Re: A Bankrupt ((1963 - 1964) Z and NRLR 43) [1964] ZMHCNR 20 (14 February 1964)

Re A BANKRUPT (1963 - 1964) Z and NRLR 43 1963 - 1964 Z and NRLR p43 [Before the Honourable Mr. Jus�ce DENNISON on the 14th February 1964.] Flynote Bankruptcy - right of counsel for creditor to cross - examine witness summoned before a registrar - sec�on 25 of the Bankruptcy Act, 1914 rule 10 of the Bankruptcy Rules, 1952. Headnote A witness who was summoned to appear before the registrar in bankruptcy in terms of sec�on 25 (1) of the Bankruptcy Act 1914, was represented at the hearing by counsel. Counsel for the creditor asked leave to appeal and to ques�on the witness. This was granted, over the objec�ons of counsel for the witness. On the joint applica�on of both counsel, the mater was referred to a judge, and was adjourned from chambers into court. Held: Counsel for the creditor should not have been permited to atend the hearing or to cross - examine the witness. [ Cases cited: (1) In re Maundy Gregory [1935] Ch. 65. (2) Ex parte Willey (1883) 23 Ch. D. 118. (3) Learoyd v Halifax Joint Stock Banking Company [1893] 1 Ch. 686. (4) In re Greys Brewery Company (1883) 25 Ch. D. 400. (5) In re Scharrer 20 QBD 518. (6) In re Beall [1894] 2 QB 135. (7) In re Norwich Equitable Fire Insurance Company (1884) 27 Ch. D. 515. (8) In re Empire Assurance Corporation 17 LT (NS) 488. G L Parley for the creditor W B Carruthers for the witness [Editorial note] [The Bankruptcy Act, 1914 (4 and 5 Geo. 5 c. 59) s. 25 is similar to the Bankruptcy Act, 1966 (Zambia Acts No. 27, 1967) s. 27.] Judgment Dennison J: This mater came before me in chambers and has been adjourned into court for this judgment because both learned counsel engaged advised me that it raised a mater of considerable interest and importance to legal prac��oners, which had not previously been debated before the courts in Northern Rhodesia. It has arisen out of the examina�on of a person appearing before the learned registrar in bankruptcy at Ndola under the provisions of sec�on 25 of the Bankruptcy Act, 1914. Subsec�on (1) of that sec�on provides: "The court may on the applica�on of the official receiver or trustee, at any �me a�er a receiving order has been made against a debtor, summon before it the debtor or his wife, or any person known or suspected to have in his possession any of the estate or effects belonging to the debtor, or supposed to be in - 1963 - 1964 Z and NRLR p44 DENNISON J debted to the debtor, or any person whom the court may deem capable of giving informa�on respec�ng the debtor, his dealings or property, and the court may require any such person to produce any documents in his custody or power rela�ng to the debtor, his dealings or property." So far as I have been advised, I assume that the person under examina�on here is a person whom the court has deemed capable of giving informa�on respec�ng the debtor in these bankruptcy proceedings, his dealings or his property. I was told from the bar that he was either a fellow - director or a business partner of the debtor. The learned registrar reported to me that he and counsel engaged before him had encountered a problem outside their experience and on which the authori�es then available seemed to give litle guidance. Mr. Carruthers had appeared there with leave as counsel for the person being examined and Mr. Farley claimed to be en�tled to appear at the examina�on and to cross - examine on behalf of a creditor in the bankruptcy proceedings. Mr. Phillips appeared for the official receiver and conducted the examina�on in ques�on but took no part in the submissions before me. The problem as reported to me by the learned registrar, with the agreement of both counsel, was whether or not counsel for the creditor has any right to appear or to cross - examine the witness in what Mr. Carruthers maintained was a private examina�on, to be conducted by and on behalf of the official receiver before the registrar in bankruptcy. Both Mr. Carruthers and Mr. Farley having combined in asking the learned registrar to refer the mater to a judge, I directed that it be adjourned to be heard before me in terms of rule 10 of the Bankruptcy Rules, 1952. I am obliged to counsel for their research and submissions before me, all of which were denied to the learned registrar when the mater was before him in chambers. As a result of that research, together with some of my own, I have formed the view that Mr. Farley, for the creditor, should not have been allowed to atend the examina�on in ques�on much less to ask ques�ons of the person who had been summoned there for examina�on. At the stage before the learned registrar when counsel for the official receiver had concluded his examina�on and when