Administration—appeal—new evidence suggesting court misled (Yongxiong v Gate Ventures plc)

Administration—appeal—new evidence suggesting court misled (Yongxiong v Gate Ventures plc)

The High Court granted permission to appeal the refusal of an administration order where fresh evidence obtained after the first hearing suggested that the court had been misled by the company. The court considered the obligations of the parties to an administration application to present reliable evidence to the court, and the impact of unreliable evidence on the cogency of a party’s evidence. The court considered the appropriate procedure where the losing party subsequently discovers evidence that suggests the court was misled. By Matthew Parfitt, barrister, at Erskine Chambers (who appeared for the successful appellant).

Yongxiong v Gate Ventures plc [2020] EWHC 645 (Ch)

What are the practical implications of this case?

There are two points of practical importance:

Reliable evidence

The court emphasised the need for both sides to present ‘reliable evidence’ to the court on a contested administration application. The same considerations would apply to many types of contested insolvency proceedings, which typically proceed without cross-examination.

Sometimes, it will be clear that one side’s evidence is less reliable at the time of a hearing. The court can form a view as to its reliability in reaching its decision. But what if it is only after the event that it becomes clear that unreliable evidence was put before the court? In those circumstances, the decision can be challenged on appeal or by a fresh action being brought. In either scenario, the parties enter a state of limbo which cuts across the need for insolvency proceedings to be definitive. A company which fends off an administration application only to be faced with an appeal will continue to face practical difficulties—an administrator whose appointment is challenged by way of an appeal is unlikely to be confident in exercising his powers.

An important practical point is that evidence which is unreliable in relation to a relatively minor aspect of the case might have a significant effect on the assessment of the cogency of the evidence as a whole. Care should be taken to ensure that all evidence put before the court is reliable to avoid the risk of challenge by the losing party.

Appeal procedure where court deliberately misled

If a losing party discovers that the court was deliberately misled, the normal procedure is to bring a fresh action to set aside the judgment rather than to appeal. However, there is a more direct route by way of appeal—the question whether the court was misled would be remitted to a judge by the appeal court. This is a developing jurisdiction, but it can significantly reduce the costs of such a challenge.

What was the background?

The company was a listed plc which had been set up to invest in media, theatre and entertainment projects. Its directors included former BBC Chairman Lord Grade, and Sarah, Duchess of York. The company was arguably balance sheet solvent, but it was cash flow insolvent. It owed the appellant £2.5m. He had applied to put the company into administration—the application was dismissed because the judge preferred to leave the company in the hands of its directors to see whether they could fulfil their own rescue plans.

The company’s evidence included what was described as a ‘worst case scenario’ cash flow forecast which showed quarterly payments of £50,000 from a company called Ginger and Moss Limited (G&M). G&M was a joint venture between the company and the Duchess of York.

After the dismissal of the administration application, new evidence came to light which suggested that these payments should not have been included in the cash flow forecast, as repayments were not due for several years. The appellant applied a second time for an administration order and, in the evidence in those proceedings, the company’s finance director admitted that he had been optimistic in the original cash flow forecast.

The appellant’s original grounds of appeal were dismissed, but he applied to amend his grounds of appeal to include an allegation that the court was deliberately misled or that the decision was wrong because of evidence which had not been available at the time.

What did the court decide?

The court gave the appellant permission to amend the grounds of appeal, and permission to appeal on the amended grounds.

The court held that the new evidence met the criteria discussed in Ladd v Marshall [1954] 1 WLR 1489—the evidence could not have been obtained with reasonable diligence for use at trial—it would probably have an important influence on the result of the case—and it was such as is presumed to be believed.

In considering the influence of the evidence on the result, the court considered the impact that one piece of unreliable evidence could have on the cogency of all of a party’s evidence. The court held that on a contested administration application both sides had an obligation to provide reliable evidence, or it might diminish or negate the weight to be attached to the party’s evidence.

The court also considered that there was a prima facie case that the court below had been deliberately misled. This would need to be established before an appeal could be allowed on this basis. Historically, this would have required a separate action to prove the fraud. However, adopting the procedure in Noble v Owens [2010] 1 WLR 2491, the appeal court could accommodate the determination of the question more economically and within the appeal by remitting the issue for determination by a judge.

Case details

  • Court: High Court of Justice, Chancery Division
  • Judge: Justice Zacaroli
  • Date of judgment: 04/03/2020

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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.