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The case involved an appeal from a decision of the county court following the compulsory winding up of the appellant company, which had contended that the debt was disputed on substantial grounds. The appellant argued that the judge below had erred in failing to admit further evidence filed before the final hearing which, it said, was filed in accordance with rule 7.16 of the Insolvency (England and Wales) Rules 2016, SI 2016/1024 (IR 2016), (albeit outside the time set by previous court orders), making a winding-up order for an unliquidated sum, and making incorrect factual and evaluative findings. The judge dismissed the appeal and in doing so gave helpful guidance on: (1) the interaction between IR 2016, r 7.16 (which sets a time for filing evidence) and the court’s case management powers (in controlling evidence); (2) the ‘implied sanction’ doctrine; (3) the meaning of ‘creditor’ and the jurisdiction to make a winding-up order where the sum is ‘uncertain’, ’unliquidated’ or concerns damages; and (4) the parameters of an appellate court’s interference with (a) relief from sanctions decisions and (b) evidential/evaluative findings. Written by Arnold Ayoo, barrister at 23ES and counsel to the respondent.
The case is of both procedural and substantive importance. It will help practitioners navigate practical issues relating to the control of evidence in winding-up proceedings and substantively, in deciding whether a claim is suitable for the winding up process:
Procedural (insolvency)—IR 2016, SI 2016/1024, r 7.16
There is little reported authority on the interpretation of IR 2016, SI 2016/1024, r 7.16. The judgment fills that void and helpfully states that IR 2016, SI 2016/1024, r 7.16 applies only to the first hearing of a petition, after which the court can control the filing of evidence. Practically, the judgment prevents a party submitting evidence outside of the court timetable by attempting to rely on the five business day time limit set out in IR 2016, SI 2016/1024, r 7.16.
Procedural (civil procedure)—CPR-implied sanction doctrine and relief from sanctions applications
The judgment examines the treatment of orders which do not contain an express sanction. It explores the legal/policy rationale behind the application of relief from sanctions criteria to applications to rely on evidence filed outside of court deadlines. Further, it reaffirms the unwillingness of an appellate court to interfere with relief from sanctions decisions.
Substantively, in considering the meaning of ‘creditor’ and ‘unliquidated sums’
His Honour Judge (HHJ) Paul Matthews, sitting as a judge of the High Court, provides guidance on the types of debts or claims that could form the basis of a winding-up petition. His reaffirmation of previous High Court dicta regarding winding-up orders, where a court cannot be sure of the precise sum, will help practitioners assess whether to use the insolvency process where a debt is somewhat disputed or is a ‘contingent’/‘prospective’ liability.
The petition averred that the petitioner (RL) was employed by the appellant (WRC) over four years and thereby was entitled to receive remuneration of £40k a year. RL also claimed expenses as well as further loan monies. WRC opposed the making of a compulsory order on the basis that the petition debt was disputed on substantial grounds. WRC also had a number of apparent cross-claims—the bulk of which were contained in evidence filed after the court deadline, which was consequently not admitted by the district judge.
The County Court heard live evidence from witnesses and determined that the petition debt was not disputed on substantial grounds—and so made the winding-up order.
On appeal, the appellant argued that:
The courts can apply relief from sanctions criteria to out-of-time applications via two avenues:
• construing the relevant order as containing an implied sanction, or
• where it cannot construe—it can nevertheless, for policy reasons, apply relief from sanctions criteria by analogy
The judge considered various authorities on the doctrine of ‘implied sanction’ (Sayers v Clarke Walker (a firm)  EWCA Civ 645, Robert v Momentum Services Ltd  EWCA Civ 299, Baho v Meerza  EWCA Civ 669,  All ER (D) 43 (Jun) and Altomart Ltd v Salford Estates (No 2) Ltd  EWCA Civ 1408,  All ER (D) 342 (Oct)). He summarised them as follows: although there are cases where a rule or order does not expressly state a sanction and the court by a process of interpretation nevertheless construes the rule or order as impliedly containing one, there are also cases where there is no intention to create a sanction but the law for policy reasons treats the case as one analogous to an application for relief from sanctions, and applies the Denton/Mitchell principles (paras –).
In holding the above, the judge distinguished and departed from the decision of Chief Master Marsh in Djurberg v Mayor and Burgesses of the Richmond London Borough Council  EWHC 3342 (Ch) which had decided that no sanction was implied by the provisions of a practice direction which specified the time for service of documents.
IR 2016, SI 2016/1024, r 7.16 applies to the first petition—the court can control evidence thereafter
Siding with the respondent, the judge found that IR 2016, SI 2016/1024, r 7.16 is really concerned with preparation for the first hearing of the petition (para ); once that rule is indeed satisfied, it is hard to see that it has any role thereafter (para ). Aside from IR 2016, SI 2016/1024, r 7.16, as IR 2016, SI 2016/1024, Pt 7, Chapter 3 does not deal with the preparation and provision of evidence for the winding up hearings, as per IR 2016, SI 2016/1024, r 12.1 the relevant provisions of the CPR (specifically CPR 32.1) apply (para ). This permits the court to control evidence, which it did in fact do pursuant to two orders. As there was no obligation to file evidence, the late filing could not be in ‘breach’ of the orders—but for policy reasons it was correct to apply the same test as that for relief under CPR 3.9 (para ). Accordingly, the judge below was right in applying the relief criteria.
A winding-up order can be made even where the precise debt cannot be ascertained and an unliquidated damages claim can form the basis of a petition
The judgment considered section 124(1) of the Insolvency Act 1986 (IA 1986) in setting out who can bring a petition, concentrating on the meaning of ‘creditor or creditors (including any contingent or prospective creditor or creditors)’. The judge found that:
An appellate court should be wary of interfering with relief from sanctions decisions or evidential/evaluative findings
Finally, the judgment reaffirmed the scope of an appellate court’s interference with case management decisions and findings of fact:
• the judge could not characterise the relief from sanctions decision as ‘perverse’ so would not interfere, irrespective of whether he would have come to a different decision on the facts
• the judge considered the decisions of Lord Hoffmann in Biogen Inc v Medeva plc  Lexis Citation 3987 and Lord Justice Lewison in Fage UK Ltd v Chobani UK Ltd  EWCA Civ 5,  All ER (D) 234 (Jan) which respectively cautioned against interference with a trial judge’s findings of fact and evaluations based on primary facts (para ). Although the district judge in the present case was not conducting a ‘trial’, he was hearing live evidence and was entitled to come to the conclusions he did (para )
• Court: Chancery Appeals (Chancery Division), Business and Property Courts in Bristol
• Judge: HHJ Paul Matthews (sitting as a High Court judge)
• Date of judgment: 23 September 2020
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