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Earles v Barclays Bank Plc  EWHC 2500 (Mercantile) (08 October 2009)
 EWHC 2500 (Mercantile)
[Printable RTF version
||Neutral Citation Number:  EWHC 2500 (Mercantile)
||Claim No. 9BM400009
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
||Claim No. 9BM400009
Birmingham District Registry
||8th October 2009
B e f o r e :
HIS HONOUR JUDGE SIMON BROWN QC
|| TIMOTHY DUNCAN EARLES
||BARCLAYS BANK PLC
HTML VERSION OF JUDGMENT
Crown Copyright ©
- This is the type of an action between a customer and his bank that has become increasingly prevalent in the mercantile court in these times following the recent economic downturn and the banking credit crisis.
- The Claimant is a customer of the Defendant and has banked with them for over 30 years. Indeed, he is a former bank manager with the Bank, like his father before him. Subsequently, he became a property developer and is currently indebted to the Bank for some £2.45 million.
- On 30th March 2005, Eden Holding Limited ('the Company') was incorporated to sell beauty products in London through a team of salesmen led by Mr McKinney. The directors were the Claimant and Mr McKinney. By 31st March 2006, the Claimant's shareholding had increased from 20% and that of Mr McKinney reduced from 79%, according to the Directors Report and Financial statements for the year ended 31t March 2006. As a result they held equal shareholdings of 49% each. These accounts then showed a loss of £114,524 carried by shareholders funds in the same amount.
- In April 2006, the Claimant arranged a business loan for £75,000 to assist with capital expenditure on developing leasehold premises in Leamington Spa as a beauty salon. A business current account (a/c no: 8007-9782) was set up with an overdraft of £50,000 with statements to be sent monthly to the Claimant's address. This overdraft had a £25,000 discretionary extra facility in the hands of the Relationship Manager without his need for recourse to the Bank's Credit Team. These potential liabilities were secured by a personal guarantee of £125,000 by the Claimant that was in turn supported by a legal charge over a development site he owned personally called the Great Rollright site. The Relationship Manager for the Bank was Martin Leech aided by his assistants Katharine Shelley and Melanie Wigley-Jones of the Cardiff Business Centre Branch.
- Concurrently, the Claimant took out two separate loans of £600,000 and £625,00 to assist with construction work and 'land' respectively relating to the development of a site at Great Rollright. A personal business account (2000-8990) was separately set up for the Claimant for this project in his name with statements being sent to him monthly at his home address.
- Subsequently during 2006, substantial drawings on the Company account continued to be regularly made, mainly by cheques signed by Mr McKinney. During July, the overdraft leapt up and by 17th July at £129,695 it exceeded the level of the Claimant's guarantee of £125,000. On 19th July, £100,000 was transferred from the Claimant's personal business account to reduce the overdraft to £32,260.30 i.e. below the £50,000 limit. This was the second leg of a two-part transaction, the first part being a drawdown of £100,000 from the Loan Account to the Personal Business Account. The Claimant alleges that this was the first of five unauthorised transfers amounting to £265,000 between these accounts controlled by him.
- On Tuesday 22 August 2006, a further drawdown of £100,000 was made from the Loan Account to the Personal Business Account. On the same day, £70,000 was transferred from the Personal Business Account to the Company Account. This brought the Company's overdraft down from £127,879.98 to £58,652.29 i.e. within the maximum discretionary limit of £75,000.
- The third was on 31st August when £20,000 was transferred bringing it down from £92,564.16 to £74,918 i.e. just within the permissible maximum discretionary limit.
- The fourth was shortly thereafter on 7th September when £50,000 was transferred bringing the Company's overdraft down from £105,674.62 to £59,244 i.e. again within the maximum discretionary limit of £75,000.
- The fifth was on 10th October when £25,000 was transferred bringing the Company's overdraft down from 95,912.73 to £78,916.84 i.e. just above the maximum discretionary limit of £75,000. This arose because on 6 October 2006, upon receipt of a VAT refund of £75,000 into the Premier Account, £60,000 was transferred from the Premier Account to the Personal Business Account. On 10 October 2006, £25,000 was then transferred from the Personal Business Account to the Company Account.
- The Claimant subsequently resigned his position as director and as company secretary of the Company on 23 October 2006 and 2 January 2007 respectively.
