Dishonest litigants
Date: 06 November 2009
Authors: Stuart Paterson & Gareth Keillor
Issue: Vol 159, Issue 7392
Categories: Features, Procedure & practice
The Court of Appeal decision in Arrow Nominees v Blackledge [2000] 2 BCLC 167 is the first to consider in any detail the proper response to the dishonest conduct of litigation.
Arrow Nominees (AN) had a minority shareholding in a company called Bodycare (Health & Beauty) Limited which was managed by Blackledge (the majority shareholder). AN brought a petition alleging unfairly prejudicial conduct by Blackledge.
During the course of proceedings, a challenge was made to the authenticity of six letters disclosed by AN. AN’s then solicitors admitted (three months before trial) that these letters were “not authentic”.
The individual in control of AN (Nigel Tobias) later admitted that he had forged them. Blackledge applied to strike out the petition. The application was refused on the basis that there was no jurisdiction to strike out unless there was a substantial risk that there could not be a fair trial. The judge held that there was no evidence of such a risk, but that if further evidence of impropriety emerged then a strike out might become appropriate.
Further evidence at the trial indicated that the document fabrication and destruction was wider than the six letters. Following the conclusion of the petitioners’ evidence, the respondents (on the judge’s invitation) renewed their strike out.
However, the judge refused the application on the grounds that a case could be presented which did not rely upon the tainted evidence and therefore there was no substantial risk that a fair trial could not be held. The respondents appealed.
Tainted evidence
The Court of Appeal held that once the tainted evidence was excluded there was no evidence to support the claim.
The Court of Appeal also made a wider point that “where a litigant’s conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice the court is entitled—indeed, I would hold bound—to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him.”
The court does not strike out a claim due to disapproval of a party’s conduct, but because it believes that the conduct has led to an unacceptable risk that there will be an unsafe judgment and that it is inappropriate for resources to be expended on a trial. The dishonest litigant may be punished through proceedings for contempt or perjury, if appropriate.
Contempt
Contempt proceedings can be brought in a range of circumstances, including where a party makes a false disclosure statement or statement of truth. The criminal standard of proof applies and the proceedings can result in committal (a prison sentence) or a fine.
However, proceedings will only be successful where the wrongdoing is likely to interfere with the course of justice and therefore serious misconduct will be necessary. Proceedings for contempt are therefore a real prospect for a dishonest civil litigant, although the permission of the court or the Attorney General is required for contempt proceedings to be commenced.
The court is also unlikely to allow an application for contempt proceedings to be used to interfere with the court process, for example by seeking to deter a witness who is accused of dishonesty from attending trial, or preventing a client from readily giving instructions to his legal team.
There may also be the possibility of criminal proceedings for perjury if a witness has lied on oath, or has lied in his witness statement.
Human rights considerations
In Arrow Nominees, the court considered, at first instance, whether striking out a claim would be compatible with Art 6 (the fair trial right) of the European Convention on Human Rights. The judge concluded that where the court feels it is appropriate to strike out a claim because there cannot be a fair trial, then Article 6 will not be engaged.
This is a logical conclusion, but does highlight that where a party’s misconduct is not such that a fair trial is no longer possible, then Art 6 may be a hurdle to any attempt to strike out the claim.
Zahoor v Masood
In a recent case (Zahoor v Masood [2009] EWCA 650), the Court of Appeal was faced with similar issues to those in Arrow Nominees. Zahoor is perhaps an extreme example of the dishonest conduct of litigation. Unlike in Arrow Nominees, the dishonesty was on both sides and consisted of over 50 challenged documents, false dating in disclosure lists, and findings that witnesses from both sides had lied. Mummery LJ described the proceedings as “lamentable litigation” in which “[e]ach of the individual parties, by using reprehensible means, set out to improve his own prospects of success”.
There was no application to strike out the claim. However, the judge considered whether to do so of his own volition in light of Arrow Nominees. He concluded that he should not and went on to give a judgment on the claim, largely in favour of the claimant. The defendants appealed. One of their grounds of appeal was that the claim should have been struck out on Arrow Nominees principles.
There was clear guilt on both sides which the judge treated as highly relevant to his decision not to strike out the claim. He felt that to do so would reward the guilty defendant as much as the guilty claimant and leave the defendant with a windfall. The Court of Appeal rejected this approach and stated: “the defendants’ misconduct was irrelevant.”
The Court of Appeal made clear that it is for the judge, in the context of the court’s Arrow Nominees jurisdiction, to consider only the conduct of the claimant and whether the claimant has forfeited his right to an adjudication of his claims. It is not for the judge to weigh the misconduct of the claimant against that of the defendant.
The Court of Appeal refused the appeal on the grounds that once the proceedings had run their course and the resources had been expended, there was nothing to be achieved by a strike out at that stage, as opposed to the judge giving a judgment and then other steps (such as contempt proceedings) taking place. However, it seems clear that if proceedings had not been at such a late stage, the Court of Appeal would have allowed the appeal.
