Rowley v Dunlop and others [2014] EWHC 1995 (Ch) Chancery Division 13 June 2014 Mr Justice David Richards APPROVED JUDGMENT I DIRECT THAT PURSUANT TO CPR PD 39A PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC. MR JUSTICE DAVID RICHARDS: 1. The issue on this appeal is whether an expert witness is subject to a conflict of interest. 2. The issue arose on an application to strike out a claim on the grounds, amongst others, that the report on which the claim was based was made by an expert with a conflict of interest such that the court should rule his report inadmissible. It appears to be common ground that without either his report or a report from another expert, the claim is not sustainable. 3. Her Honour Judge Faber, sitting at the Central London County Court, refused to strike out the claim on this basis. The appeal relates to paragraph 2 of her order dated 9 December 2013 which states: Paragraph 6.4 of Mr Cohen This appeal is brought with permission granted by Rose J. 4. The background to the proceedings is as follows. The appellant, Michael Pagett, and the respondents, Brian Dunlop and his wife Gail Dunlop, were involved in a company called Inside Right Limited (the company). Mr and Mrs Dunlop were shareholders and Mrs Dunlop was also the managing director of the company until October 2009. Mr Pagett was the finance director. As a result of financial difficulties, the company went into administration on 6 May 2010. 5. The company had raised capital by the issue of shares and 6. Mr and Mrs Dunlop have also, within these proceedings, made a Part 20 claim and what is called an additional claim against Mr Pagett. The Part 20 claim relates to the alleged misrepresentations. The additional claim is entirely different. It is a claim for compensation in respect of losses alleged to have been suffered by the company as a result of alleged breaches of duty by Mr Pagett as a director. This was, of course, a claim which lay with the company, not with Mr and Mrs Dunlop. However, by a deed dated 27 May 2011, the company and its administrators assigned to a company called CFL Finance Limited (CFL) the claims against Mr Pagett. By a further deed dated 30 August 2011, CFL assigned the claims to Mr and Mrs Dunlop and one other. Under the terms of the second assignment, CFL will receive substantial benefits if the claim succeeds. 30 per cent of any recoveries will be paid to CFL and a further 45 per cent will be applied by Mr Dunlop in repaying sums owed by him to CFL. 7. In support of the additional claim, the statement of case served by Mr and Mrs Dunlop had attached to it a draft expert accountancy report prepared by Vivian Cohen FCA. Mr Cohen, in addition to being a fellow of the Institute of Chartered Accountants in England and Wales, is an accredited forensic accountant of that Institute and a member of the Academy of Experts. He has worked in the field of forensic accounting since 1995 and has received over 500 instructions to carry out forensic accounting work. 8. Mr Cohen 9. By an order made on 28 June 2013, the parties were each given permission to rely on the written evidence of an expert accountant and were directed to exchange reports by 27 September 2013. I assume, although again it is not clear from the papers before me, that Mr Cohen 10. Mr Frenkel, the senior partner and principal of Frenkels, has since March 2010 been a director of CFL and is currently its sole director. According to information provided by Mr Frenkel and passed on to Mr Pagett 11. On 17 September 2013, Mr Pagett issued an application for an order striking out the claims made against him. The grounds of the application were that the expert report of Mr Cohen, on which the claims depended, was fatally flawed. The court at trial would not be able to rely on it, because of, first, what was said to be Mr Cohen 12. The application came before HH Judge Faber on 9 December 2013 at a hearing for which 2 hours had been allowed. Mr Pagett was represented by counsel, Mr Peter Irvin, who also appears on this appeal. The hearing started with an application made by counsel then instructed on behalf of Mr and Mrs Dunlop for an adjournment of the hearing, which the judge refused. The judge also refused to admit witness statements served very late by Mr and Mrs Dunlop. Their counsel was instructed solely for the purpose of making the application for an adjournment and, although she remained for the rest of the hearing, she took no part in it. 13. The time available at the hearing was insufficient to enable the judge to deal with that part of the application which was based on an analysis of the contents of Mr Cohen 14. In her judgment, of