Banking and finance – Costs - Disclosure

Timothy Duncan Earles v Barclays Bank plc: QBD (Birmingham) (Judge Simon Brown QC): 8 October 2009

The claimant (E) claimed damages in respect of an alleged breach of mandate by the defendant bank (B) when processing transfers between bank accounts.

E had been the director of a company that, subsequent to his resignation, went into administration. He was an unsecured creditor of the company because of loans he had made to it. The company had held an account with B, and E also held a personal business account there. Statements were sent to him on a monthly basis. The company account had an overdraft facility secured by a personal guarantee by E. Substantial drawings on the company account were made and the overdraft limit was regularly exceeded. E alleged that B had made five unauthorised transfers amounting to £265,000 from his personal business account to the company account, which had caused him substantial consequential losses. The primary issue was whether E had orally authorised and instructed B to process the transfers. B’s case was that all the authorisations had been given by telephone in accordance with the relevant terms and conditions. The court was required to determine liability only.

Held: (1) None of B, its legal department, E or his solicitors had taken the obvious step of preserving the contemporaneous electronic documents such as telephone and email records that would support or be adverse to their contentions. However, there was no duty to preserve documents prior to the commencement of proceedings, Douglas v Hello! Ltd (No3) [2003] EWHC 55 (Ch), (2003) 1 All ER 1087 (Note) considered. Yet it was suggested in Charles Hollander QC, Documentary Evidence, 10th edn (London: Sweet & Maxwell, 2009), paragraph 10-06, that there might be cases where it was appropriate to draw adverse inferences from a party’s pre-litigation conduct. However, there would have to be clear evidence of deliberate spoliation in anticipation of litigation before adverse inferences could be legitimately drawn; there was no such evidence in the present case. By contrast, where documents had not been preserved after the commencement of proceedings, the defaulting party risked adverse inferences being drawn for such spoliation, Infabrics Ltd v Jaytex Ltd (No2) [1985] FSR 75 Ch D considered. In the present case, none of the electronic documents such as telephone records, transfer sheets or emails during the relevant period, which were ‘documents’ under CPR rule 31.4, had been disclosed. The deficiencies of disclosure on E’s part, as a litigant in person during the disclosure process, were probably due to his lack of appreciation of the CPR requirements but B’s lack of disclosure could not be ascribed to any such lack of understanding. Although its failure to disclose such critical information was to be deplored, there was no evidence that it had been done deliberately or constituted spoliation; a decision had been made by B’s legal team on the erroneous grounds of relevance and proportionality, not as part of any tactical move to gain an evidential advantage in the litigation.

(2) The only evidence left to consider was primarily that of the witnesses themselves and B’s contemporaneous credit call reports. It was crucial for the judge to have regard to the contemporaneous documents, objective facts, witnesses’ motives and overall probabilities, Grace Shipping and Hai Nguan v CF Sharp (Malaya) Pte [1987] 1 Lloyd’s Rep 207 PC (Sing) and Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 HL considered. E’s answers in cross-examination were vague and evasive while B’s witnesses were impressive. Reliance could be placed on the contemporaneous credit call reports, which clearly supported B’s case. B’s evidence that E had maintained close control over the operation of both accounts and had frequently telephoned business centre staff was to be preferred. Its records demonstrated that he had transferred monies into the company account because the company had operated the account significantly in excess of the borrowing facilities. E’s evidence that the transfers had been originally discussed in April 2007 was to be rejected; the first occasion on which he had complained about the transfers was after a meeting in August 2007. If the fourth and fifth transfers had been genuinely disputed, he would have challenged them much earlier. It was simply not credible for E to have asserted that he had failed to notice the receipts set out in his account statement. Overall, the available evidence supported B’s case that the transactions had been authorised orally by E. His claim therefore failed.

(3) The conduct of B and its legal representatives in relation to disclosure fell below the standards to be expected of those practising in the civil courts and that was to be taken into account under CPR rule 44.3 when awarding costs. If disclosure had taken place earlier, there was a reasonable prospect that E would not have commenced proceedings or the matter would have been disposed of by summary judgment. Therefore B’s costs were reduced by 50%. Furthermore, based on proportionality, it was only fair that E should pay 25% of B’s schedule of costs.

Judgment for defendant.

Paul J Dean (instructed by Lodders Solicitors (Stratford-upon-Avon)) for the claimant; Katherine Watt (instructed by Simmons & Simmons) for the defendant.