PROVING THINGS 149: A JUDGE CAN FIND DISHONESTY ON THE FACTS BEFORE THEM EVEN IF IT IS NOT PLEADED

We are staying with the decision of HHJ Melissa Clarke in  ATB Sales Ltd v Rich Energy Ltd & Anor [2019] EWHC 1207 (IPEC).    The claimant in that case had not pleaded fraud.  The judge rejected the argument that the absence of pleaded allegations meant that she could not find that the defendant had been dishonest.

 

“As long as the facts upon which an inference of dishonesty may be based are pleaded, if evidence emerges at trial which the Claimant considers sufficient that the court might properly find dishonesty, even though it was not able to plead it before trial, it must be put to the relevant witness so that he may answer it. It is only then that a court may properly be invited to, and may make, an evidential finding that such a witness was indeed dishonest. This is part of the court’s ordinary adjudicative function.”

 

THE CASE

That claimant was making a claim for copyright infringement.  The issue arose as to whether it was open to the court to find that the defendant had been dishonest when the claimant had not pleaded dishonesty.

THE JUDGMENT ON THIS ISSUE

Allegations of fraud/inauthenticity of documents
    1. Practice Direction to CPR Part 16 at paragraph 8.2 provides that a claimant must particularise various allegations in his particulars of claim where he wishes to rely on them in support of his claim. These include any allegation of fraud, and notice or knowledge of a fact.
    2. The Chancery Guide at paragraph 10.1 expands upon this:
“In addition to the matters which PD 16 requires to be set out specifically in the particulars of claim, a party must set out in any statement of case:
  • full particulars of any allegation of fraud, dishonesty, malice or illegality; and
  • where any inference of fraud or dishonesty is alleged, the facts on the basis of which the inference is alleged.”
    1. The Defendants rely on the case of Property Alliance Group v Royal Bank of Scotland [2015] EWHC 3732 (Ch) in which Birss J discusses the relevant Rules and previous authorities, including but not limited to the leading authority of Three Rivers v Bank of England [2001] EKHL 16 (per Lord Hope at para 55 and Lord Millett at paras 184-186), and concludes at para 40 that:
“These cases and guidelines are all based on the same rationale. Assertions of fraud and dishonesty are easy to make but difficult to prove and can cause a major increase in the cost, complexity and temperature of an action. The court’s approach is not intended to stop soundly based allegations of fraud or dishonesty from being made. It is intended to make sure that improper and unfounded assertions are not permitted and to make sure that the party against whom the allegation is made knows what case they have to meet”.
    1. The Claimant in this case has not pleaded either fraud or dishonesty, despite being on notice of the Defendants’ case, pleaded in the Defence: (i) that they had no awareness of the Claimant or the Claimant’s Logo including the Claimant’s Device, and (ii) of independent creation.
    2. Further, the Defendants rely on CPR 32.19(1) which provides that the parties are deemed to admit the authenticity of all documents disclosed under CPR Part 31 where no challenge to the authenticity of any document disclosed has been made by the later of the time for exchange of witness statements and 7 days of their disclosure. It is common ground that the Claimant has made no such challenge.
    3. Mr St Quintin submits on behalf of the Defendants that since no such allegations of fraud and dishonesty have been pleaded, and since the Claimant has not challenged the authenticity of any document disclosed, the Claimant must therefore accept, and be treated by the court as having accepted, that:

i) The Defendants honestly believe that they knew nothing of the Claimant or C’s Device until the letter before action in these proceedings

ii) The Defendants honestly believe that D1’s Device was independently created; and

iii) All the documents disclosed by the Defendants in support of their claim of independent design are authentic.