which I have a transcript, given orally at the end of the hearing, the judge explained in paragraph 1 her approach to the application as involving two layers. She said: 15. The judge then went on to consider the first issue, that of conflict of interest: 16. The judge adjourned Mr Pagett 17. For the reasons set out in her judgment, the judge made the order contained in paragraph 2 of the Order dated 9 December 2013, which I have earlier set out. The terms of the order appear to be slightly curious. It is, to say the least, unusual for a court on an application to strike out a claim to determine whether an expert witness, who has not given oral evidence, is lying in his report. I think, however, having heard the submissions made to me on this appeal that it must reflect the way in which counsel for Mr Pagett put his application, that there was a clear conflict of interest and that Mr Cohen must have deliberately misstated the position in his report when he made the declaration that he knew of no conflict of interest of any kind. While the existence of a conflict of interest might justify the court in rejecting the expert 18. I should say at once that, if I considered that there was a conflict of interest in this case, I would not make an order that Mr Cohen had been deliberately untruthful in his denial of any conflict of interest. It must be a rare case where it is appropriate to make such a finding at a summary stage, without an opportunity for the expert to give oral evidence, and this is certainly not such a case. 19. The essential character of expert evidence is that it should be the independent product of the expert uninfluenced by the pressures of litigation and that it should be objective and unbiased evidence on matters within the expert 20. The qualities of independence and lack of bias may be compromised by the expert 21. Such connections may take a number of forms, of which three are the most obvious. First, the expert may have a financial interest in the outcome of the litigation. Only rarely will the court admit the evidence of such an expert: see R(Factortame Ltd and others) v Secretary of State for Transport, Local Government and the Regions [2002] EWCA Civ 932, [2003] QB 381 (Factortame) at [72]-[73]. Secondly, the expert may have a conflicting duty. Whether this will disqualify the expert from giving evidence will depend on the circumstances of the case: see Toth v Jarman [2006] EWCA Civ 1028, [2006] 4 All ER 1276 (Note) at [99]-[110]. Thirdly, an expert may have a personal or other connection with a party, which might consciously or subconsciously influence, or bias, his evidence. Such connections will not normally of themselves disqualify the witness, but will go to the weight to be attached to the evidence: see Field v Leeds City Council [2000] 32 HLR 618; Factortame, particularly at [69]-[70] where the Court of Appeal disapproved the test put forward by Evans-Lombe J in Liverpool Roman Catholic Archdiocesan Trustees v Goldberg (Practice Note) [2001] 1 WLR 2337; and Hodgkinson v James: Expert Evidence (3rd ed.) at 6.006-6.011. 22. On the basis of the information given by Mr Frenkel and relayed in correspondence between the solicitors, the only connection between Mr Cohen and CFL lies in the facts that Mr Cohen and Mr Frenkel are both partners in Frenkels and Mr Frenkel is a director of CFL paid at an hourly rate. Nothing in the information leads to the conclusion that Mr Cohen has any financial interest in the outcome of the additional claim against Mr Pagett. Mr Frenkel says that his sole income from CFL are the fees paid at an hourly rate and he states positively that he has no other interest in the success or outcome of CFL. It is not known whether Mr Frenkel accounts to Frenkels for these fees. Only if he did so, would Mr Cohen, as a partner in Frenkels, have a financial interest in Mr Frenkel 23. Mr Irvin, on behalf of Mr Pagett, is very critical of the failure to provide evidence from Mr Frenkel or Mr Cohen as to their connections with CFL or their interests in the outcome of the claim against Mr Pagett. He submits that the court is entitled to infer that there exists or may exist a greater degree of involvement, and a more tangible financial interest, than that disclosed so far by Frenkels. Mr Irvin suggested that this could take a number of forms, such as some interest in the shares of CFL, which are registered in the name of an overseas Stiftung, or some entitlement to part of any sums recovered by Mr and Mrs Dunlop. 