WITNESSES WHO DID NOT DRAFT (OR UNDERSTAND) THEIR STATEMENTS, WOULD BE “EXPERTS” AND OTHER WITNESS WOES.

Hot on the heels of my posing the question whether 278 years of judicial prompting on witness statements had led to any results comes the decision today of Mr Justice Andrew Smith in Michael Norcross -v- The Estate of Christos Georgallides deceased [2015] EWHC 2405 (Comm).  Another case with examples of the problems caused by witness evidence where witnesses go well beyond the ambit of evidence they can properly give.

THE CASE

The claimant alleged that the deceased defendant had been in breach of his duties as a director and diverted funds and property away from the company.

KEY POINTS

  • One witness stated he had not drafted his statement, nor read it properly, His statement was made from the documents rather than recollection.
  • One witness attempted to give “expert” evidence in circumstances where he had no right to do so.
  • One witness attempted to give evidence which imputed other companies run by the defendant had been run improperly.  There was no basis for these assertions.
  • The court would not draw adverse inferences from the absence of a witness when either side could have called her.
THE JUDGE’S COMMENTS ON THE WITNESS EVIDENCE
  1. The trial took place over 5 days from 3 June 2015. SHBL’s witnesses of fact were Mr Michael Norcross, Mr Gary Smith and Mr Dickinson. It also called expert evidence from a forensic accountant, Mr Fred Brown of Grant Thornton LLP. The Estate’s evidence was given by Ms Chantal Georgallides, Mr Georgallides’ widow and one of his personal representatives, and Mr Jim Nicolaides of Alpha Omega Group Limited (“AOG”), who were accountants to Mr Georgallides and his companies.
  2. I did not consider Mr Norcross a satisfactory witness: SHBL relied on two witness statements that he made. The first was dated 26 February 2015, and the second, dated 22 May 2015, was made after Hamblen J had by his order of 14 May 2015 given the parties permission to file further evidence about “the issue of limitation”. Mr Norcross verified his witness statements in his evidence in chief, but it became clear in cross-examination that he was not familiar with what they said and they did not give his own recollection of events. He said that he did not draft them (or at least his first statement), and when he read them he had not “picked up” everything in them. I conclude that the statements were constructed from documents that are in evidence and that Mr Norcross had little, if any, memory of what happened that added anything significant to the documents. In cross-examination he sought to give a picture that he did not understand financial matters that I found unconvincing: he is shrewder and has more business acumen than he suggested. That said, I do not think that Mr Norcross was dishonest in his evidence, but I do not consider his evidence reliable except where it is uncontroversial or simply reflects contemporaneous documents.
  3. Mr Smith managed the Club from September 2004 until June 2008. He left SHBL’s employment as a result of a disagreement with Mr Georgallides: he said that Mr Georgallides had broken a promise that he would “get a percentage of Mr Norcross’s money when he came into the business”. Mr Smith was asked about correspondence that he had had after he had left with a Mr Thomas Vicario, who had also worked at the Club. In a letter of 18 September 2008, he suggested that Mr Vicario might contact friends in Thailand to “rubbish” Mr Georgallides there. I need not set out all the abuse of Mr Georgallides in Mr Vicario’s reply of 19 September 2008. He described Mr Georgallides as a “slippery character”, and said that he knew the “head of the Tourist Police” and that he might use that connection to “make [Mr Georgallides’] trip not so nice! I never get angry, I just get even”; and he wrote of creating trouble between Mr Georgallides and a “super crook”. Mr Smith gave an explanation that Mr Vicario was a very unhappy man who was just “sounding off”, but I do not accept that: the exchanges demonstrated extreme hostility to Mr Georgallides. I conclude that this and his disputes with Mr Georgallides influenced some of Mr Smith’s evidence. He was not, in my judgment, dishonest, but he was prone to exaggeration and was not reliable. For example, he said that the receipts of the Club in December 2007 were about £1 million: as Mr Brown’s evidence showed, they were only some £310,000. That said, however, Mr Smith’s evidence did give some useful insight into how the Club was operated.
  4. Mr Dickinson’s witness statement extended beyond admissible evidence of fact. He expressed his views about usual accounting practice, and offered his opinion that in some ways AOG had behaved as “no responsible firm of accountants” would have done. No permission was sought or given for Mr Dickinson to give expert evidence, and this was not properly included in his witness statement. In any case I do not consider these views useful, and I disregard them.
