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||Neutral Citation Number:  EWHC 3116 (Ch)
||Case No: BL-2018-000670
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch)
||Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
B e f o r e :
MR JUSTICE MORGAN
|| DAVID HUGH CARR
ANDREW ALEXANDER COLE
JOHN CHARLES KEYWORTH CURTIS
ROBERT JAMES ELLIOTT
NEIL SHAKA HISLOP
JOHN STEPHEN HUGHES
DENIS JOSEPH IRWIN
DANIEL BEN MURPHY
IAN ANTHONY PEARCE
ROBERT WILLIAM SAVAGE
JONATHAN CRAIG SHORT
JAMES ANTHONY SMITH
||- and -
||FORMATION GROUP PLC
FORMATION ASSET MANAGEMENT LIMITED (in Liquidation)
KEVIN PATRICK MCMENAMIN
GEORGE STUART URQUHART
Mark Vinall (instructed by Peters & Peters Solicitors LLP) for the Claimants
James Hall (instructed by Moore Blatch LLP) for the First Defendant
Giles Maynard-Connor (instructed by Aticus Law Solicitors) for the Second Defendant
Adam Deacock (instructed by Harrison Clark Rickerbys Limited) for the Third Defendant
Shail Patel (instructed by Beale & Company Solicitors LLP) for the Fourth and Fifth Defendants
Andrew Grantham (instructed by FS Legal Solicitors LLP) for the Seventh Defendant
Hearing date: 9th November 2018
HTML VERSION OF JUDGMENT
Crown Copyright ©
MR JUSTICE MORGAN:
- On 9 November 2018, at a case management conference, I considered a number of procedural matters which arose in this case. One such matter was an application by the Fourth, Fifth and Seventh Defendants for permission to call expert evidence in relation to certain issues in the case. This request was opposed by the Claimants.
- Although I will need to refer to the pleadings in more detail later in this judgment, I will at this stage give a brief summary of what is alleged in this case by the Claimants. There are seventeen Claimants. Sixteen of them were professional footballers and one (Mr Carr) was a financial adviser.
- The Claimants engaged the services of sports agents (or possibly other agents). The principal sports agent was ProActive Sports Management Ltd ("ProActive"). The Seventh Defendant, Mr Urquhart, traded as a sports agent on his own account until 2004 or 2005 at which point he became employed by ProActive. The Claimants asked their agents to recommend a financial adviser to assist those Claimants with advice as to possible investments. The agents put the relevant Claimants in touch with Formation Asset Management Ltd ("Formation AM") which then gave those Claimants financial advice resulting in the Claimants making a number of investments. The parties in which the Claimants invested paid a commission to Formation AM. The payment of this commission was disclosed to the Claimants and there is no complaint about that. Formation AM then shared this commission with the Claimants' agents, including ProActive. The Claimants say that this sharing of the commission was not disclosed to them.
- The Claimants say that the payment of a share of the commission by Formation AM to ProActive and others involved unlawful conduct by Formation AM. The Claimants also say that where ProActive and Mr Urquhart were involved, the payment of commission to them involved unlawful conduct by them. Formation AM is insolvent and ProActive has been dissolved. The Claimants have joined Formation AM as a party to these proceedings for the purpose of obtaining disclosure from it but there is no expectation of any recovery from Formation AM. These proceedings are brought against various other defendants who are said to have been involved in the unlawful conduct so as to become liable to the Claimants.
- The justification for an expert witness was described in the Fourth and Fifth Defendants' Directions Questionnaire in these terms:
"The Claimants plead dishonesty. The expert evidence will go to the market practice and regulatory requirements relating to the disclosure of shared commission and therefore to the key element of whether or not the Defendants acted with any dishonest intent."
- I now need to refer to the pleaded cases in more detail but only so far as relevant to the present issue.
