Tort of Deceit claim dismissed

Damages for loss in a tort of deceit claim are not an especially common remedy in social housing fraud cases, despite the facts often, prima facie at least, satisfying the necessary requirements (not least in right to buy or grant of tenancy scenarios) and the landlord being caused financial loss by reason of the tenant’s or some other party’s fraudulent misrepresentations.  See Haringey LBC v Hines [2010] EWCA Civ 1111, [2011] HLR 6 for one such (albeit failed) example.

“Cornerstone on Social Housing Fraud” described the necessary requirements for such a claim in deceit and a recent High Court authority has usefully re-stated the relevant principles and may be of interest to those facing fraudulent misrepresentation cases.

On 26 March 2018 Mr Justice Soole dismissed a claim for damages arising from a failed investment of £1.25 million in Oxford Healthcare Solutions Ltd. The claimant alleged that her investments were procured by the fraudulent misrepresentations of the defendant, but the court rejected both her tort of deceit claim, and the alternative damages claim brought on the basis of breaches of warranty and other contractual terms.

But as noted above, the basic law relating to the tort of deceit was helpfully set out at paragraphs 173 to 183 of the Soole J’s judgment in Barley v Muir [2018] EWHC 619 (QB):

  1. A claimant must establish that there was (a) a representation, and (b) that representation was false, and also (c) was dishonestly made, and finally that (d) it was intended to be relied on: AIC Ltd v ITS Testing Services (UK) Ltd [2006] EWCA Civ 1601, [2007] 1 All ER (Comm) 667 at para. 251 per Rix LJ.
  2. The dishonest representation must be clearly identified, distinctly alleged and as distinctly proved: AIC at para. 254, and Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400.
  3. The standard of proof is the civil standard: Re B [2009] 1 AC 11 at para. 13 per Lord Hoffmann.
  4. The representation must be one of fact.  A statement of opinion will not suffice unless the deceit is in the fact that the opinion was not, or not honestly, held or in some further implicit dishonest misrepresentation of fact to be derived from the statement of opinion: AIC at para. 255.
  5. A representation by a professional person in a position where he would be expected to have significantly greater knowledge of the facts represented then did the representee will or may carry an implied representation that the representor or has reasonable grounds for making the statement: Barings plc (in liquidation) v Coopers & Lybrand [2002] EWHC 461 (Ch), [2002] 2 BCLC 410 at paras. 50 to 52.
  6. Whether any and if so what representation has been made has to be ‘judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee’…The reference to the characteristics of the representee is important. The court may regard a sophisticated commercial party who was told that no representations are being made to him quite differently than it would a consumer. In the case of an express statement, ‘the court has to consider what a reasonable person would have understood from the words used in the context in which they were used’… The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them’: Raiffesen Zentralbank Osterreich v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm) at paras. 80 to 82 per Christopher Clarke J.
  7. As to implied representations, the court has to perform a similar task except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context : Raiffeisen at para. 83.
  8. As to falsity, it is not necessary for what was said to be entirely correct, provided it is substantially correct, and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimant to enter into the contract. The claimant must show that the difference between what was represented and the truth would have been likely to induce a reasonable person in its position to enter into the contract: Raiffensen at para. 149.
  9. As to dishonesty, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false” : Derry v. Peek (1889) 14 App Cas 337 at 374; see AIC at para. 256.
  10. As to recklessness, ‘Not caring, in that context, did not mean not taking care, it meant indifference to the truth, the moral obliquity of which consists in a wilful disregard of the importance of truth…’ : Angus v. Clifford [1891] 2 Ch 449 at 471; see also AIC at para. 257.
  11. As to intent, it is possible to be fraudulent even by means of an ambiguous statement, but in such a case it is essential that the representor should have intended the statement to be understood in the sense in which it is understood by the claimant…or should have deliberately used the ambiguity for the purpose of deceiving him and succeeded in doing so: AIC at para.253; see also Goose v. Sandford [2001] Lloyd’s Rep PN 189 at para. 41.
  12. As to inducement/reliance, the misrepresentation need not be the sole or predominant cause of entering the contract. It is sufficient if it is one of the inducing causes : Ross River v. Cambridge City Football Club [2007] EWHC 2115 (Ch) at [200].

In Barley, as indicated above, the claim in deceit was on the facts dismissed

“196. In my judgment this claim is quite untenable

First, there is no suggestion nor any basis to conclude that any of the statements referred to was untrue. On the contrary, as the evidence shows and I accept, they were honest and truthful accounts of the business opportunities which OHS was exploring.

