Adrian Charles Hyde & Anor v Sukhwinder Todd

An application for summary judgment in a wrongful-trading claim under Insolvency Act 1986, section 214, will often depend on fact-sensitive questions concerning knowledge, loss, causation and the statutory defence. Where those issues remain realistically arguable, the claim should proceed to trial.

Findings made in earlier proceedings involving different parties are not automatically admissible or binding in subsequent civil proceedings. Whether reliance on those findings is precluded by the rule in Hollington v Hewthorn, or whether relitigation would constitute an abuse of process, requires close attention to the facts, the fairness and thoroughness of the earlier proceedings, and the overlap between the issues.

The appellants, joint liquidators of Radarbeam Ltd, brought a claim against its former director under section 214 of the Insolvency Act 1986. They alleged that he knew, or ought to have concluded, that the company could not avoid insolvent liquidation and failed to minimise creditors’ losses.

The appellants sought summary judgment, relying substantially on findings made by the First-tier Tribunal Tax Chamber concerning the company’s involvement in MTIC fraud and the respondent’s knowledge of that fraud. Chief Insolvency and Companies Court Judge Briggs dismissed the application and directed the claim to proceed to a case management hearing. The appeal concerned whether the claim was suitable for summary determination and whether the FTT findings were decisive or binding.

1. Appeal dismissed. The section 214 claim was not suitable for summary determination. The relevant questions were acutely fact-sensitive: the respondent’s financial position, what he knew or ought to have known about the prospect of insolvent liquidation, whether he acted reasonably in pursuing the Tribunal Proceedings, the existence and scope of the statutory defence, and the loss caused by continued trading.
2. The correct summary-judgment approach requires consideration of whether the respondent has a realistic, rather than fanciful, prospect of successfully defending the claim and whether evidence reasonably expected to be available at trial could affect the outcome. The court must not conduct a mini-trial. The respondent’s evidence and the possibility of further factual investigation meant that a realistic prospect of a successful defence could not be excluded.
3. The rule in Hollington v Hewthorn remained applicable to judgments in earlier civil proceedings involving different parties. Such a judgment was not automatically admissible to prove a fact in issue or legally binding on a stranger. The court did not, however, finally determine the status or evidential weight of the FTT Decision. Those matters remained for trial.
4. Whether reliance on the FTT findings, or the company’s decision not to appeal them, would involve impermissible relitigation or an abuse of process required an intense, fact-sensitive examination of the fairness and thoroughness of the FTT proceedings and the overlap between the issues decided there and the issues arising under section 214. The authorities in Secretary of State for Business Innovation and Skills v Potiwal and Wilson v Mehta did not justify summary determination in the present case.
5. The judge below had not misdirected himself concerning causation, loss, the Revenue’s assessments, the rule in Hollington v Hewthorn or the potential defence. The issues were left for trial.

• High Court, Chancery Appeals: Appeal dismissed. The order of Chief Insolvency and Companies Court Judge Briggs dismissing the summary-judgment application was upheld.
• Chief Insolvency and Companies Court: The application for summary judgment under CPR 24 was dismissed and the claim was directed towards a case management hearing.