- The Claimants or some of them allege that ProActive and Mr Urquhart (and other agents who have not been sued) owed them fiduciary duties when acting as agents for the Claimants. In relation to Mr Urquhart, it is said that he owed personal fiduciary duties both before he joined ProActive and also when he was an employee of ProActive. The relevant fiduciary duties included a duty of loyalty, a duty to avoid a conflict of interest and a duty not to make a profit out of the fiduciary position. It is then alleged that ProActive and Mr Urquhart broke those fiduciary duties by agreeing to accept commission from Formation AM, by introducing the Claimants to Formation AM and then by actually receiving commission from Formation AM in relation to the introductions. It is then alleged that a recipient of commission (i.e. ProActive at all times and Mr Urquhart up to 2004 or 2005) is liable for the tort of deceit. It is further alleged that Mr Urquhart, in so far as he did not receive commission personally, is liable as a joint tortfeasor together with ProActive. Finally, in relation to Mr Urquhart, it is said that he dishonestly assisted ProActive to commit a breach of its fiduciary duty.
- The Claimants allege that Formation AM is liable in the tort of deceit for paying commissions to ProActive and others when it knew that the recipients were agents for the Claimants, without disclosing to the Claimants the payment of commission. It is pleaded that Formation AM had "a systematic practice" of paying commission in this way. As regards the Second, Fourth and Fifth Defendants, it is alleged that they are liable to the Claimants as joint tortfeasors with Formation AM and as parties to a conspiracy to use unlawful means. The Particulars of Claim do not spell out the unlawful means which are alleged but it would seem that the allegation is that the unlawful means were the commission of a tort by Formation AM. Finally, as regards the Second, Fourth and Fifth Defendants, it is alleged that they are liable for dishonestly assisting the payment of commission to the Claimants' fiduciary agents without disclosing such payments to the Claimants. In this part of the pleading, it is alleged that what these Defendants did was "contrary to normally acceptable standards of honest conduct".
- The First Defendant, Formation Group Ltd ("Group"), was the parent company of both Formation AM (from 2003) and ProActive (from 2001). It is pleaded that Group received dividends from ProActive knowing that they represented the proceeds of commissions paid by Formation AM so that Group is liable in equity for receipt of those dividends derived from such commissions. It is also alleged that Group is liable as a joint tortfeasor, for unlawful means conspiracy and for dishonest assistance of a breach of fiduciary duty.
- I will next refer to the Defences served by the Fourth, Fifth and Seventh Defendants. I will start with the Defence of the Seventh Defendant. He made no admissions as to the pleaded allegation that Formation AM had a systematic practice of paying commission to others such as ProActive, although it was pleaded that it did so on occasion. It was alleged that such payments were actually disclosed to the Claimants by various documents issued by Formation AM. In relation to one of the Claimants, Mr Savage, it was alleged that Mr Savage had actual knowledge of the fact that Formation AM paid commission to someone in the position of Mr Urquhart and an exchange between Mr Savage and the Fourth Defendant in 2006 was relied upon. Mr Urquhart also alleged that the Fourth Defendant told him that the Fourth Defendant disclosed all commissions paid to the Fourth Defendant and others arising out of transactions undertaken on behalf of clients of Formation AM. Mr Urquhart denied liability to the Claimants in relation to the various ways in which liability was pleaded against him. He contended that the receipt by a fiduciary of an undisclosed commission would constitute the tort of fraud and not the tort of deceit. Finally, he relied on limitation and contended that all of the claims had a limitation period of six years from the date of the relevant payment and the six year period had expired before the issue of proceedings.
- The Fourth and Fifth Defendants served a joint Defence. In response to the Claimants' allegation that Formation AM had a systematic practice of paying commission to introducers, it was pleaded that it was an accepted (but not invariable) practice in the financial advisory industry prior to around 2007 to pay to an introducer part of a commission received from a product provider. It was said that disclosure of such payments was not mandatory until 2007. It was also pleaded that some investors were aware of this practice although out of the Claimants only Mr Savage was identified as being so aware. It was also alleged that the payment of commission to introducers had been disclosed to the Claimants so that it was fanciful to suggest that the Fourth and Fifth Defendants had been dishonest or had been involved in a conspiracy. They denied liability to the Claimants in relation to the various ways in which liability was asserted against them. They contended that the payment of an undisclosed commission to a fiduciary was the tort of bribery and not the tort of deceit. Finally, they relied on limitation and contended that all of the claims had a limitation period of six years from the date of the relevant payment and the six year period had expired before the issue of proceedings.
