Court of Appeal decision on Commercial Confidentiality in Proving Assignment

In a recent Briefing we commented on the case of Haydock Finance Limited v Starcruiser Bussing Limited [2021] EWHC 622 (Comm) in which we successfully represented a funder in defeating an unmeritorious challenge, backed up by the debtor’s “expert evidence,” to the technical aspects of an asset financier’s securitisation process: see https://www.bermans.co.uk/securitisation-and-the-right-to-sue/

We wondered whether this sort of challenge might spread across to invoice finance, so we were interested to see the Court of Appeal reject a series of technical challenges to the assignment process in the recent judgment in a series of cases reported at [2021] EWCA Civ 1682.

Most of the cases involved the assignment of finance agreements, but one of the cases directly involved invoice finance, namely Bibby Invoice Discounting Ltd v Thompson Facilities and Project Management Services Ltd & Anor.

The challenges to the assignments arose in the context of various debtors contending that the assignees were required to disclose the whole unredacted versions of any documents proving the assignments, whereas the assignees argued that to protect legitimate commercial confidences all that should be required is for them to disclose suitably redacted documents excluding matters such as the precise financial arrangements involved.

The Court of Appeal took on these cases because it pointed out that these technical arguments had caused judges at first instance up and down the country considerable difficulty, and had led to delays in litigation and a considerable amount of unnecessary satellite litigation because debtors were increasingly deploying technical challenges such as this, and assignees including invoice financiers were facing jeopardy in protecting legitimate confidential information relating to their assignors and others.

It is quite unusual for an invoice finance case to reach the Court of Appeal, so it may be interesting to readers to see what it had to say about this issue insofar as it relates to invoice financiers.

The court said amongst other things:

“It is perhaps understandable that those who are sued for large amounts of money should seize on any possible argument that might be thought to give them a defence, although in most cases the end result has only been to add complexity and expense to the litigation without any ultimate benefit to the defendants…

Among other defences the Thompson companies put Bibby to proof that the debts had been validly assigned to it. Bibby relied on a redacted copy of the Invoice Finance Agreement and sought summary judgment. DJ Phillips held that the Thompson companies had no real prospect of success in disputing the validity of the assignment and granted Bibby summary judgment on that issue. HHJ Kramer, sitting as a Judge of the High Court in Newcastle, dismissed an appeal. The Thompson companies appeal to this Court on the ground that Bibby was obliged to disclose an unredacted copy of the document and in its absence was not entitled to summary judgment on the issue…

[Bibby’s Counsel submitted that] The interests of the assignee may vary. If the assignment only assigned a single debt, one would expect the whole document to be produced. But in the case of factoring or invoice discounting, it was common for there to be a single contract which not only effected the assignment of debts, but also dealt with the arrangements for financing. It was easy to see that that was likely to contain clauses that were genuinely irrelevant to the question of title to the debt, such as those dealing with the accounting between the parties. The debts which a factor pursued by litigation might be very small, and the damage to the factor in disclosing confidential material might be significant. Nor was a confidentiality ring necessarily an answer: such arrangements not only build complexity and hence cost into litigation that should otherwise be straightforward, but can also have practical problems, particularly with litigants in person (who are common in factoring claims); there is also the question whether confidentiality will be able to be maintained at trial given the principle that trials should prima facie be heard in open court…

The Court is not being asked to resolve the meaning of an ambiguous provision, or choose between competing interpretations. Instead the question is a very limited one: does the document before the Court effect an assignment of the relevant debt or not? That undoubtedly requires the Court to consider the meaning and effect of the provisions relied on, but that does not usually present great difficulty, and it is far more likely that a clear and convincing justification can be made out that other parts of the same document are entirely irrelevant to that question. We accept, for example, [Bibby’s Counsel’s] submission that in a typical invoice factoring agreement, provisions dealing with the obligations of the original creditor and the factor to account to each other are unlikely to have any relevance to the question whether the document effects an assignment of the relevant debts. We therefore accept the submissions of [Bibby’s Counsel] that there is no absolute rule that the whole document should always be disclosed in unredacted form if asked for, as indeed [the previous Court of Appeal decision in the Hancock case] itself makes clear. The ultimate question is always whether it is possible for the Court to reach a safe conclusion on the effect of the document: if it cannot, it would be unfair to the other party for the Court to proceed on the basis that the document had a particular effect, but if it can, there is no reason why it should not do so, and it would be unfair on the party relying on the document to refuse to do so.

