trial. At the other end of the spectrum are applications of a procedural or summary nature, involving limited amounts of money, for which disclosure is likely to be inappropriate or unnecessary.

An application under s. 366 of the 1986 Act would typically fall into this latter category of cases. In most cases, the just resolution of the application will not require disclosure from either party during the course of the application. Any disclosure which is to take place will be that ordered by the court at the conclusion of the application, rather than as part of the process of getting to that point, and will be from the respondent to the applicant [TIBs] rather than the other way around.

However, every case will require an assessment of the relevant circumstances and consideration of the overriding objective.'

Under the heading 'The relevant circumstances in this case', the Deputy Judge said, at paragraph 33:

'The relevant circumstances in the present case are as follows:

(a) This is an application under s. 366 of the 1986 Act, which is normally a summary procedure to allow a trustee to obtain information relating to a bankrupt's dealings, affairs and property.

(b) Somewhat unusually, however, one basis on which the [TIBs] seek to obtain copies of Mrs Yurova's bank statements is that as a matter of Russian law, some proportion of the money in the bank accounts belonged to Mr Yurov. The court hearing the s. 366 Application is going to have to determine whether this principle means that Mrs Yurova's bank statements are "documents… relating to the bankrupt or the bankrupt's dealings affairs or property".

(c) The way the [TIBs] have proposed to address that issue is by referring to Russian law advice in the witness statement in support of the s. 366 Application. Mrs Yurova, for her part, wishes to adduce expert evidence. The [TIBs] have reserved their position on the question whether expert evidence is necessary until they have seen Mrs Yurova's substantive response to the s. 366 Application. At present, though, it appears that the [TIBs] consider that the Russian law material in the witness statement is a sufficient basis for the s. 366 Application. Whether expert evidence will be ordered is something which will be resolved at the directions hearing following the handing down of this judgment.

(d) Mrs Yurova asserts that it is not fair for the [TIBs] to deploy an excerpt of the Russian law advice they have obtained. She claims that the [TIBs] have waived privilege in respect of the entirety of the advice relating to the issue in question, and fairness requires disclosure of the full advice. It is on that basis that Mrs Yurova makes the Privilege Application. This critical aspect is considered in more detail below. The need to deal with cases justly is firmly engaged here.

(e) The [TIBs] urged the court to take into account the possibility that the Privilege Application is a mere delaying tactic raised by the wife of a dishonest bankrupt seeking to prevent the [TIBs] from carrying out their functions. I am not in a position, on a summary application of this nature, to make any definite findings as to whether that is so. It is, of course, a possibility, and I take that into account.

(f) Further, the [TIBs] urged caution in before any order was made requiring them to reveal the legal advice they had been taking in relation to the many other aspects of Mr Yurov's bankruptcy. They were concerned to avoid tipping anyone off about their avenues of investigation, making it harder to get to the bottom of Mr Yurov's affairs and realise his property for the benefit of his creditors. I have also borne this factor in mind.

(g) A further factor the [TIBs] wished me to take into account is that they are not ordinary litigants motivated by their own self interest. They are officeholders acting in the interests of Mr Yurov's creditors. They are also officers of the court, and the court will not permit them to act in a way which might be considered unfair contrary to the rule in Ex p. James Re Condon (1874) LR 9 Ch App 699. I accept the relevance of this factor up to a point. As officers of the court, it can be assumed that the [TIBs] have not tried to give an unfair impression of the Russian law advice they have received. But there are differences in the level of detail in [TIB's] witness statement and the Extract, whether deliberate or not, and it is not necessarily enough for officeholders merely to declare that they are not acting unfairly. Sometimes it will be necessary for them to demonstrate it.

(h) [Counsel for Mrs Yurov] criticised the [TIBs'] argument that there was a different standard applicable because these are insolvency proceedings, and they are officers of the court. He said the [TIBs] had never articulated what that standard was and, in any event, there was a universal standard based on fairness. I think both sides are right, to an extent: fairness is plainly a critical component of the material circumstances, and is closely related to considerations of justice as mandated by the overriding objective. But the context of the Privilege Application – coming within the s. 366 Application is also important. That context was overlooked in the initial correspondence, with Mrs Yurova's demands presented in unequivocal terms. There is no automatic right to disclosure in an insolvency application, and the test for whether additional disclosure of privileged material will be ordered in the present context has hurdles beyond those which apply in normal civil litigation.

