In a convincing and meticulously reasoned judgment earlier this year (Mitchell & Anor v Al Jaber & Ors [2021] EWHC 912 (Ch)) Joanna Smith J highlighted the differences between judicial proceedings in general and proceedings governing private examinations under s 236 Insolvency Act 1986, holding that witness immunity did not attach to evidence given under examination. She gave permission to appeal. The appeal has now been heard and, surprisingly, allowed: Al Jaber v Mitchell [2021] EWCA Civ 1190.
After an examination of the history of and authorities on witness immunity Asplin LJ concluded that the existence of immunity from suit had traditionally been approached by the courts on a context specific basis.
“Even in cases in which the immunity is described in broad terms, the court has conducted a close examination of the particular circumstances of the case, bearing in mind the policy considerations, in order to determine whether the immunity applies.”
She identified a central consideration, citing Lord Clyde in Darker v Chief Constable of West Midlands:
“It is temptingly easy to talk of the application of immunities from civil liability in general terms. But since the immunity may cut across the rights of others to a legal remedy and so runs counter to the policy that no wrong should be without a remedy, it should only be allowed with reluctance, and should not readily be extended. It should only be allowed where it is necessary to do so”.
That need to balance the desirability for immunity against the rights of others to a legal remedy made it, in her view,
“[E]ssential that the precise nature of the immunity and the context in which it is said to arise, are considered in detail. Whether the immunity provides protection in respect of a statement made by a person involved in proceedings may depend, amongst other things, upon: the role or function of the person who made the statement in those proceedings and the relevance of that role; whether the maker of the statement was in that role or exercising that function when the statement was made; the purpose of the statement; the nature of the proceedings in which it was made, or with which it was connected; how ‘judicial’ those proceedings are; and the extent and nature of the connection between the statement itself and the proceedings.”
Asplin LJ embarked on just such an exercise in relation to the examination regime in the Insolvency Act. She appears, in doing so, to have attached great weight to Lord Sumption’s description of the nature of winding-up proceedings in Singularis Holdings Ltd v PricewaterhouseCoopers:
“Winding up proceedings have at least four distinct legal consequences, to which different considerations may apply. First, the proceedings are a ‘mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established’… Inherent in this function of a winding-up is the statutory trust of the company’s assets, to which I have already referred, and an automatic stay of other modes of execution. Second, it provides a procedural framework in which to determine what are the provable rights of creditors in cases where they are disputed. Third, it brings into play statutory powers to vary the rights of persons dealing with the company or its assets by impugning certain categories of transaction. …. Fourth, it brings into play procedural powers, generally directed to enabling the liquidator to locate assets of the company or to ascertain its rights and liabilities.”
Asplin LJ said that a s 236 examination fell within the “procedural powers” of the single proceeding that followed a compulsory winding-up. She also said, however,
“It seems to me that the nature of the section 236 process is ‘sui generis’ as Megarry J described its predecessor [in In re Rolls Razor Ltd (No. 2)] and the examinee cannot be equated in every respect with a witness in the ordinary sense. That conclusion reveals the difficulty [leading counsel for the appellants] faces in arguing that the authorities on witness immunity can be applied directly to the Sheikh’s statements. It does not follow, however, that an examinee does not enjoy immunity from suit in relation to statements made in the course of an examination.”
She then asked, “Does the fact the examination takes place in court suffice?” answering the question in the negative: “It does not follow that any statement made in a court, in any kind of procedure, by anyone, will automatically benefit [from immunity].” But, “That is not to say that the fact the section 236 procedure takes place in a court is irrelevant: on the contrary, it is an important factor which militates in favour of immunity from suit in relation to statements made by a participant in proceedings. But it is not conclusive. To determine the issue, it is necessary to look at the features and context of the section 236 procedure in a more holistic manner.”
“How should statements made by an examinee in a section 236 examination be viewed?” was the next question Asplin LJ posed. On that, she thought the judge below had approached the matter too narrowly. Section 236 examination had to be considered not as a standalone procedure, to be examined forensically against the Trapp v Mackie indicia examined by the judge below, but had to be viewed in the context of “the wider compulsory winding-up proceedings in which it arises which are commenced by an order of the court and which it is intended to facilitate.”
It appears to have been that consideration which ultimately led Asplin LJ to differ from the conclusion reached by Joanna Smith J:
“The section 236 examination is a tool which can be used by the official receiver in his capacity as an officer of the court or by the liquidator in the course of the winding-up proceedings. It is one of the ‘procedural powers’ described by Lord Sumption in Singularis. When posing questions under the supervision of a judge, the liquidator is seeking to further the purposes of the court-supervised compulsory winding-up. The liquidator is seeking to fulfil his statutory duty under section 143(1) IA 1986, to get in the company’s assets, realise and distribute them, and to place himself in a position to prepare a final account to be sent to the creditors, contributories, the Registrar of Companies and the Court: section 146 IA 1986.“
That, she said, “casts the section 236 examination in a different light:” it was properly to be viewed as part of the compulsory winding-up, starting with the winding-up order and continuing under court supervision thereafter; as such it was part of a wider “judicial proceeding.”
The liquidator or official receiver posing questions enjoyed immunity from suit in respect of the questions they asked, or the statements they put to the examinee. The judge was likewise immune in the performance of his or her duties. Thus:
“If Mrs Justice Joanna Smith is right that the Sheikh’s statements are not covered by immunity from suit, that creates a very curious situation: the judge clearly enjoys immunity from suit in respect of anything he or she says in the course of the section 236 examination; as I have said, the liquidator conducting the examination (or his representative) is protected from suit; and therefore, only the examinee is left exposed. It seems to me that the fact that both the judge and liquidator enjoy immunity, together with the very nature of the section 236 examination which I have already described, points to the section 236 examination, viewed in the context of the winding-up proceedings, as being the kind of judicial proceeding in which all participants are entitled to immunity.”
In Asplin LJ’s judgment, those considerations outweighed the factors relied upon by the judge below.
She agreed with Joanna Smith J that the question whether the examinee was a witness or a party to the proceedings was not relevant, nor was the fact that the liquidation originated in the BVI.
The outcome of the appeal will be a disappointment to the insolvency profession, apparently depriving the private examination of some of its bite. Asplin LJ offered some consolation:
“110. As I have said, individuals are under an obligation to comply with information requests prior to a section 236 order being made (whether under section 235 or separate statutory or fiduciary duties); affording immunity to examinees in relation to statements made only in the section 236 process does not diminish those obligations. Moreover, the court may penalise an examinee who ‘stonewalls’ in the face of all pre-236 examination enquiries in order to benefit from immunity by requiring them to pay the costs of the liquidators’ application for a section 236 examination and of the examination itself. That provides a further incentive not to delay until the moment of the section 236 examination.”
Many will consider that cold comfort.