PLEADING A CASE WHERE “DISCREDITABLE CONDUCT” IS ALLEGED: THE DEFENDANT MUST KNOW THE CASE THEY HAVE TO MEET

July 9, 2021 · by · in Statements of Case

The judgment of Mr Justice Bryan in Lakatamia Shipping Co Ltd v Su & Ors [2021] EWHC 1907 (Comm) could be used as a textbook for several important issues of civil procedure and civil evidence.   Here we look at that part of the judgment that relates to what needs to be pleaded when a claimant relies on fraud or, more accurately, actions that fall short of fraud but which may well still infer dishonesty.

 

“They involve, however, allegations of serious wrongdoing, and as such they must be clearly pleaded (not least so the Defendants know the case they have to face, on the applicable principles), and convincingly proved by cogent evidence (as the passages identified above rightly emphasise). Allegations of participation in an unlawful means conspiracy, whilst not necessarily requiring dishonesty or a fraud to be committed, undoubtedly involve what can properly be characterised as “discreditable” conduct.” 

THE CASE

The claimant brought an action against a number of defendants alleging (broadly) that wrongful actions were taken to defeat the enforcement of a substantial judgment debt.

HOW SHOULD THE CASE BE PLEADED?

The judgment contains a detailed consideration of how a claimant should plead a case where, in broad terms, discreditable conduct – but not necessarily fraud, is being asserted.