Mr. Farley asked for leave to appear at the examina�on, Mr. Carruthers' objec�on to it was overruled. At the first adjournment that day, Mr. Carruthers objected to Mr. Farley being allowed to ask ques�ons of the witness and was overruled, as happened again when the examina�on was resumed a few weeks later. In my judgment the authori�es clearly support Mr. Carruthers' objec�on. I note first some significance in the very terms of subsec�on (3) of sec�on 25 of the Bankruptcy Act, 1914. It is " the court " which may examine on oath any person brought before it in accordance with the terms of the sec�on. In prac�ce the registrar presides and counsel for the official receiver asks the ques�ons. I have been unable to find anything there which confers a right on the creditor to atend or examine the person summoned under subsec�on (1). 1963 - 1964 Z and NRLR p45 DENNISON J The procedure authorised in terms of that subsec�on shows an extraordinary, inquisitorial power to be exercised carefully. The true nature of the proceedings when a person is examined in terms of sec�on 25 (1) has been described in a number of authori�es. I would refer first to the report In re Maundy Gregory [1935] Ch. at page 71 where Lord Hanworth, M. R, described the posi�on with regard to proceedings under sec�on 25. He said: "The powers given to the court under the sec�on are very wide, as indeed it is essen�al that they should be." He went on to quote with approval the words of Sir George Jessel in Ex parte Willey (1883) 23 Ch. D.118: "It is a power which, so far as I know, is found nowhere except in bankruptcy and the winding - up of companies (which is a kind of bankruptcy); it is a very extraordinary power indeed and it ought to be very carefully exercised." The learned Master of the Rolls having considered the problem before him in that par�cular case reverted to the nature of the proceedings under sec�on 25 and said (page 74), with regard to that procedure: "It ought not to lend itself to a mere fishing inquiry based upon the trustee's hope to build up some case as to which there is before the court no informa�on showing that the witness was implicated." If he says that of the trustee, I would say, with respect, a fortiori as to fishing expedi�ons by the creditors. The views of Chity, J, as to earlier comparable legisla�on were re-stated in this way by S�rling, J, in Learoyd v Halifax Joint Stock Banking Company (1893) 1 Ch., at page 692. S�rling, J, said, referring to what was then sec�on 27 of the Bankruptcy Act, 1893: "The nature of this twenty - seventh sec�on is explained by Mr. Jus�ce Chity in In re Greys Brewery Company, which was a case under sec�on 115 of the Companies Act, 1862. That learned judge, in the course of his judgment says: ' The one - hundred - and - fi�eenth sec�on of the Companies Act, 1862, was undoubtedly inserted by the legislature in that Act on the same principle as a similar clause in the Bankruptcy Act of 1849, and there is in the Bankruptcy Act of 1869 a sec�on which is substan�ally to the same effect as that which was in the older act of 1849, and in the Companies Act of 1862. Now, the object of all these sec�ons is to enable the court to obtain informa�on. I do not say that is the sole object, because other maters are men�oned in the one - hundred - and - fi�eenth sec�on, but the principal object is to obtain informa�on from any persons capable of giving any informa�on concerning the trade and affairs of the company. The nature of the proceedings is essen�ally this. The person examined is not examined as a witness; and to talk of examina�on -in- chief, or cross - examina�on, or re-examina�on in a case of this kind, is to use terms that are really not applicable. What is being done is this: discovery is sought to be obtained which may be 1963 - 1964 Z and NRLR p46 DENNISON J useful to the court in the conduct of the proceedings in the winding - up, and to my mind, looking at the sec�on and the purpose for which the provisions of that sec�on were inserted, an examina�on of this kind must be considered in the nature of a secret proceeding '." Chity, J, was further quoted: "The result of the examina�on - that which is writen down - is not evidence against anybody else. It is the statement on oath of the person under examina�on, but the examina�on is not a proceeding in the nature of a li�gious proceeding between par�es, the object of the examina�on being, as I have already stated, to get informa�on in order to see what course ought to be followed with reference to some mater or some claim which the official liquidator when he applies to the court, is allowed to state privately." I would next quote from In re Scharrer, 20 Q. B. D., at the foot of page 621 of that