24. I do not consider that it could be right to make findings that there is a conflict of interest resulting from inferences of this type. Mr Irvin can do no more than suggest that there may be more to it than what has been disclosed by Frenkels. Mr Irvin can point to no evidence that what Mr Frenkel has said is incorrect. Nor does it assist Mr Irvin that Mr Frenkel 25. The appellant 26. It is clear that Mr Cohen has a connection with Mr Frenkel and therefore, arguably, with CFL because of Mr Frenkel 27. It follows that I agree with the conclusion reached by the judge that Mr Pagett has not established, on the evidence before the court, that Mr Cohen is subject to any conflict of interest. I do, however, consider that it would be helpful if the order were expressly directed to this conclusion, rather than to the question whether Mr Cohen was truthful in the declaration in his report. Accordingly, having discussed the matter with counsel, I will substitute for the existing paragraph 2 a new paragraph in the following form: Subject to that change in the wording of paragraph 2 of the Order, I dismiss the appeal. 28. There are two further matters to which I should refer. 29. First, Mr Irvin was very critical of the failure of Mr Cohen to disclose, in his report or in accompanying correspondence, his connection with Mr Frenkel and Mr Frenkel 30. Secondly, as I understand it, the next step in these proceedings will be the resumed hearing of Mr Pagett
Rowley v Dunlop and others
[2014] EWHC 1995 (Ch)
Chancery Division
13 June 2014
Mr Justice David Richards
APPROVED JUDGMENT
I DIRECT THAT PURSUANT TO CPR PD 39A PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC.
MR JUSTICE DAVID RICHARDS:
1. The issue on this appeal is whether an expert witness is subject to a conflict of interest.
2. The issue arose on an application to strike out a claim on the grounds, amongst others, that the report on which the claim was based was made by an expert with a conflict of interest such that the court should rule his report inadmissible. It appears to be common ground that without either his report or a report from another expert, the claim is not sustainable.
3. Her Honour Judge Faber, sitting at the Central London County Court, refused to strike out the claim on this basis. The appeal relates to paragraph 2 of her order dated 9 December 2013 which states:
The court found that as a matter of fact and law paragraph 6.4 of the report of Mr Vivian Cohen of Frenkels Forensics dated 15 March 2011 was not a lie and refused to strike out the Additional Claim on the sole basis that he was not an independent expert.
Paragraph 6.4 of Mr Cohen
I know of no conflict of interest of any kind, other than any which I have disclosed in my report.
This appeal is brought with permission granted by Rose J.
4. The background to the proceedings is as follows. The appellant, Michael Pagett, and the respondents, Brian Dunlop and his wife Gail Dunlop, were involved in a company called Inside Right Limited (the company). Mr and Mrs Dunlop were shareholders and Mrs Dunlop was also the managing director of the company until October 2009. Mr Pagett was the finance director. As a result of financial difficulties, the company went into administration on 6 May 2010.
5. The company had raised capital by the issue of shares and
6. Mr and Mrs Dunlop have also, within these proceedings, made a Part 20 claim and what is called an additional claim against Mr Pagett. The Part 20 claim relates to the alleged misrepresentations. The additional claim is entirely different. It is a claim for compensation in respect of losses alleged to have been suffered by the company as a result of alleged breaches of duty by Mr Pagett as a director. This was, of course, a claim which lay with the company, not with Mr and Mrs Dunlop. However, by a deed dated 27 May 2011, the company and its administrators assigned to a company called CFL Finance Limited (CFL) the claims against Mr Pagett. By a further deed dated 30 August 2011, CFL assigned the claims to Mr and Mrs Dunlop and one other. Under the terms of the second assignment, CFL will receive substantial benefits if the claim succeeds. 30 per cent of any recoveries will be paid to CFL and a further 45 per cent will be applied by Mr Dunlop in repaying sums owed by him to CFL.
7. In support of the additional claim, the statement of case served by Mr and Mrs Dunlop had attached to it a draft expert accountancy report prepared by Vivian Cohen FCA. Mr Cohen, in addition to being a fellow of the Institute of Chartered Accountants in England and Wales, is an accredited forensic accountant of that Institute and a member of the Academy of Experts. He has worked in the field of forensic accounting since 1995 and has received over 500 instructions to carry out forensic accounting work.
