WITNESS STATEMENT EXCLUDED BECAUSE IT WAS OF NO USE: THE DANGERS OF NOT KNOWING THE RULES RELATING TO WITNESS EVIDENCE

I have noted, many times, on this blog the dangerous tendency of some practitioners to conflate witness statements with submissions.  Witness statements express opinions, comments on documents and the law and do not give the source of information and belief.  This is a common practice. It is also a dangerous one. The dangers of this can be seen in clear  and categorical terms in the judgment of ICC Judge Barber in Hellard & Anor v Graiseley Investments Ltd & Ors [2018] EWHC 2664 (Ch).  The applicant’s witness statement of commentary and comment was excluded. The applicant had no evidence, the application was dismissed.  The case also serves as a reminder that a party may succeed at an interlocutory stage in opposing an application to have witness evidence redacted but that same statement can later be rejected by the trial judge.

 

“Paragraph 19.3 of the Chancery Guide provides that a witness statement should be confined to facts of which the witness can give evidence. It continues: “it is not, for example, the function of a witness statement to provide a commentary on the documents in the trial bundle, nor to set out quotations from such documents, nor to engage in matters of argument, expressions of opinion or submissions about the issues, nor to make observations about the evidence of other witnesses…  Ms Wade’s statement of 12 January 2018 breaches each of these guidelines”

 

THE CASE

The applicant was a liquidator bringing an action alleging a transaction at an undervalue.

THE JUDGMENT ON THE APPLICANT’S WITNESS STATEMENT: THIS IS NOT GOING IN

The judge considered, as a preliminary issue, whether one of the applicant’s witness evidence should be allowed to be adduced.   She held that it was of no practical use and should be excluded.

