PROVING THINGS 153: “YOU DO NOT WIN A CASE ON INCONSISTENCIES”: WHEN THE APPLICANTS “PURSUED A CONFUSED AND POORLY EVIDENCED CASE FOR LITTLE PURPOSE”

Most cases are lost not on issues of law but on issues of evidence.  In  Stewart & Ors v Watkin [2019] EWHC 1311 (Ch) ICC Judge Barber was particularly scathing of the quality of the  applicants’ evidence.  The judgment contains a tribute to Gabriel Moss QC. The judgment itself shows clearly shows a formidable lawyer and advocate at work, with the judge accepting and adopting, the forceful and well grounded submissions made.

“Overall, the Applicants have pursued a confused and poorly evidenced primary case for little purpose… As Mr Moss QC put it on more the one occasion during the course of the trial, the Applicants’ primary case was ultimately a ‘waste of time’.”

THE CASE

The applicants brought an action seeking to establish that properties that a bankrupt’s daughter had owned were held on trust for the bankrupt, or were transactions designed to defraud creditors. The applicants were unsuccessful. What is remarkable about this case is the paucity of the evidence and the criticism that the judge makes of inadequate disclosure and the way in which the case was “poorly evidenced” generally.

THE JUDGE’S GENERAL COMMENTS ON THE EVIDENCE

General Comment on Written Evidence

1. This case proceeded by application notice and supporting statements. No directions for pleadings or disclosure were given. Regrettably, there were certain categories of documents in the Applicants’ possession of material significance to the issues raised by their application which were not exhibited to their supporting statements and were not otherwise produced in evidence until I directed their production on day one of the trial. Some other document categories of material significance were not produced at all.

2. By way of example (1) the Official Receiver’s bankruptcy questionnaire, completed by Karl Watkin, was not produced until day one of the trial, on my direction; (2) the transcript of an interview by Grant Thornton of Karl Watkin on 4 November 2013, which contained questions regarding the Properties, was not produced until day one of the trial, on my direction, notwithstanding prior requests made by the Respondent for its production; (3) a detailed ‘bespoke’ questionnaire, prepared by Grant Thornton for Karl and completed by him ahead of the interview of 4 November 2013, containing written responses by Karl to questions regarding the Properties, was not produced at all, despite my direction on day one of the trial that it be produced. I was told that it could not be located; (4) no transcript or notes of a 3 hour interview by Grant Thornton of Karl’s wife, Jill Watkin, were produced; (5) save for a few selected pages of bank statements, added to the bundles partway through trial to prove a given point, the bank statements relating to Jill and Karl’s joint bank account, which the Applicants accepted that they had taken into their possession and which were plainly relevant to issues raised in the application, together with bank statements relating to Karl’s other bank accounts, which the Applicants had taken into their possession, were not produced in evidence.

3. Office-holders bringing an application by application notice and witness statement must take proper steps to ensure that all non-privileged documents in their possession which are of obvious relevance to the issues raised by their application are exhibited to their supporting statements. If this long-standing practice is not honoured, it may prove necessary for directions for pleadings and formal disclosure to be given in a higher proportion of office holder applications than is currently the case.

THE APPLICANT’S WITNESS EVIDENCE

The case illustrates, once again, the dangers of someone giving “evidence” on matters on which they have very little first-hand knowledge.

1. Mr Wood is a partner in the firm of Grant Thornton UK LLP. He was appointed, together with David John Standish, a partner in the firm of KPMG LLP, as joint trustee of Karl Watkin in 2013.

2. I have some reservations as to the accuracy and fairness of Mr Wood’s written evidence. I have highlighted at paragraph 4 of this judgment some key documents which were not exhibited to his statements. I set out other examples of the selective and at times inaccurate presentation of the case in Mr Wood’s statements during the course of this judgment. The description of Mr Quinn as simply a ‘business colleague’ of Karl Watkin (Wood (1) paragraph 18) is one such example; the assertion that net rental receipts from all three properties were paid into Karl and Jill’s joint account (Wood (1) paragraph 35.4) is another.