(i) As to dealing with matters at proportionate cost, this is a high-value bankruptcy, with Mr Yurov being liable to pay hundreds of millions of dollars following the earlier litigation before Bryan J. By that measure, a higher incidence of costs will be proportionate than in most bankruptcies.'

Later, under 'Disposal', the Deputy Judge said, at paragraphs 50 to 52:

'If these were normal civil proceedings there would be no question that the [TIBs] would be ordered to disclose the instructions and the consequent Russian law advice relating to matrimonial interests in bank accounts. But that does not mean they must be disclosed in the context of the present application under s. 366 of the 1986 Act. As described above, the court has to consider all the circumstances of the case and apply the overriding objective.

In my judgment, this is an appropriate case for the [TIBs] to be ordered to disclose the following:

(1) Legal advice received in relation to the Russian law of matrimonial property as it relates to monies held in bank accounts in the name of one of the spouses, including in particular advice addressing the facts of the present case;

(2) Instructions which led to such advice being given, insofar as those instructions deal with these issues, with redactions to remove any other instructions; and

(3) Any communications between the advising lawyer and those giving instructions concerning the substance of the disclosable instructions or the disclosable advice, if separate from the advice or instructions themselves.

I reach this decision in the light of the overriding objective and having considered all the circumstances of the case as set out above. On balance, I am not persuaded that any other order would be appropriate.

In particular, I consider that if the [TIBs] are going to be making submissions about the application of Russian law, there is a risk of injustice to Mrs Yurova if the [TIBs] do so relying on assertions in a witness statement based on extracts from legal advice they have received. Those extracts could well be misleading, or could be misinterpreted whether by Mrs Yurova or the court. I do not consider that the [TIBs] would set out deliberately to create such an impression, but it seems to me to be important that the [TIBs] can demonstrate that they have made everything relevant available. Had the [TIBs] sought an order for expert evidence on Russian law, the material instructions and the report of the expert would have been provided to Mrs Yurova pursuant to CPR Part 35. Without those protections, it seems to me that the only fair way to proceed is for the [TIBs] to disclose the remainder of the legal advice they have received which falls within the paragraph above.'

SIMON HILL © 2018-2024

BARRISTER

33 BEDFORD ROW 

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] The now obsolete r.7.51 of the Insolvency Rules 1986 was entitled ‘Principal court rules and practice to apply’, and r.7.51(1) read:

The CPR, the practice and procedure of the High Court and of the county court (including any practice direction) apply to insolvency proceedings in the High Court and county court as the case may be, in either case with any necessary modifications, except so far as inconsistent with the Rules.’

The equivalent provision in the Insolvency Rules 2016 (the current set of Insolvency Rules) is r.12.1. R.12 is entitled 'Court rules and practice to apply' and r.12.1 reads:

'The provisions of the CPR (including any related Practice Directions) apply for the purposes of proceedings under Parts A1 to 11 of the Act with any necessary modifications, except so far as disapplied by or inconsistent with these Rules.’

[2] Re Angel Group related to two groups of companies in administration. The companies in question had been essentially owned and run by one person, the first applicant (a second applicant company was owed by the first applicant). The applicants had applied to have the respondent administrators removed from office, and have them replaced with an independent liquidator. That application was set down for a 7 days trial. The respondent administrators in turn were investigating misfeasance allegations against the first applicant. In essence, each accused the other of acting to stifle the other one. The Judge has two applications for specific disclosure before him, the first by the respondent administrators, seeking from the applicants disclosure of: (1) advice received from two specified firms of accountants (all that advice is said to refer to the declaration and payment of dividends), and (2) further information by way of a witness statement as to the particulars of oral advice given by those firms of accountants. The second was issued by the applicants as a free standing cross-application for disclosure.

