WHEN PUBLIC OFFICIALS MAKE WITNESS STATEMENTS: FAREPAK REVISITED

There was a  post earlier this week where a public official faced contempt of court proceedings that was “false and tended to mislead”, and was acquitted because the statement was “careless” rather than criminal.  This provides a good opportunity to revisit the observations of Mr Justice Smith in the Farepak case farepak-judges-statement. It presents an object lesson in the need for careful preparation of witness evidence and identifying precisely what “evidence” a witness can give.

“The courts have regularly reminded parties that the purpose of witness statements is to replace oral testimony. It is not to rehearse arguments, it is not to set out a case and whilst it necessarily has to be drafted with the collaboration of lawyers, it should not be a document created in the language of lawyers by the lawyers, because the lawyers do not go into the witness box and defend it.”

THE CASE

The Farepak Group went into administration in 2006 leaving many, relatively poor, customers considerably out of pocket. The Secretary of State brought disqualification proceedings against the directors. Voluminous evidence was filed in support on behalf of the Secretary of State. Ultimately that evidence proved to be of doubtful value and the Secretary of State withdraw the proceedings after the applicant’s evidence was concluded: before the respondents gave evidence.

The judge made the statement to explain to the public, and the out of pocket customers in particular, the reasons why the hearing had collapsed.  The media had suggested that “new evidence” had come to light. The judge explains that this is not the case. What had happened was that the evidence collected on behalf of the Applicant had become skewed and argumentative and, ultimately, had no real value.

THE JUDGE’S STATEMENT (ON WITNESS EVIDENCE)

“4.0 THE EVIDENCE

38. I do urge those people who are interested in the outcome of this case and want to see it in more detail to seek to obtain transcripts of the evidence. I have already noted, for example, that there have been statements that the case collapsed due to new evidence. This is not true. All the evidence was there to be seen properly collated and put together.

39. The evidence put forward was overwhelming and in my view unnecessarily so. The lead affidavit on behalf of the Secretary of State, of Mrs Gabrielle Burns, of 11 January 2011, went to 1087 paragraphs and 435 pages. It had attached to it thousands of pages of exhibits.

40. Mrs Burns is the Head of Project Strategy Management Team and Investigation Enforcement Services. She was also one of the three Inspectors who were appointed under section 447 of the Companies Act to investigate the affairs of the companies.

41. This was the way the Secretary of State traditionally conducts disqualification proceedings: a statement by a representative of the Secretary of State prepares an affidavit or a statement summarising everything that went on and exhibiting all the relevant documents. Of course it has a number of potential problems if there is going to be a fight and has the potential in my view to be oppressive to defendants.

42. First the deponent is never a witness to the events. That person then, if he or she purports to give evidence as to events, necessarily gives hearsay evidence. That evidence is often distilled from other investigations, as happened in this case, statements that are unsigned sometimes and statements that are signed. In significant cases like this the use of hearsay evidence like that which cannot be tested unless those deponents are made available for cross-examination must be considered, in my view, in the future very carefully because it is essential that if defendants are on the receiving end of proceedings which if successful ruin them, that they are entitled to be able properly to test the evidence.

 44. Further, in all the affidavits large numbers of pages were included in the exhibits. It transpired during the case that many of the deponents to the affidavits did not even know what were in their exhibits. What happened was that some had given statements under the investigation. Some had given statements voluntarily, the HBOS witnesses were of that category, and some witnesses were interviewed early this year. Those witnesses were then presented with their affidavits which they perused briefly and ultimately signed. They swore to them and they of course all verified them in giving evidence in this case, but it is completely unhelpful, for example, to have a single exhibit running to 700 plus pages appended to an affidavit which a deponent does not really understand and which does not tell the defendants what is the purpose of the large exhibit.

 45. This occurred in late evidence served by the Secretary of State and led the defendants to apply before the trial for an order that the Secretary of State identify which part or parts of the large exhibit they intended to refer to in respect of which allegation. I made an order and it is fair to say that led to a very pressured period, both on the Secretary of State to comply, which they did, I accept, to the best of their ability given the short timetable; and to even more pressure on the defendants with the proximity of trial, to analyse it.

