THINKING OF ALLEGING OR PLEADING FRAUD: BETTER READ THIS FIRST

In NGM Sustainable Developments Ltd -v- Wallis [2015] EWHC 2089 (Ch) Mr Justice Peter Smith highlighted the importance of full and accurate pleading of a case alleging fraud.

“…in commercial matters the parties and their lawyers tend to work long hours at high speed. It appears to be a kind of machismo test of people who operate in such an environment. That too extends to the personalities.

KEY POINTS

  • A party alleging fraud has to plead the allegations precisely and the case will be confined to those pleaded allegations.
  • Parties are under a duty to put their case to witnesses for the opposing side.

THE CASE

The claimant brought an action against a number of defendants alleging that fraudulent misrepresentations led it to sign a document to enable £165,000 to be advanced. The claimant’s case was that the defendants never had any intention of entering into a long term funding agreement.

NEED FOR ACCURACY IN FRAUD CASES
  1. It is a fundamental tenet of the adversarial procedure in these courts that a case is put against the opposing party. It is only fair for a person against whom allegations are made to have that put to them while giving evidence in the box and to have an opportunity to deal with those in the box in front of the trial Judge. Equally it is a vital tool in the Judge’s exercise of assessing the credibility of witnesses for him to see witnesses confronted with the case against them to see how they react or deal with it. Of course all experienced Judges are well aware of the potentially oppressive nature of cross examination and are alert to ensure that it does not become oppressive and are alert to ensure witnesses fully understand the questions that are being put. For example in a number of instances in this case Counsel put (whether deliberately or not I do not know) questions which comprised two questions. The witness generally hears the latter of the questions and answers that and then it is not clear what his response would be to the earlier part of the rolled up question. A trial Judge should always be alert to ensure that errors do not creep in as such errors will not be identified on reading the transcript.
  2. Equally witnesses regularly say “yes” when they mean “no”. They regularly say “ok” when they are not agreeing the question but acknowledging they understand the question.
  3. I always remind Counsel at the start of any long trial where issues of fact are hotly contested that it is essential that their case is put to the opposing side where necessary in cross examination. I always indicate that a failure to put that case will disentitle them from making submissions criticising witnesses when the criticism was not put to them when they were available for cross examination see for example Sharab v HRH Prince Al-Waleed [2013] EWHC 2324 (Ch).
  4. This is the nature of the adversarial process in these courts. In that context especially in the context of fraud it is essential that the Claimant is tied to the pleaded case: see the observations of Lewison LJ in the Court of Appeal in Lowe v Machell [2012] 1 All ER (Comm) 153 at [74]. This is the more so where a case is based on fraud bearing in mind the observations of Lord Nicholls in Re: H (sexual abuse, standard of proof) [1996] AC 563 at 586:-
“The more serious the allegation the less likely it is the event occurred and hence the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is less likely than negligence……”
Ungoed-Thomas expressed this neatly in Re: Dellow’s Will Trusts [1964] 1 WLR 451, 455:-
“The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.”
  1. Further I accept the principle that if explanations are put forward by the Defendants a finding of liability involves rejecting those explanations as being inherently improbable see Grupo Torras SA v Al-Sabah (no5) [1999] EWHC 300 (Comm), [1999] CLC 1469 at 1541 (affirmed) CA [2001] Lloyds Reports Bank 36; Attorney General of Zambia v Meer Care & Desai [2007] EWHC 952 (Ch) [90-91].
  2. It follows from that that the Claimant is tied to its pleaded case namely that the Defendants made fraudulent representations to induce them to enter into the Loan Agreement and that those fraudulent representations are those as pleaded in the Amended Particulars of Claim and involve an allegation that the Defendants set out the Side Letter never intending to enter into any negotiations whatsoever.
  3. Mr Collings QC who appears for the Claimants regularly strayed from that golden mean. The Defendants in their closing set out several examples.
  4. Most of these circled around Mr Collings QC trying to establish that the Defendants in their discussions with the Claimants before the Loan Agreement and the Side Letter held back their desire to obtain shares in and possibly control of the Claimant.
  5. The purpose behind this strategy seems to me to attempt to exploit the fact that the Side Letter made no mention of a desire to acquire shares. However the fundamental difficulty facing Mr Collings QC is that the plea he is seeking to establish by this cross examination is not the one that is in the Amended Particulars of Claim. The Claimant’s case is not that the Side Letter did not fully set out what was to be discussed with the result that the shareholding was sprung upon the Claimants (it is said) without warning and when it was not in a position to do anything because it was already committed by the Loan Agreement.
  6. In my view that allegation is not open to the Claimant on the pleading.”

THE JUDGE’S FINDING THAT THERE WAS NO FRAUDULENT MISREPRESENTATION

The judge’s views on the various witnesses involved makes interesting reading (paragraphs 202 – 211 if you are interested). However he roundly rejected the allegations of fraud.
  1. I remind myself again that the pleaded case is not that terms as to equity partnership or harsh terms were sprung on the Claimant. The claim is that the Defendants never intended to enter into any negotiations.
  2. I am asked to infer such a fraudulent representation. I have set out in some detail above the contemporary documents along the timeline between September 2009 and May 2010 which covers the entirety of the relevant relationship between the parties. I have not been shown any of NGM’s internal documentation. The Defendants have provided relevant contemporary information. I have looked at that material and have referred to it earlier in the judgment. The internal evidence of the Defendants is all one way in my view. It shows that they were interested in the proposals and interested in participating in a venture with the Claimant but on terms. There is not one piece of evidence from the Defendants which shows that they had the fraudulent intention alleged against them.
  3. Further their conduct militates against such an implication. A number of examples will suffice. First from a documentary point of view the gestation of the documents by MdR was delivered late but an explanation was given to that which was not seriously challenged. There was no deliberate withholding of documents to spring on NGM at the last minute. One is not surprised by that; in commercial matters the parties and their lawyers tend to work long hours at high speed. It appears to be a kind of machismo test of people who operate in such an environment. That too extends to the personalities.

RELATED POSTS PLEADING FRAUD AND FINDINGS OF FRAUD

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