Carton-Kelly v Hailey Acquisitions Ltd

On an application under Insolvency Rules rule 6.48, the court may direct that confidential evidence be filed without being shown to the respondent at that stage. Whether the court should inspect privileged merits material, or hear submissions in the respondent’s absence, depends on the nature of the statutory exercise. If the application requires close assessment of the merits and the justice of using another person’s assets, a candid analysis of the strengths and weaknesses of the proposed claim may be appropriate, by analogy with Beddoes proceedings. If the issue is limited to the availability of alternative funding, detailed merits material may have no proper role. Rule 6.48(6) is sufficiently wide to permit attendance for only part of the hearing.

The additional claimant liquidator applied for directions in connection with a proposed application under rule 6.48 of the Insolvency Rules. The proposed evidence included a privileged opinion on the merits and other material concerning possible funding. The liquidator sought to rely by analogy on the established procedure in Beddoes proceedings, under which candid merits material may be considered without the prospective defendant being present.

The respondent argued that the relevant question was instead whether the claim would be stifled without recourse to floating-charge assets, so that detailed merits analysis was unnecessary. The parties did not ask the court to decide which substantive approach the judge hearing the rule 6.48 application should adopt. The immediate issues were whether confidential evidence could be filed and whether the respondent could be excluded from part of the hearing.

1. Confidential evidence. The court permitted the liquidator to file confidential evidence, including an opinion on the merits, in an envelope marked not to be opened without the authority of the judge hearing the rule 6.48 application. The parties had not asked the court to determine the extent of privilege, including privilege in communications with actual or potential funders.
2. Nature of the rule 6.48 exercise. The court left open whether the judge’s principal task is to assess the merits and justice of the proposed litigation, or instead to determine whether other funding is available and the claim would otherwise be stifled. If close consideration of the merits is required, the liquidator must provide a candid account of the strengths and weaknesses of the claim. In that event, the Beddoes procedure provides a close analogy, including the possibility that the prospective defendant should not see the confidential analysis.
3. Closed material and attendance. Al-Rawi v Security Service [2011] UKSC 34 did not determine the issue. It recognised exceptions to the general rule against closed material procedures in applications which are not ordinary adversarial claims for damages. Whether an exception applies depends on the characterisation of the rule 6.48 exercise.
4. Construction of rule 6.48(6). The provision that the respondent is to attend unless the court orders otherwise is wide enough to permit attendance for only part of the hearing. Whether any material should actually be considered in the respondent’s absence will depend heavily on the purpose of the application.
5. Further evidence. The court declined to dictate what evidence the liquidator should file. Further evidence was to be disclosed in the ordinary way, subject to privilege. The liquidator was warned that failure to file evidence necessary to establish the application could result in failure.