To redact or not to redact?

Irrelevance alone is not a reason to submit heavily redacted transaction documents in court proceedings, the Court of Appeal has ruled..

The court’s decision will be useful to funds involved in buying and selling loan portfolios, as it offers guidance on what the court would accept by way of redaction; litigants must only exclude material if it is both irrelevant and confidential. Parties must also support any redactions with additional reasons for non-disclosure.

Statutory demand and attempt to set it aside

The case, Hancock v Promontoria (Chestnut) Limited, arose because Mr Hancock owed an unsecured debt of £4.09m to Promontoria. The debt originated from a loan made by Clydesdale Bank PLC to Mr Hancock under a series of facility letters. Promontoria served a Statutory Demand on Mr Hancock for this amount.

Promontoria claimed to have acquired title to the debt by virtue of a Deed of Assignment and was the registered assignee of 21 legal charges over residential properties in Liverpool, which had acted as security for the original loan. Mr Hancock sought to set aside the Statutory Demand. Promontoria provided a heavily redacted version of the Deed of Assignment in the statutory demand proceedings. His original application was dismissed but he sought to appeal.

Mr Hancock’s grounds of appeal were:

• The redacted Deed of Assignment was not sufficient to prove Promontoria’s title to the debts
• Promontoria had not successfully offered evidence to produce the chain of title
• There was a triable issue in respect of Promontoria’s title to the debt
• There was a genuine dispute as to the alleged debt within the meaning of Rule 6.5(4)(b) of the Insolvency Rules 1986.

Judgment

On appeal, the judge found that the Deed of Assignment was sufficient to show title to the debts had been assigned from Clydesdale Bank to Promontoria. He was satisfied that the redactions had not caused any injustice to Mr Hancock and his attempts to throw doubt on Promontoria’s title to demand payment were unfounded. The judge concluded that although the redactions were extensive, they were not sufficient for Mr Hancock to challenge the validity of the Statutory Demand.

The judge distinguished between a party giving disclosure, and the process by which the court must construe the legal effect of a document. The court held that, in normal circumstances, the document should be submitted as a whole and that it is not for the parties’ solicitors to make pre-emptive judgements about the relevance of material.

In circumstances where third party transactions are referred to, some redaction may be permitted; however, a clear explanation must be provided as to the nature and extent of the omissions and the reason for redaction. Confidentiality alone will not be sufficient to justify redacting an otherwise relevant provision; there are options to deal with reviewing these provisions, such as confidentiality rings or the judge alone being presented with the document in unredacted form.

On an application to set aside a Statutory Demand, the burden lies on the applicant to establish the existence of a ‘substantial dispute’, which Mr Hancock had failed to do. This differs from Part 7 court proceedings, where it is for the creditor to prove its title to sue.

The final determination was that, regardless of the Deed of Assignment, Promontoria had good title to sue Mr Hancock for the debt. This was due to the fact Promontoria had been duly registered at HM Land Registry as proprietor of the legal charges granted as security. These charges contained covenants to repay the sums owed under the facility letters and in the absence of any contrary stipulation, the benefit of these transferred together with the charges.

What are the practical implications of this case?

The court’s critique of the issue of redaction gives lenders in similar situations very clear guidance that will inform their drafting in Part 7 Claim proceedings. In particular, lenders should only redact documents if they contain third party transaction information and should support any redactions with additional reasons for non-disclosure. Confidentiality or irrelevance are not, on their own, sufficient grounds for redaction.

This case should serve as a deterrent to debtors looking to bring spurious claims that seek to unravel commercially sensitive transaction documents.  It is recommended that this same guidance is followed for mortgage possession proceedings in order to avoid any criticism or challenge.