4. This application has proceeded by way of pleadings. By his initial witness statement in support of the application, Mr Hellard invited the court to direct that the draft points of claim exhibited to his statement should stand as points of claim and to set out a timetable of directions for pleadings thereafter. In introducing the draft points of claim, he very properly stated (at paragraph 13 of his statement) “It would not be appropriate for me to comment on these claims”. That is correct He was not a witness of fact and could not give any factual evidence on any pleaded issue.
  1. Following close of pleadings, directions for trial were given by order dated 29 September 2016. This order provided, inter alia, for parties to file and exchange signed statements of witnesses of fact. Thereafter, Ms Wade made and filed her statement of 12 January 2018. In reality, however, Ms Wade does not and cannot give any direct factual evidence on the issues pleaded. Those issues relate to events which occurred in 2009 and 2010. Ms Wade was not appointed as a liquidator until 2015 and does not appear to have had any real involvement in this matter until 2017 (seven or eight years after the events in issue).
  2. Ms Wade’s statement provides no evidence of any specific investigative work which she herself has carried out. The only attempt at describing her involvement is at paragraph 4, in which she refers, in general terms, to “enquiries made by my staff under my direct supervision, material supplied to me by various third parties, documents located on files obtained by my solicitors…, enquiries made by my solicitors pursuant to my instruction and … documentation disclosed by the Respondents in the course of these proceedings.”
  3. Paragraph 19.3 of the Chancery Guide provides that a witness statement should be confined to facts of which the witness can give evidence. It continues: “it is not, for example, the function of a witness statement to provide a commentary on the documents in the trial bundle, nor to set out quotations from such documents, nor to engage in matters of argument, expressions of opinion or submissions about the issues, nor to make observations about the evidence of other witnesses.”
  4. Paragraph 19.4 of the Chancery Guide goes on to confirm the long-standing principle that witness statements must indicate ‘which of the statements made are made from the witness’s own knowledge and which are made on information and belief giving the source of the information or basis for the belief. As a general rule, the witness should ‘identify by name’ any such source: Consolidated Contractors International Co SAL v Masri [2011] EWCA Civ 21.
  5. Ms Wade’s statement of 12 January 2018 breaches each of these guidelines. It sets out at length Ms Wade’s own interpretation of documents. Such interpretation is a matter of opinion only and is of no real probative value. It also contains factual assertions for which no source of knowledge is provided. This is unhelpful.
  6. I would add that, at times, the prose reads as if the statement was a pleading. The statement also contains allegations which, on their face, differ from, and go significantly beyond, those set out in the Points of Claim.
  7. Having considered Ms Wade’s statement of 12 January 2018 de bene esse with some care, I have concluded that clothing it with the status of evidence for the purposes of this trial would put the Respondents in an impossible position. They are entitled to know the case they are, to meet. They are entitled to proceed on the footing that the case they must meet is as pleaded.
  8. Cross examination of Ms Wade would simply take up valuable time at trial which could be put to better use. It would be of no practical utility beyond establishing that Ms Wade’s statement is of no probative value to the trial judge – and yet to decline to cross examine would put the Respondents at risk of an objection in closing that a given point was not put to the witness. Counsel for the Applicants sought to reassure the Court that they would not take points on whether given issues had or had not been put to Ms Wade. This, however, only served to emphasize the fact that, beyond introducing documents, the statement had no real probative value.
  9. I would add that, even allowing for such assurances and assuming that the same would be workable in practice, there would remain the difficulty of how to approach those aspects of the witness statement which appeared to allege a broader (or different) case than that pleaded, or which put forward factual assertions without identifying the source of information for the same.
  10. The Applicants argued that there is a custom or practice of permitting an officeholder to put in a statement or report for the assistance of the court. I am aware of that custom; in cases where an officeholder’s application proceeds by way of application notice and supporting statements, for example, the filing of one or more statements by the officeholder is to be expected. Similarly, in the context of some applications, it may be appropriate for an officeholder to file an ‘updating’ statement shortly before trial. But in a case such as this, where pleadings and full disclosure have been directed, officeholders should refrain from filing witness statements which do little more than set out their own views on given documents. Still less should they by their witness statement put forward a case at variance with that pleaded.
  11. The Applicants were at pains to remind me that the Respondents applied to Deputy ICC Judge Prentis some months before trial to have Ms Wade’s statement excluded from evidence ahead of trial and that their application was rejected. Naturally, I have the greatest of respect for the decision reached by the learned deputy as to whether he should, prior to trial, rule out reliance on the witness statement in question. His decision as to whether to exclude the witness statement prior to trial, however, does not bind the trial judge, who may consider the matter afresh. Having done so, for the reasons which I have given, I have decided that Ms Wade’s statement should be excluded from evidence.
THE RESULT
