Reinforcing the principle of open justice—Re Premier Motor Auctions Leeds Ltd

How did the court in Re Premier Motor Auctions Leeds Ltd underline the importance of open justice? Simon Passfield, barrister at Guildhall Chambers, looks at this case and argues that if an argument for confidentiality is not strong enough, the courts will insist on an open hearing.

Original news

Re Premier Motor Auctions Leeds Ltd and another (In Liquidation) [2015] EWHC 3568 (Ch), [2015] All ER (D) 126 (Dec)

The Chancery Division ruled on an application by liquidators of Premier Motor Auctions Leeds Ltd and another company for orders that litigation expenses of proceedings brought by the companies be approved and authorised by the court, pursuant to rule 4.218E of the Insolvency Rules 1986, SI 1986/1925 (IR 1986) and for orders that the application be heard in private and not be served on a creditor of the companies (Lloyds) until after the final determination of the proceedings. The court held that the circumstances of the case were not sufficiently exceptional to justify derogation from the open justice principle. A question of construction was raised as to whether the condition specified in IR 1986, r 4.218B(1)(c) was satisfied and whether it could be said that the liquidators would have to have recourse to property comprised in or subject to Lloyds’ floating charge in order to pay litigation expenses. However, it was not appropriate to deal with the application in the absence of Lloyd, and the application and the evidence were ordered to first be served on Lloyds.

What was the background to the application?

This was an application by the liquidators of two companies. The companies had issued a claim against Lloyds Bank plc and Price Waterhouse Coopers (PwC) in the High Court. The relief sought against Lloyds and PwC included damages for fraudulent misrepresentation, conspiracy, breach of duties of confidence and causing injury by unlawful means and causing the two companies to suffer loss by way of the destruction of their enterprise value. Lloyds and PwC denied all the allegations of breach of duty.

Lloyds held debentures giving it fixed and floating charges over the undertakings and assets of the companies. If the claim against Lloyds and/or PwC were successful, then any recoveries might potentially be caught by the debentures. If so, depending on the extent of recoveries, there may be insufficient monies available to enable the liquidators to pay the costs and expenses of the litigation and it would become necessary to have recourse to the monies which would otherwise be caught by the debentures. However, they could only do so with the authorisation and approval of Lloyds or the court.

IR 1986, r 4.218B(1) sets out a number of conditions which, if satisfied, require the liquidator request approval or authorisation of litigation expenses. The liquidators did not consider that these conditions were yet engaged because it was impossible to say that they will have to have recourse to floating charge realisations to pay litigation expenses. However, out of an abundance of caution, the liquidators issued a protective application to the court for authorisation and approval of the companies’ proposed litigation expenses.

In addition, they sought orders that the matter be listed in private and in such a way that:

  • it did not disclose the identity of the parties
  • it be held in private
  • the application need not be served on Lloyds
  • Lloyds was not entitled to be heard on the application, and
  • the order need not be served on Lloyds until after the final determination of the proceedings

What were the legal issues the judge had to decide in this application and what were the main legal arguments put forward?

The preliminary issue for the judge to determine was whether it was appropriate for the application to be heard in private and without notice to Lloyds, which had a serious interest in the outcome of the substantive application—if the application was successful, the liquidators would be given priority over assets which may otherwise be caught by the debentures.

The liquidators argued that:

  • the information and documentation in the application was confidential and potentially privileged
  • Lloyds could not express an impartial view and could use this as a means of frustrating the proceedings, and
  • due to the conditional nature of the costs and expenses incurred and the lack of sufficient assets available, the issue would only arise in circumstances where the proceedings against Lloyds were successful

The issues of whether it was necessary for the substantive application to be made at this stage and, if so, whether to authorise and approve the proposed liquidation expenses only arose if the court was prepared to hear the application in private.

What did the judge decide, and why?

The judge reiterated that the principle that both sides are entitled to be heard is an important and fundamental principle of English law and was is accordance with article 6 of the European Convention on Human Rights. He considered Lord Hoffman’s speech in National Commercial Bank Jamaica v Olint [2009] UKPC 16, [2009] 1 WLR 1405. He considered that the court should have these principles in mind when considering the application under IR 1986, r 4.218E(5) and (6) to dispense with service on and the attendance of Lloyds.

The judge decided that none of the arguments advanced for non-disclosure to Lloyds was sufficient. He found that the fact that they may not be impartial was not exceptional and that none of the information and evidence involved was sufficiently confidential, although he accepted that the draft costs budget was privileged at this stage. The conditional nature of the costs and expenses to be incurred was not relevant to the question of whether Lloyds were entitled to be heard (although it was relevant to the substantive application). It also wasn’t clear how Lloyds could use the application to frustrate the proceedings. Thus, there was no argument sufficiently strong to permit a derogation from the principle of open justice and he rejected the application for privacy.

To what extent is the judgment helpful in clarifying the law in this area?

Only one issue was decided on by the judge and this was the issue of whether the matter should be kept confidential. However, the judgment is helpful on this point as it demonstrates and reinforces the importance the courts place on the principle of open justice. If your argument for confidentiality is not strong enough, the default position the courts will take is that the hearing should be open.

The judge also made some useful observations in relation to the necessity to make the substantive application at this stage. However, he was not prepared to address the issue without notice to Lloyds.

What practical lessons can those advising take away from this case?

This was a very unusual application and very fact-specific and a set of circumstances like this is unlikely to arise very often. However, if someone has concerns about privacy, they need to give careful thought as to whether the information they wish to keep private is truly confidential in nature. If it isn’t, it’s not likely the court will be satisfied that the conditions of such an application can be met and the information will have to be disclosed. Therefore, if you want to go down this road you must ensure that your case for privacy is quite exceptional.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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