- The Claimants served a combined Reply to all of the Defences. In relation to the Defendants' pleas of limitation, the Claimants contended that each cause of action was based upon the fraud of the relevant Defendant within section 32(1)(a) of the Limitation Act 1980 and, further or alternatively, each cause of action involved the deliberate commission of breach of duty in circumstances where it was unlikely to be discovered for some time within section 32(2) of that Act. It was then pleaded that the date of discovery of the relevant facts by the Claimants meant that the claims were not statute barred.
- Some of the parties have served lengthy Responses to Requests for Information in relation to their pleadings but I was not taken to those Responses and it was not suggested that their contents were relevant to the submissions which were made.
- The submissions in favour of the court granting permission for expert evidence was presented by Mr Patel for the Fourth and Fifth Defendants with supporting submissions made by Mr Grantham for the Seventh Defendant. Mr Vinall for the Claimants made submissions in opposition to the application for permission to adduce expert evidence.
- Mr Patel submitted that the proposed expert evidence went to the issues as to dishonest assistance of a breach of fiduciary duty, unlawful means conspiracy, deliberate concealment and the allegation of joint liability for the tort of fraud/deceit/bribery. He said that the court would have to assess the state of mind of the Fourth and Fifth Defendants in relation to what they believed was normal and reasonable market practice. He added that the relevant events took place over a decade ago in a regulatory climate which differed from the present regulatory position so that evidence as to the former regulatory climate would be helpful to the court in assessing their state of mind. Mr Patel addressed me on the decision of the Court of Appeal, Criminal Division, in R v Hayes  1 Cr App R 10, which was relied upon by the Claimants when resisting his application. He submitted that that case was distinguishable in that the issues in the present case were not restricted to the issue of objective dishonesty but required the court to assess whether the Fourth and Fifth Defendants knew that they were committing a wrong and whether they intended to cause harm by unlawful means. It was submitted that the Fourth and Fifth Defendants could not be dishonest where the allegedly concealed matters were openly disclosed. Although the Claimants contended that the relevant matters were not sufficiently disclosed, it would be relevant to judge the conduct of the Fourth and Fifth Defendants by reference to what was understood to be required in the relevant industry at the time.
- Mr Grantham submitted that the proposed expert evidence was relevant to dishonesty and to the Claimants' reply to the plea of limitation. It was submitted that, if the way in which the Seventh Defendant acted was consistent with the then current market practice and was considered reasonable and normal, that would be relevant to the allegation of deliberate wrongdoing.
- Mr Vinall submitted that the test for dishonesty was an objective one and the objective standard for the assessment of a defendant's honesty was determined by the court and not by market practice. He submitted that the present case, in relation to dishonesty, was governed by R v Hayes. As to conspiracy to injure, he submitted that the suggested expert evidence was not admissible. As to the allegation of deliberate commission of a breach of duty, that only arose if the Claimants had not established fraud for the purposes of section 32(1)(a) of the Limitation Act 1980. It followed that the court would only need to consider deliberate commission of a breach of duty if it had previously held that the case was not one of fraud within section 32(1)(a).
- Before considering these submissions, I wish to refer to some of the matters decided in Secretary of State for Justice v Topland Group plc  EWHC 983 (QB). In that case, there was an allegation of a breach of fiduciary duty and the tort of fraud or bribery arising from an allegedly undisclosed payment of commission to a fiduciary. It was pleaded by a defendant that the existence of a relevant market practice meant that the court should find that the claimant knew of that practice. It was also pleaded that, as a result of the relevant market practice, the relevant defendant believed that the claimant in that case knew of the commission and this belief, even if it turned out to be incorrect, was an honest belief. These allegations were not struck out and it was held that the alleged market practice was potentially relevant to whether the claimant knew of the commission and also whether the defendant honestly believed that the claimant knew of the commission. The Fourth, Fifth and Seventh Defendants did not seek to rely upon the decision in Secretary of State for Justice. They did not submit that the alleged market practice in the present case was potentially relevant in the same way as it was considered to be relevant in the Secretary of State for Justice case. In any event, I have looked carefully at the pleadings of the Fourth, Fifth and Seventh Defendants and I find that these Defendants do not plead that the Claimants knew of the payments of commission as a result of the Claimants' alleged knowledge of the alleged market practice. Nor is it alleged that these Defendants believed that the Claimants knew of the payments of commission as a result of the alleged market practice.
