WITNESS CREDIBILITY, DELAY AND DENTON.

November 2, 2016 · by · in Applications, Extensions of time, Relief from sanctions, Uncategorized, Witness statements

There is an interesting discussion of  the credibility  of witnesses in the judgment of Mr Registrar Briggs in Preston -v- Green (Liquidator of Cre8atsea Limited) [2016] EWHC 25222 (Ch). The Registrar also had to consider whether to exercise his discretion under the Denton criteria when there had been a two year delay. The Registrar also held that the fact that the applicant was a litigant in person did not give rise to any special status on an application for relief from sanctions.

“In any event there is nothing in the CPR, the Rules or Insolvency Practice Direction that permits the court to deal with litigants in person any differently from any other party. No extra time can be afforded to Mr Preston as a result of his status as a litigant in person.”

THE CASE

The applicant, a director of the company now in liquidation, claimed to be a contributory or creditor of the company.  He made an application to rescind the winding up order.

THE REGISTRAR’S DISCUSSION OF CREDIBILITY
  1. At the hearing of the application Mr Preston accepted he was not a contributory of the Company. He claimed to be a creditor. The basis of his claim is set out in his first witness statement dated 20 May 2015 where he states that the Company owes him £3,643 “which is made up of unpaid out of pocket expenses which were incurred in relation to costs incurred in the course of my work and duties undertaken for the company.” No further elaboration is provided in any of his witness statements.
  2. At the hearing of the application a small clip of documents was handed to the court. I was informed the documents were sent to the Respondents the day before the hearing. The clip comprises two invoices. The first is dated 1st November 2010 and is for “reimbursement of emergency consumables for vessels”. The sum sought on the face of the invoice is £808. The invoice notes that the consumables were paid in cash. The supporting sales proforma shows that only approximately £580 was invoiced. The accounts of the Company for the year ending 31 December 2010 do not disclose this related party transaction. The purchase of goods on behalf of the Company does not relate to “duties undertaken for the company”. The invoice mentions no duties undertaken.
  3. The expenditure could possibly fall within the category of ‘out of pocket expenses’ although the phrase is usually used when an employee has to spend money for their sustenance during the course of a working day. No explanation has been given as to why the Company did not repay the debt between October 2010 and the presentation of the petition. Mr Preston is not mentioned on the supporting invoice from the seller of the consumables. The buyer’s address is stated as being 67 Bond Street London, which is not an address occupied by Mr Preston. There is no evidence that the Company did not pay for the goods direct, or evidence that even if Mr Preston did pay for the goods on behalf of the Company, he had not been repaid. Miss Barden, acting for the liquidator, informs the court that there is nothing in the Company books and records that supports the claim of the debt.
  4. The second invoice relates to storage of “stock & assets” for the period 2011 and 2012. No particulars are provided as to what stock or assets were in storage. The invoice is dated 1st December 2012 after the Company assets were said to have been sold. There is no evidence that Mr Preston paid for the storage if stock and assets were stored. In any event it is not easy to describe the payment for storage of unspecified goods in an unspecified location over what appears to be a two-year period as “unpaid out of pocket expenses which were incurred in relation to costs incurred in the course of my work and duties undertaken for the company.”
  5. Mr Preston was asked in court to provide an explanation as to why the invoices were not provided to the Official Receiver, the liquidator or the Respondents to the application until the day before the hearing. Mr McGuinness informed the court that the documents formed part of the exhibit to Mr Preston’s first witness statement. The invoices before the court in the newly provided clip, are numbered from page 170 giving support to the argument that they at one time formed part of the exhibit. Mr Curl on behalf of Vodafone, however demonstrates a serious flaw in the contention. In paragraph 6 of Mr Preston’s first witness statement he referred to page 170 of the exhibit as being an extract from Companies House. In fact, page 170 of the exhibit is an email dated 16 May 2013. The invoice now tendered as a genuine document is also numbered page 170 of the exhibit. There is no evidence from Mr Preston on this issue.
  6. In making decisions about the credibility of evidence set out in an affidavit on an application for summary judgment, Bingham LJ (as he was) said in Bhogal v Punjab National Bank, Basna v Punjab National Bank [1988] 2 All ER 296 at 303
“But the correctness of factual assertions such as these cannot be decided on an application for summary judgment unless the assertions are shown to be manifestly false either because of their inherent implausibility or because of their inconsistency with the contemporary documents or other compelling evidence.”
  1. In Standard Chartered Bank v Yaacoub [1990] CA Transcript 699 Lloyd LJ, said:
“It is sometimes said that in an application under Ord 14 the court is bound to accept the assertion of a defendant on affidavit unless it is self-contradictory or inconsistent with other parts of the defendant’s own evidence, and that the court cannot reject an assertion on the simple ground that it is inherently incredible…..In the present case I ask myself whether it is credible that an oral agreement was made in mid-January of 1985 as alleged by Mr Naidoo in his third affidavit. I have come to the conclusion that it is not.”
  1. The issue of weighing the credibility of evidence set out in an affidavit or witness statement arose again in National Westminster Bank Plc v Daniel[1994] 1 All ER 156, where the Court of Appeal agreed with the dicta of Bingham and Lloyd LJ. Glidewell LJ giving the judgment of the court noted that in Standard Chartered Bank v Yaacoub “Lloyd LJ posed the test: is what the defendant says credible? If it is not, then there is no fair or reasonable probability of him setting up a defence.” This approach is not confined to applications for summary judgment or striking out. It has been adopted by the courts in many different situations where there is no oral evidence, and in an insolvency context: see for example Portsmouth v Alldays Franchising Limited [2005] BPIR 1394
  2. In my judgment the description of the debt in Mr Preston’s witness statement does not match the invoices which are intended to support the debt. The inconsistencies have not been explained; there is a failure to provide adequate supporting documentation for the invoices, a failure to explain why the alleged debt was not paid while the Company traded, a failure to explain why the Official Receiver or liquidator had not seen the invoices until late in the day and a failure to reconcile the exhibit pagination.
  3. The evidential inconsistencies, failures to properly explain or elaborate upon his contention that the Company owes him a debt, lead me to conclude, on the balance of probabilities, that the assertion of his status as a creditor of the Company cannot be relied upon.
  4. As a result of this finding Mr Preston does not have standing to make the application and the application must fail. In deference to arguments made by the parties during the course of the one day hearing, and in case I am wrong in reaching the conclusion that Mr Preston is not a creditor, I shall go on to consider the other issues raised.