- On 1st August 2007 the banking affairs for the Company were transferred from the Relationship Manager and his team to the Business Support department under Suzanne Parton. She held a meeting with the Claimant and the Directors of the Company and resolved to obtain a report on the Company from BDO Stoy Hamlyn. Two days later, she says that the Claimant notified her of unauthorised transfers of his personal monies into the Company account.
- The BDO Report of 14th August 2007 detailed the parlous predicament of the Company. The transformation of the property had cost £400,000 against an initial budget of £250,000 financed primarily by directors' loans. The accounts showed an operating loss of £374,000 financed partly by management and partly by Bank financing.
- Subsequently, the Company went into administration on 25 January 2008. The Claimant is an unsecured creditor of the Company, pursuant to a written loan agreement dated 26 January 2007 which provided, amongst other matters, that the Claimant would make available an unsecured loan to the Company of £324,425.88, that such sum represented the balance of his director's loan account as at the date of his resignation on 23 October 2006, and that the loan would be repaid over 36 monthly instalments beginning on 26 January 2008.
- The Claimant further alleges that as a result of the allegedly unauthorised transfers he has sustained consequential loss and damage. In October 2007, he claimed that his alleged consequential losses amounted to £605,000; a month later, in November 2007, he claimed that they had risen to nearly £1.1 million; by the time he issued this action, he was claiming that they were some £2,157,000. His total claim is now for some £2.4 million plus interest approximately the same amount as he owes the Bank.
- The Bank categorically denies that the disputed Transfers were not authorised by the Claimant. It contends that the Claimant gave oral telephone instructions to staff at the Bank's Cardiff Business Centre to make each of the Disputed Transfers, which the Bank was both entitled and obliged to follow in accordance with the terms and conditions governing the account. Without prejudice to that primary case, the Bank further contends that in any event the claim is excluded under the Condition 3 of the terms and conditions governing the account, and the Claimant ratified and adopted the disputed transfers by entering into the Loan Agreement.
Issues at trial
- At the Case Management Conference on 12 June 2009, HHJ Kirkham ordered split trials in respect of the Bank's liability for breach of mandate and any entitlement to damages for breach of contract Pursuant to the Judge's order, the issues at this trial were therefore:
(1) Did Mr Earles authorise and instruct the Bank to process the Disputed Transfers (and each of them)? There is no longer any issue that these instructions could be given and accepted verbally by telephone or computer as Condition 3 of the Terms and Conditions governing the Personal Business account provide for such:
"3.1 You can give us instructions verbally, in writing, by telephone or computer unless an additional condition limits the way in which instructions can be given.
3.2 Before we can accept instructions given to us by computer we will agree security procedures with you
. We may also agree security procedures with you before accepting instructions given to us by telephone.
3.6 We can act on instructions (including instructions to make or collect payments from or into your account) given:
(a) on a document bearing your signature(s); or
(b) by telephone or computer, as long as we have followed the security procedures, whether or not the instruction was given by you; or
(c) verbally, as long as we have been able to identify you without following the security procedures.
As long as we have followed your instructions correctly, we can deduct the amount of any payment from your account. You agree that we may rely on any account number quoted in an instruction as the correct amount to be debited or credited."
The only issues are therefore purely factual: were these actually instructions given?
(2) Is the Bank entitled, in the events that occurred, to rely on Condition 9.4 of the Terms and Conditions to exclude Mr Earles' claim? This was abandoned by the Bank during the trial but the legal issue of ratification became live.
(3) Is the Bank entitled to rely on Condition 9.3 of the Terms and Conditions to exclude Mr Earles' claim for damages for breach of contract? Condition 9.3 provided:
"We will not be liable to you in any circumstances for:
Loss of business, loss of goodwill, loss of opportunity, loss of profit;
Any type of special, consequential or indirect loss whatsoever."
- The resolution of the primary issue appears beguilingly simple. Were telephone calls or e-mails made on each of the 5 occasions and, if so, what was said or written?