Secondly, the matters to which they related were each no more and no less than ‘business opportunities’ which OHS was duly pursuing. Such opportunities would only have ‘value’ in the event that they developed into a commercial relationship.

Thirdly, and in consequence, there is nothing in the identified texts and information to give rise to the alleged implication that OHS was ‘an active company engaged in revenue generating and/or valuable business’ (POC para.22). On the contrary, the only implication was that OHS was actively pursuing a range of business opportunities in the hope that one or more of these might result in valuable business and the generation of revenue. This includes the Quest e-mail of 10 October 2011 which contained no misleading inference.

Fourthly, Mr/Mrs Barley knew long before October 2012 that the Lloyds and Quest joint ventures had failed.

Fifthly, and in consequence, I do not accept that Mrs Barley’s further investment was induced by any representation from Mr Muir. In this respect I also do not accept Ms den Besten’s further or alternative argument that the second investment was induced by the matters relied on as Initial Misrepresentations. This follows from my earlier findings. The statements made by Mr Muir in September 2011 did not influence her decision to exercise the option to make a further investment.”

“Succession” and pre-May 11 2000 tenancies

Introduction

I recently completed a trial in which I was acting for a private registered provider of social housing in a possession claim brought following the death of the tenant.  The second defendant (eventually) accepted he had no statutory succession rights but wanted to rely on a term of the tenancy agreement which effectively committed the landlord to the grant of a tenancy of that (or some other) property to a family member who had been living at the property with the tenant at the time of the latter’s death and for the 12 months immediately preceding that time.

Lack of Evidence

This blog has talked previously about the issues surrounding lack of evidence in cases where there is not a credible reason for the same.  Here, despite claiming to have moved into the property with his brother and lived there ever since, the second defendant produced no clear documentary of his residence there during the relevant 12-month period, limited documentary evidence of residence there at all since the start of the tenancy and no witnesses save for family members in support of his position.

The trial judge concluded therefore that though she was prepared to accepted there was the necessary familial relationship (half brothers), she made a finding that the second defendant did not reside at the property during the required 12-month period.

Underlying legal problem

That was enough of course to defeat the defence and enable the making of a possession order.

This article does not however focus on the evidential deficiencies referred to above but rather the question of enforceability of the tenancy agreement’s extension of “succession” rights (strictly speaking it was rather a commitment to grant a fresh tenancy in defined circumstances) had the pre-conditions been satisfied.

The real objection to allowing such a grant of a new tenancy were largely factual on the part of the landlord – i.e. it wasn’t entirely clear that the second defendant was sufficiently related to the tenant and, in any event, he had not provided satisfactory evidence to meet the residence requirement – but as a means of protecting its position there was, legally, an even greater obstacle facing the second defendant.

In short, even if he otherwise satisfied the conditions for a grant of a fresh tenancy how could he enforce the term in a contract (i.e. the tenancy agreement) to which he was not a party?

Privity and Enforceability of Tenancy Agreement

Even a student of law more concerned with getting an improvement on his best 9-ball break in snooker than his studies (I was young), and opting for a cursory glance at ‘Nutshells on Contract Law’, would appreciate that the second defendant was lacking one of the essential legal requirements for the enforceability of a contractual term.  The need for “privity of contract”.  He was not a party to it and so, ostensibly, could not enforce it.

That may seem unfair, or at least unfortunate, where a contract or part of it had the express purpose of conferring a benefit on a third party.  That third party however could not without more, at common law at least, sue for breach of contract or press for specific performance of the relevant term.

Contracts (Rights of Third Parties) Act 1999 (“the Act”)

That “without more” is clearly the Act.

Acting upon the recommendations, with some amendments, of the Law Commission in its Report on Privity of Contract: Contracts for the Benefit of Third Parties, Law Com No 242 (1996), the Act was passed and received Royal Assent on 11 November 1999.

To cite from it’s explanatory notes:

“4. The Act sets out the circumstances in which a third party is to have a right to enforce a term of the contract (section 1), the situations in which such a term may be varied or rescinded (section 2) and the defences available to the promisor when the third party seeks to enforce the term (section 3). It makes it clear that section 1 does not affect the promisee’s rights, or any rights that the third party may have which are independent of the Act (sections 4  and 7(1)). The Act does not apply to certain contracts (whether wholly or partially) (section 6).”

