Barons Bridging Finance 1 Ltd & Ors v Barons Finance Ltd

The Court of Appeal allowed the appellants' appeal and remitted the matter to the Chancery Division because the appellants, and in particular Mr Gopee, had not received a fair trial. The judge at first instance had declared a deed of assignment of the company's loan book void under section 127 of the Insolvency Act 1986 and, alternatively, set it aside under section 238 as a transaction at an undervalue and section 423 as a transaction to defraud creditors.

The appeal court held that the first instance judge should have permitted the principal defendant and litigant in person to give evidence and to seek disclosure which was material to the valuation and enforceability of the debts. The judge's refusal to admit late applications and witness evidence, and his drawing of adverse inferences from that refusal, produced procedural unfairness contrary to article 6 ECHR. Because of that unfairness the Court of Appeal remitted the matter for further case management and trial on the substantive issues (including the date and validity of the assignment and the value of the loan book).

Background and parties. The respondent, Barons Finance Limited (the company), had carried on a money-lending business. The first and second appellants were companies connected with the third appellant, Mr Dharam Prakash Gopee, who signed a deed of assignment purportedly dated 31 March 2012 transferring the company's book debts to the assignees. The company was wound up following a petition presented in May 2012 and a winding-up order made in September 2012. The liquidator brought proceedings seeking declarations and orders that the assignment was void or voidable under section 127, section 238 and section 423 of the Insolvency Act 1986, and ancillary relief (account, injunctions and disclosure).

Procedural history. At first instance Deputy Judge David Halpern QC (Chancery Division) found that the assignment had been fraudulently backdated, was made after commencement of the winding up and therefore void under section 127; alternatively he found it was at an undervalue under section 238 and a transaction to defraud creditors under section 423. The appellants appealed to the Court of Appeal.

Nature of the application and issues. (i) Relief sought by the liquidator: declaration that the assignment was void under section 127 and alternatively set aside under sections 238 and 423; orders for repayment of monies received, injunctive relief, production of documents and an account. (ii) Issues framed: whether the assignment was backdated; whether it was made after the winding-up petition (section 127); whether it was at an undervalue (section 238); whether it was entered into to defraud creditors (section 423); and whether the appellants had been denied a fair trial by refusal of disclosure and exclusion of evidence.

Court of Appeal reasoning. The Court focused on procedural fairness. The appellants (and Mr Gopee acting in person) had made repeated requests for disclosure relevant to the recoverability and therefore value of the loan book and had lodged late witness statements that bore on the valuation and on specific matters (such as priority disputes over secured property). The trial judge refused to entertain a disclosure application filed shortly before trial, refused to admit a witness statement produced at the trial and drew adverse inferences from the absence of evidence. The Court concluded that the judge should have allowed the appellants to give evidence (or at least to have their witness statements admitted and to allow cross-examination) and should have given serious consideration to disclosure of potentially relevant material held by the liquidator. The refusal deprived the appellants of a fair opportunity to present their case and the adverse inferences drawn were therefore inappropriate. The Court therefore allowed the appeal and remitted the matter for case management and further proceedings before a different Chancery judge.

Appeal allowed. The Court of Appeal held that the appellants had not received a fair trial because the trial judge refused to admit late disclosure applications and witness evidence and drew adverse inferences from that refusal. Those procedural decisions prevented the appellants from properly challenging the liquidator's case about backdating and undervalue, contrary to their article 6 rights. The matter was remitted to the Chancery Division for further case management and trial before a different judge.

Appeal from the High Court, Chancery Division (Deputy Judge David Halpern QC), judgment dated 10 July 2015 (reported at [2015] EWHC 2007 (Ch)). The appeal was heard in the Court of Appeal (Civil Division), Case No A3/2015/2488, resulting in judgment [2016] EWCA Civ 550 on 14 June 2016 and remittal to the Chancery Division for further case management and trial.