- Guidance to the fact finding judge on how to approach such a seemingly simple task has been given by judges of great eminence. The extra-judicial writing of Lord Bingham of Cornhill in a paper headed "The Judge as Juror: The Judicial Determination of Factual Issues" published in "The Business of Judging", Oxford 2000, where it was reprinted from Current Legal Problems, vol 38, 1985 p 1-27 discusses the correct judicial approach:
'. . . Faced with a conflict of evidence on an issue substantially affecting the outcome of an action, often knowing that a decision this way or that will have momentous consequences on the parties' lives or fortunes, how can and should the judge set about his task of resolving it ? How is he to resolve which witness is honest and which dishonest, which reliable and which unreliable? . . .
The normal first step in resolving issues of primary fact is, I feel sure, to add to what is common ground between the parties (which the pleadings in the action should have identified, but often do not) such facts as are shown to be incontrovertible. In many cases, letters or minutes written well before there was any breath of dispute between the parties may throw a very clear light on their knowledge and intentions at a particular time. In other cases, evidence of tyre marks, debris or where vehicles ended up may be crucial. To attach importance to matters such as these, which are independent of human recollection, is so obvious and standard a practice, and in some cases so inevitable, that no prolonged discussion is called for. It is nonetheless worth bearing in mind, when vexatious conflicts of oral testimony arise, that these fall to be judged against the background not only of what the parties agree to have happened but also of what plainly did happen, even though the parties do not agree.
The most compendious statement known to me of the judicial process involved in assessing the credibility of an oral witness is to be found in the dissenting speech of Lord Pearce in the House of Lords in Onassis v Vergottis  2 Lloyds Rep 403 at p 431. In this he touches on so many of the matters which I wish to mention that I may perhaps be forgiven for citing the relevant passage in full:
''Credibility' involves wider problems than mere 'demeanour' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person telling something less than the truth on this issue, or though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by over much discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. [emphasis added]. And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part"'
Every judge is familiar with cases in which the conflict between the accounts of different witnesses is so gross as to be inexplicable save on the basis that one or some of the witnesses are deliberately giving evidence which they know to be untrue . . . . more often dishonest evidence is likely to be prompted by the hope of gain, the desire to avert blame or criticism, or misplaced loyalty to one or other of the parties. The main tests needed to determine whether a witness is lying or not are, I think, the following, although their relative importance will vary widely form case to case:
(1) the consistency of the witness's evidence with what is agreed, or clearly shown by other evidence, to have occurred;
(2) the internal consistency of the witness's evidence;
(3) consistency with what the witness has said or deposed on other occasions;
(4) the credit of the witness in relation to matters not germane to the litigation;
(5) the demeanour of the witness.
The first three of these tests may in general be regarded as giving a useful pointer to where the truth lies. If a witness's evidence conflicts with what is clearly shown to have occurred, or is internally self-contradictory, or conflicts with what the witness has previously said, it may usually be regarded as suspect. It may only be unreliable, and not dishonest, but the nature of the case may effectively rule out that possibility.
The fourth test is perhaps more arguable. . . .'
- Recently, fact finding judges have felt it useful to apply the following dictum of Lord Goff in Grace Shipping v. Sharp & Co  1 Lloyd's Law Rep. 207 at 215-6.
"And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities. In this connection, their Lordships wish to endorse a passage from a judgment of one of their number in Armagas Ltd v. Mundogas S.A. (The Ocean Frost),  1 Lloyd's Rep. 1, when he said at p. 57:-
"Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth." [emphases added].
That observation is, in their Lordships' opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence."
In that context he was impressed by a witness described in the following terms.
"Although like the other main witnesses his evidence was a mixture of reconstruction and original recollection, he took considerable trouble to distinguish precisely between the two, to an extent which I found convincing and reliable."
That is so important, and so infrequently done."
- It is not realistic to expect any human beings to recall with any reliability what they said 3 years ago about run of the mill business transactions. Therefore it is crucial to follow the guidance of these very eminent jurists and in particular those emphasized regarding the analysis of contemporaneous documents; objective facts and documents; witnesses motives and overall probabilities. Since 2000 most key contemporaneous commercial documents are contained in Electronically Stored Information ["ESI"] today over 90% of communications are recorded in that form phone records, texts, e-mail, bank records etc. ESI are "documents" under the Civil Procedure Rules: CPR 31.4 and 31PD.2A. Accordingly, the rules for "Standard Disclosure" apply: CPR 31.6. i.e. "only" those documents that are "supportive" or "adverse" to each party's cases. The abundance of this ESI in cyberspace means that potential litigants, in particular organisations such as Banks at the current time, need to anticipate having to give disclosure of specifically relevant electronic documentation and the means of doing so efficiently and effectively.
