Grove Park Properties Ltd (GPP) v The Royal Bank of Scotland (GPP)  EWHC 3521 (Comm)
In the current proceedings, GPP sought to plead a case that in previous proceedings (now settled) between Mr Wyatt (GPP’s sole director and professional) and RBS, RBS knowingly put forward a false and misleading case. RBS applied to strike out the parts of GPP’s Particulars of Claim and Amended Reply and Defence to Counterclaim dealing with RBS’s previous conduct, on the basis that these pleadings: i) were irrelevant to the issues in the current action; ii) did not disclose any reasonable grounds for a claim or defence; and iii) were an abuse of process or otherwise likely to obstruct the just disposal of the proceedings (pursuant to CPR r 3.4(2)(b)).
The key issue in both sets of proceedings is whether a loan agreement entered into between GPP and RBS in October/November 2007, for £10.5million is void pursuant to the rule in Pigot’s Case (1614) 1 CoRep 26b and if so, what are the consequences that flow from this. GPP pleaded that in the earlier proceedings, RBS had:
i) claimed that Mr Wyatt had altered the term of the loan agreement in or around December 2008, without the bank’s knowledge or consent, in order to falsely represent to potential investors in GPP, that GPP had a 10 year loan facility, when a five year loan had been agreed;
ii) the case of forgery and fraud was maintained against Mr Wyatt when RBS served an amended Defence;
iii) subsequently, RBS’s case changed when it served late witness evidence which contradicted its allegations of fraud and forgery in that the alterations to the loan agreement were made in 2007, prior to the drawdown of the loan; and
iv) this led to further amendments to the Defence and a withdrawal of the allegations against Mr Wyatt.
Males J (as he then was) determined that it is open to GPP to cross-examine RBS’s witnesses about their evidence in the previous proceedings, but it also matters that GPP’s case in this regard is set out in its pleadings.
Pleadings should be concise and contain only material facts (Tchenguiz v Grant Thornton LLP  EWHC 405 (Comm)). It is wrong in principle to plead matters which do not support or relate to any of the remedies sought and to plead immaterial matters with a view to obtaining more extensive disclosure than might otherwise be ordered: Charter UK Ltd v Nationwide Building Society  EWHC 1002 (TCC) at .
However, in a case where fraud is alleged, it is well established that such plea must be made in clear terms, setting out the facts that are relied on to show that the defendant was dishonest and not merely negligent. As dishonesty is often a matter of inference from primary facts, it is necessary to plead the primary facts which will be relied upon at trial to justify that inference. It is not open to the court to infer dishonesty from facts which have not been pleaded. There must be some fact that justifies an inference of dishonesty and this fact must be pleaded and proved. (Lord Millett in Three Rivers District Council v Bank of England  UKHL 16,  2 AC 1).
GPP relies on what is now accepted by the parties to have been a false allegation against Mr Wyatt. GPP argues that the only or obvious reason for such a false allegation, was to cover up the wrongdoing of the bank and/or its employees. RBS countered that the issues that the court will need to resolve are: i) who made the alteration to the loan agreement; ii) why they did so; and iii) his/her state of mind at the time. These are questions concerned with the events of October/November 2007. The statements made by RBS’s witnesses in the previous proceedings (2014/2015) are only relevant to their credibility. The judge agreed that 2007 is a critical period but this did not mean that later events will be irrelevant. At the interlocutory stage, the court is not concerned with whether the evidence at trial will or will not establish fraud, but only whether the facts as pleaded would justify a plea of fraud (see Flaux J in JSC Bank of Moscow v Kekhman  EWHC 3037 (Comm) at ).
The judge found that ’[I]n the absence of any explanation of why a false allegation against Mr Wyatt had been made, it is a reasonable (although not necessarily an inevitable) inference that this was done knowingly…. in order to conceal reprehensible conduct’ at .
GPP is therefore entitled to plead that RBS knowingly put forward a false case in previous proceedings as being a fact, which if proved, is a fact from which an inference may be drawn that it was RBS that altered the loan agreement in 2007 and that it did so fraudulently. This is the only legitimate basis on which the case could be pleaded, the judge not accepting GPP’s arguments to plead this case on the basis of: i) illegality and public policy; ii) unclean hands; and iii) notice of cross-examination.
This case serves as a useful reminder that in cases where fraud or dishonesty is alleged, the pleader is entitled to rely on facts which justify an inference of dishonesty. To try to avoid pleadings being vulnerable to strike out applications, statements of case should be drafted carefully, to ensure the facts are not consistent with a claim for negligence or an honest mistake.
Lydia Danon, partner and solicitor-advocate, Cooke, Young & Keidan LLP