Fraud cases in the courts

The last few months have seen a number of reported cases which, though not directly concerning matters concerning housing on their facts, do explain some important cause of action, evidential and procedural issues that are referable to this blog’s focus on social housing fraud. 4 of those cases are described below.

Use of evidence in civil proceedings for criminal prosecution

In Gilani v Saddiq & Ors [2018] EWHC 3084 (Ch) the claimant applied for permission to use documents disclosed by the defendants in that civil claim as evidence for a private prosecution he had brought against the first and second defendants on charges of fraud arising out of the same matters that had given rise to the civil claim (though that claim had not pleaded fraud).

CPR r. 31.22 provides:

(1) A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where –

(a) the document has been read to or by the court, or referred to, at a hearing which has been held in public;

(b) the court gives permission; or

(c) the party who disclosed the document and the person to whom the document belongs agree.

(2) The court may make an order restricting or prohibiting the use of a document which has been disclosed, even where the document has been read to or by the court, or referred to, at a hearing which has been held in public.

(3) An application for such an order may be made –

(a) by a party; or

(b) by any person to whom the document belongs.

(4) For the purpose of this rule, an Electronic Documents Questionnaire which has been completed and served by another party pursuant to Practice Direction 31B is to be treated as if it is a document which has been disclosed.

Lord Justice Aldous declared in Smithkline Beecham Plc v Generics (UK) Ltd [2003] EWCA Civ 1109 at [37]:

“The most important consideration must be the interest of justice which involves considering the interest of the party seeking to use the documents and that of the party protected by the CPR 31.22 order. As Lord Oliver said each case will depend upon its own facts.”

In the Gilani case itself HHJ Cooke considered the relevant authorities and explained the judicial discretion thus at [21]:

“The discretion is thus a general one, to be exercised in the interests of justice in all the circumstances of the case, having particular regard to the fact that documents are disclosed under compulsion and are prima facie to be kept confidential and used only for the purpose of the proceedings so that some good reason has to be shown for permitting any other use, but this does not mean that the grant of permission is rare or exceptional if a proper purpose is shown, and use in other proceedings such as criminal proceedings brought in the public interest may be such a purpose. The court must be satisfied there is no injustice to the party compelled to give disclosure.”

before concluding that [31]

“In the circumstances, in my judgment the grant of permission would not cause any injustice whatever to any of the defendants. Even if it could be maintained that it was in some way unjust to the Saddiq brothers that the prosecution case against them is strengthened by production of documents disclosed by them, that is a result which they brought upon themselves by opposing the application to stay the civil proceedings, and indeed expressly assented to in the course of that opposition. The grant of permission would not prevent them from pursuing an argument to similar effect before the criminal court; if they do so that will be a matter for the criminal court to determine.”

This decision was largely based on 5 factors:

  1. The considerable public importance in facilitating the effective prosecution of serious crimes such as fraud” – paragraph 22.
  2. The prosecutor “has the duty to lay before the criminal court all the evidence relevant to the offences charged, and would be hindered in doing so if evidence that would otherwise be relevant has to be withheld because this court refused permission.” – paragraph 23.
  3. There were no issues concerning the privilege against self-incrimination – paragraph 24.
  4. There was no injustice to the defendants in granting permission, indeed they had opposed the claimant’s application for a stay of the civil proceedings pending the outcome of the criminal prosecution – paragraphs 25 to 29.
  5. It cannot be said that use of the documents in criminal proceedings is in any respect an “improper” purpose – paragraph 30.

 

Pleading dishonesty/fraud

In Canary Riverside Estate Management Ltd v Circus Apartments Ltd [2018] EWHC 1376 (Ch) Master Shuman was faced with a CPR r. 3.4(2) application by the defendant in a breach of Lease claim to strike out paragraph 9 of the Reply in which the claimant had made an allegation of dishonesty against the defendant.

The Master referred to the said paragraph 9 in this way:

“In the claimant’s reply it is also alleged that contrary to the defendant’s case that it has granted 45 separate underleases to Bridgestreet each for a term of 3 years and each containing a landlord “put option” only the defendant has entered into an unconditional agreement with Bridgestreet to underlet the Property for a term of 10 years. This is squarely an allegation of dishonesty.”

and in considering the law at paragraphs 10 to 19 of the judgment the Master established:

  1. There was no factual basis alleged to plead the dishonesty – paragraph 11.
  2. You cannot plead a fresh cause of action in a Reply – paragraph 11, 16PD para. 9.2.
  3. A strike out application should be made as soon as possible – paragraph 13.
  4. Where it is intended that there be an allegation that a fraud or dishonesty has been committed, you must allege it and you must prove it with sufficient particulars – paragraphs 15, 17; Three Rivers District Council v Bank of England [2001] UKHL 16; [2001] 2 All ER 513 at [55, 184-6]
  5. The pleading party must have a proper basis for making an allegation of dishonesty in their pleading – paragraph 16; Three Rivers District Council v Bank of England [2001] UKHL 16; [2001] 2 All ER 513 at [160].
  6. Mr Justice Flaux said in Jsc Bank of Moscow v Vladimir Abramovich Kekhman & ors [2015] EWHC 3073 at [20]:

“The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge.”

Counsel for the (ultimately successful) defendant set out the relevant principles thus (paragraph 19 of the judgment):

(1) The hope that something may turn up during cross-examination of a witness at trial does not suffice.

(2) The allegation of fraud must not be equivocal.

(3) There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.

(4) At an interim stage the court is only considering whether the facts as pleaded would justify the plea of fraud.

