What were the main legal arguments?
Richard Fisher and I, on behalf of the liquidators, submitted that Article 21 and IA 1986, s 236 were expressed in very broad terms. According to the authorities, provided that the office-holder ‘reasonably requires’ the information and documents he seeks for his official functions, and that the order sought would not impose an unnecessary and unreasonable burden on the respondent, an order should be made. It was no bar that documents and information were being sought from somebody (KPMG, in this case) who had no contractual relationship with the company in liquidation. Nor was it necessarily a bar that the information and documents were sought for the dominant purpose of carrying on litigation, since the litigation was being carried on for the purpose of the liquidation. Furthermore, there was no risk of an unreasonable burden being placed on KPMG—the liquidators were willing to pay KPMG’s costs of compliance, and as a large firm, KPMG would not find it difficult to produce the documents sought.
Daniel Bayfield QC on behalf of KPMG accepted that Article 21 and IA 1986, s 236 were expressed in very broad terms, but argued that this was all the more reason why the ‘extraordinary power’ conferred by those provisions should be exercised with caution. KPMG argued that the following factors weighed heavily against the grant of relief:
- firstly, KPMG’s client was HSBC, and KPMG had no prior relationship with Primeo. The court should be slower to make an order against ‘outsiders’ than against persons with a pre-existing relationship with the company, such as the company’s own accountants
- secondly, Primeo’s liquidators were using their statutory powers essentially in order to obtain non-party disclosure for the purpose of ordinary commercial litigation, circumventing the ordinary rules of civil procedure applicable to such applications. The prejudice to HSBC was compounded by the fact that trial in the Cayman Grand Court was only a few weeks away, and that although Primeo, acting through its liquidators, had an ability to obtain documents and information under Article 21 and IA 1986, s 236, HSBC had no such power
What did Nugee J decide?
Nugee J granted the relief sought by the liquidators. He noted that he was required to balance the reasonable requirement of the liquidators against the need to avoid making an unreasonable, unnecessary or oppressive order. As for the first limb, the judge considered that the liquidators did have a reasonable requirement for the information and documents sought for the purpose of pursuing the litigation before the Cayman Grand Court. The judge also noted that although it might be inconvenient for KPMG and the partner named in the application to comply with the order, this did not make it oppressive—KPMG would be paid its costs of compliance.
As for the risk of oppression to HSBC, the judge considered that it was appropriate to take this into account, and noted that there were many examples in the reported cases of relief being refused because an office-holder had sought to circumvent the ordinary rules of civil procedure by using his IA 1986 powers to examine the defendant or his witnesses in advance of trial. However, the judge held that there was no hard and fast rule that it is always unfair for a liquidator qua litigant ever to use the IA 1986, s 236 powers to obtain something which he could not otherwise obtain, and the court always has a discretion.
In the present case, HSBC had put in issue before the Cayman Grand Court what KPMG had said to HSBC. According to the judge, there was nothing unfair or oppressive about seeking further information about those conversations from KPMG, even though their dominant or even sole purpose was to advance their case in the Cayman litigation, and even if they could not obtain the information in any other way. The balance therefore came down clearly in favour of granting the relief.
What are the practical implications for IPs seeking documents and examination of witnesses for ongoing litigation?
The judgment helpfully makes clear that relief is in principle available even where the office-holder’s sole purpose in making the application is to bolster his case in ongoing litigation. However, IPs should still exercise caution. Although there is no hard and fast rule that relief will be refused when litigation is underway, there will still be many cases where relief will be refused on discretionary grounds if the court considers that the timing of the application, or the nature of the relief sought, would cause unfairness. IPs considering using their s 236/366 power for the purpose of litigation should take prompt legal advice from an insolvency law specialist to ensure that the timing and formulation of any application will give the highest likelihood of success.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.