WHY PROCEDURAL RULES ARE IMPORTANT (AND LEAD TO SUBSTANTIVE JUSTICE): “JUDGES ARE NOT SUPERHUMAN, AND DO NOT POSSESS SUPERNATURAL POWERS”

In  Paralel Routs Ltd v Fedotov [2019] EWHC 2656 (Ch) HHJ Paul Matthews (sitting as a judge of the High Court) emphasised the importance of procedural rules.   There are quite a few interesting observations in relation to disclosure, redaction, civil evidence and the way in which courts go about their business on the way.

 

“it is sometimes thought that the English procedural rules are too time-consuming and expensive to operate, without any corresponding advantage in terms of justice. But this is a case which amply illustrates the importance of procedural rules in ensuring a fair trial and the best opportunity to deliver a just result between the parties.

THE CASE

The claimant sought a sum in excess of £12 million in relation to debts allegedly due from the defendant.  The defendant’s defence was that the alleged loan agreements had been fraudulently created or his signature had been obtained by deception.

THE COURSE OF THE TRIAL

This, in itself, makes interesting reading.
  1. The course of the trial has been somewhat unusual. In the first place, the defendant, although represented by solicitors and counsel, was not present, and neither did he give live evidence. This is because he is currently in prison in Moscow, awaiting trial in 2020. He says he is there on trumped-up charges. His solicitors have however filed and served a witness statement by him, supported by a hearsay notice. No other witnesses of fact were called on behalf of the defendant, and accordingly Mr Shirley, for the claimant, was not called upon to cross examine anyone except the defendant’s IT expert Mr Madden. On the other side, Mr Pavlov, who as I say claims to be the beneficial owner of the claimant, was not present on the first day of the trial either. This is because (for reasons I was told, which relate to the health of his wife) he was still in the process of obtaining a visa to enter the United Kingdom and come to London.
  2. On the first day of the trial (9 July), Mr Shirley for the claimant for the first time applied for three other witnesses for the claimant to give their evidence by video link from Moscow. These were Mr Andrey Mironov, Mr Pavlov’s lawyer, Ms Olga Vlasva, described as the principal secretary to the general director of the RUR (ie the defendant), and Mr Valeriy Osipov, to whom (as I say later) power of attorney had apparently been given on behalf of the claimant to sign the loan agreements. They had all made short witness statements, dated either 14 or 15 June 2019. The earliest intimation to the defendant’s side of the intention to make this application was given on about 26 June 2019, but no application was thereafter launched before counsel’s skeleton argument for the trial (dated 4 July) obliquely confirmed the claimant’s intention so to apply. I heard counsel on both sides and dismissed the application, for reasons then given. This meant that there were no witnesses at all to give evidence on what had been intended to be the second day of the trial. (Hearsay notices were subsequently served in respect of the three witness statements.)
  3. Also on the first day, Mr Shirley applied for a protective order for what he called “confidential information” referred to in the bank statements disclosed by the claimant as part of the disclosure process, but which had been ordered by Master Clark on 17 June 2019 to be disclosed in unredacted form, subject to certain protective provisions, including the institution of a “confidentiality club”. Again I heard both counsel, and again I dismissed the application for reasons then given. I was subsequently invited to, and did, decide that counsel in cross-examination could refer in open court to the information contained in the bank statements without being in breach of confidentiality undertakings contained in the order of Master Clark.
  4. On the next two days of the trial, Mr Pavlov was cross examined on behalf of the defendant, and then re-examined on behalf of the claimant. There was a mix-up over the arrangements for the interpreter for the first of those two days, and about an hour was lost at the beginning of the day because the originally engaged interpreter could not be found. But another interpreter was found, and most of this lost time was made up at the end of the day. It is right also to mention that the claimant’s counsel told me in closing that a different interpreter had been engaged for the second day because the claimant’s team had not been completely satisfied with the translations provided by the interpreter on the first day.
  5. On the next court day, the penultimate day of the trial, I was told by the claimant’s counsel that a copy of an expert forensic IT report had been served on behalf of the claimant on the defendant’s solicitors that morning at 10 am. It was explained to me that the claimant’s expert did not really take issue with the conclusions of the defendant’s expert, if it was accepted that the defendant’s expert had examined the real “native” emails. But the purpose of the claimant’s expert’s report was to assert that the emails disclosed by the claimant in the course of the disclosure exercise were unfortunately not the “native” emails, and that therefore the defendant’s expert was proceeding on a fundamentally false basis. The claimant’s expert had now been provided with what was said to be the genuine “native” emails, and was giving his opinion that they had not been fabricated or tampered with.
  6. It was further explained to me that it was intended that an application would be made to me at some point (though not yet) for permission to put that report in evidence. Even so, there was in any event no intention to call the maker of the report, Ivan Brusov (who was based in Kaliningrad), to be tendered for cross-examination. However, what the claimant’s counsel sought immediately was an adjournment of approximately half a day in order to give the defendant’s IT expert an opportunity to study the new report. This adjournment was resisted on behalf of the defendant. Ultimately I ruled, for reasons then given, that there should be no adjournment, and that the defendant could call his IT expert Mr Madden.
  7. At that point the claimant’s counsel applied for permission to put in his expert’s report. However, during the course of his application to me it became apparent that there were some deficiencies in the formal part of the application (not least in the lack of evidence required for an application for relief from sanctions). Counsel therefore sought an adjournment of his own application to enable him to deal with those formalities. After hearing argument, I refused the application for an adjournment of the application, for reasons then given. The claimant’s counsel then continued with his application, and after hearing counsel for the defendant I refused that application too, again for reasons given.
  8. The defendant’s IT expert, Mr Madden, was then tendered for cross examination, and the claimant’s counsel asked him a number of questions. However, since the claimant’s IT expert did not challenge the opinions or reasoning of the defendant’s IT expert, but instead had sought to make the point that the emails which Mr Madden had examined were not genuine “native” emails, this did not take long. The next day, which was the final day of the trial, was entirely taken up with the parties’ closing speeches. I then reserved my judgment. I am sorry that it has taken longer than I anticipated to prepare this judgment.