- I turn then to consider the question whether evidence of the alleged market practice would be relevant to the allegation that certain defendants dishonestly assisted a breach of fiduciary duty (or to any other allegation of dishonesty). It is argued that the court would be assisted in assessing the honesty of a defendant by being informed about the behaviour of the market in the relevant industry at the time and about the regulatory position at that time. I can deal with the regulatory position first. I consider that it is not necessary to have an expert to give opinion evidence about the regulatory position. If the regulatory position is relevant, then that can be established at the trial by adducing the relevant documentary material. If there is a dispute about the regulatory position, then it is likely to be as to the interpretation of that material. It may or may not be relevant to consider whether there were different interpretations of that material and, if so, the parties can make legal submissions as to the correct interpretation. However, none of those possibilities makes it appropriate to have expert evidence as to that material.
- I will next deal with the possible relevance of the suggested market practice to the issue of dishonesty. It is clear that the standard for honesty in relation to the matters complained of is an objective standard. The test for dishonesty in relation to liability for dishonestly assisting a breach of trust was discussed in detail by the Privy Council in Royal Brunei Airlines v Tan  2 AC 378 and Barlow Clowes International Ltd v Eurotrust International Ltd  1 WLR 1476. Those cases were considered by the Supreme Court in Ivey v Genting Casinos (UK) Ltd  AC 391 where it was said at  and :
"62 Dishonesty is by no means confined to the criminal law. Civil actions may also frequently raise the question whether an action was honest or dishonest. The liability of an accessory to a breach of trust is, for example, not strict, as the liability of the trustee is, but (absent an exoneration clause) is fault-based. Negligence is not sufficient. Nothing less than dishonest assistance will suffice. Successive cases at the highest level have decided that the test of dishonesty is objective. After some hesitation in Twinsectra Ltd v Yardley  2 AC 164, the law is settled on the objective test set out by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378: see Barlow Clowes International Ltd v Eurotrust International Ltd  1 WLR 1476, Abou-Rahmah v Abacha  Bus LR 220 and Starglade Properties Ltd v Nash  Lloyd's Rep FC 102. The test now clearly established was explained thus in the Barlow Clowes case  1 WLR 1476 , para 10 by Lord Hoffmann, who had been a party also to the Twinsectra case:
"Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree."
"74 … The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan  2 AC 378 and by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd  1 WLR 1476, para 10: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest."
- The decision of the Court of Appeal (Criminal Division) in R v Hayes is highly relevant to the application in the present case for permission to adduce expert evidence in relation to dishonesty. That case concerned a criminal prosecution involving an allegation of dishonesty in the financial markets. The decision was before the review of the law in Ivey v Genting Casinos (UK) Ltd and therefore at a time when the law was taken from the earlier decision in R v Ghosh  QB 1053. That earlier decision had laid down a requirement as to dishonesty in the criminal law whereby the relevant conduct had to fall below an objective standard (equivalent to the objective standard referred to above) and it also had to be shown that the defendant subjectively appreciated that his conduct fell below that objective standard. Following the decision in Ivey v Genting Casinos (UK) Ltd, it is now clear that in the criminal law an allegation of dishonesty is to be judged by applying the objective standard and there is no need for an inquiry into the defendant's appreciation of whether his conduct fell below that objective standard.
- In R v Hayes, it was held the defendant could adduce evidence of market behaviour in relation to the inquiry as to his appreciation of whether his conduct fell below the objective standard but, importantly for present purposes, it was conversely held that such evidence was not admissible in relation to the objective standard as to dishonesty. The Court of Appeal considered the decision in Royal Brunei Airlines v Tan  2 AC 378 and ruled that the evidence of market practice was irrelevant to the identification of, and the application of, the objective standard. At , the court held:
"32 Not only is there is no authority for the proposition that objective standards of honesty are to be set by a market, but such a principle would gravely affect the proper conduct of business. The history of the markets have shown that, from time to time, markets adopt patterns of behaviour which are dishonest by the standards of honest and reasonable people; in such cases, the market has simply abandoned ordinary standards of honesty. Each of the members of this court has seen such cases and the damage caused when a market determines its own standards of honesty in this way. Therefore to depart from the view that standards of honesty are determined by the standards of ordinary reasonable and honest people is not only unsupported by authority, but would undermine the maintenance of ordinary standards of honesty and integrity that are essential to the conduct of business and markets."