The application failed.
Conclusions
    1. In my judgment, this application fails for a number of reasons.
    2. Firstly, for the reasons explored in paragraphs 57 to 64 of this judgment, the Applicants have failed properly to plead or to define their ‘transaction’ for the purposes of s.238 IA 1986 and have failed adequately or at all to address in their evidence the value alleged to flow from West and to be received by West in relation to the ‘transaction’ as properly defined. Their transaction at an undervalue claim simply does not get off the ground. As the other limb of their case, misfeasance, is based upon the alleged transaction at an undervalue, a fortiori that too must fail.
    3. Secondly, even leaving to one side the technical objections to the Applicants’ case explored in paragraphs 57 to 64 of this judgment, on the evidence which I have heard and read, the Applicants have failed to satisfy me on a balance of probabilities (1) that there was a transaction by which West sold the Fixtures and Fittings to GIL, whether on or about 12 October 2009 or on any other date and (2) that there was a transaction on or about 22 February 2010 by which the alleged sale in (1) was reversed and GIL was released from an obligation to pay the price for the Fixtures and Fittings. Ultimately, I am satisfied that this was a book-keeping error; Mr Spruce clearly acted in error in documenting a transfer of the Fixtures and Fittings by West to GIL in the journals that he created. This error filtered through to other documents produced using information drawn from the Sage system. Journals 2261 and 2262 were part of his attempt to put that error right.
    4. Thirdly, on the evidence which I have heard and read, I am satisfied that Mr Hartland did not instruct Mr Spruce to effect, and did not in any way authorise, whether by Mr Spruce or otherwise, whether prospectively or retrospectively, a transfer of the Fixtures and Fittings from West to GEL, whether in consideration of the sum of £3,551,756.46 or any other sum, and whether qua director of West or qua director of GIL. I am also satisfied that Mrs Hartland did not know of or authorise the journal entries or a transfer of fixtures and fittings from West to GIL either. From this it follows that, even if the journal entries and other documents relied upon by the Applicants might otherwise have been sufficient to establish on a balance of probabilities a sale of the Fixtures and Fittings by West to GIL, on the facts as found in this case, any such ‘sale’ would be void for common mistake and West would lose nothing by its later ‘reversal’.
    5. For all of these reasons, the s.238 application fails. As the s.212 application is based on the s.238 application, that too fails. In the light of my conclusions, it is not necessary for me to rule on the limitation points raised.
    6. In conclusion, I must express my concerns as to the manner in which the Applicants have prepared and pursued this case. A liquidator conducting an investigation into a contentious issue arising in a company’s affairs should strive to gather and review all readily available evidence on that issue on an impartial basis. He should be alive to the possibility of conjecture and unsubstantiated opinion. He should re-evaluate evidence as the investigation progresses.
    7. In the present case, there appears to have been a wholesale failure on the part of the Applicants properly to analyse, interrogate and vouch the journal entries which formed the bedrock of their case. As Mr Davies put it in closing: ‘Plainly the liquidators didn’t understand the journals or they could not have pleaded [their application] in the way that they did.
    8. By way of example, it was only partway through trial that the Applicants appear fully to have appreciated file impact of the fact that, even on their own case, taking the journal entries at face value:
(1) nothing was owed by GIL to West from 8 January 2010 to 22 February 2010;
(2) journal 2261 did not, as pleaded, reverse (or even evidence a reversal of) an obligation by GIL to pay West £5.2m;
(3) given the order in which journals 2261 and 2262 were created on 22 February 2010, the effect of journal 2261 was to create an obligation on the part of West to pay GIL £5.2m. This obligation was only extinguished later that day by journal 2262.
  1. Such deficiencies in the process of investigation in this case have been compounded by a failure properly to analyse or accurately to plead the causes of action upon which they rely. By way of example, whilst scantily pleaded, the Applicants’ case in misfeasance against Mrs Hartland was confirmed in submissions to be based upon a breach of fiduciary duty in allowing the alleged transaction at an undervalue. Yet no knowledge of the alleged transaction on her part, be it actual or constructive, was alleged. Quite the contrary: the thrust of the cross examination was that she had no knowledge or involvement at all. As Mr Davies so colourfully put it: ‘I had to pinch myself at times. You cannot allege a breach of fiduciary duty against someone who has no relevant knowledge’: see Cohen v Selby 2001 1 BCLC 176. Ultimately, it was not even put to Mrs Hartland in cross examination that she caused or allowed the alleged transaction to take place. Quite why it was considered appropriate to put Mrs Hartland through the stress of a five day trial in such circumstances was entirely unclear.
  2. The reliance at trial on allegations and insinuations going materially beyond the case as pleaded was also unfortunate. In cross examining Mr Hartland, for example, Mr Nash effectively put a section 423 case to him, when none was pleaded. He also accused Mr Hartland of seeking to ‘cover up’ a transfer of the Fixtures and Fittings to GIL by insisting on corrections to GIL’s draft accounts before they were finalised and filed at Companies House. This was tantamount to alleging a criminal offence.
  3. Overall, whilst I acknowledge the hard work and commitment of the Applicants as office-holders, I would encourage them to take greater care as to the manner in which investigations are conducted, and cases presented, in their names in the future.