8. Mr Cohen
9. By an order made on 28 June 2013, the parties were each given permission to rely on the written evidence of an expert accountant and were directed to exchange reports by 27 September 2013. I assume, although again it is not clear from the papers before me, that Mr Cohen
10. Mr Frenkel, the senior partner and principal of Frenkels, has since March 2010 been a director of CFL and is currently its sole director. According to information provided by Mr Frenkel and passed on to Mr Pagett
11. On 17 September 2013, Mr Pagett issued an application for an order striking out the claims made against him. The grounds of the application were that the expert report of Mr Cohen, on which the claims depended, was fatally flawed. The court at trial would not be able to rely on it, because of, first, what was said to be Mr Cohen
12. The application came before HH Judge Faber on 9 December 2013 at a hearing for which 2 hours had been allowed. Mr Pagett was represented by counsel, Mr Peter Irvin, who also appears on this appeal. The hearing started with an application made by counsel then instructed on behalf of Mr and Mrs Dunlop for an adjournment of the hearing, which the judge refused. The judge also refused to admit witness statements served very late by Mr and Mrs Dunlop. Their counsel was instructed solely for the purpose of making the application for an adjournment and, although she remained for the rest of the hearing, she took no part in it.
13. The time available at the hearing was insufficient to enable the judge to deal with that part of the application which was based on an analysis of the contents of Mr Cohen
14. In her judgment, of which I have a transcript, given orally at the end of the hearing, the judge explained in paragraph 1 her approach to the application as involving two layers. She said:
The preliminary layer is to rule on the application based only on the issue of the alleged conflict of interest/lack of independence of the Claimantication having had time to read the expert reports in full to see if the Defendant
15. The judge then went on to consider the first issue, that of conflict of interest:
2. My ruling on this preliminary layer is that there is no conflict of interest on the part of Mr Cohen and no lie in his report for the following reasons. I accept that CFL stands to benefit from the success of the Dunlops, should they have success, in the additional claim because of the terms of the assignment giving them 30% of the litigation proceeds and 45% of the litigation proceeds as set out in Mr Pagett
3. Mr John Frenkel is a director of CFL and owes it duties. I think it was said he is paid an hourly rate for work for it. Mr Cohen, however, does not owe CFL any duties. He is an accountant working in Frenkels Forensics, which is the trading name of Frenkels Ltd, a company. This report is not the report of Mr Frenkel but of Mr Cohen. There is no evidence that Mr Cohen or Frenkels Ltd benefits from the gains of CFL. It is not Frenkels Ltd which works for CFL, but Mr Frenkel. Furthermore, the fact that Mr Cohen is a witness on the execution of the deed does not give him a personal interest in the action.
4. Therefore, in relation to the additional claim I will not be striking it out, or declaring there is no real prospect of success, or ruling that there is an abuse on the basis of the alleged conflict of interest on which I have just ruled. However, I have not finished my consideration of the application for striking out or a declaration that there is no real prospect of success, because I have not yet read Mr Clarke
16. The judge adjourned Mr Pagett
17. For the reasons set out in her judgment, the judge made the order contained in paragraph 2 of the Order dated 9 December 2013, which I have earlier set out. The terms of the order appear to be slightly curious. It is, to say the least, unusual for a court on an application to strike out a claim to determine whether an expert witness, who has not given oral evidence, is lying in his report. I think, however, having heard the submissions made to me on this appeal that it must reflect the way in which counsel for Mr Pagett put his application, that there was a clear conflict of interest and that Mr Cohen must have deliberately misstated the position in his report when he made the declaration that he knew of no conflict of interest of any kind. While the existence of a conflict of interest might justify the court in rejecting the expert
18. I should say at once that, if I considered that there was a conflict of interest in this case, I would not make an order that Mr Cohen had been deliberately untruthful in his denial of any conflict of interest. It must be a rare case where it is appropriate to make such a finding at a summary stage, without an opportunity for the expert to give oral evidence, and this is certainly not such a case.