The Master ultimate found in favour of the application on the following primary grounds:

“34. I accept Mr Rainey QC’s submissions at paragraph 34 of his skeleton argument that, against the background of the 9 July 2015 agreement and the 45 under lettings, the fact that a junior employee of Bridge Street who was in sales said that he understood that position to be that Bridgestreet have the building for another 10 years is wholly insufficient to tilt the balance and to justify an inference that the defendant is dishonestly concealing an unconditional agreement to grant a lease of the whole of the Property to Bridgestreet for a term of 10 years. It does not come close. I accept that the statement by the employee is equivocal and equally consistent with an honest belief that Bridgestreet could remain in the Property for 10 years.

35. As to the other evidence relied on by the claimant in the witness statements put before me, this is not pleaded. However for completeness I have considered that evidence. I note that in relation to Mr Wallace he has refused to provide a witness statement to the claimant. In relation to the attendance note I consider that when Mr Wallace said that he had been told by either Mr Beck or Mr Rands that Bridgestreet had the property for 10 years that is explicable on the same basis as the email of 29 July 2015, that Bridgestreet were confident that they would be in the Property for the next 10 years. It was certainly in the defendant’s commercial interests for the underleases to be renewed. In relation to the email about the term “3+3+3+ 1 =10” I fail to see how this is evidence supporting the claimant’s contention that the defendant is dishonest. It demonstrates the mechanics of the agreement between the defendant and Bridgestreet and specifically refers to the fact that the defendant is awaiting the consent of the claimant which would alter these mechanics and therefore provide a single term of 10 years rather than a multiple of different terms adding up to 10 years.

36. So again I go back to paragraph 9 of the reply and that the claimant’s pleaded case hinges on the one email from Mr Wallace, a junior employee in sales writing an informal email to a potential client. I do not see how this email can be said to tilt the balance and justify an inference of dishonesty. I accept Mr Rainey QC’s submissions that this email is wholly insufficient to tilt the balance and wholly insufficient to mount a case that the defendant is dishonestly concealing a 10 year agreement for lease.”

 

Vicarious liability for fraudulent misrepresentation

In Winter v Hockley Mint Ltd [2018] EWCA Civ 2480 the Court of Appeal was faced with an appeal against a damages award of £531,803.98 made for vicarious liability for fraudulent misrepresentations made to the respondent company.

The Court only had to consider the first of four grounds – the Judge applied the wrong legal test in determining that Mr Winter was vicariously liable for the deceit of Mr Ramsden, and should have applied the test that a principal is only liable for the fraudulent misrepresentations of his or her agent where those misrepresentations were made within the scope of the agent’s actual or apparent authority – because they found in the appellant’s favour and remitted for re-hearing and determination the issue of Mr Winter’s vicarious liability on the grounds of Mr Ramsden’s ostensible authority.

In particular, the Judge did not apply the correct legal test in reaching his conclusion that Mr Winter was vicariously liable for Mr Ramsden’s deception of Hockley Mint, the test being:

“36. Lloyd v Grace, Smith & Co [1912] AC 716 concerned the liability of the defendant firm of solicitors for the conveyancing fraud of their managing clerk, who conducted the conveyancing business of the firm without supervision. One of the issues was whether it was a defence that the fraud was committed, not for the benefit of the firm, but for the benefit of the managing clerk. The firm contended that Barwick v English Joint Stock Bank (1867) LR 2 EX 259 was authority for the proposition that a principal was not liable for the fraud of his agent unless the fraud was committed for the benefit of the principal.

37. Lord Macnaghten, with whose speech Earl Loreburn and Lord Atkinson agreed, said (at 735-6) that the true principle to be derived from Barwick was that an innocent principal was civilly responsible for the fraud of his authorised agent, acting within his authority, to the same extent as if it was his own fraud. Lord Macnaghten did not consider separately actual authority, on the one hand, and apparent or ostensible authority, on the other hand. He said (at 736), for example, that the expressions “acting within his authority”, “acting in the course of his employment”, and “acting within the scope of his agency” meant one and the same thing, and that it was not easy to define with exactitude what was meant by those expressions. This reflects the fact that the case was decided at an early stage in the development of the jurisprudence on ostensible authority and on the difference between actual authority, on the one hand, and ostensible authority, on the other hand, as was described much later in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, esp at 502-3 (Diplock LJ).”

Armagas Ltd v Mundogas Ltd [1986] AC 717 “is binding authority of the House of Lords that, where a claimant has suffered loss in reliance on the deceit of an agent, the principal is vicariously liable if, but only if, the deceitful conduct of the agent was within his or her actual or ostensible authority” (paragraph 48).

More particularly, the Judge went wrong as follows:

“63. The analysis of the Judge did not identify or address the essential ingredients of vicarious liability of a principal for the deceit of his agent as required by Armagas: a holding out or representation by the principal to the claimant, intended to be and in fact acted upon by the claimant, that the agent had authority to do what he or she did, including acts falling within the usual scope of the agent’s ostensible authority. Instead, he applied a broad principle of fairness and a test of “sufficiently close connection” derived from Lister and Dubai Aluminium. Those cases, however, did not concern a reliance based tort, and were not about the ostensible authority of an agent or employee as a result of a holding out by the principal or employer. They concerned the ordinary course of employment (in Lister) and the ordinary course of a firm’s business (in Dubai Aluminium). That is why Armagas was not mentioned in any of the speeches in either case, and why Lord Nicholls in Lister said (at [30]) that in that case and in the other cases he cited there was no question of reliance or holding out, and why Lord Nicholls in Dubai Aluminium said (at [28]) that he left aside cases where the wronged party was defrauded by an employee acting within the scope of his apparent authority. In short, the first ground of appeal is correct in stating that the Judge applied the wrong test.”