Shah v Ul Haq
Both Arrow Nominees and Zahoor dealt with claimants who had sought, through dishonest means, to bolster the merits of what they perceived to be a weak claim. A related scenario is where a party seeks to improve an otherwise genuine claim through dishonesty, for example inflating damages through false evidence, but where the underlying claim is well-founded.
This was considered by the Court of Appeal in Shah v Ul Haq [2009] EWCA Civ 542.
This involved a road traffic claim in which two claimants had a genuine claim, but also claimed for a third person (the driver’s mother) who was not in the car at the time of the accident. The defendant applied to strike out the claim. The judge refused the application, but ordered the two successful claimants to pay indemnity costs. The defendant appealed.
The Court of Appeal held that Arrow Nominees considerations do not apply where there is no suggestion that it is not possible to hold a fair hearing. Where a claim has simply been exaggerated, but a fair trial is still possible, then the claim should not be struck out. Again the court held that the power to strike out is a case management tool to preserve resources and prevent unsafe judgments.
It is not to punish reprehensible conduct and therefore is not appropriate where the party acted badly but a safe judgment could still be given (as was the case in Shah). Indeed, as noted above, Art 6 considerations may mean that a claim should not be struck out in these circumstances.
Costs
The recent case of The Bank of Tokyo-Mitsubishi UFJ, Ltd v Baskan Gida Sanayi Ve Pazarlama A.S. [2009] EWHC 1696 provides a reminder that the court has a wide discretion in relation to costs awarded to a successful party if they are thought to have been guilty of dishonesty or inflating a claim.
The successful defendant was held to have taken a corporate decision to lie regarding significant matters in the dispute (although the conspiracy claim against it failed).
The judge deducted from the defendant’s costs an amount referable to the costs of pursuing its false case and the claimants’ costs in dealing with that case. This is unsurprising. However, a significant costs penalty was also imposed for the defendant’s misconduct in advancing a false case.
Dealing with the dishonest defendant
The above cases emphasise that the Arrow Nominees jurisdiction is concerned with the conduct of a claimant. The court should not weigh any “guilt” of the defendant against that of the claimant. In Bank of Tokyo it was suggested, obiter, that where the sole wrongdoing is on the part of the defendant, it would be appropriate to strike out the defence and prohibit the defendant from any further participation in the proceedings. The claimant would recover such damages as are justified on the basis of his unchallenged evidence.
This approach was taken in Raja v Van Hoogstraten [2006] EWHC 1315 where the defendant was found to have had the claimant murdered to prevent him pursuing his claim. The judge ordered that the defence (and counterclaim) be struck-out, in part relying upon the Arrow Nominees jurisdiction.
It is not clear, in such circumstances whether the defendant would be permitted to cross-examine the claimant’s witnesses, or to make legal submissions. However, in a different forum (the First-tier Tax Tribunal), the rules provide that the tribunal can disregard any response or submission made by a respondent who has been barred from taking any part in the proceedings for failing to cooperate with the tribunal or comply with a direction.
Practical considerations
The court’s jurisdiction to strike out a claim advanced by a litigant who uses dishonest means to advance his case is a powerful weapon. However, as the Court of Appeal in Zahoor highlighted, in complex cases it may take “a good deal of evidence” before the fraud on the court can be established and it “may be difficult to avoid a full trial.”
It will not always be possible or appropriate to make such a challenge when evidence of dishonesty arises in the course of proceedings. The issue must be dealt with promptly: as was shown by Zahoor, even where dishonesty and forgery is flagrant, the opportunity to strike out can easily be lost. If a litigant leaves it too late, then the appropriate course will be for the judge to hear the trial, give judgment, make the necessary costs orders and, if appropriate, refer any matters for prosecution or impose other sanctions.
The decision to apply to strike out is one which requires careful consideration. It may seem an attractive option due to the possibility that victory will be achieved at a relatively early stage. However, it will be necessary to assess the nature of the dishonest conduct and whether it is sufficient that no fair trial is possible.
There will also need to be clear evidence of impropriety which will require the party to undertake additional work (and incur additional costs) such as obtaining expert evidence from IT consultants or handwriting/document experts.
It should also be borne in mind that, in addition to the costs of making the application (and the risk of paying costs if the application fails), a strike out application will inevitably divert a litigant’s resources from trial preparation. In many cases the best strategic decision is likely to be not to bring a strike out application, but instead to proceed with the trial and to seek to gain the maximum advantage from the opponent’s actions.
For example, if a party can be shown to have forged or destroyed documents, the court is likely to be very reluctant to give that party the benefit of any doubt or to exercise discretion in that party’s favour at trial. Furthermore there are likely to be many inferences that a party can seek to have drawn against the other party.
In some cases, this is likely to be fatal to a party’s claim and therefore may achieve the same outcome as a strike out application, but without the cost and distraction of a separate application.
Stuart Paterson is a partner in Herbert Smith’s litigation and arbitration division, based in Dubai. Gareth Keillor is a senior associate in the litigation and arbitration division in London
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