- The Claimant asserts that he queried the transfers for the first time at an unminuted meeting with Mr Leech and another in April 2007; this is denied by Mr Leech who recalls such a meeting the previous year but obviously no discussion about transfers that had not been made at that time.
- The Defendant alleges that the first time any of the transactions were queried was in a phone call on 3rd August 2007 between Suzanne Parton and the Claimant and that only related to 3 transactions £115,000. A fourth disputed transfer was undoubtedly only raised on 25th October 2007 by Lodders, solicitors acting on behalf of the Claimant. The fifth was only raised at the opening of the trial the Defendants were relying on it in their witness statements served as being unchallenged. They contend this gives the lie to the Claimant's case.
- The Claimant's solicitors, Lodders, wrote a letter before action and of complaint action to the Bank on 18th October 2007 claiming, inter alia, that "The key issue in this matter relates to your Manager, Mr Martin Leech, making three separate transfers of funds globally totalling £115,000 from our client's business account to the account of Eden Holding limited".
- The issues had crystallised and the likely resolution to them lay in the disclosure of respective e-mails and phone records of Mr Earles and Mr Leech (i.e. the Bank).
- Beth Freeman, legal counsel to the Bank in the Barclays Legal & Compliance Section of GRCP Litigation responded on 19th October 2007 indicating that she would be "looking into the details surrounding your client's complaint and will provide a substantive response as soon as possible."
- Despite this none of the Bank, its legal department, the Claimant or his solicitors took the obvious steps of preserving the contemporaneous phone and e-mail records that would support or be adverse to their contentions and retaining them in anticipation of litigation between them 'litigation hold' as it is termed in US under their Federal Rules of Civil Procedure.
- However, in this jurisdiction as in Australia, there is no duty to preserve documents prior to the commencement of proceedings: British American Tobacco Australia Services Limited v. Cowell  V.S.C.A. 197, a decision approved in this country by Morritt V.C. in Douglas v. Hello  EWHC 55 at . However, the leading text book in this area Documentary Evidence by Charles Hollander QC- suggests in paragraph 10-06 of the 10th edition that "there might be cases where it was appropriate to draw adverse inferences from a party's conduct before the commencement of proceedings." In my judgment there would have to be some clear evidence of deliberate spoliation in anticipation of litigation before one could legitimately draw evidential "adverse inferences" in those circumstances. There is no such evidential basis in this case.
- After the commencement of proceedings the situation is radically different. In Woods v. Martins Bank Ltd  1 Q.B. 55 at 60, Salmon J. said "It cannot be too clearly understood that solicitors owe a duty to the court, as officers of the court to make sure, as far as possible, that no relevant documents have been omitted from their client's list".
- In the case of documents not preserved after the commencement of proceedings then the defaulting party risk "adverse inferences" being drawn for such "spoliation": Infabricks Ltd v. Jaytex Ltd  FSR 75.
- Contrary to CPR 31PD.2A, there were no pre-Case Management Conference discussions about the disclosure of any of this key Electronically Stored Information ('ESI'). There was no apparent discussion about it at the Case Management Conference on 12th June, no Costs Management of the disclosure process despite the Costs Management Pilot Scheme in operation at the Birmingham Mercantile Court for the Jackson Review on Costs and no order made in respect of it. Order 4 provided without any particularity "the parties shall give standard disclosure by list (confined to Liability Issues) pursuant to CPR 31.6 no later than 4pm on 6 July 2009 with inspection by provision of copy documents 7 days notice".
- The list dated 13th July 2009 produced by Elizabeth Freeman, In house Legal Counsel for the Defendant, verified a search for electronic documents. These did not include telephone records of the Bank and Mr Leech that might have verified calls received from the Claimant's mobile telephone number 07813 211849 that was given as the contact details in his application forms to the Bank. The list does not include any "pink and yellow" Transfer Sheets to record instructions received from customers over the phone or verbally according to paragraph 53 of Katharine Shelley's witness statement. These documents would clearly be relevant for the purposes of CPR 31.6 . The explanation given by Counsel for the bank in closing submissions for this gross omission is that it was decided that they were of marginal relevance and it would be disproportionate to undertake a task that might take a team working for 3 months! I simply do not accept that assessment. In the light of the fact that the Bank has incurred over £154,000 in costs in defending this claim for £2.45m and that the documents would clearly have assisted the case in determining whether the oral authorisations were given, I reject both those submissions. However, I accept that these were the reasons, albeit poor ones, and that it was not due to the Bank's deliberate hiding of them; otherwise the witness statement prepared for Katharine Shelley would simply not have referred to them.