 46. Absent that order, however, the only way in which the defendants could have seen the relevance of the documents was to put them to each witness and ask the witness why it was included in the exhibit. I suspect that that exercise would have revealed complete bafflement by most of the witnesses because it was plain as the evidence evolved that the witnesses clearly did not understand, to a significant degree, what was the purport of their evidence, in my view, and why things were said. This is very dangerous. In addition they had little comprehension of the voluminous exhibits

 47. The courts have regularly reminded parties that the purpose of witness statements is to replace oral testimony. It is not to rehearse arguments, it is not to set out a case and whilst it necessarily has to be drafted with the collaboration of lawyers, it should not be a document created in the language of lawyers by the lawyers, because the lawyers do not go into the witness box and defend it. This is unfair to defendants, as this case showed. It is also unfair to the witnesses.

 48. I had, in addition to Mrs Burns’ evidence, evidence from seven witnesses who were there to the events. All of those witnesses in my view gave honest evidence. I do not believe that they were dishonest, but it turned out that in each case the emphasis given in certain vital aspects of their affidavit evidence was slanted against the defendants unfairly and in each case all of the witnesses ultimately, in one way or another, acknowledged this, some even apologised, and some withdrew paragraphs of their evidence. This was all in the light of being confronted, as regards those paragraphs, by contemporaneous evidence which they had not been shown, or the importance of which had not been drawn to their attention, or some of which they did not even know about, in some cases even though they were contained in exhibits to their own affidavits.

 49. This is not the way to produce evidence. It is, as I say, unfair both to the witnesses and more particularly to the defendants…[there is then a detailed examination of the evidence]

58. In my view, for the reasons I have briefly mentioned, there are serious questions as to how this affidavit evidence came to be assembled. This can be gone into in more detail, and I suspect will be on the costs application, but there were instances, for example, of the following. First, witnesses were only being shown selective parts of defendants’ affidavits; second, witnesses were not being shown relevant documents; third, as I have already said, large exhibits were assembled without the witnesses either ever having read them or even having understood the significance of them. To give, as I think it was, Mr Kelly 700 pages and then have him sign the affidavit a week later was a daunting task by any stretch of the imagination. 700 pages is the size of a novelette and to ask him to see and analyse the significance of those documents in relation to events six years ago is a daunting task.

 59. Fourth, significant paragraphs were drafted in all the affidavits which appeared to be critical of the defendants’ conduct. The examples are legion and they were all exposed extensively in the skilful cross-examination of the Secretary of State’s witnesses.

 60. I will give only one example: Mr Kelly.

I should say for the benefit of Mr Kelly that I am not singling him out for any particular criticism.

61. Mr Kelly, like all the deponents in my view, attempted to give the evidence honestly but was drawn into giving evidence which ultimately, when faced with the realities of the situation and the contemporary evidence, he could not sustain. Thus, for example, in cross-examination he was forced to withdraw parts of paragraph 25; paragraph 47, where he alleged, wrongly he acknowledged, that Mr Rollason, one of the defendants in this case, was focusing attention on the rights issue too much to the detriment of other options; paragraph 60 where he complained about the slow progress and said that was the fault of the defendants, an allegation which he acknowledged he could not justify; paragraph 138 where he repeated what he said in an email.

62. In paragraph 138 he said this:

63. “The bank was certainly not averse to finding a solvent solution in early September 2006 and throughout. However, while the bank’s message had been consistent from the very initial involvement of high risk, i.e. that we could not provide any additional funding to EHR, there was a feeling that this was not taken seriously until very late in the process. As I raised in my email to Mr Angus …(His boss) on 5 September ‘I wish that our stance had been taken more seriously earlier’. It would appear that company’s advisors have all assumed that we would fund this gap regardless of the economic impact it would have on us and despite our constant message that we would not fund the excess. They could have fixed this problem long ago and not taken us to the brink of 1 September.”

64. In fairness to the Secretary of State that comment in his email does suggest a contemporaneous criticism of the defendants in moving too slowly, one of the Secretary of State’s allegations. However, it fell apart in cross-examination to such an extent that at one stage Mr Kelly told the court that he was going to withdraw that statement before it had even been reached and he withdrew it and he apologised and he said that there was no justification for that paragraph whatsoever and he said, in effect, it was an expression of anger and frustration at the slowness of the process which he was undoubtedly frustrated about –I pause to interject, no more than the directors would have been –but that he lashed out against the directors unfairly.

65. Now, that was found out as a result of cross-examination and I wonder how it was not found out before, when the affidavit came to be prepared.

