KIDS CLUB AND THE DANGERS OF SELECTIVE EVIDENCE: WITNESS STATEMENTS IN AN INSOLVENCY CONTEXT

The decision in the Official Receiver -v- Batmanghelidh and others [2021] EWHC 175 (Ch) involves some consideration of the way in which the claimant presented the evidence. Whilst the claimant was under a particular duty in this case this involves a lesson to many litigants.  To consider the evidence “warts and all” before embarking on litigation.

“I was not persuaded that sufficient regard had been paid to the duties not to overstate the case against the defendants, to put it in a balanced way, and not to omit significant evidence in their favour”

THE CASE

The claimant Official Receiver brought an action against former staff and a former directors of Kids Club seeking their disqualification as directors. That application was unsuccessful.  The judge was critical of the manner in which evidence had been collected and presented.

THE JUDGMENT

The judge considered the evidence in support of the application.

3. Secondly, I was left with a strong impression from Mr Hannon’s evidence that
his report had been produced, and reworked, very much with an eye on the team
within the Insolvency Service that would (at the direction of the Secretary of
State) authorise him to launch proceedings, and would approve what period of
disqualification should be recommended. I was not persuaded that sufficient
regard had been paid to the duties not to overstate the case against the defendants,
to put it in a balanced way, and not to omit significant evidence in their favour
(Re Finelist [2004] BCC 877 at [19]). I should emphasise that this is not intended
to be a criticism of Mr Hannon as an individual – for example, as mentioned
above, the investigation was not all conducted under his leadership – but of what
I infer is a broader issue of training and understanding within the Department.

74. Thirdly, despite Mr Hannon’s level of experience I am afraid to say that I found
some of his evidence rather unrealistic. Most of the issues in question are matters
of opinion so they are strictly inadmissible as evidence, but they underpin aspects
of the Official Receiver’s case and need to be addressed in that context. Again, I
deal with these points later but my concerns included views expressed as to how
reserves should have been built up, how Ms Batmanghelidjh should have been
dealt with by the Trustees, the view that should have been taken about
communications from senior members of the government and associated
individuals, and the approach that the charity should have taken to the reality of
young people’s needs.

ANOTHER WITNESS

The judge had a similar criticism of the evidence presented by another witness.

Mr Tatham was aware of the requirement for fair presentation of evidence, but
appeared not to have a full grasp of what this involved, for example the need to
avoid selective quotations which could risk giving the reader a misleading
impression. More significantly, the narrow focus on adherence to Kids

Company’s policies for distributing financial assistance did not in my view result

in a balanced representation in Mr Tatham’s report of the findings of various
external reports about the charity’s operations that had been undertaken during
or close to the period in question, and in particular what the Trustees might
reasonably have derived from those reports.

MS HAMILTON

A witness of fact was called, a former employee of the company.  She had picked out “relevant” emails for disclosure. Again the judge had concerns.

Ms Hamilton seems to have retained all, or at least a significant number of, her
Kids Company work emails on a laptop after she left the organisation. It appears
that this material was used among other things in connection with the creation of
the joint timeline discussed further below. Ms Hamilton also confirmed that she
had looked through her emails to pick out what she considered to be “relevant”,
printed them and provided them to the Official Receiver. I infer that Ms
Hamilton’s approach to relevance was rather different to the approach that might
be taken on a disclosure exercise, and was more directed at identifying material
that could be used to criticise the charity. That is consistent with her evident views
about the charity’s failings, and with what appeared to be a rather selective
approach in referring to documents in her affidavit.

THE JUDGE’S GENERAL OBSERVATIONS

The judge made some overall observations in relation to the conduct of this type of case.

