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.

Official Book Launch held

On Monday, 5 February 2018 Cornerstone Barristers hosted the official book launch for “Cornerstone on Social Housing Fraud”. Katrina Robinson MBE, Chair of the Tenancy Fraud Forum, opened the event and spoke of the need for greater understanding of the impact of social housing fraud, and the need to take effective action against it.

She was followed by the author of the book, Andy Lane, who had a lot of people to thank!

The event was well attended by barristers, solicitors, housing officers and Andy’s family.

The book is available from Bloomsbury Professional:

https://www.bloomsburyprofessional.com/uk/cornerstone-on-social-housing-fraud-9781526502032/