  5. Mr Lord criticised Mr Dickinson’s evidence on the basis that he was less detached than is appropriate for a liquidator of SHBL (and other companies). In particular, he gave evidence that documents that he had read during his investigation could be explained only on the basis that Mr Georgallides’ “modus operandi” for night club companies was to divert company funds, particularly cash takings, for his own purposes so that they were driven into insolvency and then to sell the assets of the insolvent companies. He referred to other companies that Mr Georgallides had owned: Southways Leisure Limited, First Continental Leisure Limited, Sugar Hut Limited and Buddha Bar of London Limited (“BBL”). The only possible relevance of this evidence was to suggest, by way of similar fact evidence, that Mr Georgallides had so operated the group that included SHBL. It became clear in cross-examination that Mr Dickinson had no proper basis to suggest that other companies had been run improperly, and he was driven to accept that he had “no evidence that funds were diverted from those companies”. I consider that Mr Lord’s criticism was justified.
  6. Mr Brown was properly qualified to give expert accounting evidence. His evidence was largely by way of an explanation of the book-keeping and accounting documents that had been disclosed, and collation of information in them. It was careful and impartial, and I am grateful to him. However, he was not instructed to examine SHBL’s expenditure, beyond collating payments that appear to have been for personal expenditure of Mr Georgallides or his family, and this limited the evidence that he could give.
  7. Mrs Georgallides was fiercely loyal to her late husband, but I regard her evidence as entirely honest. However, she was not able to give any evidence that was of any real importance to any of the issues that I have to decide.
  8. My assessment of Mr Nicolaides’ evidence is similar: he gave honest evidence, but it was really of peripheral relevance. I should state that it is not alleged that Mr Nicolaides or AOG behaved dishonesty or improperly in relation to the affairs of Mr Georgallides, his companies or the Group, and there would not have been a proper basis for such an allegation.
A CONSIDERATION OF WHETHER THE COURT SHOULD DRAW ADVERSE INFERENCES IN THE ABSENCE OF A WITNESS
  1. Mr Coppel submitted that I should draw inferences adverse to the Estate because it did not adduce more evidence, in particular because it did not call as a witness a Ms Karen Lee, who had worked as a book-keeper at SHBL. The proper approach to a submission of this kind was explained by Brooke LJ in Wisniewski v Central Manchester Health Authority, [1998] Lloyd’s LR Medical 223, where he set out these principles:
“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.
“(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.
“(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.
“(4) If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified”.
  1. As I shall explain, Ms Lee started to work for the Club in 2006 or early 2007 before Mr Norcross acquired an interest in it, she continued to do so when in November 2007 Mr Norcross joined Mr Georgallides on the board of SHBL, and she stayed on in October 2008 after Mr Norcross (or his company) acquired sole control. As I see it, either SHBL or the Estate could have called Ms Lee to give evidence: Mrs Georgallides’ evidence suggested that she is still living in Essex. Neither did so, and neither explained why it did not do so. I am not persuaded that I can properly draw any inference adverse to either party from the absence of Ms Lee as a witness.
  2. I should say something about the documentation that was available at trial, and the evidence about why some records were not available. Some of SHBL’s records and papers were lost in a fire that destroyed the Club premises in September 2009. The problems were aggravated because, although AOG had copies of the Group’s Sage data files, at about the end of May 2008 they suffered what Mr Nicolaides described as a “server breakdown”, and they lost substantial amounts of data. Their back-up procedures did not help because before the major breakdown the server had been crashing and not backing up records. After May 2008, AOG did not hold in its Sage system relevant accounting information about SHBL and its group. Mr Norcross also complained about the records made available when in October 2008 he, or more precisely his company, Newfund Investments Limited (“NIL”), acquired control of SHBL. Mr Coppel invited me to infer that documents were deliberately concealed or destroyed “by or at the direction of” Mr Georgallides. For reasons that I shall explain, I do not draw this inference with regard to any material documentation.

THE RESULT

In the event the claimants claim failed on a number of grounds.

RELATED POSTS: WITNESS CREDIBILITY

ADVERSE INFERENCES WHEN WITNESSES ARE ABSENT

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