Second, it is in general unsatisfactory for questions as to the extent of redactions to be first raised at trial. The general position under the CPR is that cases should be managed in such a way that by the time the parties get to trial they should know what the evidence is on which they will each be relying, and procedural matters should have all been resolved. This is of course a counsel of perfection which cannot always be attained in practice, but in cases like the present where it is clear from an early stage that the claimant claims as assignee, the claimant’s title is put in issue, and the claimant intends to rely on a redacted document to prove the assignment, the defendant should in our view raise the issue well before trial if he seeks to object to that being done, either at a case management conference or by way of interlocutory application. It will usually be obvious from disclosure that the claimant does not intend to provide an unredacted copy of the document; and that is the opportunity for the defendant to object to the claimant seeking to rely on a redacted document to prove its title…

…we think the resolution of these appeals must turn on the question identified in [the previous Court of Appeal decision in the Hancock case] at [91]: can the Court in the circumstances safely resolve the question of construction (or in the present cases the question whether the instrument is effective) on the material before it? If it concludes that it cannot, then the claimant will not have proved its title, and its claim will fail. But if it can, we see no reason why it should not do so…

…if the assignment relied on is an absolute assignment of which notice is given, then the assignee can give a good discharge to the debtor without joining the assignor. In Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607, this Court held that no formal requirements were required for such a notice, and that it is sufficient that it makes plain that there has been an assignment so that the debtor knows to whom he has to pay the debt: see per Lord Denning MR at 613B…

In practical terms the obvious recourse for the debtor to avoid the risk of having to pay the assignor as well as the assignee is to ask the assignor to confirm that the debt has been assigned to the assignee and that it has no further claims against him: see Hancock at [68]. Indeed where the assignor has joined in giving notice of the assignment to the debtor even that may be unnecessary. If the assignor gives the requisite confirmation, we would have thought that the debtor could safely pay the assignee without more, as the assignor would be estopped from thereafter asserting a claim; whereas if the assignor does dispute the validity of the assignment and claims to still have an interest in the debt, then the debtor will be able to invoke the proviso. It is therefore only likely to be necessary for the debtor to go further and satisfy himself of the validity of the assignment if the assignor fails to respond at all, or does so in equivocal terms. But even then, although we agree with Lord Denning that the debtor can ask to see the assignment to satisfy himself that it does assign the debt in question, we do not think this entitles the debtor to see any more of the document than sufficient to demonstrate that there has indeed been a valid absolute assignment under hand of the debt. Lord Denning said nothing about the question whether irrelevant and confidential parts of the same document can be withheld…

…a debtor who has made no attempt to clarify the position with the assignor, and can point to nothing suggesting that the assignor disputes the assignment, will usually not find it easy to suggest that there is a real doubt as to the assignee’s title such that the Court should find that the assignee has failed to prove it…

In the above context, it is clear that Bibby was not obliged to put the unredacted Invoice Finance Agreement before the court on its application, but was entitled to assert the fact of the assignment, evidenced by the redacted version and supported by evidence from its solicitors. Still less was it necessary for Bibby to put the General Conditions before the court. We therefore reject the first limb of the Thompson companies’ ground of appeal, namely, that Bibby was obliged to disclose all the operative terms of the Invoice Finance Agreement as a condition of obtaining summary judgment…

In summary, once the factual issue of whether there had been another assignment had been resolved, the Thompson companies had no real basis for disputing that Bibby had acquired title to the relevant debts, and did not identify any issue of construction that required examination of the unredacted assignment agreement. Thereafter the issue of redaction was raised opportunistically and tactically, with a view to obstructing and delaying the claim…The District Judge and HHJ Kramer were right to reject the defence so advanced for the reasons they gave.” 

Comment

This decision is to be welcomed both as a deterrent to future unmeritorious challenges to the fact of assignment or other mechanics involved in an invoice financier’s claim, and also for the clarity in which the court approached the whole subject of an invoice financier’s position when asserting its claims.

Contact our Invoice Finance team.