 

Judgments obtained by fraud

This issue was recently considered by the Court of Appeal in Terry v BCS Corporate Acceptances Ltd & Ors [2018] EWCA Civ 2422, where the defendant failed in his appeal, having unsuccessfully applied to strike out the claimant’s claims post default judgment.

The Court of Appeal set out the correct procedures that should have been followed at paragraphs 25 to 40 of Hamblen LJ’s judgment:

  1. The primary means of doing so was by bringing a fresh action seeking the equitable relief of setting aside the judgment – paragraph 26; see Flower v Lloyd [1877] 6 Ch D 297; Hip Foong Hong v H Neotia & Company [1918] AC 888.
  2. In order to succeed in setting aside the judgment it will be necessary not only to prove the alleged fraud but also that it involved “conscious and deliberate dishonesty” and that it was “material” to the decision reached – paragraph 35; Royal Bank of Scotland Plc v Highland Financial Partners LP & Others [2013] EWCA Civ 328 at [106].
  3. The Court preferred the test of materiality set out in in Hamilton v Al Fayed (No 2) [2001] EMLR 14 at [34]:

    “Where it is clearly established by fresh evidence that the court was deliberately deceived in relation to the credibility of a witness, a fresh trial will be ordered where there is a real danger that this affected the outcome of the trial.”

  4. There might be special reasons for departing from this “established practice” in certain cases, but, if so, “the necessity for stating the particulars of the fraud and the burden of proof are no whit abated and all the strict rules of evidence apply”: paragraphs 27, 29;  Jonesco v Beard [1930] AC 298 at [201].
  5. The other established means of challenging a judgment obtained by fraud is by appealing and seeking to adduce fresh evidence in accordance with the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489, that is the evidence (1) could not have been obtained with reasonable diligence for use at the trial; (2) is such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) is apparently credible, though it need not be incontrovertible – paragraph 31.
  6. The tensions between the appeal/set aside approaches was explained by Lord Justice Hamblen in this way:

’32. In Noble v Owens the Court of Appeal considered the tension between the Ladd v Marshall line of cases, which involve an appeal and a retrial without proof of fraud, and the Jonesco line of cases, which involve a fresh action being brought to prove the fraud.  This tension was described by Smith LJ in the following terms at [16]:

“16. It appears to me that there is an inconsistency between the two lines of authority upon which the opposing parties to this appeal rely. On the one hand there is Ladd v Marshall [1954] 1 WLR 1489 which suggests that, where fresh evidence is properly admitted and it appears to the court that it might, if admitted, have had an important effect on the trial, the right course is to send the case back for retrial. That should be done, apparently even if the new evidence suggests that a deceit was practised on the court below: see Hamilton v Al Fayed [2001] EMLR 394. On the other hand, Jonesco v Beard [1930] AC 298 suggests that, where it is alleged that there was deceit in the court below, the proper course is to leave the aggrieved party to commence a new action, save where the Court of Appeal either determines the issue of fraud itself—in effect where it is admitted—or the evidence is incontrovertible. How are these two lines of authority to be reconciled?”

33. Smith LJ, with whom Elias LJ agreed, answered this question as follows at [27]:

“In my judgment, the true principle of law is derived from Jonesco v Beard and is that, where fresh evidence is adduced in the Court of Appeal tending to show that the judge at first instance was deliberately misled, the court will only allow the appeal and order a retrial where the fraud is either admitted or the evidence of it is incontrovertible. In any other case, the issue of fraud must be determined before the judgment of the court below can be set aside.””

 

Unless the fraud is admitted or the evidence of it is incontrovertible, the issue of fraud should therefore be both properly particularised and proved.  This would usually require a fresh action, although if the appeal route is adopted the trial of the fraud issue could be referred to a High Court judge pursuant to CPR 52.20(2)(b) (see Noble v Owens [2010] EWCA Civ 224, [2010] 1 WLR 2491):

(2) The appeal court has power to—

(b) refer any claim or issue for determination by the lower court

It will also be necessary to establish that the evidence which is relied upon to establish the fraud could not with reasonable diligence have been obtained for the trial (the “reasonable diligence condition”) – paragraph 39; Takhar v Gracefield Developments Ltd [2017] EWCA Civ 147, [2018] Ch 1.  It is to be noted, however, that an appeal against this decision has recently been heard in the Supreme Court.

The wrong procedure was therefore followed by the defendant and the court had no jurisdiction to strike out a claim post-judgment.

The Court also found that there were no grounds to support any application to set aside judgment under CPR r. 3.1(7)  (insofar as the actual application could be treated as such):

75. In summary, the circumstances in which CPR 3.1(7) can be relied upon to vary or revoke an interim order are limited.  Normally, it will require a material change of circumstances since the order was made, or the facts on which the original decision was made being misstated.  General considerations such as these will not, however, justify varying or revoking a final order.  The circumstances in which that will be done are likely to be very rare given the importance of finality.  An example is provided by cases involving possession orders made when the defendant did not attend the hearing where CPR 39.3 may be relied upon by analogy – see Hackney London Borough Council v  Findlay [2011] EWCA Civ 8, [2011] HLR 15.  Another example is the use of powers akin to CPR 3.1(7) to vary or revoke financial orders made in family proceedings in relation to which there is a duty of full and frank disclosure and the court retains jurisdiction – see, for example, Sharland v Sharland [2015] UKSC 60, [2016] AC 871 and Gohil v Gohil (No 2) [2015] UKSC 61, [2016] AC 849.

Local authorities detect or prevent frauds worth £302 million in 2017/18

The CIPFA “Fraud and corruption tracker” summary report, based on responses from 144 local authorities, estimates that approximately 80,000 frauds have been detected by local authorities in 2017/18 with a value of £302 million.