This would seem ideal to assist the second defendant in seeking to enforce his brother’s tenancy agreement if required, section 1 being very clear that:

“(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.” (emphasis added)

However, the problem for him would have arisen from the provisions of section 10 of the Act:

“(2) This Act comes into force on the day on which it is passed but, subject to subsection (3), does not apply in relation to a contract entered into before the end of the period of six months beginning with that day.” (emphasis added)

Application of the Act

In the case I was dealing with the assured tenancy post-stock transfer had commenced in the summer of 1999, before 11 May 2000 (and indeed before the passing of the Act).  It followed that the term providing for the grant of a fresh tenancy would not have been enforceable, at least under the Act, by the second defendant.

Public Law & estoppel

That is not to say that in the right case and on the right facts there might not be any public law argument available to defeat the possession claim, not least legitimate expectation of course, but that broadly would depend upon there being some sort of clear representation being made to the would-be “successor” as to their rights post-tenant’s death and the treatment of them by the landlord.

There may equally on the facts, which were not present here, be an estoppel argument such as was found in Daejan Properties Ltd v Mahoney (1996) 28 HLR 498 and allowed the defendant to defeat the possession claim and be treated as a successor even though that, in law, was not possible.

Succession

Amendments to the succession provisions of both the Housing Act 1985 (section 86A (England) – secure tenancies) and Housing Act 1988 (section 17 – assured tenancies) brought in by sections 160 and 161 of the Localism Act 2011 respectively could conceivably help such third parties as they allow, in the right circumstances, for clauses in tenancy agreements extending succession rights beyond spouses and civil partners to be treated as a statutory succession.

In fact had the deceased tenant enjoyed a secure tenancy then, given that it was a pre-1 April 2012 tenancy,  his brother would been entitled to a statutory succession if the family and residence requirements had been satisfied.

However, the Localism Act changes only apply to those tenancies granted on or after 1 April 2012: sections 160(6) and 161(7) of the 2011 Act.  There is a provision at section 120 and Schedule 8 to the Housing & Planning Act 2016 to remove that restriction in so far as it concerns secure, introductory and demoted tenancies but this has, to date, not been brought into force.

This is why the second defendant had to accept there could be no statutory succession.

Conclusion

It perhaps goes without saying that it would, to use my words at trial, an “unattractive” argument to rely on a lack of legal enforceability to defeat an otherwise valid claim to specific performance of a tenancy agreement but:

(a) It does give the landlord some added flexibility if, for reasons unconnected with the “succession” provision, it does not wish to allow the third party to remain in the property as a tenant (e.g. under-occupation, behaviour, changed policies since insertion of term, etc).

(b) It may assist a costs argument.

This claim demonstrated not only the importance of evidence, and the importance of relevant arguments as to its unexplained absence, but also the need for a proper understanding of the law in this area in order to hone a party’s statement of case accordingly.

[There were also Ground 7 issues which, I am sure, will form the basis of a later post]

 

Proving fraud – the basic principles

The recent judgment of Kazakhstan Kagazy Plc & 5 Others (Claimants) v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva (Defendants) & Harbour Fund III LLP (Additional Party) [2018] EWHC 369 (Comm) handed down on 28 February 2018 dealt with consequential orders following the court’s earlier substantive judgment in this fraud claim – [2017] EWHC 3374 (Comm) – given by Mr Justice Picken on 22 December 2017.

Paragraphs 155 to 165 of that earlier liability judgment helpfully set out the basic and established principles relevant to proving fraud:

  1. Fraud has to be both clearly alleged and proved: Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at p. 407 per Millett LJ (as he then was).
  2. The court should not have to rely on inferences from facts not pleaded: Elena Baturina v Alexander Chistyakov [2017] EWHC 1049 (Comm).
  3. Nor will it find fraud from facts which have been pleaded but are consistent with honesty: Three Rivers District Council v Bank of England (No 3) [2001] 2 All ER 513 per Lord Millett at para. 186.
  4. It is however perfectly legitimate for the Court to proceed by way of inference from circumstantial evidence: JSC BTA Bank v Ablyazov [2012] EWCA Civ 1411 at para. 52 per Rix LJ.
  5. Although fraud need only be proved to the civil standard of probability, in practice more convincing evidence will often be required to establish fraud than other types of allegation (see Clerk & Lindsell on Torts, 21st Ed., paragraph 18-04):

    “When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that 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 usually less likely than negligence …”

    [In re H (Minors) [1996] AC 563 at pp. 586-7 per Lord Nicholls]

    “The burden of proof lies on the [Claimants] to establish their case. They must persuade me that it is more probable than not that [the Defendants] made fraudulent misrepresentations. Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent improbabilities must be assessed in the light of the actual circumstances of the case …”.

    [Foodco UK LLP v Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at para. 3 per Lewison J (as he then was)]

 

These cases provide a useful reminder of the importance of careful and clear pleading, and proper consideration of the evidence available and its proper and most appropriate conclusion.

