Re British & Commonwealth Holdings Plc (No 2)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE RALPH GIBSON,LORD JUSTICE WOOLF |
| Judgment Date | 12 December 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J1212-6 |
| Docket Number | 91/1215 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 December 1991 |
[1991] EWCA Civ J1212-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
(MR JUSTICE HOFFMANN)
Royal Courts of Justice
Lord Justice Nourse
Lord Justice Ralph Gibson
Lord Justice Woolf
91/1215
Re British & Commonwealth Holdings Plc
Re The Insolvency Act 1986
MR GABRIEL MOSS Q.C. and MR JOHN BRISBY, instructed by Messrs Stephenson Harwood, appeared for the Appellants (Applicants).
MR P.H. GOLDSMITH Q.C. and MR ROBIN KNOWLES, instructed by Messrs Linklaters & Paines, appeared for the Respondents (Respondents).
On 31st October we handed down judgments on S & O's appeal against the order of Morritt J. We said that, subject to any plea for confidentiality on the part of the administrators, we would allow the appeal and direct that S & O be at liberty to inspect the administrators' confidential statement. On the same day the administrators disclosed to S & O an expurgated version of the statement, which excluded material for which the plea for confidentiality was maintained and an annexure on which reliance was no longer placed. On the following day, after further argument, we allowed the appeal and directed that S & O be at liberty to inspect the statement in its expurgated form and no further.
The administrators' appeal against the order of Hoffmann J. was further adjourned, so that S & O could consider the expurgated statement. On 13th November supplementary arguments were heard. We now give judgment on that appeal.
The ground on which Hoffmann J. set aside the order of Mr Registrar Scott was that it would enable the administrators to get far more information than was necessary to reconstitute the state of knowledge that the Company should possess and was thus outside the purpose of section 236 of the Insolvency Act 1986. In reaching that decision he felt himself bound by authority. He did not think that the order was oppressive. Left to himself, he would have set it aside.
The administrators' appeal raises important questions on the purpose of section 236, a matter on which there has recently been a marked divergence of judicial opinion. We, like the judge, are bound by the decision of the majority of this court in Cloverbay Ltd (Joint Administrators) v. Bank of Credit and Commerce International S.A. [1991] Ch. 90. But further questions are raised as to what that decision is authority for. Though satisfied that it does not require as narrow an approach as Hoffmann J.'s, I nevertheless think that it practically binds us to set the registrar's order aside. Finding myself in the minority and believing that these important questions must now be decided at the highest level, I propose to explain myself as briefly as I reasonably can.
The immediate effect of the decision in Cloverbay was to disapprove what had become a more or less settled practice of the Companies Court arising, it was said, from the judgment of Slade J. in In re Castle New Homes Ltd [1979] 1 W.L.R. 1075. It was held that the practice was at variance with the unfettered discretion conferred on the court by section 236. But it would not have been very helpful to leave the discussion there. In working towards a decision on the facts of that case, an opportunity was taken to give general guidance on the exercise of the powers under the section; in which process, so it is said, a new and different fetter has been substituted for the old.
The leading judgment for the majority was given by Sir Nicolas Browne-Wilkinson V.-C. It is out of some words of his that the difficulty is said to arise. Since it is essential that those words should be seen in full context, I will quote the material passage in full, adding emphasis to the sentence in question. Having said that the test propounded in In re Castle New Homes Ltd should not in future be applied, the Vice-Chancellor continued [1991] Ch. 102A:
"Nor do I think that there is any other simple test that can be substituted. The words of the Insolvency Act 1986 do not fetter the court's discretion in any way. Circumstances may vary infinitely. It is clear that in exercising the discretion the court has to balance the requirements of the liquidator against any possible oppression to the person to be examined. Such balancing depends on the relationship between the importance to the liquidator of obtaining the information on the one hand and the degree of oppression to the person sought to be examined on the other. If the information required is fundamental to any assessment of whether or not there is a cause of action and the degree of oppression is small (for example in the case of ordering premature discovery of documents) the balance will manifestly come down in favour of making the order. Conversely, if the liquidator is seeking merely to dot the i's and cross the t's of a fairly clear claim by examining the proposed defendant to discover his defence, the balance would come down against making the order. Of course, few cases will be so clear: it will be for the judge in each case to reach his own conclusion.
That said there are a number of points which in my judgment should be borne in mind in exercising the discretion. First, the reason for the inquisitorial jurisdiction contained in section 236 of the Act of 1986 is that a liquidator or administrator comes into the company with no previous knowledge and frequently finds that the company's records are missing or defective. The purpose of section 236 is to enable him to get sufficient information to reconstitute the state of knowledge that the company should possess. In my judgment its purpose is not to put the company in a better position than it would have enjoyed if liquidation or administration had not supervened. In many cases an order under section 236 may have the result that the company is in such improved position e.g. an order for discovery of documents made against a third party in order to reconstitute the company's own trading records may disclose the existence of claims which would otherwise remain hidden. That is the result of the order not the purpose for which it is made."
Although Hoffmann J. thought that it might well be contrary to the law as it had previously been understood, he held that the sentence in question imposed a limitation on the exercise of the court's discretion, so that it could only be exercised to serve the purpose stated. He said:
"…I do not think that I am free to treat what the Vice-Chancellor said as a dictum inconsistent with the previous practice and not binding on me. Cloverbay was the first time in this century that the Court of Appeal has given the Companies Court guidance on how the powers under s. 236 should be exercised. The passage to which I have referred is a clear and considered statement of principle made after consideration of the earlier authorities. I think it is my duty to apply it."
I cannot myself read this passage from the Vice-Chancellor's judgment as intending to impose the suggested limitation on the exercise of the court's discretion. The first paragraph starts with a statement that the discretion is not fettered in any way; the second with a statement that a number of points should be borne in mind in exercising the discretion, i.e. the unfettered discretion. In that context I do not think that the Vice-Chancellor intended to do more than state the primary purpose of section 236. To have gone further would have been significantly to fetter the very discretion which he had affirmed to be unfettered.
I am therefore of the opinion that the decision of Hoffmann J. cannot be supported on the ground on which he rested it. So the question is whether, in striking the balance which must be struck, the reasonable requirements of the administrators outweigh the potential oppression to S & O: see the first paragraph in the passage quoted from the Vice-Chancellor's judgment.
To say, as was said in Cloverbay, that the words of a statute do not fetter the court's discretion in any way does not mean that the discretion may be exercised at large. It may only be exercised for the purposes of the statute. It is over the purpose of section 236 that there has been a divergence of judicial opinion. On one side is the broad approach favoured by Hoffmann J. (see also In re John T. Rhodes Ltd [1986] 2 BCC 99), by McCowan L.J. in Cloverbay and now by Ralph Gibson and Woolf L.JJ. This approach was forcefully expressed by Hoffmann J. in the present case:
"A listed public company has become insolvent with widespread public loss to creditors and investors. The principal cause of the crash is that the subsidiary acquired in 1988 for £420 million with the benefit of the advice of merchant bankers, accountants and others, was found after less than two years, and the introduction of another £117 million, to be insolvent to the tune of £279 million. Villainy is suspected. The administrators are trying to piece together a picture of what was the true financial position of Atlantic at the time of its acquisition and, if it was different from the way it was represented, how and why the truth was concealed. In putting together this picture, it seems to me obvious that the S & O ordered documents may show not only what enquiries S & O made or did not make in the performance of their duties as auditors, but what they were told and by whom. This will help the administrators and their legal advisors to decide whether [the Company] has a cause of action against any of a range of possible defendants who may or may not include S & O. It is in my view in the...
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