71.4% of that figure is under the heading of ‘housing fraud’ (though the number of cases represents only 5.7% of the total, the largest number of cases being with regard to council tax):

– 1518 Right to buy cases at a value of £92m

– 1051 unlawful sub-letting cases at a value of £55.8m

– 2164 other cases (e.g. wrongful assignments and tenancy successions, false applications) at a value of £68.3m

CIPFA recommends:

1. Public sector organisations need to remain vigilant and determined in identifying and preventing fraud in their procurement processes. Our survey showed this to be one of the prime risk areas and practitioners believe this fraud to be widely underreported.

2. Effective practices on detecting and preventing adult social care fraud should be shared and adopted across the sector. Data matching is being used by some authorities with positive results.

3. All organisations should ensure that they have a strong counter-fraud leadership at the heart of the senior decision-making teams. Fraud teams and practitioners should be supported in presenting business cases to resource their work effectively.

4. Public sector organisations should continue to maximise opportunities to share data and to explore innovative use of data, including sharing with law enforcement.

5. The importance of the work of the fraud team should be built into both internal and external communication plans. Councils can improve their budget position and reputations by having a zero- tolerance approach.

CIPFA’s chief executive, Rob Whiteman, said in a recent article for “Public Finance”:

“…the number of serious and organised crimes detected and prevented by councils has doubled this year to 56, highlighting the seriousness of the issues faced – and the effectiveness of councils’ efforts. Overall, 636 prosecutions were completed in 2017-18, up from 614 the previous year.

However, these successes were owing not to increased resources but increased capability and collaboration. The number of in-house qualified financial investigators appears to have dipped slightly, but shared services structures have risen from 9% to 14% of authorities. Fraud is a crime that crosses organisational and geographic boundaries. By collaborating, sharing data and jointly investing in new technologies, councils can improve resilience and cost-effectiveness.

The London Counter Fraud Hub, a data-sharing and analytics solution led by Ealing Council and London Councils and run by CIPFA and other partners, is an example. About to go live, it forms a part of CIPFA’s enhanced counter fraud services, which seek to drive a collective change in councils’ approach to fraud.

It’s important to maximise opportunities to share and explore innovative use of data, including working with law enforcement. Fraud is not a victimless crime. It inevitably diverts resources away from those who need it most. With local government running on empty, councils must preserve every drop.”

 

Postcript:

See the earlier blog article on the National Fraud Initiative Report 2018

 

Private prosecutions – a cautionary tale

The right of private prosecution is expressly preserved by section 6 of the Prosecution of Offences Act 1985.

On 23 May 2018 Lord Justice Gross and Mr Justice Sweeney handed down judgment in R (on the application of Martin Kay and Scan-Thors (UK) Limited) v Leeds Magistrates’ Court (Defendant) and Marek Karwan (Interested Party) [2018] 4 WLR 91, allowing a judicial review challenge to 2 decisions of a district judge at the Magistrates’ Court in Leeds:

1. Her refusal to dismiss summonses for offences of fraud between 2007 and 2012, which had been issued against the Claimants on the basis of an information laid at the behest of the Interested Party.

2. Her refusal to stay proceedings as an abuse of process, having decided that this issue should be determined in the Crown Court.

The District Judge’s decision and the summonses were quashed because of breaches of the duty of candour on the part of the private prosecutor, Mr Justice Sweeney concluding:

38. As this case demonstrates, the grant of summonses, typically conducted ex parte, can have far reaching consequences. Compliance with the duty of candour is the foundation stone upon which such decisions are taken. In my view, its importance cannot be overstated.

39, The DJ undoubtedly had the power to deal with the breach of the duty of candour in this case by quashing the summonses. Logically, that was the first issue that she should have engaged with, but she failed to engage with it at all.

40. Whether breach of the duty of candour comes under the broad umbrella of abuse of process, or falls to be dealt with in its own right, applying the test most favourable to Mr Karwan (see [27] above), namely whether the inaccurate and/or non-disclosure would have made a difference to the judge’s decision, my answer is, unhesitatingly, “yes”, Even if the application had not been refused without more, it would inevitably have resulted in more focussed enquiries, the notification of the Claimants, and (in my view) the Claimants being heard.

Costs were determined on 26 October 2018, they being awarded against the Interested Party on an indemnity basis, Mr Justice Sweeney explaining:

“21. In our view there is no merit in either the Interested Party’s principal or alternative submissions under this heading. He was the driving force in obtaining the summonses in significant breach of his duty of candour, and in persuading the District Judge to act as she did (whilst still failing to disclose the content of the Polish Regional Prosecutor’s second written justification). In all the circumstances we conclude that it is not appropriate to make an order for costs out of central funds in relation to the proceedings in the Magistrates’ Court or in this Court, nor to order that the Interested Party should only be liable for a portion of the costs. Put bluntly, these submissions are misconceived….

28. The Claimants underline that, for Orders on an indemnity basis, proportionality is irrelevant. They submit that Mr Kay is a man of 71 of impeccable good character who, when faced with serious charges of fraud, was entitled to instruct lawyers with the necessary skill and experience to deal with such a case, and that the amount of work that was carried out by his lawyers was entirely reasonable – including proper delegation with the majority of his solicitors’ work being done at associate rather than partner level. The Claimants draw attention to R (Haigh) v City of Westminster Magistrates’ Court [2017] EWHC 232 in which the Court made an Order for costs of £190,000 against a private prosecutor for the Magistrates’ court proceedings alone (albeit that two sets of defence lawyers were involved). The Claimants went on to rebut each of Interested Party’s submissions in relation to particular items of expenditure.