3. In oral evidence, whilst for the most part Mr Wood did his best to engage with the questions put to him, he was prone to moments of obduracy. When it was put to him by Mr Moss QC that the trustees had ‘chosen’ not to exhibit material bank statements, for example, he avoided the question by stating: ‘they are not exhibited’. The question was put to him three or four times. On each occasion, he responded in the same way, each time avoiding the issue whether the failure to exhibit bank statements was deliberate or an oversight. When he was asked to accept that it was wrong of him not to have disclosed the Official Receiver’s questionnaire and the transcript of Grant Thornton’s interview with Karl Watkin of 4 November 2013, he simply looked down in the witness box and ignored the question, apparently hoping that no one would notice that he was not answering. It was only when I intervened that he gave an answer, stating that he had not deliberately failed to comply with his professional obligations.

4. There were also material gaps in his knowledge. When asked what had happened to the detailed ‘bespoke’ questionnaire, prepared by Grant Thornton for Karl and completed by him ahead of the interview of 4 November 2013, for example, he stated that that had been ‘Mr Standish’s duty’, that he hadn’t been able to track it down overnight, that he hadn’t read it, and that he did not even know if it existed. Yet it was obvious from reading the transcript of the Karl Watkin interview of 4 November 2013 that the interview itself mostly comprised ‘follow up’ questions to those answered by Karl in the questionnaire; a questionnaire which was never produced.

5. Overall, whilst I found Mr Wood to be a truthful witness, it was clear from his testimony that he knew little of any probative value about the issues arising in this case and had played very little part in the investigations himself.

OTHER ISSUES:  THE FAILURE TO PRODUCE DOCUMENTS AND TO PROVE PRIMARY FACTS

The judge had some comments on the applicants’ failure to adduce evidence that was in their possession.

1. It is clear from the transcript of this interview with Karl Watkin that Grant Thornton had an abundance of evidence (including bank statements) as to movements in the Joint Accounts and Karl’s other bank accounts spanning materially beyond the period covered by the analysis of the Joint Account (2005-2008), yet had declined to produce such evidence. Had the bank statements from the Joint Account and Karl’s other accounts demonstrated a regular pattern of payments of net rental receipts from the Properties into the Joint Account (or indeed any of Karl Watkin’s other bank accounts), I would expect the Applicants to have exhibited the statements and to have highlighted the relevant payments. I consider it legitimate to infer that the bank statements relating to the Joint Account and to Karl’s other bank accounts reviewed by Grant Thornton do not, in fact, reveal a regular pattern of payments of net rental receipts from any of the Properties into such accounts from the date of purchase of each of the Properties onwards.

2. At trial, Mr Pickering sought to ‘row back’ from the very specific allegation made at Wood (1) para 35.4, stating that it was ‘no part’ of the Applicants’ case that the payments were made to a given account. This was an astonishing submission, given that Mr Wood had at paragraph 35.4 of his first statement stated, in terms, that rental income from all 3 of the Properties ‘was paid (net of the monthly mortgage instalments) to the [Joint Account]’. Mr Wood had not sought to correct that allegation in his oral testimony; quite the contrary, he had confirmed it in cross examination.

1. If the Applicants wished to put forward a case contrary to that account of events, and to establish a case of systematic remittance of surplus rentals to Karl from all three Properties from the date of each purchase onwards, the way to go about that was not simply to ignore the contents of Cameron Legal’s letter of 6 May 2016 and rely selectively on other passages from Cameron Legal’s earlier letters when preparing evidence in support of their application, but instead to look beyond correspondence exchanged many years after the event to primary evidence: see generally JSC BM Bank v Kekhman and others [2018] EWHC 791 per Bryan J at paragraph 67. As noted by Bryan J, ‘memories are fallible… and therefore where possible a court should rely on documentary evidence and any other objectively provable facts.’

THE RESPONDENTS’ EVIDENCE

1. Overall, the written evidence of both Kate and of Jill contains a number of errors and inconsistencies. On the evidence which I have heard and read, however, I am satisfied that such errors and inconsistencies are not borne of any attempt on the part of either Kate or Jill to misrepresent or conceal the truth, but instead reflect the challenges of remembering with any acceptable degree of precision what payments may have been made back and forth in an informal family context from year to year some time in the past, compounded by the fact that a number of relevant documents (including bank statements relating to the Joint Account) were in the Applicants’ possession and (save for one or two selected pages) had not been adduced.