 

Recent examples of sub-letting action

Tendring District Council

Amnesty and Audit Policies produce savings of more than £50,000 – 5 properties discovered abandoned or sub-let:

https://www.tendringdc.gov.uk/council/news-pr/news-listing/check-council-tenants-results-more-£50000-savings-so-far-key-amnesty

http://www.clactonandfrintongazette.co.uk/news/clacton_frinton_news/16071054.Major_fraud_crackdown_in_Tendring_saves___50k/

Haringey London Borough Council

Proposing to review levels of under-occupation in its housing stock, and root out tenancy fraud and sub-letting to help reduce homelessness in the borough:

http://www.enfieldindependent.co.uk/news/16089068.council-pledges-to-do-more-for-boroughs-homeless/

Barnet London Borough Council

12 month sentence for tenant who had never moved into allocated property and had rather sub-let to a family member:

http://www.hamhigh.co.uk/news/crime-court/housing-officer-julie-miah-jailed-for-subletting-east-finchley-council-house-1-5409454

https://www.barnet.gov.uk/citizen-home/news/Tenancy-fraudster-jailed.html

 

 

 

Reliance on other party’s statements

We recently reported on the authority of UK Insurance Ltd v Stuart John Gentry [2018] EWHC 37 (QB)  dealing with the issue of what adverse inferences could be drawn from the absence of (what might be seen as) material witnesses.

The Court of Appeal had cause to consider an adjunct to this question earlier this month when they handed down judgment in Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2018] EWCA Civ 355.  The facts of the case are not important to this article but the comments towards the end of the Court of Appeal’s judgment on whether a party can rely on a statement served by the other side where that witness has not been called to give evidence are.

Before addressing that it is fair to note that the Court of Appeal did, albeit briefly, comment on the absence of material witnesses when it said:

  1. No litigant is obliged to call witnesses to satisfy the curiosity or enthusiasm of his opponent. It was always open to PAG to subpoena any witness it thought would be helpful to the Court. The fact that a party who might be expected to produce witnesses does not do so may sometimes speak volumes but it is a matter for the Judge to decide whether it does so in a particular case. The critical question in the present case was whether manipulation of GBP LIBOR had taken place. The critical witness for that purpose was Mr Thomasson. If he was believed, there was nothing relevant for senior management to know; if he was not, RBS’s case collapsed anyway. The Judge did say (paragraph 461) that RBS’s decision not to call Mr Cummins (and a Mr Nielsen) in connection with the allegations of lowballing did not reflect well on RBS and repeated this in her decision on whether RBS had been fraudulent (paragraph 485). She was well aware of Mr Lord’s case (paragraph 479) but in the end was not prepared to draw an adverse inference. We do not think the Judge can be criticised.

Turning back to the potential reliance on the witness statements of those not called to give evidence, the Civil Procedure Rules seemingly makes the position clear at 32.5(5):

“(1) If –

(a) a party has served a witness statement; and

(b) he wishes to rely at trial on the evidence of the witness who made the statement,

he must call the witness to give oral evidence unless the court orders otherwise or he puts the statement in as hearsay evidence.

(5) If a party who has served a witness statement does not–

(a) call the witness to give evidence at trial; or

(b) put the witness statement in as hearsay evidence, any other party may put the witness statement in as hearsay evidence.”

The Court considered previous authority on this point, in particular McPhilemy v Times Newspapers Ltd (No. 2) [2000] 1 WLR 1732, and in an admirably clear pronouncement concluded:

  1. In our view, CPR 32.5 is not applicable where a party wishes to put in only part of a witness statement. The rule itself refers to “the witness statement” being admitted, not merely some of it. Further, it makes sense that a party wanting to rely on something said in a statement should have to place all of the statement before the Court. A Court asked to attach significance to a passage from a statement should have before it the totality of what the witness said. There would otherwise, as the Judge noted in paragraph 296 of her judgment, be “real concern that cherry picking out of context would arise”. It would, moreover, be odd if a party were free to contend for the reliability of what the witness said in a particular passage while withholding the balance of the statement because he disputed it. That, in fact, would seem to have been the position in the present case had the Judge acceded to PAG’s application. PAG, we gather, was unwilling to put in Mr Sefton’s witness statement in its entirety because most of what he said was adverse to its case. It follows that, in our view, the Judge was correct to refuse PAG’s application.

It may be that in housing fraud trials less attention is paid to the content of trial bundles in the context of those witnesses not being called, and certainly proper legal analysis of the status of such evidence is rarely entered into, but this case highlights both the basic rules applicable and their proper application and may prove significant in the “right” case.