- The views expressed in paragraph  of R v Hayes are not novel and ought not to be surprising. Similar comments have been made in the past which have recognised that market practices may be dishonest and it is the duty of the court to express and enforce its view as to the proper standard. As it happens, there are examples of these comments having been made in relation to cases where fiduciaries have received secret commissions. The cause of action in such a case is for breach of fiduciary duty and dishonesty is not a necessary ingredient of that cause of action. Nonetheless, in some such cases, the court has commented on the honesty of such behaviour and has made it clear that it is the court, rather than market practice, which sets the standard of honesty. I will not set out the comments at length but they are conveniently collected in Imageview Management v Jack  1 BCLC 724, quoting from Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 per Cotton LJ at 357, per Bowen LJ at 362, per Fry LJ at 368-369, from Rhodes v Macalister (1924) 29 Com Cas 19 per Bankes LJ at 20, per Scrutton LJ at 25 and 28 and per Atkin LJ at 29.
- It would seem to follow from the above that the suggested expert evidence as to market practice is not admissible in relation to any argument as to the appropriate objective standard as to honesty, which is assessed by reference to the standards of honest and reasonable people and determined by the court, nor is it admissible in relation to any question as to whether a defendant has failed to comply with that standard.
- Nonetheless, Mr Patel submitted that a passage in Ivey v Genting Casinos (UK) Ltd supported his approach. In that passage at , Lord Hughes (with whom the other members of the Supreme Court agreed), referred to an example, originally put forward in R v Ghosh, as to a person from a country where public transport was free who travels on a bus in the United Kingdom without paying the necessary fare. If that person genuinely thought that bus travel in the United Kingdom was free then he would not be objectively dishonest. Lord Hughes said that it would be relevant to take into account "what he knew or believed about the facts affecting the area of activity in which he was engaging". Mr Vinall in his reply accepted that when considering the objective standard as to dishonesty it would sometimes be necessary to have regard to matters which could otherwise be said to be matters of law. He gave the example of a person who takes an umbrella which in law belongs to another in the honest belief that he himself owns the umbrella.
- I have no difficulty with the example of the bus traveller referred to above nor the further example about the mistake as to the umbrella. However, I do not see the case for the admissibility of market practice as involving the same considerations as these examples. These examples do not allow a person to say: "I am not dishonest because there is an established practice in the relevant market to do what I have done". For what it is worth, I note that R v Hayes was cited in Ivey v Genting Casinos (UK) Ltd at  as an example of a case where a jury had coped well with applying an uncomplicated lay objective standard of honesty in relation to sophisticated banking practices
- I have also considered in this context the decision in Secretary of State for Justice v Topland Group plc  EWHC 983 (QB) to which I referred above. In that case, at -, the judge thought that it would be wrong, on an application to strike out a pleading, to hold that the alleged market practice in that case could not be relevant to a consideration of what was "commercially unacceptable conduct". The judge said at :
"103 I further agree with the submission of [counsel] that this is not an area where the law can be said to be completely settled and the precise role of the existence of a market practice, and of the knowledge of and reliance on such practice in consideration of whether a person has acted dishonestly requires careful reflection by the trial judge, once the actual facts have been established, and may be the subject of appeal."
- Since that decision, I have had the benefit of the decision in R v Hayes and I now consider that the appropriate conclusion, even at an interlocutory stage, is to apply that decision to the circumstances of the present case. In the present case, I am not persuaded to take the same course as was taken in the Secretary of State for Justice case. In that case, the allegation as to market practice was woven into the pleadings in a number of ways which are not matched by the pleadings in this case. In these circumstances, the fact that the judge in that case came to the view that he should not strike out an allegation which went to disputed matters of fact which were relevant to the claim in that case does not persuade me to open the door to evidence of alleged market practice as a kind of general justification in response to the allegation of dishonesty.