2. As Mr Moss QC noted during submissions, ‘you cannot prove a case on inconsistencies’. The burden of proof was on the Applicants to establish, on a balance of probabilities, that all net rental receipts in respect of the three properties were paid to Karl, or into the Joint Account (Wood (1) para 35.4) from the date of purchase of each property, if they wished to rely upon that allegation. In this regard I refer to paragraphs 165 to 175 of this judgment. I also remind myself of the guidance given by Bryan J in JSC BM Bank v Kekhman and others [2018] EWHC 791 at paragraph 67. This underlines the importance of basing key allegations on primary documentary evidence where possible.

THE JUDGE’S COMMENTS ON THE APPLICANT’S PRIMARY CASE

1. Overall, the Applicants have pursued a confused and poorly evidenced primary case for little purpose. On a resulting trust analysis, even if they had made out a case that a resulting trust applied in favour of Karl’s contributions towards the purchases of Crossgate, Rowallan Road, and Albert Street, those contributions, as I have found, in round terms amounted to no more than approximately 10%, 5% and 13% respectively. On the Applicants’ case, Karl has been more than repaid that already, from the £255,345 which he received from the sale of Crossgate, even putting to one side (1) the payments into the Joint Account of £84,000 inherited by Kate in 2007 and £95,000 of re-mortgage monies raised by Kate on her re-mortgage of Rowallan Road in 2008 and (2) the indemnities to which Kate would be entitled in respect of mortgage payments and other outgoings on the Properties, including income tax and capital gains tax. As Mr Moss QC put it on more the one occasion during the course of the trial, the Applicants’ primary case was ultimately a ‘waste of time’.

THE APPLICANTS’ SECONDARY CASE

The applicants’ secondary case – that the property transactions took place with an intent to defraud creditors  – was also rejected by the judge on the basis of the total absence of evidence.

1. The Applicants have produced no evidence at all that Karl’s contributions towards the Properties were gifted to Kate for the purpose (whether with or without other purposes) of putting assets beyond the reach of creditors or otherwise prejudicing them: s.423(3).

2. Mr Wood’s first statement (at paragraph 39) states simply that ‘it can readily be inferred from all the circumstances’ that Karl acted with the statutory purpose, without identifying what circumstances he had in mind. In cross examination, it was conceded by Mr Wood that there was no evidence that Karl was in any financial difficulty at the time of purchase of any of the three Properties or indeed for some years thereafter. Kate’s unchallenged evidence was that her parents were both solvent at the time of the purchases (Kate Watkin (1) para 24); Jill’s unchallenged evidence was that the family had ‘substantial means’ at the time of the purchases (Jill Watkin (1), para 3). There was no evidence before me to suggest that Karl was in any financial difficulty at all until late 2009/2010, nor any persuasive evidence to suggest that at the time of each or any of the purchases, Karl was even aware of any potential claims against him or indeed any other clouds on the horizon.

3. In short, there was no direct evidence of statutory purpose, and no persuasive evidence of circumstances from which the statutory purpose could legitimately be inferred.

4. I would add that it is inherently implausible that an individual commanding an annual income of £1.6million would wish to conceal sums which amounted to no more than a small fraction of that income.

5. On the evidence which I have heard and read, the Applicants have failed to make out their s.423 claim in respect of any of the Properties. As Mr Moss QC put it, this was a ‘patently bad claim’.

THE TRIBUTE TO GABRIEL MOSS QC

I did not know Gabriel Moss QC, however this case shows his  undoubted powers of advocacy and persuasion. The judge added a tribute to Mr Moss in his judgment.

Tribute to Gabriel Moss QC

1. While this judgment was being prepared the Court received the very sad news of the untimely death of Gabriel Moss, who so scrupulously presented the case for Kate Watkin. The Court wishes to pay tribute to the intellectual rigour brought by him to all of his cases, be they large or small, and to acknowledge his peerless contribution to the development and application of the laws of insolvency.