report where Fry, LJ, dealing with similar legisla�on in the Bankruptcy Act, 1883, had this to say: "The power of examina�on is by sec�on 27 expressly vested in the court, and the person summoned is not, therefore, in the ordinary posi�on of a witness called by a li�gant party in order that he may be examined by the two li�gant par�es before the court, but he is so to speak, the witness of the court. No doubt it has been the common prac�ce, and I have no doubt it is a convenient prac�ce, to allow the counsel or other representa�ve of the trustee or the official receiver to put the ques�ons, but s�ll the conduct of the examina�on rests with the court." The debtor himself has no right to atend one of these private examina�ons of another person, held in terms of sec�on 25. In this regard one notes In re Beall [1894] 2 Q. B., page 135, where I would quote first from the judgment of Lord Esher, M. R, at page 136: "Mr. Reed's first great complaint was that, when these witnesses were examined under sec�on 27, the debtor was not allowed to be present to cross - examine them as to the truth of what they said, and as to their character. It was said that, this being contrary to natural jus�ce, these deposi�ons ought not to be put on the file. Ought, then, the debtor to be allowed to be present for that purpose at that stage? Every judge has decided that the debtor has no right to be present then. As to the no�on that it is contrary to natural jus�ce that the debtor should not be permited to be present, there is no adjudica�on against him at that stage. There is only informa�on being collected for the purpose of being laid before the court of bankruptcy when it has to consider whether it will or will not grant a discharge to the bankrupt . . ." The present - day procedure on such an examina�on is thus summarised in Volume 2, Halsbury's Laws of England (3rd), paragraph 817: "The examina�on is in prac�ce held in private before the registrar of the court, and, if the witness examined is someone 1963 - 1964 Z and NRLR p47 DENNISON J other than the debtor, the debtor has no right to be present. If the debtor is examined, he is en�tled to have the assistance of solicitor and counsel; so is any other witness, if the examina�on is a step in li�ga�on hos�le to the witness; the prac�ce is to allow such assistance to all witnesses. If a solicitor or counsel appears for a witness, he is en�tled to re-examine the witness and for that purpose to take notes of the evidence, but he is not en�tled to take away such notes, and may be required not to disclose without leave informa�on obtained at the examina�on." I note there for the purpose of a future reference that counsel for the witness may be forbidden to take away notes of the evidence or to disclose informa�on obtained at the examina�on. The general tenor of that comment in Halsbury indicates to me a private examina�on before the registrar, a right for the person being examined to have the assistance of counsel and no place for creditors or cross - examina�on on behalf of creditors. One might men�on, incidentally, that the right of Mr. Carruthers to be present in the instant case, assis�ng the person being examined, as men�oned in that comment from Halsbury, is emphasised in the Greys Brewery case, 25 Ch. D., 400, in which at page 404 Chity, J, said this with reference to persons being thus examined: "It turns out from what has taken place before me to be quite clear that the prac�ce in bankruptcy is to allow the person who is under a similar examina�on proper assistance. I quite agree with Lord Romilly's remarks that there would be a great danger to an inexperienced man if he should be surrounded by professional skilled men in the room all by himself, and without anybody to render him assistance. There would be a danger of statements being extracted from him, and of things being writen down which he did not intend to say, and which might be used against him a�erwards by way of admission. The result of the examina�on - that which is writen down - is not evidence against anybody else. It is the statement on oath of the person under examina�on, but the examina�on is not a proceeding in the nature of a li�gious proceeding between par�es, the object of the examina�on being, as I have already stated, to get informa�on in order to see what course ought to be followed with reference to some mater or some claim which the official liquidator when he applies to the court is allowed to state privately." The Greys Brewery case is one of a number of authori�es rela�ng to provisions for the examina�on of witnesses under companies legisla�on which are in similar terms and to a similar effect as the terms of sec�on 25 of the Bankruptcy Act presently in