THE DENTON TEST APPLIED

The application should have been made within 5 working days of the winding up order. It was made two years later. The Registrar considered whether he should exercise his discretion.

  1. As CPR 3.9 applies the three stage test provided by the Court of Appeal in Denton & Ors v TH White Limited [2014] EWCA Civ 906 gives guidance and requires consideration:
“The first stage is to identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate “all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]”
  1. In respect of the first stage, the application was made more than two years after the winding up order. The researches of counsel have demonstrated that there is no reported decision where an extension has been given for such a large amount of time. Mr Mullen described the delay as “simply inordinate”. Mr Curl said that the delay was not only “inexcusable” but “extreme”. I agree with these descriptions. I have no doubt that the delay is serious and significant. It is serious because of the time period and significant as there is potential prejudice to creditors. It is also significant as other parties have been or will be affected by the delay: liquidator has been in office for more than two years; the official receiver and the liquidator have incurred costs; and creditors have submitted proof of debt. The Miss Barden for the liquidator informs the court that he is investigating the events surrounding the Company sale of assets in 2011 and Mr Preston has not yet co-operated.
  2. As a result of the delay being serious and significant I move onto consider the reasons for the delay. Mr Preston’s account of the reasons for the delay are:
  3. 1. he was ill and not fit for work for a period of 9 months;
  4. 2. as a litigant in person he was unaware of the strict time limit;
  5. 3. he was corresponding with HMRC as to the VAT assessments and did not appreciate that HMRC would appoint a liquidator.
  6. The reasons for delay are not good reasons for delay. As regards his ill health it has not been questioned that Mr Preston was signed off sick for a period of time, however there is no explanation for the delay occurring from the period 11th March 2013. Even if he were not well, there is no medical evidence to demonstrate that Mr Preston was unfit to file and serve an application. In any event, I have noted above that the Company was represented by solicitors and counsel at the date of the making of the winding up order. I infer that Mr Preston, as its director, had the benefit of legal advice at the time the order was made, yet did not make an application to rescind or instruct others to make the application. This is unexplained.
  7. In addition, there is a curiosity about Mr Preston’s ability to make an application to rescind the winding up order in respect of Beta Retail Limited (another company in which Mr Preston was a director) and not the Company. The application to rescind in relation to Beta Retail was made in July 2014. Accordingly, Mr Preston, acting in person or with the assistance of direct access counsel, knew by at least July 2014 that there was a strict time limit to adhere to. In any event there is nothing in the CPR, the Rules or Insolvency Practice Direction that permits the court to deal with litigants in person any differently from any other party. No extra time can be afforded to Mr Preston as a result of his status as a litigant in person.
  8. Mr Preston thought that time should be extended as he was in correspondence with HMRC. If this is the reason for delay it is not a good reason. Even if he were fully engaged with the correspondence an application to rescind could have been made.
  9. Taking into account all the circumstances of the case, this is not an application that should succeed. It is relevant to have regard to the following factors:
36.1. The winding up order was regular;
36.2. The petition debt was accepted at the hearing of the winding up;
36.3. An adjournment was sought at the final hearing because the Company could not pay its admitted debts as they fell due;
36.4. American Express is a creditor of a large sum and its interests in the winding up proceedings need to be protected;
36.5. HMRC have a large claim and its interests have to be protected through the sanctity of a properly made winding up order;
36.6. The Company remains insolvent and has not traded for many years;
36.7. If there is doubt about the proofs that have been or will be lodged, the liquidator will be well placed to challenge them: as Mr Preston accepted; and
36.8. Lastly the application to extend time has not been ‘strictly justified’.”

RELATED POSTS: WITNESS CREDIBILITY

DENTON AND RELIEF FROM SANCTIONS

Most of the cases relating to relief from sanctions are considered in the Sanctions: Case Watch section of this blog.

 

 

 

 

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