THE PRE-TRIAL PROCESS

The pre-trial procedural  steps taken by the defendant came to play an important part in the process.

    1. The original directions order of 26 July 2018 required standard disclosure to be given by the parties by list by 12 October 2018. It also required the claimant to “provide specific disclosure of the Original Loan Agreements and Deed of Variation … by 12 October 2018 or upon receipt of those documents from the Deposit Insurance Agency, whichever is the later.” This wording reflects the fact that the claimant claimed no longer to have the original documents in its possession, saying that they had been seized by the (Russian) Deposit Insurance Agency in about November 2015. (I will return to this aspect later.) The directions order also gave permission for expert evidence of handwriting to be adduced.
    2. On 26 March 2019 Master Clark made an order by consent that the claimant provide security for the defendant’s costs. However, her order also (i) required the claimant to provide responses to the defendant’s CPR Part 18 request of 11 January 2019, and (ii) amended the earlier directions order of July 2018 so as (a) to provide for specific disclosure of the documents referred to in the defendant’s solicitors’ letter dated 15 January 2019, and also (b) to push back the dates for service of witness statements and the exchange of expert reports.
    3. On 18 April 2019 the defendant applied for an “unless” order in respect of the claimant’s alleged failures to respond to the defendant’s request for further information, and to provide the specific disclosure, as required by the consent order of 26 March 2019. Some disclosure was provided by the claimant on 26 April 2019, but – so far as concerns the claimant’s bank statements, at least – in a heavily redacted form. On 20 May 2019, Master Clark made a further order for specific disclosure against the claimant, requiring compliance as to part by 27 May 2019 and as to part by 3 June 2019.
    4. On 11 June 2019, the defendant applied by notice (1) for permission to adduce forensic IT expert evidence concerning the issue of the authenticity of certain emails that had been provided by the claimant on 26 April 2019, in response to the defendant’s request for specific disclosure, and (2) to challenge the claimant’s redaction of bank statements provided by the claimant also on 26 April 2019, as part of the disclosure exercise.
    5. As to the first of these, on 17 June 2019, Master Clark gave permission for each party
“to adduce expert evidence (including oral evidence) in the field of computer forensics, to address the issue of whether the 13 emails disclosed by the claimant on 26 April 2019 … are genuine … “
By this stage the defendant already had a forensic IT report prepared by Mr Patrick Madden, dated 6 June 2019. The claimant was given permission to file and serve any report in response by 24 June 2019. This date was subsequently extended to 1 July 2019. In the event, and as will be seen, the claimant did not serve an expert report by either date. Nor did it apply for any extension of time or other permission in relation to such report until the penultimate day of the trial. I deal with this further below.
  1. As to the disclosure of bank statements, Mr Pavlov had in his seventh witness statement (dated 17 June 2019) attempted to avoid producing unredacted bank statements by preparing a list of all payments over €100,000, with annotations explaining them. Notwithstanding this, at the hearing Master Clark ordered that the claimant should by 19 June 2019 disclose unredacted versions of the bank statements to be held by the defendant’s lawyers subject to confidentiality undertakings. Directions were given for a procedure by which the defendant’s lawyers could apply to disclose the information contained in those bank statements to the defendant himself, and for any objection by the claimant to be resolved.
  2. So, to be clear, the claimant did not disclose its bank statements pursuant to the original disclosure order of July 2018, but only pursuant to the order by consent of 26 March 2019, and then only after the defendant had applied for an “unless order” in respect of the claimant’s alleged failures to comply with that order. Further, the bank statements were disclosed initially in a heavily redacted form, and were disclosed in an unredacted form only after a further order was made to that effect on 17 June 2019 for disclosure two days later. This order was repeated in a further order of 26 June 2019, extending time for compliance to 1 July 2019.
  3. Despite that, I am satisfied that at least some of the “unredacted” copy statements disclosed have been altered (for example the Volksbank statements in the comparison bundles F and G at 80 and 81.) The claimant’s justification for redaction, for rigorously opposing orders to produce unredacted copies of documents, and for seeking special confidentiality measures was stated to be both reputational and more serious damage that might be caused by details of the claimant’s clients being made public. I accept that many Russian businessmen would prefer to keep secret their dealings with offshore companies. However, in my judgment it is clear from the course of the trial that the chief reason that the claimant did not wish to provide unredacted copies was that they contained information inconsistent with the claimant’s case. The relevance and indeed importance of these unredacted bank statements will be seen later.