B.1 ENGLISH LAW PRINCIPLES PLEADING AND PROVING FRAUD
  1. The approach to pleading and proving fraud claims, and associated principles, has been the subject of a number of recent authorities.  Both parties were content to adopt my summary of the principles that I set out at paragraphs [41]-[92] in JSC BM Bank v Kekhman [2018] EWHC 791 (Comm), in particular in relation to pleading and proving fraud ([41]-[44]), the burden and standard of proof in relation to fraud ([46] to [50]), inherent probabilities ([51]-[66]), the relevance of documentary evidence ([67]-[69]) and circumstantial evidence ([78]-[80]) as well as the principles summarised by me, in particular in relation to pleading and proving fraud, in National Bank Trust v Yurov [2020] EWHC 100 (Comm) at [247]-[253].
  2. Although most of the authorities address the applicable principles in the context of pleading and proving fraud and associated dishonesty, aspects of the applicable principles will be of relevance when allegations of serious wrongdoing are made more generally, even if there is no requirement to plead or prove fraud or dishonesty, as such, as an element of the cause of action (such as in unlawful means conspiracy), and even though the strictures applicable to a plea of fraud or dishonesty are not automatically triggered.
  3. In this regard I was referred to the case of Ivy Technology v Mr Barry Martin & Others [2019] EWHC 2510 (Comm), and what was said by Andrew Henshaw QC (as he then was), in that case (a case of conspiracy to injure) at [12]:-
“12. Conspiracy to injure must be pleaded to a high standard, particularly where the allegations include dishonesty:
  1. i) Allegations of conspiracy to injure ” must beclearly pleaded and clearly proved by convincing evidence” (Jarman & Platt Ltd v I Barget Ltd [1977] FSR 260 , 267).
  2. ii)The more serious the allegations made, the more important it is for the case to be set out clearly and with adequate particularity:Secretary of State for Trade and Industry v. Swan [2003] EWHC 1780 (Ch) § 22-24; CPR PD 16 § 8.2 in respect of the obligations on a party pleading dishonesty; Mullarkey v. Broad [2007] EWHC 3400 (Ch), [2008] 1 BCLC 638 §§ 40-47 on the burden and standard of proof for such claims and reiterating the well-established principle that an allegation of dishonesty must be pleaded clearly and with particularity (citing Belmont Finance Corp v Williams Furniture [1979] Ch 250, 268).
iii) Unlawful means conspiracy is a grave allegation, which ought not to be lightly made, and like fraud must be clearly pleaded and requires a high standard of proof: CEF Holdings v. Mundey [2012] EWHC 1534 (QB), [2012] IRLR 912 § 74.
  1. iv)Where a conspiracy claim alleges dishonesty, then “all the strictures that apply to pleading fraud” are directly engaged.”e. it is necessary to plead all the specific facts and circumstances supporting the inference of dishonesty by the defendants: ED&F Man Sugar v. T&L Sugars [2016] EWHC 272 (Comm).”                             (emphasis added)
  2. In the present case, Lakatamia alleges two unlawful means conspiracies (the Monaco Conspiracy and Aeroplane Conspiracy). Neither of these requires, or involves, any specific plea of dishonesty as such (nor are fraud claims such as in deceit or the like pleaded) as part of any element of the causes of action. They involve, however, allegations of serious wrongdoing, and as such they must be clearly pleaded (not least so the Defendants know the case they have to face, on the applicable principles), and convincingly proved by cogent evidence (as the passages identified above rightly emphasise). Allegations of participation in an unlawful means conspiracy, whilst not necessarily requiring dishonesty or a fraud to be committed, undoubtedly involve what can properly be characterised as “discreditable” conduct.  In this regard, and as stated by Moore-Bick LJ in Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261 at [73] (in a passage cited with approval by Andrew Smith J in Fiona Trust v Privalov [2010] EWHC 3199 (Comm) at [1438] and by me in Bank of Moscow v Kekhman, supra, at [52]), “It is well established that “cogent evidence” is required to justify a finding of fraud or other discreditable conduct”.
  3. I also bear in mind that whilst Lakatamia is neither required to plead, nor prove, fraud or dishonesty in order to make out its claims for unlawful means conspiracy (and make no such pleaded averments) it has said (for example in oral submissions before the Court of Appeal) that conspiring to breach a worldwide freezing order “was more than vanilla dishonesty”, and it does not shy away from asserting dishonesty in a different sense, in alleging that Madam Sue has repeatedly lied on oath and given dishonest evidence in the context of the claims made against her (albeit that such dishonest conduct can occur in relation to any cause of action). This latter point is of most relevance when considering whether such serious allegations have been convincingly proved.
  4. Given the difference between the parties, not as to the applicable principles, but the parties’ respective emphasis on the principles and as to how they are to be applied, I consider it worth reiterating aspects of the applicable principles, albeit that what follows is not intended to be a substitute for the more detailed consideration given in JSC BM Bank v Kekhman and National Bank Trust v Yurov, and the cases there cited and quoted, upon which both parties rely, and which I bear well in mind. It would, however, unduly lengthen this judgment if such matters were repeated verbatim given that what is there stated is not regarded as controversial by either party.
  5. Turning first to applicable principles in relation to pleading of statements of case generally, Lakatamia, in particular, rely upon what I stated in Zeus Investors v HSBC Bank Plc [2021] EWHC 3273 (Comm) in the context of an application for Norwich Pharmacal relief which was supported by a witness statement that provided (as quoted at [11]) that,
“Whilst the documents that are available indicate a breach has occurred and may well be sufficient in their own right to support the claimant’s prospective claims, disclosure of the categories of the documents set out in schedule 1 will, it is believed, provide a more complete picture of the nature and scope of the breach, such that claims for breach may be fully considered with investors, then particularised in detail.”                                                                                   (emphasis added)