- That conclusion is not, however, the end of the application to adduce the proposed expert evidence. It was also argued that the allegation as to market practice was relevant to the claim that the relevant defendants jointly committed a tort or conspired to injure by unlawful means. The tort which was alleged to have been jointly committed was when Formation AM paid commission to a fiduciary agent for the Claimants without disclosing that fact to the Claimants. It is not a defence to that claim to say that there was a market practice to act in such a way.
- However, in relation to the Fourth and Fifth Defendants, the Claimants also allege that they were party to a conspiracy to injure by unlawful means. As I understand it, the alleged unlawful means for this purpose was the commission of the tort referred to above. Mr Patel submitted that there must be an intention to injure i.e. to cause harm to the Claimants and that the alleged market practice was relevant to that question. I doubt if the alleged market practice is relevant to that question but Mr Vinall in his submissions appeared to acknowledge that it might be the law that it could be a defence to an allegation of conspiracy to injure by unlawful means that the defendant had an honest belief that he was entitled to act in the way in which he had done. Mr Vinall mentioned in this context my earlier decision in Digicel (St Lucia) Ltd v Cable & Wireless plc  EWHC 774 (Ch) but that case was not further discussed at the hearing.
- Since the hearing, I have reminded myself of what I said in that case as to the possible defence of honest belief in response to an allegation of conspiracy to injure. That point was considered in Annex I to the decision at paragraphs -. In that discussion, I expressed the view that a judge at first instance ought to follow what was stated by Toulson LJ in Meretz Investments NV v ACP Ltd  Ch 244 at . In that passage, Toulson LJ supported the view that a defendant could defend an allegation to conspiracy to injure by unlawful means by showing that he acted to protect his own interests in the belief that he had a lawful right to act in that way. I was not shown any authority later in time which was said to be relevant to this point. Mr Vinall did not invite me to form a different view from that which I expressed in Digicel.
- Accordingly, I will proceed on the basis that it is open to the Fourth and Fifth Defendants to defend the allegation of conspiracy to injure by unlawful means by alleging that they honestly believed that their conduct did not involve anything unlawful. Such a defence would primarily turn on evidence as to their state of mind but I understand that they wish to say that the reason why they did not believe their conduct was unlawful was because there was a market practice to act in that way. If so, it ought also to be open to the Fourth and Fifth Defendant to adduce evidence of that market practice. It may be that it will be open to the Fourth and Fifth Defendants themselves to give evidence of the market practice but I consider that it ought to be open to them to call an independent person with experience of the market at the relevant time to give evidence as to the operation of the market in the relevant respect. If the Fourth and Fifth Defendants do adduce evidence from such a witness, I can see that it might be convenient for the expert report also to set out the regulatory background to that practice.
- In addition, Mr Patel argued that the evidence as to market practice was relevant to deal with the argument put forward by the Claimants to the effect that they could defeat the limitation defence pleaded by the Defendants by relying on section 32(2) of the Limitation Act 1980. Section 32(2) provides that for the purposes of section 32(1), deliberate commission of a breach of duty in circumstances in which it was unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty. Section 32(2) operates in tandem with section 32(1)(b) which provides that a relevant period of limitation does not begin to run where any fact relevant to the claimant's cause of action has been deliberately concealed from him by the defendant.
- I note that the Claimants' ability to rely on section 32 of the 1980 Act will be of considerable importance to the outcome of this claim as many, if not all, of the payments which are the subject of the claim were made more than six years before the issue of these proceedings. Although the question of limitation will be of great importance in this litigation, the submissions as to how section 32 applied in this case were extremely brief. I am therefore reluctant to decide too much about the application of section 32 in this case in the absence of detailed submissions. I will therefore decide only that which is strictly necessary to give my ruling on the present application as to expert evidence.
- Mr Patel submitted that in order to rely on section 32(2), the Claimants will have to show that a defendant has deliberately committed the wrongdoing alleged and that can only be shown where the defendant knew that his conduct was unlawful. As I understood him, Mr Vinall accepted that Mr Patel's contention was, at least, arguable. If that is right, then some or possibly all of the defendants wish to argue that, at the relevant time, they did not know that their conduct was unlawful. Thus, the position would seem to be similar to that in relation to the tort of conspiracy which I considered earlier. The case will turn on evidence as to the defendants' state of mind and I understand that they wish to say that the reason why they did not believe their conduct was unlawful was because there was a market practice to act in that way. If so, it ought to be open to them to adduce evidence of that market practice. It may be that it will be open to them to give evidence of the market practice but I consider that it ought also to be open to them to call an independent person with experience of the market at the relevant time to give evidence as to the operation of the market in the relevant respect. As before, if they do adduce evidence from such a witness, I can see that it might be convenient for the expert report also to set out the regulatory background to that practice.