FACT FINDING IN THE CIVIL COURTS

The judgment contains a summary of the process of fact finding in the English (and Welsh) courts.

Fact-finding
    1. I should say something about how English judges in civil cases decide cases of this kind. This is particularly important in a case such as this, where the parties are Russian. They may not understand how our system works. First of all, judges are not superhuman, and do not possess supernatural powers that enable them to divine when someone is not telling the truth. Instead they look carefully at all the oral and written material presented, with the benefit of forensic analysis (including cross-examination of oral witnesses), and the arguments made, to them, and then make up their minds. But there are certain important procedural rules which govern their decision-making, some of which I shall briefly mention here.
The burden of proof
    1. The first is the question of the burden of proof. Where there is an issue in dispute between the parties in a civil case, one party or the other will bear the burden of proving it. On most of the issues in this case, that is the claimant. The claimant says that, since the defendant pleads that the loan documents were fraudulently and dishonestly created, the burden lies on the defendant to show that this is the “inescapable conclusion” on the evidence, and relies on Silvera v Urquhart [2003] EWHC 809 (Ch), [302]. I reject that submission. It is the claimant that alleges that the defendant signed written contracts of loan. It is for the claimant to prove this. Even if the defendant’s assertion of fraudulent and dishonest creation of documents were wrong, it would still be for the claimant to overcome the denial inherent in his plea, and prove its positive case.
    2. The significance of who bears the burden of proof in civil litigation is this. If the person who bears the burden of proof of a particular matter satisfies the court, after considering the material that has been placed before the court, that something happened, then, for the purposes of deciding the case, it did happen. But if that person does not so satisfy the court, then for present purposes it did not happen.
The standard of proof
    1. Secondly, the standard of proof in a civil case is very different from that in a criminal case. In a civil case it is merely the balance of probabilities. This means that, if the judge considers that a thing is more likely to have happened than not, then for the purposes of the decision it did happen. If on the other hand the judge considers that the likelihood of a thing’s having happened does not exceed 50%, then for the purposes of the decision it did not happen. It is not necessary for the court to go further than this.
Failure to call evidence
    1. Thirdly, where a party could give or call relevant evidence on an important point without apparent difficulty, a failure to do so may in some circumstances entitle the Court to draw an inference adverse to that party, sufficient to strengthen evidence adduced by the other party or weaken evidence given by the party so failing.
Reasons for judgment
  1. Fourthly, a court must give reasons for its decisions. But judges are not obliged to deal in their judgments with every single point that is argued, or every piece of evidence tendered. Moreover, it must be borne in mind that specific findings of fact by a judge are inherently an incomplete statement of the impression which was made upon that judge by the primary evidence. Expressed findings are always surrounded by a penumbra of imprecision which may still play an important part in the judge’s overall evaluation.
Overall
  1. So decisions made by English civil judges are not necessarily the objective truth of the matter. Instead, they are the judge’s own assessment of the most likely facts based on the materials which the parties have chosen to place before the court, taking into account to some extent also what the court considers that they should have been able to put before the court but chose not to. And, whilst judges give their reasons for their decisions, they cannot and do not explain every little detail or respond to every point made.
  2. In cases where witnesses give evidence as to what happened based on their memories, which may be faulty, English judges nowadays often prefer to rely on the documents in the case, as being more objective. The problem in the present case, however, is that the main issue between the parties is as to whether the loan documents are in fact genuine. There is no suggestion of faulty memory here. Instead there is a direct challenge to the authenticity of the relevant documents. A series of notices to prove documents have been served by the defendant on the claimant, including one dated 4 January 2019 to prove the loan agreements and the deed of variation. There can be no reliance on objective documents unless and until the court is satisfied that they are genuine. However, an unfortunate feature of this case is that the original documents on which the claimant relies have not been produced for inspection and analysis. Everyone, including the handwriting experts, has had to work from copies.