29. We have considered these submissions and the Amended Costs Schedules, having regard to s.51 of the Senior Courts Act, CPR 44.2 and s.19 of the Prosecution of Offences Act 1985. In the result we have decided, in the exercise of our discretion, to assess costs summarily in the total amount of £250,000. We are satisfied that, looked at robustly and in the round, this figure does justice to both parties. Accordingly, we propose to make an Order in favour of the Claimants, here and below, in that total sum – payable within 28 days. The Claimants must draw up a draft Order accordingly.”

This case not only serves as a warning to would-be prosecutors that their duty of candour must be taken seriously but also, in the substantive judgment, provides a helpful update on the procedure applicable to bringing such a prosecution.

 

Tenancy Fraud Forum 2018

 

The Tenancy Fraud Forum (TFF) held its annual conference at the BMA in London on Wednesday, 3 October 2018:

The TFF was launched in April 2012 and arose out of a recognition that there was an increasing need for a fraud forum that focused solely on tenancy fraud issues because of the complex law that surrounds such matters, and the requirement for niche investigations. The Executive Committee of TFF is made up of fraud specialists from local authorities and housing associations.

The annual event was as ever well attended and I was privileged to be asked to give the keynote speech, and focused on the need for greater understanding of the extent of fraud ‘in the system’, the litigation tools at the disposal of landlords and the need to consider widening the local authority investigation powers to be found in the Prevention of Social Housing Fraud (Power to Require Information) (England) Regulations 2014/899 and the Prevention of Social Housing Fraud (Detection of Fraud) (Wales) 2014/826 beyond the suspected fraud and their family.

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The lasting impression I got from listening to some excellent speakers on topics such as money laundering, surveillance and right to buy fraud – and speaking to many delegates – was that there was some tremendous work going on in the social housing sector to detect fraud and an increasing cross-working practice in the sector, alongside an acknowledgement that there is a long way to go:

The TFF is a an important organisation led by the brilliant and indefatigable Katrina Robinson MBE…I’m already looking forward to the 2019 Conference!

National Fraud Initiative Report 2018

The Cabinet Office has produced the National Fraud Initiative Report 2018, the headline figure of which is that the National Fraud Initiative (NFI), the Cabinet Office’s data matching service, has enabled participating organisations to prevent and detect over £300 million UK fraud and error in the period April 2016 to March 2018, a rise from £222 million in 2014/15.

The NFI compares sets of data, such as the payroll of a company with benefit records, allowing fraudulent claims and payments to be identified. Between April 2016 and March 2018, the NFI worked with over 1,200 public and private sector organisations.

The report highlights 4 NFI products:

  1. National – Data is collected from organisations across the UK for national fraud detection batch matching. Matches are accessed through a secure web application.
  2. AppCheck – Fraud prevention tool that helps organisations to stop fraud at the point of application, thereby reducing administrative and future investigation costs.
  3. ReCheck – Flexible batch matching tool that allows an organisation to repeat national batch matching at a time to suit them.
  4. FraudHub – this enables groups of organisations to regularly screen more than one dataset with the aim of detecting errors in processing payments, or benefits and services.

Looking at the figures in a housing context for England (£275.3 million of the £300 million figure) the report shows:

  • £5.5 million related to tenancy fraud, £25.5 million to waiting lists, and £1 million to right to buy (RTB – 4 cases);
  • 58 social housing properties were recovered, a small increase from the 54 properties in 2014/15. The NFI use an estimate of £93,000 per property recovered based on average four year fraudulent tenancy – this includes temporary accommodation for genuine applicants; legal costs to recover property; re-let cost; and rent foregone during the void period between tenancies;
  • 7601 false applications were removed from local authority allocation schemes during 2016/17 – over half of these applications were cancelled by one council.  The NFI works on an estimate of £3,240 per case for future losses prevented as a result of removing an applicant from a list;
  • The NFI estimate a saving of £65,000 per RTB application withdrawn based on average house prices and the minimum right to buy discount available (this has some regional variations such as with London it is £104,000 per application withdrawn to reflect the maximum value of RTB discount available for London properties);
  • The Annual Fraud Indicator 2017 highlights that housing tenancy fraud costs local government £1.83 billion. This has increased from the £1.76 billion quoted in 2016;
  • Whilst there are 400 local authority participants in the NFI, there are just 7 Housing Associations.

The report gives 2 examples of local authority use of NFI initiatives:

  1. Royal Borough of Greenwich – an NFI housing tenancy to housing tenancy match showed two matching tenancies between two London boroughs. Investigations in the Royal Borough of Greenwich showed their tenant had used false identity documents to gain a one bedroom flat in May 2013; claimed housing benefit; used the same documents to gain employment as a waste operative in the borough four years earlier, in October 2009 (he was no longer in that employment at the time of the investigation). The Royal Borough of Greenwich evicted the tenant from the property in February 2017 and he was prosecuted and sentenced at Woolwich Crown Court on 4th October 2017 to 33 months imprisonment. In total the man had received in excess of £60,000 in employment and housing benefit payments.
  2. Portsmouth City Council – a housing tenants to housing benefit match identified a tenant in a property owned by Portsmouth City Council. The tenant had however been claiming housing benefit in excess of £150 per week for a different property in a nearby authority area since January 2016. The match revealed the tenant had let the property from Portsmouth City Council in February 2013, but investigations found the tenant’s partner had been subletting the Portsmouth property for up to two years. The council sought a prosecution in October 2017 and the property was successfully recovered.

Excluding all or part of a witness statement

Introduction

There appears to have been the beginnings of a trend in housing possession cases recently for defendants to challenge the admissibility of all or part of the claimant’s witness statement evidence by way of an application under CPR r. 32.1 to exclude all or part of witness evidence filed on behalf of the claimant:

“(2) The court may use its power under this rule to exclude evidence that would otherwise be admissible.”