900. My perception is that more emphasis needs to be placed on the requirements of
balance and fairness in assembling reports and other evidence. This affects the
investigation process – for example the choice of whom to interview and the
questions asked – as well as the content of the documentary evidence. For
example, Mr Tatham’s key criticisms about missing records in relation to clients
appear to have been made without the benefit of interviews with staff members
who might have been best able to assist in relation to that topic, and with what
seems to have been insufficient weight placed on Mr Kerman’s views. Ms Jenkins
was also not interviewed, which given her role during key periods and in respect
of key events (including the 2012 statutory accounts, the 2014 Budget and the
cash forecast produced for the July 2015 restructuring) appears to be a surprising
omission.
901. Generally, I was concerned that both Mr Hannon and Mr Tatham appeared to
have had insufficient appreciation of the importance of the duty to present the
case in a balanced way. There is no reason to doubt that this reflects a wider issue
within the Department, rather than individual failings. This point is not simply a
matter for the court. The content of the Official Receiver’s reports determined the
decision by the relevant team to permit the proceedings to be brought, and the
decision about the period of disqualification to seek. It must be borne in mind
that, for proceedings of this nature with potentially penal consequences, the
existence of the proceedings themselves can have extremely significant
consequences for defendants. In many cases there will also be no review by the
court, because the defendant chooses to accepta disqualification undertaking. The
decision whether to bring disqualification proceedings should be reached with
real care, with proper regard to all relevant issues. The information presented to
enable that decision to be made should be presented “warts and all” to ensure that
the decision to proceed, which requires a conclusion that a disqualification order
is “expedient in the public interest” (s 7(1) CDDA), is fully informed.
902. The requirement for the Official Receiver to present a balanced case extends to
submissions on his behalf. Whilst this group of defendants were fortunate enough
to be well advised, I think it would have been difficult for many defendants to
ensure that sufficient context was provided in connection with individua l
criticisms, and to ensure that other relevant documents were identified which
could cast a different light on documents on which the Official Receiver placed
particular emphasis. Even with assistance from the defendants’ advisers, it was
frequently a challenge for the court to seek to ensure that, overall, it had a
balanced and fair understanding of the overall position in this case.
Length and content of reports
903. Mr Hannon’s first report and Mr Tatham’s report ran to over 600 pages in total,
with over 18,000 pages of exhibits. There is a risk that the overall length and
structure of reports and exhibits, and thus the presentation and conduct of the case
overall, can amount to oppression. Real care is needed to minimise the risk of that
occurring. An obvious example in this case is the significant proportion of Mr
Tatham’s report dealing with individual clients, in a way that was at best
disproportionate to the very limited role that that evidence properly played in the
12 February 2021 14:14 Page 215

MRS JUSTICE FALK Re Keeping Kids Company
Approved Judgment
single allegation, and as already discussed was in reality not required to support
the case that was put.
904. The reports also included a significant number of quotations, which contributed
to length. Two difficulties with these were, first, that they showed a tendency to
be selective, such that a reader who did not consult the underlying document
could well be left with the wrong impression, and secondly that it was often not
possible for the reader (including in particular the defendants) to determine
without further enquiry whether the Official Receiver was asserting the truth of
the content of all or part of the quotation. Both aspects are unsatisfactory. On the
whole I think it would have been better to direct the reader to consider specified
documents in full, rather than set out lengthy quotations, and make clear what it
is said that the particular document demonstrates. Simply appending full versions
of documents does not, without more, address concerns about unbalanced
statements or quotations, because unless asked to do so it is unlikely that most
readers, including I suspect those charged with deciding whether to authorise the
proceedings to be brought, will read much of the exhibits to a report where the
total exhibits are extremely lengthy, as they were in this case.
905. More broadly, the overall context needs to be borne in mind. This was not a case
alleging dishonesty or want of probity, but an allegation of incompetence against
the directors and a manager of a charitable company, who had made no personal
gain from any of the alleged conduct, and who with one exception were all
unpaid. The periods of disqualification being sought against the Trustees were in
the lowest of the three brackets referred to by Dillon LJ in Re Sevenoaks
Stationers (Retail) Ltd [1991] (Ch) 164 at 174 (being “relatively, not very
serious”). The resources involved in bringing the proceedings (not only those of
the Insolvency Service, but court resources as well), and the scale and nature of
the case that the defendants had to defend, need to be carefully considered against
this backdrop.

MRS JUSTICE FALK Re Keeping Kids Company
Approved Judgment
Company’s policies for distributing financial assistance did not in my view result
in a balanced representation in Mr Tatham’s report of the findings of various
external reports about the charity’s operations that had been undertaken during
or close to the period in question, and in particular what the Trustees might
reasonably have derived from those report