Allocation conviction under section 171 of the Housing Act 1996

On 12 February 2018 South Oxfordshire District Council reported on a successful prosecution of a tenant under section 171 of the Housing Act 1996:

171.— False statements and withholding information.

(1) A person commits an offence if, in connection with the exercise by a local housing authority of their functions under this Part—

(a) he knowingly or recklessly makes a statement which is false in a material particular, or

(b) he knowingly withholds information which the authority have reasonably required him to give in connection with the exercise of those functions.

(2) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 5 on the standard scale.

The tenant had failed to disclose, when applying to go on the Council’s housing register, that she in fact owned a property (which she was letting out).  She had been living in the allocated property for a number of years by the time of the conviction, and the authority had been alerted to the situation by means of an anonymous tip-off.

This was the first conviction for housing fraud by the Council and appears to have relied on the effective follow-on investigative work of not only themselves and the landlord (SOHA Housing), but also Oxford City Council’s Investigation Team.

As well as the £1530 financial orders handed out to the tenant by the Magistrates’ Court in Oxford the tenant apparently, and perhaps unsurprisingly, now faces possession proceedings, presumably under Ground 17 of Schedule 2 to the Housing Act 1988:

Ground 17

The tenant is the person, or one of the persons, to whom the tenancy was granted and the landlord was induced to grant the tenancy by a false statement made knowingly or recklessly by—

(a) the tenant, or

(b) a person acting at the tenant’s instigation.

 

where the real issue will no doubt be not, following the conviction, be whether Ground 5 is satisfied but rather whether it is reasonable in all the circumstances to make a possession order.
The usual authorities of Shrewsbury & Atcham BC v Evans (1997) 30 HLR 123, CA and Lewisham LBC v Akinsola and Adeyemi (2000) 32 HLR 414, CA will no doubt be considered by the court, and though a possession order is by nature of the ground being discretionary no means guaranteed – see for example Southwark LBC v Erekin [2003] EWHC 1765 – it is also worth noting the recent remarks of Mr Justice Turner in Poplar Housing & Regeneration Community Association Ltd v Begum [2017] EWHC 2040 (QB); [2017] HLR 42 (a sub-letting of part/only or principal home/drug activity possession case):
“40…I would stress that it is not compassionate to allow profiteering fraudsters indefinitely to continue to occupy premises and thereby exclude from such accommodation more needy and deserving families.”

Unlawful Profit Orders in action

Absence of material witnesses

In December 2017 the High Court had cause to consider a claim by an insurance company for damages based on the assertion that the Defendant had fraudulently represented to them that his car had been in collision with another vehicle driven by  someone who they insured. Mr Justice Teare handed down judgment in UK Insurance Ltd v Stuart John Gentry [2018] EWHC 37 (QB)  on 18 January 2018 and awarded the Claimant damages of £19,179 in addition to interest and costs.

One of the most interesting aspects of the judgment was a reminder of the court’s approach to “missing” witnesses, and at paragraph 68 the Judge noted:

“Mr. Grant on behalf of the Claimant invited the Court to draw adverse inferences from the failure of Mr. Gentry to give evidence (or to call evidence from Mr. Miller, Mr. Ebbs, and Mr. Toms). The circumstances in which inferences may be drawn have been summarised by the Court of Appeal in Wisnewski v Central Manchester Health Authority [1998] PIQR P324 at p.14 in these terms:
“(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.””

To give one example of how this might operate in a housing context, consider a possession claim where the landlord seeks to show that the tenant did not live at the demised premises as their only or principal home at the expiry of a notice to quit.  They have credit reference evidence linking the tenant to an alternative address which proves to be their partner’s.  The tenant does not call this person to give evidence, or they do not attend trial.

The two-stage approach will then be:

(a) why has the partner not been called or not attended trial?

(b) if there is no good reason, should the court draw an adverse inference such as to diminish the defendant’s evidence or bolster that of the claimant?

Finally, as part of the evidential overview, the importance of the Court of Appeal decisions in Lambeth LBC v Vandra [2005] 1801 (see paragraph 8 concerning the absence of direct evidence) and Islington LBC v Boyle [2012] PTSR 1093 (see paragraphs 55 & 65 with respect to the need for the tenant to rebut an inference in two homes cases) should not be overlooked.

 

Cornerstone Barristers launch blog

On 15 February 2018 Cornerstone Barristers formally launched this social housing fraud blog…we are looking forward to hearing from contributions and ideas from across the sector.