- The search also revealed that the e-mails and electronic documents of all Bank employees had been searched and retrieved but the critical ones of Mr Leech's e-mail account had not been found with an explanation that he was no longer an employee of the Bank. However, during closing submissions I was told by Counsel for the Bank that she was instructed that Mr Leech had been asked in 2007 if he had any relevant e-mails on his laptop and he had said no. This does not appear on the disclosure statement in 2009. During this time and right until shortly before trial, the Claimant was unrepresented. On 30th July 2009 Simmons & Simmons, the solicitors acting for the Bank wrote to the Claimant demanding proper disclosure of his records correctly stating: "Disclosure of documents is not optional. It is a crucial element of civil litigation". It then threatens an application with draconian consequences of a strike out of the Claim before going on to say "It should also include your personal telephone bills for the period of the disputed transfers, which will be relevant to the question of whether you made the telephone calls to the bank on relevant dates." A similar retort would have been made against the Defendant if the Claimant had been legally represented. These matters should have been raised at the CMC: see CPD 31 PD 2A.
- The Claimant responded on 1st August 2009 by stating in an e-mail that he had undertaken appropriate searches but that "Phone bills have not survived from this period and anyway I did not receive itemised bills. I have never been given the dates or times that Barclays claim they spoke to someone on the telephone nor what process of identification was asked for or given".
- Both parties now submit that the Court should draw 'adverse inferences' against the other party for their failure to disclose their own telephone records on and just before each of the alleged transactions that would establish one way or another whether the Claimant and Mr Leech had been in telephone contact with one another at that time the Claimant vigorously denying he had; Mr Leech swearing to the contrary. Furthermore with the Claimant denying he was in any form of regular telephone contact with anyone at the Bank about the state of his accounts and with Mr Leech and both his assistants swearing that he was constantly in contact, then all the Bank's phone records for these personnel were also highly relevant to the key issue.
- None of this documentation has been disclosed, nor have the Transfer Sheets and no relevant e-mails between Mr Leech and the Claimant during this period have emerged that might have shed valuable light on what the respective individuals did or believe before the spectre of litigation loomed.
- In cases where there is a deliberate void of evidence, such negativity can be used as a weapon in adversarial litigation to fill the evidential gap and so establish a positive case. In British Railways Board v. Herrington  1 AER 786, Lord Diplock stated:
"The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.
A court may take judicial notice that railway lines are regularly patrolled by linesman and gangers. In the absence of evidence to the contrary, it is entitled to infer that one or more of them in the course of several weeks noticed what was plain for all to see. Anyone of common sense would realise the danger that the state of the fence so close to the live rail created for little children coming to the meadow to play. As the appellants elected to call none of the persons who patrolled the line there is nothing to rebut the inference that they did not lack the common sense to realise the danger. A court is accordingly entitled to infer from the inaction of the appellants that one or more of their employees decided to allow the risk to continue of some child crossing the boundary and being injured or killed by the live rail rather than to incur the trivial trouble and expense of repairing the gap in the fence".
- In India Oil Corporation v. Greenstone Shipping SA  1 QB 345 per Staughton J. The court discussed the modern meaning of the rule of evidence known in Latin as 'omnia praesumuntur contra spoliatorem' (everything is presumed against a destroyer (of evidence) "spoliation" as it is termed in US and which the rule of "litigation hold" is designed to combat:
"If the wrongdoer prevents the innocent party proving how much of his property has been taken, then the wrongdoer is liable to the greatest extent possible in the circumstances"
- This presumption was used in the case of Infabrics Ltd v. Jaytex Ltd [supra].
- In my judgment, the deficiencies of disclosure on the part of the Claimant, a litigant in person during the disclosure process, are probably due to his lack of appreciation of the Civil Procedure Rules. I accept that by 2009 he had lost his mobile phone records and, as a litigant in person at the time, he would have found it difficult to get his service provider to find back up records. It would therefore be wrong to make any adverse inferences against him on that score.