Correspondingly and in terms of form, paragraph 25 of the Practice Direction to CPR r.32 provides at paragraph 1:

“Where:

(1) an affidavit,

(2) a witness statement, or

(3) an exhibit to either an affidavit or a witness statement,

does not comply with Part 32 or this practice direction in relation to its form, the court may refuse to admit it as evidence and may refuse to allow the costs arising from its preparation.” (emphasis added).

This article seeks to explain the basis and general merit of such exclusion applications. and possible and appropriate responses by the landlord respondent.

 

The Issue

A common starting point is the judgment of the (now) Master of the Rolls (then Chancellor) in JD Wetherspoon Plc v Harris and others [2013] EWHC 1088 (Ch); [2013] 1 WLR 3296 where he confirmed that a witness statement should cover only those issues upon which the party serving it wishes that witness to give evidence-in-chief.  That, as a broad statement of principle, is uncontroversial.

He went on to stress that it was not the function of a witness statement:

  • to provide a commentary on the documents in the trial bundle,
  • to set out quotations from such documents,
  • to engage in matters of argument or
  • to deal with other matters merely because they arise in the course of the trial.

And so at paragraph 39 of his judgment he said:

“Mr Goldberger would not be allowed at trial to give oral evidence which merely recites the relevant events, of which he does not have direct knowledge, by reference to documents he has read. Nor would he be permitted at trial to advance arguments and make submissions which might be expected of an advocate rather than a witness of fact. These points are made clear in paragraph 7 of Appendix 9 to the Chancery Guide (7th ed), which is as follows:

“A witness statement should simply cover those issues, but only those issues, on which the party serving the statement wishes that witness to give evidence in chief.  Thus it is not, for example, the function of a witness statement to provide a commentary on the documents in the trial bundle, nor to set out quotations from such documents, nor to engage in matters of argument.  Witness statements should not deal with other matters merely because they may arise in the course of the trial.””

With regard to the reference to the Chancery Guide, which though it has no direct application of course to trials in the County Court accurately records the principles applicable to such cases (save for the procedural aspects referred to in paragraph 19.5), the current version says this about witness statements:

‘19.1  CPR rule 32.4 describes a witness statement as “a written statement signed by a person which contains the evidence which that person would be allowed to give orally”.

19.2  The function of a witness statement is to set out in writing the evidence in chief of the maker of the statement. Accordingly witness statements should, so far as possible, be expressed in the witness’s own words. This guideline applies unless the perception or recollection of the witness of the events in question is not in issue.

19.3  A witness statement should simply cover those issues, but only those issues, on which the party serving the statement wishes that witness to give evidence in chief. It should therefore be confined to facts of which the witness can give evidence. It is not, for example, the function of a witness statement to provide a commentary on the documents in the trial bundle, nor to set out quotations from such documents, nor to engage in matters of argument, expressions of opinion or submissions about the issues, nor to make observations about the evidence of other witnesses. Witness statements should not deal with other matters merely because they may arise in the course of the trial.

19.4  Witness statements should be as concise as the circumstances of the case allow. They should be written in consecutively numbered paragraphs. They should present the evidence in an orderly and readily comprehensible manner. They must be signed by the witness, and contain a statement that he or she believes that the facts stated in his or her witness statement are true. They must indicate which of the statements made are made from the witness’s own knowledge and which are made on information and belief, givingthe source of the information or basis for the belief.

19.5  Inadmissible material should not be included. Irrelevant material should likewise not be included. Any party on whom a witness statement is served who objects to the relevance or admissibility of material contained in a witness statement should notify the other party of their objection within 28 days after service of the witness statement in question and the parties concerned should attempt to resolve the matter as soon as possible. If it is not possible to resolve the matter, the party who objects should make an appropriate application, normally at the pre-trial review (“PTR”), if there is one, or otherwise at trial.”

 

Reference to the Civil Procedure Rules demonstrates that these are just part of the basis for establishing a “proper” witness statement.  And so CPR r. 32.8 simply provides:

“A witness statement must comply with the requirements set out in Practice Direction 32.”

Practice Direction 32 (paragraphs 17 to 25) set out these requirements and in terms of statements’ contents simply and in essence provides that:

  1. The statement must, if practicable, be in the intended witness’ own words (18.1).
  2. It should indicate which of the statements in it are made from the witness’s own knowledge and which are matters of information or belief, and the source for any matters of information or belief (18.2).

 

Purpose of Witness Statements

Any party will at a civil trial seek to prove the necessary facts of their case by:

(a) Witnesses giving oral evidence – see CPR r.32.2(1);

(b) Hearsay Evidence, such as witness statements where the maker does not attend trial to be cross-examined – see the Civil Evidence Act 1995, s. 1 and CPR r. 32.5(5)(b) and r. 33.2 – though there are issues of weight); and/or

(c) Relevant documents – see paragraphs 11.3 to 15.4, and 18.5 of the Practice Direction to CPR r. 32.  Note however the admissibility in any event of agreed documents:

“27.2  All documents contained in bundles which have been agreed for use at a hearing shall be admissible at that hearing as evidence of their contents, unless –

(1) the court orders otherwise; or

(2) a party gives written notice of objection to the admissibility of particular documents.”

Evidence at such a civil trial, including possession claims brought by local housing authorities and private registered providers of social housing, will therefore of course be greatly underpinned by a witness statement from each live witness served in accordance with earlier court directions.  CPR r. 32.4 accordingly says:

“(2) The court will order a party to serve on the other parties any witness statement of the oral evidence which the party serving the statement intends to rely on in relation to any issues of fact to be decided at the trial.”

Additional questions in chief put by a party to its witness maybe allowed by the trial judge – see CPR r. 32.5(3)(4) – but the starting point is that:

32.5(2) Where a witness is called to give oral evidence under paragraph (1), his witness statement shall stand as his evidence in chief unless the court orders otherwise.