  1. In addition, if the court accepts the first two of those contentions, then Mr St Quintin submits in his skeleton argument that the Claimant’s case must be limited to one of “unconscious” or “subconscious” copying. However, in his closing submissions, he said that the whole proposition of unconscious copying “falls away”, because the Defendants’ witnesses evidence at trial was that it was not a single person carrying out the design process but two individuals (Mr Storey and Mr Kelly) having input at different stages. He described the proposition that they both unconsciously led to the design of D1’s Device as “just too remote to be realistic”. For that reason I will not set out the law and authorities contained in Mr St Quintin’s skeleton relating to subconscious copying.
  2. I respectfully disagree with Mr St Quintin in relation to the first two contentions set out above. Those amount to a submission that unless a party pleads dishonesty in relation to witness evidence, both the party and the court must be taken to accept the witness has given that evidence honestly. That is not correct, for the following reasons.
  3. Both solicitors and counsel have particular professional responsibilities when considering whether to plead or allege fraud or dishonesty. Their responsibilities under the SRA Code of Conduct and the Bar Code of Conduct respectively are not identical, but broadly speaking, both provide that it is an act of professional misconduct to make such allegations without specific instructions and without having material which on the face of it justifies those allegations. There are many cases where dishonesty is suspected but there is insufficient material for a party to plead it. The Claimant submits that this is one of them.
  4. The Claimant submits that although there may be copyright infringement cases where a claimant is able to provide direct evidence of copying by a defendant, this case is not one of them. As the editors of Copinger & Skone James on Copyright, 17th Edition, 2016 note at para 7-23, it is rare that a claimant stands over the shoulder of a defendant while copying is underway. In this case, the only materials relating to independent design that the Claimant had before trial upon which a pleaded case of dishonesty could have been founded are: the Defendants’ pleadings themselves (which stand as evidence pursuant to the procedural rules of IPEC); the Defendants’ witness evidence; and a limited number of documents disclosed by the Defendants. On their face, unsurprisingly, each of those supports the Defendants’ case. Whether they do in fact support it or not depends on the credibility and reliability of the evidence.
  5. It is trite law that the assessment of the credibility and reliability of evidence is peculiarly a matter for the court. Of course I accept Mr Wyand’s submission that the Claimant is entitled to test the Defendants’ evidence by cross-examination at trial. Until it is so tested, and considered in the light of other evidence before the court and the inherent probabilities, the court cannot know whether on the balance of probabilities it is true, mistaken, dishonest or concocted.
  6. As long as the facts upon which an inference of dishonesty may be based are pleaded, if evidence emerges at trial which the Claimant considers sufficient that the court might properly find dishonesty, even though it was not able to plead it before trial, it must be put to the relevant witness so that he may answer it. It is only then that a court may properly be invited to, and may make, an evidential finding that such a witness was indeed dishonest. This is part of the court’s ordinary adjudicative function. In this case, the facts from which dishonesty may be inferred are clearly set out in the pleadings and arise from the cause of action. The Claimant pleads that the Defendants have copied C’s Device, and the Defendants deny any familiarity with the Claimant or C’s Device and deny copying it. It is for the court to sift and evaluate the evidence to determine the case. The court’s hands will not be tied in the manner that the Defendants seek, by the fact that dishonesty has not been pleaded.
  7. For those reasons I am satisfied that the question of the honesty of the Defendants’ beliefs remains a question to be determined by the court. As I think Mr St Quintin also now accepts, the claim to be determined continues to encompass conscious copying.
  8. Turning to the third contention relating to the authenticity of documents, it is difficult to know what the Defendants mean by ‘authentic’, in light of the very limited information they have given about the limited disclosure they have made, and in light of what emerged at trial from the Defendants’ own witness Mr Kelly. I will deal with this later in this judgment to the extent it still remains in issue.

WANT TO KNOW WHAT THE COURT THOUGHT OF THE DEFENDANT’S EVIDENCE?

Here’s a flavour.

  1. Mr Wyand described Mr Kelly’s evidence as a mixture of fact and fantasy. Mr St Quintin submits that, on the contrary, Mr Kelly was careful and patently honest. I am not with Mr St Quintin. I set out below some significant findings of dishonesty that Mr Kelly manufactured documentation to provide additional support for the Defendants’ case. In addition his oral evidence was inconsistent with his witness evidence and answers given in the Defendants’ RFI Response, which he had signed. His witness evidence was inconsistent with the Defence that he had also signed. He was evasive in some aspects of his evidence, as I will go on to highlight when I deal with the evidence. I accept he made a number of significant admissions against the Defendants’ case, but some of those were unwillingly made in the face of incontrovertible evidence put before him by Mr Wyand. He would not make other, obvious admissions, for example that C’s Device and D1’s Device are closely similar.

The defendant lost.