- As I understood it, Mr Vinall's response to this possible approach was that his case at trial would be that all of the Claimants' claims came within section 32(1)(a) of the 1980 Act, which refers to an action "based upon the fraud of the defendant". He submitted that if he established his causes of action, he would also establish that they were based upon the fraud of the defendant within section 32(1)(a). In that way, he said, he would both establish his cause of action and defeat the limitation defence. I am not persuaded that Mr Vinall's submission is correct. It is established that section 32(1)(a) only applies where the relevant cause of action requires the allegation and proof of fraud in the strict sense: see Beaman v A.R.T.S. Ltd  1 KB 550 at 558, 567. I am reluctant in the absence of detailed submissions on all of the causes of action relied upon to say which of them do and which do not come within section 32(1)(a). However, I am able to say that at least one cause of action relied upon does not come within section 32(1)(a). The Claimants allege that Mr Urquhart, before he was employed by ProActive, received a secret commission from a financial adviser. It is said that he thereby committed a breach of fiduciary duty to a claimant. That cause of action is not based upon the fraud of Mr Urquhart for the purposes of section 32(1)(a) even if it might additionally be held that he was dishonest to act in that way. Accordingly, in relation to that claim, the Claimants will be defeated by limitation unless they can establish deliberate wrongdoing. That leads me to the conclusion that Mr Urquhart at least should be entitled to adduce evidence of market practice in support of any evidence he might give that he did not know that what he was doing was wrong.
- Following my releasing a draft of this judgment, Mr Vinall wrote to me to say that he had not intended to make the submission with which I have dealt in the last paragraph. Instead, he had intended to submit that if the Claimants were to succeed at the trial in establishing objective dishonesty, they would succeed to the full extent of the relief claimed and they would not be defeated by limitation because they could rely on section 32(1)(a) of the 1980 Act. If so, they would not need to advance their alternative claims and the arguments as to limitation in relation to those claims would not need to be decided. He submitted that I could decide at this stage that expert evidence which might be relevant to the limitation defence to the alternative claims was not "reasonably required" and such expert evidence should not be permitted. This seems to me to be an impossible argument. If the Claimants were to amend to withdraw all of their alternative claims and to rely only on causes of action which come within section 32(1)(a), then Mr Vinall would have a point. Alternatively, if the court were to direct that causes of action within section 32(1)(a) were to be tried first, then again there might be something in Mr Vinall's suggestion. However, the Claimants do not intend to give up their alternative claims and, quite rightly, no one has suggested splitting the trial in the way I have identified. In these circumstances, I remain of the view that Mr Vinall's submission cannot be accepted.
- Having considered the specific submissions made on behalf of the Fourth and Fifth Defendants and the Seventh Defendant, I have come to the conclusion that these defendants ought to be allowed to adduce the expert evidence which they seek for the purposes I have identified but not for the purpose of establishing that they were not dishonest by reason of their following the alleged market practice.
- At the end of the submissions, Mr Maynard-Connor on behalf of the Second Defendant told me that the Second Defendant would also wish to have the benefit of any permission to adduce expert evidence which was given to the Fourth, Fifth and Seventh Defendants. Mr Maynard-Connor did not make any specific submissions to me and did not suggest that there were any features of the Second Defendant's pleaded case which needed to be considered but rather that his position should be the same as that of the Fourth, Fifth and Seventh Defendants. It follows that I should give the Second Defendant permission to adduce expert evidence to the same extent I give that permission to the Fourth, Fifth and Seventh Defendants.
- I understand that, if I permit these Defendants to adduce expert evidence, what in fact will happen is that all of the Defendants will call a single expert and the Claimants will consider whether they also wish to call an expert witness. In view of this position, having considered the specific position of the Fourth, Fifth and Seventh Defendants, the better course is to give the parties generally permission to call expert evidence as to the alleged market practice.
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