The importance, therefore, of the witness statement is obvious and its exclusion, even in part, could fatally, or at least substantially, undermine a party’s case and leave it without evidence of essential facts.

 

Landlord’s response to application

CPR r. 32 and Practice Direction

Civil Evidence Act 1995

There is nothing objectionable to any party insisting upon strict adherence to the court rules and established practices as and when appropriate.

For example, witness statements showing (in part) a remarkable resemblance to skeleton arguments are not uncommon and should be rightly criticised.  I recently acted for the landlord in a residential possession trial (mandatory ground) where the defendant included in his own evidence, and that of others supporting him, irrelevant information on alleged poor management practice by the landlord which had no bearing on his sole defence of proprietary estoppel.

Whether there is subsequently a need or tactical imperative to formally apply to exclude all or part of such evidence, as opposed to making submissions to like effect (as I did in the proprietary estoppel trial), is a moot point however.

One example of where the application route was adopted, in addition to the Wetherspoon case, is Akhtar v Muhammad [2002] EWHC 673 (Ch) where the court held that it was appropriate to allow, in part, an application by the defendant for the exclusion of certain passages contained in the claimant’s witness statement on the basis that they were likely to cause a proliferation of issues at trial.

However, the Master of the Rolls in Wetherspoon went on to “warn” against a too literal approach to the relevant rules and principles:

“41…these rules as to witness statements and their contents are not rigid statutes. It is conceivable that in particular circumstances they may properly be relaxed in order to achieve the Overriding Objective in CPR r.1 of dealing with cases justly”.

Further, it should be borne in mind:

  1. A clear and agreed list of issues (or one set down by the court in the absence of agreement – see CPR r. 3.1(2)(k) and r. 32(1)(a)/32.2(3)), or the limitation of cross examination for the same reasons (CPR r. 32.1(3)), should in many instances effectively sideline any unnecessary and inappropriate information contained in the statement objected to.
  2. Such elements only really have any relevance in so far as they risk derailing the trial timetable and/or prejudicing the fair conduct of the trial.
  3. There can of course be agreement to remove certain parts of a statement or a whole statement (presumably not only where appropriate, but where the factual elements of the claim can still be proved).
  4. Hearsay evidence is, as already noted, admissible in civil trials and therefore a statement recording the evidence relied upon by the claimant is not properly to be treated as just a “commentary on the documents in the trial bundle” but something the claimant wishes to give evidence in chief on (even if hearsay).
  5. Proper regard has to be had to the overriding objective:

“1.1

(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable –

(a) ensuring that the parties are on an equal footing;

(b) saving expense;

(c) dealing with the case in ways which are proportionate –

(i) to the amount of money involved;

(ii) to the importance of the case;

(iii) to the complexity of the issues; and

(iv) to the financial position of each party;

(d) ensuring that it is dealt with expeditiously and fairly;

(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and

(f) enforcing compliance with rules, practice directions and orders.”

Conclusion

It follows that any party considering making an application to exclude evidence, or the court considering the same, has to adopt a pragmatic approach. As Mr Justice Arnold said in Takeda Pharmaceutical Co. Ltd v Fougera Sweden Holding 2 AB [2017] EWHC 1995 (Ch)

“8. Fougera contends that large swathes of all four of these statements are inadmissible in evidence at this trial on one or more of the following grounds: (i) they contain statements of subjective intention in relation to the SPA and/or opinion and/or legal argument, (ii) they concern the negotiation of the SPA, (iii) they concern facts which were only available to one of the contracting parties and (iv) they concern the conduct of the parties after the SPA. Consistently with that contention, counsel for Fougera elected not to cross-examine any of the witnesses.

9. Takeda disputes that any parts of the statements are inadmissible. In order to reduce the ambit of the dispute, Takeda has elected not to rely upon some of paragraphs objected to by Fougera. Nevertheless, Takeda does rely upon a fairly large number of paragraphs in all four statements which are objected to. I do not propose to lengthen this judgment by considering each paragraph and each objection seriatim. I consider that, on the whole, Fougera’s objections are justified. Even if all the evidence relied on by Takeda were admitted, however, I do not consider that it would affect the conclusions which I have reached.”

It is certainly the case that witness statements need to be carefully drafted – they are not skeleton arguments and should only focus on the information the party needs to submit to prove its case (or successfully oppose the claim).  Where that does not involve direct evidence it should be clear how the deponent came by the information and why they are the one providing it.

For a landlord in a sub-letting possession claim therefore, by way of example, one would expect witness evidence – hearsay or otherwise – of:

  • the tenancy agreement;
  • service of the notice;
  • the (other) residence of the defendant (if known);
  • the details (and evidence) of the alleged sub-letting and how it was discovered;
  • the rent and the sub-letting rent for any rent/use and occupation/unlawful profit order claim;
  • compliance with the pre-action protocol;
  • (in a claim with an alternative breach of tenancy basis of possession, details of any relevant factual factors going towards reasonableness and any relevant policies).

Whatever the progress of the “trend” referred to at the beginning of this article, it will still be rare that witness evidence will be excluded, at least to the extent that the claim will be derailed.

 

Witnesses – Credibility and Probative Value

On Friday 3 August 2018 HHJ Simon Barker QC, sitting as a Deputy High Court Judge, handed down judgment in Saeed v Ibrahim [2018] EWHC 1804 (Ch).  The case concerned a claim for declarations, accounts or restitution or damages arising from property and other transactions involving some or all of the various parties.

