Fielding & Anor v Hunt

On an appeal against rejection of a proof of debt, the court must decide afresh what claim should be admitted on the evidence before it. The claimant bears the civil burden of proving the claim.

Where a party seeks to disbelieve apparently credible witness evidence on paper, cross-examination will generally be required or the witness must at least have a fair opportunity to respond. Untested evidence may be rejected where it is incredible or plainly contradicted by incontestable material.

Payments made intentionally and in good faith for a company’s benefit may be recoverable even without full substantiation of the underlying supplier claims. Accounting entries, credit notes or a failure to invoice do not alone extinguish an accrued contractual liability.

Gary and Sally Fielding appealed under rule 4.83 of the Insolvency Rules 1986 against the liquidator’s decision of 29 December 2015 rejecting their proof of debt in the liquidation of The Burnden Group Limited.

The proof comprised six claims, including an alleged loan, supplier and retention-of-title payments, trading debts, rent and other property charges, a directors’ loan account balance and a bank payment. The liquidator disputed liability, quantum and the evidential basis of several claims.

The central issues were the proper approach on an appeal from rejection of a proof, whether disputed witness evidence could be rejected without cross-examination, and whether the Fieldings had proved the individual claims.

1. Appeal and burden of proof. The appeal was a rehearing on the evidence before the court. The court had to decide afresh the extent to which the proof should be admitted, rather than merely review whether the liquidator had acted correctly. The burden remained on the Fieldings to establish their claims to the civil standard: Re Kentwood Constructions Ltd [1960] 1 WLR 646.
2. Untested witness evidence. Under rule 7.7A of the Insolvency Rules 1986, cross-examination may be ordered where necessary for the fair disposal of the issue. Applying the principles discussed in Re BCCI (No 6) [1994] 1 BCLC 450, Markem Corporation v Zipher [2005] EWCA Civ 267 and Long v Farrer [2004] EWHC 1774 (Ch), credible paper evidence should generally not be disbelieved without cross-examination or a fair opportunity to explain the criticism. The exception is evidence that is incredible, manifestly incredible or plainly contradicted by incontestable material. The Fieldings’ evidence was not shown to meet that threshold.
3. Individual claims. The £3.15 million rollover debt was proved as a loan; the accounting entries treating it as share capital were insufficient to establish a later conscious agreement to convert it. The supplier and retention-of-title payments succeeded where shown to have been made intentionally and in good faith for BGL’s benefit. Full substantiation of the suppliers’ claims was unnecessary. The Vital claim was allowed only to the extent of £861,317.21 because the Fieldings had not proved that Vital’s records should be preferred to BGL’s records.
4. The Century House claim was allowed at £355,069.56. Continued occupation supported continuing liability, and the credit notes and failure to issue later invoices did not establish a legally binding permanent waiver. The directors’ loan account claim and the £18,227.49 bank payment were also allowed, the latter on the basis of subrogation.
5. The proof was admitted at £4,568,056.90, less the £1.3 million already received, leaving a final balance of £3,268,056.90 allowed to the Fieldings.

• Liquidator: on 29 December 2015, rejected the Fieldings’ proof of debt.
• High Court (Chancery Division): allowed the appeal and admitted the proof in the sum of £4,568,056.90, subject to credit for £1.3 million already paid.