issue. They provide a useful guide to the proper a�tude to be taken under the modern bankruptcy law. See also in this regard In re Norwich Equitable Fire Insurance Company 27 Ch. D., 515. There, the Royal Insurance Company and other creditors claimed the right to be present at an examina�on of a person summoned under sec�on 115 of the Companies Act, 1862. At the examina�on of the manager of the company, he objected to the atendance of these 1963 - 1964 Z and NRLR p48 DENNISON J representa�ves of the creditors. They accordingly re�red on arrangement that the mater should be brought before the judge and that if he decided they were en�tled to be present they would be furnished with a copy of the deposi�ons. At first instance, Bacon, V. C., said: "The ques�on is purely one of principle. The clause of the Companies Act, which has been referred to, is a repe��on in almost the very words of an old clause in the Bankruptcy Act of 1849, and for a very good reason, because between a bankrupt and an insolvent company the dis�nc�on in substance is hardly to be perceived." Having discussed the rela�onship between the proceedings in bankruptcy and for companies the learned Vice - Chancellor went on: "How does that differ from this case? The official liquidator, whose duty it is to establish against the Royal Insurance Company some claim (I do not know what it is, nor have I inquired), knows a man who can give him informa�on which will enable him, the liquidator, to discharge his duty, and he summons him under the statute and examines him. Who has a right to be present at that examina�on but the liquidator? What right has anyone else to be there? I might as well - if the liquidator were to state a case for the opinion of counsel - give to a creditor, en�tled ' to atend the proceedings ', a right to have that case and opinion produced to him. It is altogether a mistake to suppose that the one - hundred - and - fi�eenth sec�on gives anybody a right to pursue the examina�on except the liquidator, whose duty it is to ascertain the truth and establish it, if he can, by means of evidence.... In my opinion the Royal Insurance Company have no more right to be present at this private examina�on than any stranger, for not a word that is there utered in the way of examina�on can be adduced against the Royal Insurance Company without an opportunity of answer, nor can the Royal Insurance Company, under any circumstances, be in a worse posi�on than if the examina�on had never taken place. There will be a declara�on that the Royal Insurance Company are not en�tled to atend any examina�on or proceeding ins�tuted or carried on by the official liquidator under or in pursuance of sec�on 115." On appeal from that decision of the learned Vice - Chancellor, Baggallay, LJ, had this to say: "For the last twenty - two years complaints have been constantly made against the inquisitorial character of sec�on 115. I o�en made them as counsel, and have since heard them as a judge. But the legislature thought fit to give this power in winding - up, as it had previously done in bankruptcy, because the exigencies of jus�ce required it. The officials of a company which is being wound up are o�en unwilling to give informa�on, and this power of compelling them to do so was therefore conferred on the court. I consider that the power given by sec�on 115, though it is a 1963 - 1964 Z and NRLR p49 DENNISON J strong power, is intended to put the liquidator, so far as can be, in the same posi�on as if he were making inquiries through his solicitor from persons who were willing to give informa�on; the object is that he may see what it is advisable for him to do. The deposi�ons are not evidence, though they can be made evidence by being embodied in an affidavit, or by examining in the presence of the opposite party the person who has made them. No doubt the liquidator gains a great advantage by this mode of ascertaining what evidence can be had, but it is an advantage which the legislature intended to give him." The learned Lord Jus�ce concluded: "This, to my mind, is nothing but a preliminary inquiry for the informa�on of the liquidator, and the appellants have no right to intervene." In the same report, on appeal, Coton, LJ, at page 522, is reported as saying: "This is not a proceeding for the purposes of taking evidence, but of ge�ng informa�on. The liquidator learns what the witness will say, but the deposi�on is not evidence against the party whose claim the liquidator is opposing, because that party has not had an opportunity of atending. If the deposi�ons were evidence, there would be a right to cross - examine; but the appellants do not ask to cross - examine, they are only seeking to get the benefit of the informa�on