Whilst the Claimants were ultimately successful, the interest of the case for this article’s purpose is the nature of the oral evidence heard by the court.  It is clear from the judgment that there were, perhaps not unusually serious issues arising from the oral evidence heard at trail.  That clearly had relevance to the case itself but also provides an opportunity to review certain of the issues and factors surrounding the use and selection of witnesses.  For example:

(a) Quality of Witness Statements

It should go without saying but frequently needs to be said that a person needs to understand and approve their statement in considered, clear and logical fashion, if only to avoid the conclusion HHJ Simon Barker QC reached here:

“12.  When giving his oral evidence, D1 spent some time making significant corrections to and clarifications of 10 of the 49 paragraphs of his main witness statement. Mr Ghaffar submitted that in their evidence his clients, that is D1 and D3 for this purpose (D1 purported to give evidence on behalf of D5), did their best to tell the truth but, Mr Ghaffar conceded, there were aspects of their evidence which were unsatisfactory.”

(b) Problems with Oral Evidence

Of course one can never entirely legislate for what a witness will say when called to give their evidence orally but “car crash” performances rarely if ever win the day:

13. …Mr Briggs submitted that D1 was an exceptionally evasive and unsatisfactory witness…D1 was unable to answer questions; other occasions when D1 launched into tangential speeches as answers; various occasions on which he blamed his solicitors for shortcomings (flaws in his witness statement, disclosure shortcomings including in relation to powers of attorney in his sons’ names, and inconsistencies between his pleaded case and his evidence). In addition, during cross-examination D1 admitted that C1 had indeed brought cash in a holdall or bag to his home, admitted the existence of documentation reflecting money transfers through AR to C1, and referred to meetings (initially one, then two, and finally three) with a lawyer about trust deeds. At one point in cross-examination, D1 referred to C1 having brought cash to him at his home “so many times” that he could not say whether or not he had done so on the occasion the subject of the question. From the outset of his oral evidence D1 appeared confident in his answers. He showed no signs of concern or embarrassment when challenged on his probity (e.g. why he failed to make income tax returns when he had annual rental income in the order of £50,000), his lack of concern about the accuracy of conveyancing documents to effect property transfers (e.g. the transfer of 37LR to D3 in October 2005), and when, as not infrequently happened, he was caught out in lies. When giving evidence about his means and access to money (two examples are the use of family members as nominee holders of accounts and the use and whereabouts of an advance inheritance of several hundred thousand pounds said to have been received from his father) D1 was persistently evasive. To describe D1 as an unimpressive witness would fall well short of the mark.”

The Claimant’s counsel had in this context referred to Painter v Hutchinson [2007] EWHC 758 (Ch) to support his attack on the First Defendant’s credibility, in particular paragraph 3 of the judgment of Mr Justice Lewison (as he then was):

“However, in addition to having been convicted of dishonesty in the past, Mr Hutchison was also a very unsatisfactory witness. Even Miss Rich did not suggest that his evidence was reliable. I will give detailed examples later, but for now I summarise my general impression. He was evasive and argumentative. He would launch into tangential speeches when confronted by questions that he could not answer consistently with his case. He attempted to place the most strained readings on the plain words of his pleaded case and his principal witness statement. He was free with allegations that his previous solicitors and counsel had made mistakes in accurately recording his instructions. At times he gave self-contradictory answers within the space of a few minutes of his evidence. New allegations emerged in the course of his cross-examination which had not previously formed part of his pleaded case or his written evidence. It was impossible not to conclude that they had been made up on the spot. In the course of his cross-examination of Mr Hutchison Mr Cowen convincingly demonstrated to my mind that Mr Hutchison’s case had shifted in important respects either in response to evidence given by Mr Painter or in response to documents that had emerged on disclosure. It changed again and again in the witness box itself. His disclosure of documents has been lamentable and highly selective. In my judgment he has deliberately and dishonestly fabricated evidence in order to try to accommodate what was indisputable within the overall framework of his story.”

(c) “Pointless” selection of witness

Sometimes no witness may be better than the one selected.  It is sufficient under this sub-heading to simply set out in full paragraph 17 of the Judgment:

“Mr Javed Qamar (‘JQ’) is a long-standing friend of C1 and, to some extent, a funder of C1 in this case. In closing submissions, Mr Briggs accepted that JQ’s evidence was partisan. I disregard his evidence.”

(d) Passage of time & recollection

Reference was made to the fascinating and apposite remarks of Mr Justice Leggatt (as he then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), albeit with reference to commercial cases:

“15. An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.
 
16. While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people’s memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
 
17. Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called ‘flashbulb’ memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description ‘flashbulb’ memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness’s memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).
 
18. Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
 
19. The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party’s lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.
 
20. Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness’s memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.
 
21. It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.
 
22. In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

Of course a good witness will not always win the day any more than a bad witness will necessarily always lose the case for the party calling them.  Lessons can though be learned and remembered from Saeed, not forgetting the Judge’s ultimate conclusion on the evidence he heard requiring him to acknowledge at paragraph 20 of the Judgment:

“…the actual unreliability of almost everyone who gave oral evidence (the exception being D2, but she had almost no actual involvement or relevant knowledge).”

 

Housing Fraud Training

Monday, 9 July 2018 sees the roll-out, starting in London, of a “Misuse of Social Housing Tenancies” programme, organised by MBL Seminars Ltd and presented by Andy Lane.  There are also courses planned in 2018 for:

  • Bristol – 13 September
  • Leeds – 18 September
  • Cambridge – 17 October

IMG_0538

[Andy presenting an earlier course at Cornerstone Barristers on public law
defences to possession claims]

Recent activity against social housing fraud

The last fortnight has shown no sign of any let-up in the successful efforts of many local housing authorities and housing associations to tackle pro-actively detected incidences of social housing fraud.  Below are just a three examples of this ongoing effort: