Date 28 November 2008
Welcome to the November issue of Stay Alert.
In this edition, we bring you up to date on recent developments in Commercial Litigation and cover the following articles:
1. “I believe that the facts stated in this witness statement are true”
Contempt of court proceedings may be brought against a witness who signs a statement of truth in his witness statement, knowing that it contains false statements (KJM Superbikes v Hinton [2008] EWHC 1280 )
2. Access to Justice
Plans to open regional centres of the Administrative Court.
3. Limitation period in professional negligence claims
When does damage occur in professional negligence claims for the purposes of the Limitation Act 1980 (Management Holdings S.C.A and another v Ernst & Young (a firm) and another [2008] EWHC 2720 (Ch))
4. A second look at bank charges
Detailing the court’s decision in Office of Fair Trading v Abbey National Plc & Others [2008] EWHC 2325 on whether historic terms and charges are capable of amounting to penalties.
We hope that you find this edition of Stay Alert useful. If you have any feedback on this edition or any suggestions on what you would like us to cover in future, please contact Clare Mackay by email at clare.mackay@salaw.com. We look forward to hearing from you.
1. “I believe that the facts stated in this witness statement are true”
The Civil Procedure Rules require that certain documents, most notably statements of case and witness statements, must be verified by a statement of truth to the effect that “I believe that the facts stated in this witness statement are true”. The serious effect of a signatory not holding such an honest belief was dealt with in the recent case of KJM Superbikes v Hinton [2008] EWHC 1280 (judgment handed down on 20 November 2008).
Background
In August 2005 Honda (manufacturer of motorcycles) brought proceedings against KJM Superbikes (a motorcycle dealer) for relief for infringement of Honda’s trade marks. This was as a result of importing motorcycles from abroad for sale in the UK. It later emerged that the motorcycles were largely supplied from KJM Superbikes to a dealer in Australia, Lime Exports (“Lime”). Honda argued that the motorcycles were exported by Lime wrongfully to the UK and sold by KJM in the UK.
Honda applied for summary judgment and KJM opposed this application on the strength of the witness statement of Keith Mason. In response, Honda filed 3 further witness statements. One of these was that of Mr Anthony Hinton who was the general manager for motorcycles at Honda in Australia. In his statement, Mr Hinton stated that “Honda Australia advises Lime verbally that it is only allowed to sell to the Pacific Islands. By so advising Lime, Honda Australia tries to ensure that product supplied to Lime finishes in the Pacific Islands….”
The application for summary judgment failed and the case proceeded to trial. Once documents were disclosed, it became apparent that Mr. Hinton had been untruthful in his witness statement, i.e. that Honda Australia knew that Lime was supplying motorcycles to dealers in countries in the Far East, Europe and elsewhere. Mr Hinton gave a second witness statement stating his first witness statement contained untruths and that he did not mean to mislead the court but he only wanted to protect the reputation of Honda Australia. Mr Hinton also faced a “difficult and stressful” cross-examination at trial and the judge decided that Mr Hinton’s behaviour was in contempt of court but that proceedings should not be taken against him as this was disproportionate.
The judge dismissed Honda’s claim against KJM on the basis that Honda Australia authorised Lime to sell its products for export to markets outside Australia.
Contempt of Court
KJM appealed to the Court of Appeal against the judge’s decision refusing permission to bring contempt of court proceedings against Mr Hinton. Lord Justice Moore-Bick allowed the appeal and Lady Justice Arden and Lord Justice Mummery agreed with his reasons for doing so. The primary question was whether it was in the public interest for the contempt of court proceedings to be pursued against Mr. Hinton. He stated that “a witness who knowingly makes a false statement in the course of giving evidence orally or in an affidavit does not expose himself to an action for damages at the suit of anyone injured as a result, but he does expose himself to the risk of prosecution for perjury and as such is publicly accountable for his attempt to interfere with the course of justice.” He said that giving a private person permission to pursue proceedings for contempt “allows that person to act in a public rather than a private role…….to pursue public interest”.
He also said that “pursuit of contempt proceedings…..may have a significant effect by drawing the attention of the legal profession, and through it that of potential witnesses, to the dangers of making false statements”.
And although Mr Hinton was not domiciled in this country, this should not prevent contempt of court proceedings as the “international business community conducts a large amount of litigation in this country and it is common for statements to be provided by witnesses from abroad for use in procedural hearings.” “The integrity of the system as a whole would be undermined if it were thought that foreign witnesses were not subject to the same discipline as witnesses from this country.”
This case therefore serves as a timely reminder to signatories to statements of truth and those advising them to ensure that the facts stated in the document concerned are true. A failure to do so can expose the signatory to criminal proceedings for contempt of court and if convicted, the sentence can include imprisonment, a fine and/or a seizure of assets. Not only that, but the credibility of the signatory as a witness will be destroyed and the Court is unlikely to accept as true other parts of his or her evidence. Witness statements and statements of case should therefore be read thoroughly before signature and amendments made to ensure that the document is factually correct.
2. Access to Justice
The Ministry of Justice plans to open regional centres of the Administrative Court in Cardiff, Birmingham, Leeds, Manchester and Bristol. The Administrative Court mainly deals with judicial review claims which are essentially claims made against public bodies, alleging that the public body has acted unfairly or unlawfully. This means that Administrative Court hearings may be heard in these regions, if the litigant has a connection with that region, rather than in the Royal Courts of Justice in London.
A Judicial Working Group was involved in carrying out open meetings in the regions and said in their report, Justice Outside of London:
“Nearly all judicial review and other claims in the Administrative Court have to be brought in London, with obvious inconvenience and additional expense that this cause for claimants, defendants, interested parties and their lawyers.
The essential point is proper access to justice is not achieved if those in the regions can only bring judicial review and other claims in the Administrative Court in London. The present system discriminates against those who are not in the South of England.”
The introduction of regional Courts to deal with judicial review matters is to be welcomed and is in line with the overriding objective to deal with cases fairly.
The full report is available on the Judicial Website: www.judiciary.gov.uk
3. Limitation period in professional negligence claims
The Limitation Act 1980 provides that the limitation period for tortious claims is six years from the date on which the cause of action accrued. In professional negligence cases, an essential ingredient in the claim is to show that damage has occurred. In the recent case of Pegasus Management Holdings S.C.A and another v Ernst & Young (a firm) and another [2008] EWHC 2720 (Ch) the claimant asserted that damage was not suffered before the limitation period began to run.
Background
In April 1997 Mr Bradbury sold his electronics manufacturing business and the buyer paid by way of loan notes. Loan notes are documents confirming the terms on which a debt is owed to the seller (Mr Bradbury) by the issuer of the loan notes. Payment by this method was a way of deferring liability for capital gains tax. Once the loan notes are disposed of, the consideration would be potentially taxable by Mr Bradbury as a capital gain.
On 2 April 1998 Mr Bradbury sold $150 million (£90 million at the time) worth of loan notes and subscribed for shares in Pegasus, a newly incorporated Luxembourg company. This was done on the advice of Ernst & Young under a tax saving scheme.
The tax saving scheme proposed by Ernst & Young did not work as originally planned and on 10 November 2005 (i.e. more than 6 years after April 1998) Mr Bradbury and Pegasus brought proceedings against Ernst & Young for damages alleging that negligent tax advice was given. An alternative to the suggested share purchase structure would have been for Mr Bradbury to incorporate subsidiaries and acquire businesses through these subsidiary companies. This would have meant that the businesses could have been disposed of by a sale of shares in the subsidiary companies, without triggering a capital gains tax liability.
The defendants claimed that the claim was now statute barred as it had been made against them after the 6 year limitation period had expired
Decision
Mr Justice Lewison found that Mr Bradbury did suffer a loss when the share issue took place on 2nd April 1998 and that his professional negligence claim against Ernst & Young was therefore statute barred under the Limitation Act 1980, as this date was more than 6 years before the proceedings were brought. The loss was suffered when he acquired the shares in Pegasus as at that point he should have been advised to invest in a different company which would have entitled him to benefit from reinvestment relief.
The Judge recognised that it was often difficult in professional negligence cases to pinpoint exactly when a person has suffered damage and so advise a client when the limitation period expires. Lewison J said in his judgment, it “ought to be relatively straightforward to decide when a person has suffered damage. Unfortunately it is not.” This case therefore underlines the need to consider limitation at the outset of a case and if in doubt, take steps to issue a protective claim form whilst these investigations continue.
4. A second look at bank charges
Banks levy an unauthorised overdraft charge and a returned item charge (the “Relevant Charges”) on customers when their accounts are overdrawn above an agreed level or where a payment, such as a direct debit payment, is returned unpaid due to a lack of funds in the customer’s account.
In April 2008 the Court held that banks’ existing charges could not be penalties at common law because the Relevant Charges did not arise upon a breach of contract by the customer. We covered this decision in our May 2008 Stay Alert. The relevance is that if a payment is found to be a penalty it is unenforceable at common law. A payment will be a penalty if the obligation to pay it is triggered by a breach of contract and the amount payable is not a genuine pre-estimate of the loss that will be incurred as a result of the breach. In other words, a charge will be a penalty if it is for an excessive amount compared to the bank’s actual loss.
The banks consequently asked the Court for declarations that historic terms and charges were also “not capable of amounting to” penalties, in the case of Office of Fair Trading v Abbey National Plc & Others [2008] EWHC 2325.
Mr Justice Andrew Smith accepted the OFT’s submission “that in deciding whether a term is of contractual effect and if so whether its effect is to impose a prohibition on the customer, [he] should consider the substance of the arrangements between the bank and the customer.”
The court therefore considered the various terms and the situations in which they were operated in for each bank, and found that:
- Barclays, Clydesdale and HSBC were entitled to their requested declarations.
- Abbey was entitled to its declaration but not in relation to its May 2005 conditions, until further submissions were made in respect of it.
- HBOS was entitled to its declaration but not in relation to its Intelligent Finance accounts.
- Lloyds TSB and the OFT should make further submissions as to whether Lloyds TSB should be awarded its declaration and on what terms.
- No declaration could be made in favour of The Royal Bank of Scotland Group but that further assistance will be sought from its counsel.
Practically, there is still some uncertainty in this area as permission to appeal the April 2008 judgment was granted. We will, of course, keep you updated of the latest developments.
© SA Law 2008
Every care is taken in the preparation of our articles. However, no responsibility is accepted as being owed to any person or organisation who acts on the basis of information contained in them. You should obtain specific advice in respect of individual cases.