MR DAVID ROWLEY v (1) MR BRIAN JOHN DUNLOP (2) MRS GAIL DEBORAH DUNLOP [2014] EWHC 1995 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM
THE CENTRAL LONDON COUNTY COURT
HH Judge Faber
Claim No: 1 CL10355
[2014] EWHC 1995 (Ch)Case No Appeal Ref: CH/2013/0696Venue Royal Courts of Justice, Rolls Building,, London, EC4A 1NL
Between
MR DAVID ROWLEYClaimant(1) MR BRIAN JOHN DUNLOP (2) MRS GAIL DEBORAH DUNLOPDefendantsAND PART 20 CLAIM BETWEEN(1) MR BRIAN JOHN DUNLOP (2) MRS GAIL DEBORAH DUNLOPPart 20 and Additional Claimants (Respondents)(1) MR MICHAEL PAGETT (2) CFL FINANCE LIMITEDThird-Party and First Additional Defendant (Appellant) Second AdditionalDefendant
Before
Mr Justice David RichardsPeter Irvin (instructed by Beswicks Solicitors LLP) for the AppellantCamilla ter Haar (instructed by Shoosmiths) for the RespondentsHearing date: 12 June 2014
[1]Mr Justice David Richards : 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's report is a declaration by him that:
" 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 £150,000 nominal of loan notes, which were guaranteed by Mr and Mrs Dunlop. The notes were held by David Rowley who, following the administration, issued proceedings in the Stoke-on-Trent County Court claiming £150,000 together with interest under the terms of the guarantee. The proceedings were subsequently transferred to the Central London County Court. Mr and Mrs Dunlop are defending the claim, primarily on the basis that they were induced to enter into the guarantee as a result of misrepresentations concerning the financial position of the company made to them by Mr Pagett.[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's CV annexed to his draft report states that he is a partner in Frenkels Forensics Chartered Accountants (Frenkels). The title page of the draft report states that it is a trading name of Frenkels Limited and that the Principal is John Frenkel FCA. Although not entirely clear, I proceed on the basis that as a partner Mr Cohen has a financial interest in the profits of Frenkels.[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's draft report was served, or treated as served, as an expert report in accordance with these directions. Mr Pagett served a report dated 27 September 2013 by Robert Clarke FCA, which addresses both the case made against Mr Pagett and the report of 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's solicitors in correspondence, Mr Frenkel's involvement in CFL is only as a director. His function is to manage the run-off of CFL's business as a lender. He is not a shareholder. He receives payment based on an hourly rate and he has "no interest in the financial performance/outcome of CFL".[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's conflict of interest arising out of his connection with Mr Frenkel and Mr Frenkel's connection with CFL and, secondly, what was said to be the unsustainable contents of the report. In his report, Mr Clarke had analysed Mr Cohen's report, and the application, so far as the contents of Mr Cohen's report are concerned, is largely based on that analysis.[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's report. She heard submissions, and gave a substantive ruling, only on the issue whether Mr Cohen was subject to a conflict of interest.[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 Claimant's expert without reference to the substantive content of his report or that of the Defendant. The next layer would be to make a ruling on the application having had time to read the expert reports in full to see if the Defendant's expert report shows by reference to the substantive content that the Claimant's expert cannot be independent. "

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's witness statement and the exhibited assignment terms. 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's report to see if the substance of Frenkel is thoroughly undermined by it. I can carry on doing that at the adjourned hearing and I will do that. "
[16]The judge adjourned Mr Pagett's application so far as it related to the contents of Mr Cohen's report. Although she refused permission to appeal, counsel for Mr Pagett made clear that an application for permission would be made to the High Court and, pending final disposal of any appeal, the judge stayed the action generally save as regards one outstanding application. The position, therefore, is save in that respect and save for this appeal, nothing further has happened in relation to this litigation since December 2013.[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's report at this summary stage, a deliberately untruthful denial of any conflict of interest would very probably justify the rejection of the entire report. As the judge found that there was, on the evidence before her, no conflict of interest, it followed that Mr Cohen had not been untruthful in his report.[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's evidence: CPR 35PD.2.1-2.2.