THE PLEADED CASE AND DISCLOSURE

The judge noted the disparity between the claimant’s pleaded case and the case actually advanced at trial.

  1. The particulars of claim do not however make clear the claimant’s case in relation to the circumstances of signing of the agreements. A request for further information was made. The claimant’s response to the defendant’s request for further information was that in all instances the signing by the defendant took place at the offices of RAS in Moscow, and in most cases Mr Pavlov was also there. But in other instances Mr Pavlov was at his office at Regional Development Bank, and his driver, Mikhail, delivered the documents to the defendant at RAS to sign, before they were returned to the driver.
  2. By the time of the trial, however, the claimant had finally disclosed the unredacted bank statements, its own handwriting expert had concluded that the defendant’s signature had been forged or transposed on the loan agreements, and the defendant had served his IT expert’s report, indicating that the emails relied on by the claimant in support of the loan agreements had been tampered with. In addition, the defendant’s evidence (supported by independent materials) was that he was not in Russia on the dates on nine of the 17 agreements. Whether as a consequence or not, without formally amending his statements of case, the claimant departed significantly from this case, alleging now that the defendant had arranged for the loan agreements to be signed by others on his behalf, and/or that they were signed at later dates than they bore.

THE RESULT – THE CLAIMANT LOST

The judgment sets out in detail why the judge did not accept the claimant’s case.  The judge concludes:-

  1. A final comment which I wish to make about this case is that it is sometimes thought that the English procedural rules are too time-consuming and expensive to operate, without any corresponding advantage in terms of justice. But this is a case which amply illustrates the importance of procedural rules in ensuring a fair trial and the best opportunity to deliver a just result between the parties. This case illustrates the importance in particular of advance disclosure and production of documents in unredacted form, control by the court of expert evidence, and (at trial) cross-examination of witnesses, all properly pursued by a party’s lawyers. The persistence of the defendant’s legal team in enforcing these procedures has made all the difference in this case. I draw attention to the crucial role played by the unredacted documents, compared to their redacted versions, in the cross-examination of Mr Pavlov. (And it goes without saying that this is also a tribute to the quality of the cross examination, backed up by a detailed analysis of the documents.)
  2. It also illustrates the important point that it is generally speaking for the claimant to prove its case, and not for the defendant to prove anything. I am not required in this case to decide in terms whether the defendant is telling the truth (although that may also be correct). I am required instead to decide whether the claimant has proved its case. In my judgment, in these proceedings it has not.