On the respondents’ application for disclosure, though the 7 day trial to remove the respondents as administrators, was not also for determination of the misfeasance claims/material, that material would still be relevant. The trial court ‘...will have to decide what weight to attach in the exercise of its discretion to the respondents' allegation that the removal application was issued so as to stifle the investigation of that claim. The court will also have to consider the question, as I have said, of what interest the applicants have in the relief they seek and of the legitimacy of that interest.’

Discussing his approach and rationale, the Deputy Judge said, at paragraphs 47 to 51:

‘I … have to ask myself, do I need to order disclosure on this issue when I could alternatively leave it to the discretion of the trial judge to determine what adverse inferences may fairly be drawn from the failure of the applicants to give disclosure on this issue. I also have to ask myself, if I were not satisfied that this alternative course was the best one, to what extent should I order disclosure having regard to, firstly, the fact that the trial judge will not be determining whether misfeasance has occurred and it is not suggested by the respondents that general disclosure should be ordered on this issue; secondly, any oppression of the applicants; thirdly, the applicants' own case that this issue has only been raised by the respondents so as to divert attention away from their own failings, and, fourthly, and importantly, the evident desire of Mrs. Justice Rose, when giving directions, to limit the expense and time taken up in this application and the issues that needed to be addressed by the trial judge. So she did not make any order for general disclosure and she made no order for the cross-examination of any witnesses.

As I see it, my job is to make an order which will best enable the trial judge to reach a fair result at the trial without undue cost to the parties. Doing the best I can, in my judgment, the best course is to leave it to the trial judge to draw such inferences adverse to the applicants as he sees fit from their failure to give full and frank disclosure of what they know in relation to the misfeasances alleged against them and of the documents which cast light upon it which either are, or have been, in their possession. He may well form the view that the applicants in this case, asking as they do the court to exercise its discretion in their favour so as to remove the respondents, can reasonably be expected to make full and frank disclosure to the court on the issues raised against them by the respondents. I emphasise, however, that it is ultimately a matter for the trial judge and he will no doubt exercise his discretion having regard to the contents of my judgment.

This is a classic type of case, in my judgment, where the court can avoid the cost and expense of disclosure and cross-examination by adopting the alternative course of drawing inferences which are appropriate from any failure on the part of any party to be full and frank with the court. It seems to me that this is precisely what Mrs. Justice Rose had in mind at the outset.

I do not think it would be right to make a full and general order for disclosure against the applicants and no such order is sought. In my judgment, making a partial order for disclosure, even of the documents previously offered by the applicants to be disclosed, seems to me to be likely to do more harm than good. It may be taken to suggest that this is the limit of their disclosure obligations and it also may prove to be inadequate and lead to yet further evidence and dispute about its scope and as to the applicants' obligations as to searching and the like.

So I do not determine any issue as to privilege. Such issues can be raised, as necessary, before the trial judge. So I make no order on the respondents' application for disclosure.

For completeness, the applicant’s disclosure application had partially been fulfilled by voluntary disclosure by the respondent administrators. As to the Disclosure order sought in relation to costs, the Deputy Judge held, at paragraph 52, that:

‘…the right thing to do here is to adjourn this to the trial judge on the basis of the assurances given by both parties at the hearing before me yesterday to the effect that if the judge were minded to order the disclosure sought by the applicants, and also if he were minded at the same time to order disclosure of costs as against the respondents, then the parties would have the material information with them at the beginning of the trial so that it could be produced immediately if the judge thought it should be disclosed.’

[3] The quotation continues:

'Contrary to the company's apparent belief, as shown in correspondence, the company's ongoing trading is void, and payments into and out of its bank account are liable to be reversed should the company go into liquidation. Unless the company seeks and obtains relief under section 127 of the Insolvency Act 1986 the automatic consequence of its continuing trading is that there will be a grand reversal if the company is ultimately wound up, which may prove seriously problematic. I would urge the company to reconsider the approach it appears to have settled upon.'