- The lack of disclosure by the Bank of the phone records, the Transfer Sheets and e-mail account of Mr Leech cannot be ascribed to a lack of understanding of the duties of disclosure and how to procure retrieval of electronic "documents" by the Bank's first class legal teams, both in and out house, and document storage managers as demonstrated by the correspondence referred to above. The explanation that the void occurred because Mr Leech had retired from the Bank's employment is a lame excuse- an expert in information technology, either in house or a consultant, could easily have been instructed to retrieve ESI from various back up sources one would have thought but no such expert appear to have been instructed to do so. One expects a major high street Bank in this day and age of electronic records and communication with an in house litigation department to have an efficient and effective information management system in place to provide identification, preservation, collection, processing, review analysis and production of its ESI in the disclosure process in litigation and regulation. However, even though the failure to disclose such critical information to assist the Court is surprising and to be deplored, there is no evidence that it has been done deliberately or constitutes spoliation in order to gain a tactical evidential advantage at the trial. None of the Bank's personnel such as in house counsel Elizabeth Freeman who undertook the bank's disclosure have been challenged on that. Accordingly, I decline to make any adverse inferences against the Bank either. The Bank's telephone databases and back up tapes as well as the Transfer Sheets should have been disclosed but I do not believe it has been established that these have been deliberately withheld to avoid its own case being undermined. In my judgment this was a decision made by the Bank'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.
- The evidence that I am left with in the 500 page bundle of trial documents is primarily that of the witnesses themselves and the contemporaneous Credit Call Reports of Mr Leech's assistants, Katharine Shelley and Melanie Wigley-Jones.
- Mr Earles provided a short very general statement as his evidence in chief. I found his answers in cross examination to be unfocussed, vague and evasive, even though the issues he had to deal with were simple. I found his answers that, as a former bank manager and a businessman running various large property developing projects on his own and a company's account, he did not look at the bank statements sent to him, quite incredible. On the other hand I found Mr Leech to be an impressive witness. Like all the Bank's witnesses, the presentation of their witness statements was a model but that is primarily due to the drafting no doubt done with the considerable assistance of their instructed litigation solicitors. This practice of drafting of witness statements and their substitution for evidence in chief makes evaluation of witnesses evidence on the issue of credibility more difficult. However, in oral evidence under strenuous cross examination he was clear in his recollections, well reasoned and emotionally detached he is no longer working for the Bank. He had worked for 30 years in the Bank since he joined immediately after leaving school working his way up to a position of high standing. Whereas Mr Earles has an obvious motive to say the transactions were unauthorised on account of his undisputed indebtedness to the Bank, Mr Leech has not such motive he is no longer employed by the Bank and he was under no pressure from the Bank or the Credit Team at any time. He was simply trying to help the Claimant manage his various customers' accounts within the limits provided by the Credit Team.
- Similarly, I found Katharine Shelley and Melanie Wigley-Jones (Suzanne Parton too) to be impressive witnesses all with lengthy experience in working in the Bank following precise routines and procedures. In particular, I find that I can place great reliance on their contemporaneous Credit Call Reports and their evidence that Mr Earles maintained close and watchful control over the operation of both his own and the Company's accounts, telephoning most mornings to check the balances on the accounts, discuss funds that he expected to be paid into the accounts, and identify how he intended to utilise those funds once received. The undisclosed phone records of the Bank and of the Claimant's mobile telephone would have conclusively proved this. However, in my judgment this is what would be expected of a businessman personally involved in juggling his finances upon risky property developments. As a former bank manager, I simply do not believe he would abandon that task to his Relationship Manager who had no stake in how the developments funded by Mr Earles personally turned out. His only interest was in maintaining the accounts within their various prescribed limits; he would have no interest in how the developments would profit such was Mr Earles' concern.
- The Credit Call Reports clearly demonstrate the instructions between Mr Leech and to his assistants. Apart from one they do not expressly record actual communications with the Claimant. Crucially, one of them on 27th September 2006 recorded by Katharine Shelley records "spoke with customer" i.e. Mr Earles. The other reports merely summarise such as "customer has instructed us" on 4th October. In my judgment, these records support the Bank's case that all transactions followed the instructions given by the customer.
