The High Court has held that an examination conducted pursuant to an order made under s.236 of the Insolvency Act 1986 (“IA”) did not attract witness immunity. The result was that the joint liquidators were permitted to amend their particulars of claim to plead a claim for breach of duty relating to allegedly false statements made in the course of the examination.

The witness immunity rule applies to witnesses in proceedings, and prevents an action being brought against the witness for things said in, or done in preparation for, giving evidence. Section 236 IA permits an administrator or liquidator of a company to seek an order for the examination of any person who is thought capable of giving information concerning the company’s promotion, formation, dealings, business, affairs or property. No previous authority had dealt with whether examinations under s.236 IA constituted proceedings for the purposes of the witness immunity rule.

While the court found that witness immunity did not apply in this case, the decision leaves open the possibility that some s.236 IA examinations might cross the line between the provision of information for the purposes of an investigation and the provision of evidence for the purposes of legal proceedings. But in this case the court considered it clear that the line had not been crossed.

Background

Under s.236 IA, an insolvency office-holder may apply to the court for an order requiring certain parties (including former officers of the company and any person who is thought capable of giving information concerning the company’s promotion, formation, dealings, business, affairs or property) to appear before the court to be examined under oath or affirmation. Any such person may also be required to give to the court a written account of his dealings with the company (including in the form of a witness statement verified by statement of truth) or to disclose documents.

The applicants in this case were the joint liquidators of MBI International & Partners Inc, a British Virgin Islands company (the “Company”), and had the same powers as English liquidators by virtue of being recognised under the Cross Border Insolvency Regulations 2006. The first respondent had previously been ordered to provide a witness statement and undergo oral examination under the s.236 IA procedure. It was later alleged that, in the course of his s.236 IA examination, the respondent had made false statements about the Company’s holdings in another BVI company. The applicants sought to amend their particulars of claim to plead that this amounted to a breach of his continuing fiduciary duties, which had caused loss and damage to the Company.

The respondents submitted that the witness immunity rule should apply to the statements given in the s.236 IA examination. They argued that the winding up of the company meant that judicial proceedings were on foot, and that the s.236 IA examinations had been carried out under the umbrella of those proceedings. They said that allowing the respondents to be pursued for an alleged breach of fiduciary duty on the basis of false evidence given in the statements provided pursuant to the s.236 process would undermine the principle of public interest behind the witness immunity rule, submitting that it was designed to prevent potentially vexatious litigation being brought in such circumstances.

The liquidators disagreed, arguing that immunity from suit only applies to evidence provided in the course of judicial proceedings, and that the s.236 IA procedure involves the provision of information rather than the giving of evidence. They also submitted that s.236 IA examinations do not have enough of the hallmarks of judicial proceedings to attract immunity, and that the public policy grounds for witness immunity did not apply in the present case.

Decision

The High Court (Mrs Justice Joanna Smith) held that the s.236 IA examination in this instance did not attract witness immunity.

The judge took the view that witness immunity could only apply to witnesses giving or preparing to give evidence, and though she said she had not found it easy in the present case to determine, the s.236 IA examinations did not amount to the giving of evidence, but merely giving information which may subsequently be admissible in proceedings.

Smith J’s main reason for this was that the IA 1986 procedure was intended to create an investigative process, and this was not changed by virtue of it being carried out before a court, as the court’s functions during the course of the examination are extremely limited. She noted that, whilst it has procedural formality, the s.236 IA procedure has distinct differences from civil proceedings ā€“ for instance, questioning is carried out in private to protect confidentiality, there is no cross-examination, there is no substantive issue to determine and the court does not come to any decision.

Smith J said she could not rule out that immunity may in some cases extend to apply to s.236 IA examinations, as the examination may cross the line from the investigatory function to the giving of evidence. However, she held that it did not in the present case as the respondent had only been subject to the court order to “facilitate the progress of the liquidation”, based on the evidence filed in support of the application to examine him.

The court then considered whether s.236 IA examinations could attract witness immunity for broader public policy reasons. The court considered the public policy rationale for witness immunity set out in Darker v Chief Constable of the West Midlands Police [2000] UKHL 44, namely that it: (1) protects witnesses from vexatious actions; (2) encourages people to assist justice; (3) ensures witnesses speak freely; and (4) prevents multiplicitous actions where witness evidence can be repeatedly challenged.

Smith J did not feel that s.236 IA examinations gave rise to the public policy considerations noted above. In particular, given that the IA already places a duty on those who are examined to provide information to the liquidator, the need to encourage assistance of justice by providing immunity to the witness did not apply. In addition, as s.236 IA examinations do not involve the determination of disputes, there was no risk of multiplicitous actions to be avoided. She also noted that, if immunity were to apply, it could have the result of dissuading people from informally providing assistance to office-holders without the imposition of a court order, as they could escape civil liability for the provision of false information if they waited to be ordered to attend a formal examination.

Smith J therefore found there were no grounds for extending witness immunity to cover the information provided by under the s.236 IA examination in the case. This meant that the applicants could amend their particulars of claim to plead a claim arising out of the alleged falsity of the respondent’s statements.

Andrew Cooke
Andrew Cooke
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Peter Thompson
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