19. The essential character of expert evidence is that it should be the independent product of the expert uninfluenced by the pressures of litigation and that it should be objective and unbiased evidence on matters within the expert
20. The qualities of independence and lack of bias may be compromised by the expert
21. Such connections may take a number of forms, of which three are the most obvious. First, the expert may have a financial interest in the outcome of the litigation. Only rarely will the court admit the evidence of such an expert: see R(Factortame Ltd and others) v Secretary of State for Transport, Local Government and the Regions [2002] EWCA Civ 932, [2003] QB 381 (Factortame) at [72]-[73]. Secondly, the expert may have a conflicting duty. Whether this will disqualify the expert from giving evidence will depend on the circumstances of the case: see Toth v Jarman [2006] EWCA Civ 1028, [2006] 4 All ER 1276 (Note) at [99]-[110]. Thirdly, an expert may have a personal or other connection with a party, which might consciously or subconsciously influence, or bias, his evidence. Such connections will not normally of themselves disqualify the witness, but will go to the weight to be attached to the evidence: see Field v Leeds City Council [2000] 32 HLR 618; Factortame, particularly at [69]-[70] where the Court of Appeal disapproved the test put forward by Evans-Lombe J in Liverpool Roman Catholic Archdiocesan Trustees v Goldberg (Practice Note) [2001] 1 WLR 2337; and Hodgkinson v James: Expert Evidence (3rd ed.) at 6.006-6.011.
22. On the basis of the information given by Mr Frenkel and relayed in correspondence between the solicitors, the only connection between Mr Cohen and CFL lies in the facts that Mr Cohen and Mr Frenkel are both partners in Frenkels and Mr Frenkel is a director of CFL paid at an hourly rate. Nothing in the information leads to the conclusion that Mr Cohen has any financial interest in the outcome of the additional claim against Mr Pagett. Mr Frenkel says that his sole income from CFL are the fees paid at an hourly rate and he states positively that he has no other interest in the success or outcome of CFL. It is not known whether Mr Frenkel accounts to Frenkels for these fees. Only if he did so, would Mr Cohen, as a partner in Frenkels, have a financial interest in Mr Frenkel
23. Mr Irvin, on behalf of Mr Pagett, is very critical of the failure to provide evidence from Mr Frenkel or Mr Cohen as to their connections with CFL or their interests in the outcome of the claim against Mr Pagett. He submits that the court is entitled to infer that there exists or may exist a greater degree of involvement, and a more tangible financial interest, than that disclosed so far by Frenkels. Mr Irvin suggested that this could take a number of forms, such as some interest in the shares of CFL, which are registered in the name of an overseas Stiftung, or some entitlement to part of any sums recovered by Mr and Mrs Dunlop.
24. I do not consider that it could be right to make findings that there is a conflict of interest resulting from inferences of this type. Mr Irvin can do no more than suggest that there may be more to it than what has been disclosed by Frenkels. Mr Irvin can point to no evidence that what Mr Frenkel has said is incorrect. Nor does it assist Mr Irvin that Mr Frenkel
25. The appellant
26. It is clear that Mr Cohen has a connection with Mr Frenkel and therefore, arguably, with CFL because of Mr Frenkel
27. It follows that I agree with the conclusion reached by the judge that Mr Pagett has not established, on the evidence before the court, that Mr Cohen is subject to any conflict of interest. I do, however, consider that it would be helpful if the order were expressly directed to this conclusion, rather than to the question whether Mr Cohen was truthful in the declaration in his report. Accordingly, having discussed the matter with counsel, I will substitute for the existing paragraph 2 a new paragraph in the following form:
(i) On the evidence before the court, Mr Cohen has no financial interest in the outcome of the proceedings;
(ii) Mr Cohen
Subject to that change in the wording of paragraph 2 of the Order, I dismiss the appeal.
28. There are two further matters to which I should refer.
29. First, Mr Irvin was very critical of the failure of Mr Cohen to disclose, in his report or in accompanying correspondence, his connection with Mr Frenkel and Mr Frenkel
30. Secondly, as I understand it, the next step in these proceedings will be the resumed hearing of Mr Pagett