- Mr Earles' business accounts and the Company account were all opened by him and held at the Bank's Cardiff Business Centre branch. Mr Earles was the first point of contact for the Company Account; its main business/ organisation address and correspondence address was Mr Earles' home address; and the monthly bank statements for the Company were sent to Mr Earles' home address. He had all the details to be able to monitor the accounts closely.
- Furthermore, a fourth disputed transfer was undoubtedly only raised on 25th October 2007 by Lodders, solicitors acting on behalf of the Claimant. If this had been a genuinely disputed transfer then in my judgment it would have been raised when the other three were on 3rd August 2007. A fifth "disputed transaction" of £50,000 was only first raised in an application to amend the Particulars of Claim on the morning of the trial on 28th September 2009 i.e. just over 3 years later when all the documents had long been disclosed and it became apparent to the Claimant from the recently served witness statements of the Defendants that they were relying on this transfer being an unchallenged one of a similar type to the disputed ones as a QED of their case. In my judgment, the Claimant challenged that transfer because he realised that otherwise his case was completely undermined. If there had been any true dispute about that transaction, then, in my judgment, it would have been raised far sooner by such a savvy businessman as the Claimant.
- I reject Mr Earles' evidence that he met Mr Leech in April 2007 with a prospective purchaser of the Great Rollright development. I prefer the evidence of Mr Leech on this. The meeting was in April 2006 before the transactions came into being. If the meeting had been in 2007 and the transfers discussed then I would have expected details to have appeared in the Credit Call Reports that were diligently maintained.
- The Bank's records demonstrate, and the Bank's witnesses confirm, that throughout this period Mr Earles gave repeated assurances to the Bank that financing/ funding would very soon be received into the Company Account to reduce the Company's significant and excessive indebtedness, but ultimately no such funds were in fact forthcoming. However, as the Company Account statements and cheques drawn demonstrate, the Company needed to make substantial ongoing payments to its suppliers and contractors. Without the Disputed Transfers and the Undisputed Transfer, items presented for payment on the Company Account would have been returned and the Company thus unable to operate its bank account and pay for its refurbishment works.
- In my judgment it is clear that the reason why the Claimant transferred monies into the Company Account was because throughout the relevant period the Company was operating the Account significantly in excess of the borrowing facilities extended to it by the Bank; had substantial outgoings that it needed to meet; did not manage to obtain further financing elsewhere (notwithstanding Mr Earles' repeated assurances that such funds would be forthcoming); and regularly reached the point where the Bank would cease allowing payments out of the Eden Account if additional funds were not put into it.
- The documentary evidence therefore demonstrates, and the Bank's witnesses strongly confirm, that Mr Earles made good and frequent use of telephone access to the Business Centre staff, including for the purpose of giving instructions to make transfers. Mr Earles does not contend that other transfers made on telephone instructions self-evidently without his giving signed authorisation and/or ID verification were unauthorised.
- Mr Earles' assertion that he had only ever spoken to any of the Business Centre team briefly is implausible and contrary to the contemporaneous evidence which I accept as accurate. The Company Account appeared very frequently on the Business Centre's daily 'refer lists' of accounts that had exceeded their specified overdraft limit. The appearance of an account on the refer list had serious consequences, including review and possible rejection of items presented or payments requested from the account; if the excess were not remedied within a fairly short space of time, referral to the Bank's credit committee; and ultimately, if the excess still continued, withdrawal of banking facilities altogether. As one would expect, customers whose accounts appeared on the refer list therefore quickly found themselves in discussions with Mr Leech, Katharine Shelley and Melanie Wigley-Jones about when and how the customer proposed to bring the account back within the specified overdraft limit. Mr Earles was the first point of contact on the Eden Account and finance director of the Company; given the extent to which Eden operated in excess of its agreed borrowing facilities, it is simply not credible for Mr Earles to claim that he had only ever spoken to any of the Business Centre team briefly.
- There is no plausible explanation as to why, on his own case, he apparently failed to notice these transactions.