66. This was very damaging and it is surprising that he did not have drawn to his attention an email that he had sent at the time of the collapse. We find that reference in the transcript, Day 13, at page 230. This was an email which he sent to Mr Rollason on 9 October, the day HBOS rejected the final Park II proposal and finished the companies off as regards solvency. This email he sent to Mr Rollason:

67. “We have all spent the best part of six months looking for solutions. We have exhausted all of the obvious routes. You have done all what you could to knit together a support package with Family, shareholders, IWOOT (One of the subsidiaries) and Park Group. It simply hasn’t delivered a workable plan the bank has been able to buy in to. I have asked you whether there was any more money. Concluded there was no likelihood of a solvent solution.”

68. That is not a criticism of the directors. It shows that the directors had tried their best to save the group solvently. I asked him whether that accurately summarised his view of the directors’ conduct in the six months and he said:

i. “Answer: Yes, I think that’s very fair, my Lord.”

69. I am surprised that paragraph 138 went into the affidavit and that email was apparently not drawn to his attention when he prepared the affidavit; in fact I suspect he saw it for the first time to consider when it was presented to him for cross-examination. It shows the problems that the evidence posed.

70. As I say, I am referring to Mr Kelly as an example and because as he was the last witness he is the one that is most fresh in my mind.

71. This is clearly unfair to the defendants, because the wrong case is being presented against them. It is of course equally unfair to Mr Kelly. Mr Kelly came here to give evidence as to facts. It is hardly surprising that the detailed recollection of events six years ago is not complete, but we all know in litigation that the first port of call in any case is the contemporaneous documents: see what people said when they were not writing for posterity, i.e. a trial, and see whether what they say now can  be consistent with what they said then, and if it is inconsistent then find out why they say something different now to what they said at the time. This is an essential part of preparing evidence and Mr Kelly and the other witnesses were clearly unprepared for the ordeal –and it is an ordeal. Nobody knows what an ordeal giving evidence is in cases like this until they go into  the witness box and endure it. It is a hard, unyielding process and can be oppressive and unfair. We try and guard against that but at the end of the day the defendants have to put their case to the people who are put up for witnesses. It is not their fault if the witness evidence is not sustainable when matched with the contemporaneous documents.

 5.0 REASONS FOR FAILURE OF THE CASE

 72. It failed because the witnesses who were called, who were witnesses to the events, ultimately all to a man said that they had no criticisms whatsoever of the defendants’ conduct  in the relevant period.

 73. The way the affidavits were put together, as the cross-examination shows, caused, as I have said, possible unfairnesses and oppression, both to the witnesses and the defendants.

 74. Giving secondary evidence by way of appendices to a statement or affidavit prepared by a member of the insolvency team is unhelpful and the Secretary of State, when cases are contested, should generally in my view make sure that all people who provide statements which one way or the other are found in the main statement or affidavit, should be made available for cross-examination by defendants. Generally in other cases, see for example my decision in Lennox Lewis v Eliades, when a deponent or hearsay statement is put forward but there is no reason provided as to why that person cannot give evidence, the inference usually drawn is that that person is not called because he will not support the case that is being put forward. This is something that ought to be considered in the Secretary of State’s procedures.

 75. It might lengthen cases as regards preparation, but for every hour spent on preparation it has huge saving times in the trial and, of course, if positive first-hand evidence is provided the defendants will know what they have to meet and it might well lead them to conclude that they cannot contest it and it might well lead to more consensual resolution of these cases. However it is important that cases have to be prepared not on the basis that it is assumed they will capitulate but on the basis that they might fight, and if they are going to be prepared on that basis they must be properly prepared: (a) so that the accumulation of documents is not oppressive, (b) so that the witnesses are given a fair opportunity to present their evidence properly according to the contemporaneous documents; and(c) the defendants are given a fair opportunity to contest the allegations made against them by witnesses.

76. The result was that by the close of the Secretary of State’s evidence all of the main players who have been called in effect did not support the Secretary of State’s contention that the defendants had done anything wrong. Given that, at the conclusion of Mr Kelly’s evidence I told the Secretary of State, as I have said, that I wanted to see how the case was being put and, as we know, the Secretary of State discontinued.

126. Now, this might come as a surprise to the depositors, it might come as a surprise when they are told, as appears from the newspapers, that the Secretary of State’s case has collapsed because of new evidence. That is not true. There has been no new evidence produced which has led to the collapse of this case. What has happened is that the witnesses, properly tested on their affidavits, revealed what they actually felt, namely that they had no complaints about the defendants. “

LESSONS TO BE DRAWN

This is another example of the dangers of drafting “argumentative” witness statements. Of allowing a witness to argue a case rather than give a clear view of the facts.  Further it is a prime example of failing to allow a witness to refer to contemporary documents.