  1. In this regard I stated, by reference to the Commercial Court Guide, as follows at [9]:-
“It is also to be borne in mind, when contemplating an action being pleaded out in the Commercial Court, that paragraph C1.1 of the Commercial Court Guide provides that statements of case must be ” … as brief and concise as possible” and “Particular care should be taken to set out only those factual allegations which are necessary to enable the other party to know what case it has to meet”, and “evidence should not be included.” There is a 25 page limit for a statement of case, and it is also noted that the courts “… will only exceptionally give permission for a longer statement of case to be served.”
  1. Amongst other matters, the fact that only factual allegations which are necessary to enable the other party to know what case it has to meet should be set out highlights that an important aspect of the role of statements of case is to enable the other party to know what case it has to meet. In this regard whether particulars of claim do so, can often be tested by examining what a defendant pleads back to the particulars of claim and what that reveals as to the defendant’s understanding of the case being advanced against it, and what it considers it needs to plead (again within such strictures) to respond to the same.
  2. Thus, a party pleading its claim must include a “concise statement of the facts” (CPR 16.4(1)(a)), but not (in general), the evidence which it intends to produce to prove those facts (Commercial Court Guide paragraph C1.1(e), National Bank Trust v Yurov, supra at [251(1 (a)]).
  3. In HMRC v Begum et al. [2010] EWHC 1799 (Ch) at [89]-[91] David Richards J made the important point that pleading is not a game and it is about fairness and fairly understanding the case that has to be met, and points about whether a case has been adequately pleaded are to be looked at in that context:-
“89 In approaching criticism of the very detailed nature put forward by the defendants in this case, it is as well to bear in mind the following passage in the judgment of Saville LJ in British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 45 Con LR 1 at [4-5]:
The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the Court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expense of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing. Each case must of course be looked at in the light of its own subject matter and circumstances. Thus general statements to the effect that global or composite claims are embarrassing and justify striking out, to be found for example in Hudson 11th Ed. paragraph 8–204 are not automatically applicable to every case. With regard to the particular pleadings in question, I remain unpersuaded that either McAlpines or PDP were put to any sort of material unfair disadvantage by the way the matter had been set out by the Plaintiffs.
90 To like effect, after the introduction of the CPR, was Lord Woolf MR in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at [792–3]:
The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party’s witness statements, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules. The Practice Direction to CPR, paragraph 9.3 requires, in defamation proceedings, the facts on which a defendant relies to be given. No more than a concise statement of those facts is required.
As well as their expense, excessive particulars can achieve directly the opposite result from that which is intended. They can obscure the issues rather than providing clarification. In addition, after disclosure and the exchange of witness statements pleadings frequently become of only historic interest. Although in this case it would be wrong to interfere with the decision of Eady J, the case is overburdened with particulars and simpler and shorter statements of case would have been sufficient. Unless there is some obvious purpose to be served by fighting over the precise terms of a pleading, contests over their terms are to be discouraged.
91 As against those principles, Miss Newman relied on the requirement for proper particulars of allegations of dishonesty. I am satisfied that the case of dishonesty is sufficiently pleaded. It is to a significant extent based on what are alleged to have been Mr Uddin’s statements in the taped conversations and on inference from facts which are pleaded in paragraph 3.2.2, the alleged transactions and the consistent failure by the importers to account for VAT. There are not general and vague allegations of fraud such as were addressed in Re Rica Gold Washing Co (1879) 11 Ch D 36 and Wallingford v Mutual Society (1880) 5 App Cas 685.”
  1. For his part, Mr Head does not demur on behalf of Madam Su as to the applicability of the sentiments as expressed in the Commercial Court Guide and in Zeus as to the contents of statements of case in the Commercial Court (or indeed as to the role of statements of case generally), but he also relies upon paragraph C1.3(c) of the Commercial Court Guide which provides:-
“(i) full and specific details should be given of any allegation of fraud, dishonesty, malice or illegality; and
(ii) where an inference of fraud or dishonesty is alleged, the facts on the basis of which the inference is alleged must be fully set out.”
  1. In this regard (i) itself tracks paragraphs 8.2 of Practice Direction 16, whilst (ii) reflects the second of two distinct principles identified by Lord Millett in Three Rivers DC v Bank of England (No 3) [2001] UKHL 16, [2003] 2 AC 1 at [185]-[186]:-
“[185] The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means ‘dishonestly’ or ‘fraudulently’, it may not be enough to say ‘wilfully’ or ‘recklessly’. Such language is equivocal. …
[186] The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”
In relation to pleading and proving fraud more generally – see also what was said by Lord Hope at [55] = [56], Lord Hobhouse at [160] and by Lord Millett in the preceding paragraph ([184]).
  1.  However, even where the strict strictures apply in relation to a specific plea of fraud or dishonesty, they do not extend to the pleading of evidence, which is not the role of a statement of case.
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