which the Act intended to enable the liquidator to get for his own purposes. They wish to be present in order to obtain informa�on, not for the purpose of assis�ng the company, but of establishing a claim against it, and to allow them to do so would be going against the spirit and object of the one - hundred - and - fi�eenth sec�on." There, the creditors men�oned were plainly denied the right to atend, much less the right to cross - examine. The authori�es thus considered all indicate to me the essen�ally private nature of these examina�ons and deny a creditor any right to atend such an examina�on. Mr. Farley did not put before me any authority as to the discre�on of a registrar to allow a creditor to atend. Mr. Carruthers seemed prepared to concede that such a discre�on exists, but I have traced no law upon it, save for obiter comment by Chity, J, in the Greys Brewery case at page 406 of that report. He was considering various dicta of Vice - Chancellor Sir John Stuart, in the case of In re Empire Assurance Corporation 17 L. T. (NS) 488. In that case, the one - hundred - and - fi�eenth sec�on which is men�oned may be compared with sec�on 25 (1) of the Bankruptcy Act, 1914. According to the judgment of Chity, J: "In that case there were two companies under winding - up before the same judge, and the affairs of the one company were so mixed up with the affairs of the other that the learned judge gave the liquidator of the one company leave to atend all the proceedings in the winding - up of the other company. The witnesses were persons being examined under the one - hundred - and - fi�eenth 1963 - 1964 Z and NRLR p50 DENNISON J sec�on, and, a special order having been made, the ques�on arose whether the liquidator who had leave to atend under the special order ought to be allowed to atend on the examina�on under the one - hundred - and - fi�eenth sec�on. Sir John Stuart, V. C., held that he ought to be allowed to atend." Chity, J., went on to consider whether the language of the learned Vice - Chancellor had been misunderstood over the years and in considering several of these possible misunderstandings, Chity, J, went on: "There is there, I think, again a slip in the language atributed to the learned Vice - Chancellor. What he meant to do, and what I am sa�sfied he was en�tled and had a right to do, was, to allow the other liquidator to put ques�ons; but in the exercise of his discre�on he said that he would not allow those ques�ons to go beyond such as ought to be fairly asked by the other liquidator. That is the way I read his judgment, not that he meant there was to be cross - examina�on strictly confined to maters arising out of the examina�on in chief, because it is well known that under cross - examina�on you may get anything you can from a witness to prove your own case; but that is in a li�gious proceeding between two adverse persons, which is not the case here. That is the authority cited in support of the proposi�on that under the special circumstances of this case the creditors should have leave to atend." Considering for myself these comments of Chity, J, I note that they were obiter and, one must note too, that they related to the official liquidator, where he had declined to proceed and had le� the ini�a�ve to some creditor. I find no support in the authori�es for a discre�on in the registrar to allow a creditor to atend an examina�on on applica�on made by the official receiver in terms of sec�on 25 (1). I cannot trace any men�on of it either in earlier authori�es or in modern prac�ce in " Williams ". I specifically refrain, to - day, from deciding whether or not any such discre�on exists. It has not been argued before me but I am inclined to the view that it does not exist. If it did, however, then having regard to the excep�onal nature of this inquisitorial procedure under sec�on 25, and the general tenor of the authori�es which I have considered, I would say that it is only to be exercised in the most excep�onal circumstances. Nothing said here has shown the existence of any excep�onal circumstances which would jus�fy the atendance on behalf of Mr. Farley's clients or any other creditors. Having had the advantage of research and argument denied to him, I conclude, therefore, the learned registrar in bankruptcy was wrong to allow Mr. Farley to atend. This court cannot put right what has been done already, but it is ordered that - (a) Mr. Farley hand in to the registrar any notes he may have made of the examina�on which he atended; (b) without the leave of the court he may not disclose any of the informa�on which he acquired at that atendance. In accordance with the views expressed by learned counsel at the hearing, I make no order as to costs.