[20]The qualities of independence and lack of bias may be compromised by the expert's connections with the litigation or the parties or those who may benefit from the litigation. It is always a matter for the court to decide whether any such connections disqualify the expert from giving evidence or whether, as may often be the case, they go not to the admissibility of the evidence, but to the weight to be attached to it.[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 (3 rd 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's involvement with CFL. Even then, if what Mr Frenkel has said is true, neither he nor Mr Cohen has any financial interest in the success or failure of the claim against Mr Pagett.[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's statements have not been put in evidence, except by exhibiting the letter from Mr and Mrs Dunlop's solicitors setting out what Mr Frenkel has said. The only evidence otherwise available is the simple fact that Mr Frenkel is a director of CFL. This is insufficient to establish that Mr Cohen has an interest in the outcome of these proceedings.[25]The appellant's notice seeks an order setting aside paragraph 2 of the order below and substituting an order that(i) Frenkels and therefore Mr Cohen has a conflict of interest which should have been declared by him in his report,(ii) an order that his report is not admissible in evidence,(iii) an order that the use of the report to support the additional claim was and is an abuse of process and(iv) an order that the additional claim should therefore be struck out. However, Mr Irvin at the hearing of this appeal contended only for the first of those substituted orders. For the reasons I have given, the court is not justified on the evidence before it in finding that a conflict of interest exists.[26]It is clear that Mr Cohen has a connection with Mr Frenkel and therefore, arguably, with CFL because of Mr Frenkel's directorship. Whether this creates a risk of conscious or subconscious bias on the part of Mr Cohen is something to be explored, if at all, in cross-examination of Mr Cohen at the trial of the action. It would go to the weight to be attached to Mr Cohen's evidence, not to its admissibility. Although the court may determine in the course of case management that the evidence of a proposed expert should not be admitted simply because of a connection, I am clear that this is not such a case.[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's report is not inadmissible solely on the grounds of his connection with John Frenkel. "
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's directorship of CFL. I consider that there is force in this criticism. It is important that the other parties to the litigation and the court should have available to them information as to any connection of an expert to the litigation or to the parties to the litigation or to any person who may benefit from the litigation. It is only the disclosure of such information that will enable the court to determine whether the expert's evidence is admissible and, if it is, the weight to be attached to it. The information provided by Mr Frenkel shows that he and Mr Cohen considered whether there was a conflict of interest and shows that they concluded that there was none. It follows from what I have previously said that I agree with that conclusion, but the very fact that they considered the matter shows that there was material information which needed to be disclosed. This non-disclosure, however, does not lead to the conclusion that Mr Cohen's report should be excluded.[30]Secondly, as I understand it, the next step in these proceedings will be the resumed hearing of Mr Pagett's application to strike out the additional claim. This will be on the basis that Mr Cohen's report is so full of errors that it cannot form a reliable basis for the claim. Having read the reports of Mr Cohen and Mr Clarke, I have to say that I am far from satisfied that this will be a worthwhile use of the time and resources of the court and the parties. It will require a detailed analysis of the reports and the available documentary evidence. Just like the question of possible bias on the part of Mr Cohen, these are matters which should normally be undertaken at trial, when the court has all the evidence, including the evidence of witnesses of fact, before it. My reading of the papers before the court on this appeal does not suggest that it is one of the exceptional cases taking it out of the norm. These proceedings have already taken a long time and there is much merit in bringing them to a trial and a conclusion as soon as practicable. In saying this, I do not overlook the fact that Mr and Mrs Dunlop have been dilatory in their prosecution of this claim and have repeatedly been in breach of time limits set by orders. If Mr and Mrs Dunlop wish to pursue this claim, it is important that the parties concentrate on bringing the proceedings to a conclusion as soon as reasonably practicable. To that end, I shall direct that a case management conference is fixed as soon as possible.

Cited in 7 later judgments