Summary

1. On 14 July 2020, the Court of Appeal handed down its decision in Hancock –v- Promontoria (Chestnut) Limited, ruling in favour of Promontoria (Chestnut) Limited (Lender).  
2. The Lender, who had been assigned Mr. Hancock's debt by Clydesdale Bank Plc (Bank) pursuant to the terms of a deed of assignment (Deed of Assignment), issued a statutory demand (Statutory Demand) for payment of those debts after discounting any security held by the Lender at that time. Mr. Hancock unsuccessfully applied to set aside the Statutory Demand on various bases, initially accepting that there had been an assignment. After unsuccessfully appealing against that decision, Mr. Hancock brought his case to the Court of Appeal, in which he argued, inter alia, that the Lender had failed to establish its title to pursue the debt set out in the Statutory Demand. In particular, Mr. Hancock criticised the Lender's refusal to provide an unredacted version of the Deed of Assignment (for reasons of confidentiality).  The Court rejected those arguments and found in favour of the Lender.
3. The decision will have wider implications for the other major funds that are also in the market for buying and selling distressed loan portfolios, in particular as it offers guidance on what the Court would accept by way of redaction of commercially sensitive sale and assignment documents. 
4. Generally, the decision provides helpful commentary for lenders similarly facing applications to set aside statutory demands in acknowledging that, ultimately, the onus of proof sits with the debtor.   The decision should therefore deter debtors from bringing spurious claims against lenders without having sufficient evidence to support those claims, based on mere speculation and perhaps with an underlying motive to get 'under the bonnet' of commercially sensitive and confidential transaction documents.

Procedural History and Court of Appeal Decision

1. At first instance before District Judge Wright, Mr Hancock's application was dismissed. He subsequently appealed to the High Court, and sought to do so on a number of different and additional grounds, including on the basis that, inter alia, the Deed of Assignment did not validly transfer his debt over to the Lender. In particular, Mr. Hancock contended that the Lender's refusal to provide an unredacted version of the Deed of Assignment (for reasons of confidentiality and irrelevance) constituted a failure to prove its title to sue (the Assignment Issue). Permission to appeal was refused on all bases advanced by Mr Hancock, but for the Assignment Issue which was heard on first appeal by HHJ Hodge QC.
2. The first appeal was refused by HHJ Hodge QC in 2019. Mr. Hancock then continued with a second appeal to the Court of Appeal, for which permission was granted on a limited basis on the Assignment Issue, raising points of principle as to the extent to which it was open to a creditor to rely on redacted material with solicitor certification.
3. In dismissing the second appeal, the Court of Appeal ruled that it was Mr. Hancock as a debtor contesting a Statutory Demand under an application to set it aside, who held the burden to prove there was genuine dispute on substantial grounds.  Having regard to the evidence and that of the solicitor certification of the redacted material, Mr Hancock had failed to advance credible evidence and had no real prospect of establishing a genuine dispute on the Assignment Issue. In dismissing his arguments around validity of the Deed of Assignment, the Court placed significant weight on the Lender's solicitor's witness evidence. Mr. Cooper, solicitor for the Lender, explained in his statement that he had reviewed the unredacted Deed of Assignment and was therefore able to confirm that it had been redacted for reasons of confidentiality and irrelevance, and that the redacted parts were not adverse to Lender's case in establishing its title to sue.
4. The Court rejected Mr. Hancock's argument that the definition of "Specified Loan Asset" contained within the Deed of Assignment was ambiguous enough that it was necessary to see the unredacted document. The Court concluded that this argument ran contrary to the solicitor certification set out Mr. Cooper's witness evidence, in which he confirms that the unredacted parts of the Deed of Assignment establish that the Bank’s rights and remedies under the facilities and underlying security have been effectively assigned, and that the redacted parts were not adverse to Lender's case in establishing its title to sue.
5. The Court also rejected Mr. Hancock's argument that it was necessary to see an unredacted version of the underlying sale agreement (SPA).  The Court concluded that Mr. Hancock's loans had been correctly identified in the Deed of Assignment, and sight of the SPA was not required in order to understand the position. Lastly, the Court concluded that Mr. Hancock failed to put forward any other credible evidence providing that the SPA was relevant for proving that a valid assignment had taken place. Mr Cooper's solicitor certification was also relied upon in rejecting this argument.
6. The Court of Appeal dismissed the suggestion that the assignment had been a novation, notwithstanding the fact that, in the Deed of Assignment, there are interchangeable references to a "Novated Buyer" and "Buyer".  Again, the Court accepted Mr. Cooper's explanation that any references to a "novation" would relate to the novation between the holding company and the Lender, and that Mr. Hancock's debt had ultimately been vested in the Lender.   
7. The Court also acknowledged the lack of any indication from the Bank that it did not accept the validity of the assignment, noting that Mr. Hancock had chosen to embark on two appeals rather than contact the Bank for confirmation that its rights and liabilities had indeed been transferred to the Lender.  

Practical Implications of the Decision

1. 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. Of particular importance is that the whole of the Deed of Assignment has to be submitted in the case, save for third party and personal ID marks, and that this must include those terms incorporated by reference. It does not establish that the underlying sale agreement must be submitted in evidence, but it does make clear that lenders must only exclude material on the primary ground of irrelevance which should be supported by additional reasons for non-disclosure or redaction, and with a more helpful explanation to the court as to irrelevance, confidentiality and sensitivity. It would be sensible to follow this guidance also for Part 55 possession proceedings, to avoid any criticism or challenge to those cases.  
2. The case will also have a positive impact on other applications to set aside statutory demands, as the Court of Appeal reiterated the point that the burden of proof in those cases are with the debtor, not the lender, to prove their case.