- On 31 July 2007, Mr Earles' and the Company's accounts were transferred to the Bank's Business Support Unit under the management of Suzanne Parton. She promptly called an urgent meeting on 1 August 2007 with Mr Earles and representatives of the Company to discuss its dire financial position, at which she explained that the Bank could not provide further funding, and that the Company was likely to fail without an injection of capital. In that event, the Bank would of course call upon Mr Earles' guarantee. Two days later, Mr Earles telephoned Suzanne Parton to say that he wanted to bring something else to her attention, namely that £115,000 of his personal money had been transferred from one of his accounts to the Company Account without his authority. When asked why he had not raised the matter until now, Mr Earles then claimed that he had previously complained about these transfers (the Second, Third and Fourth Disputed Transfers) by telephone. There is no record of this and if the bank had been advised of that then I am certain they would have noted such matters and taken appropriate action.
- In my judgment, the first occasion on which Mr Earles complained about the Second, Third and Fifth Disputed Transfers was following the meeting on 1 August 2007. I reject his evidence that he raised any issue about unauthorised transfers at any meeting with Mr Leech in April 2007. If he had then I am certain Mr Leech and Mr Earles would both have taken action about that.
- As to Mr Earles' 'discovery' of the First Disputed Transfer, his explanation in this regard is bizarre. It was not until 25 October 2007, over 15 months after the event, that Mr Earles complained about the First Disputed Transfer, in a letter from his solicitors. His explanation for not noticing this transfer when he reviewed his bank statements (which on his own case had happened well before this date) was that it had coincided with the transfer into the Account of £100,000 from the Loan Account and therefore the balance on the account was not affected. It is simply not credible for Mr Earles to assert that he failed to notice any of the receipts set out on his account statement, let alone a receipt of such a substantial sum as £100,000, or that the balance was (on his own case, given that he does not dispute that the drawdown was authorised) £100,000 less than he would have expected; nor indeed is it credible that he did not notice the payment on the statement for the Company Account.
- In my Judgment, the contemporaneous documentation, the objective facts and documents, witnesses' motives and the overall probabilities all support the clear evidence of the bank officials running these accounts that these transactions were orally authorised by the Claimant. I believe Mr Leech and I disbelieve Mr Earles.
- Accordingly, I find for the Bank on Issue 1 and the claim must fail.
The secondary issue
- This is now strictly otiose in the light of the above finding but I will briefly deal with it. In my Judgment such a term is entirely reasonable where a Bank is seeking to operate a commercial customer's various business accounts within their prescribed limits. It would be unfair on a Bank to impose upon it liability for the potential losses of a highly speculative property developer juggling with funds in order to make himself substantial profits whilst being exposed to potential losses. The Bank was undertaking no similar risks for profit. It was merely providing facilities and assumed no further duties of care that would give rise to consequential losses: they did not fall within the scope of the risk. However, if such duties were established and breaches established, then, in my judgment, it was entirely reasonable for the Bank to limit the commercial consequences for any defaults in the provision of their services to commercial customers, such as the Claimant (a former Bank Manager and property developer) with an equal bargaining power in the competitive financial services market. The Bank has discharged its duty to establish that their conditions were fair under the Unfair Contract Terms Act.
THE TERTIARY ISSUE
- Again this is strictly otiose. In the Loan Agreement entered into between Mr Earles and the Company on 26 January 2007, Mr Earles confirmed that the total sum owing to him by the Company representing the balance of his director's loan account as at the date of his resignation on 23 October 2006, was £324,425.88. This balance included the Disputed Transfers: Mr Earles has confirmed that in the Loan Agreement "Eden Holding just reflected the fact that [the Bank] had sent funds to them from my account".
- Thus even assuming that Mr Earles did not authorise the Disputed Transfers, Mr Earles ratified and adopted them by entering into the Loan Agreement: see London Intercontinental Trust Ltd v Barclays Bank Ltd  1 Lloyd's Rep 241.
- In entering into the Loan Agreement, Mr Earles thereby expressly recognised that the Company was indebted to him in the sum of £324,425.88, which debt included the Disputed Transfers. This confirms my earlier finding on the primary issue. That recognition would be wholly inconsistent with Mr Earles having any claim against the Bank on the basis that the Disputed Transfers were unauthorised. Either he had a claim against the Company, or he had a claim against the Bank; he did not have a claim against both.
- The Defendant has been 'successful' in its Defence of the Claim. Accordingly, under CPR 44.3 it is prima facie entitled to its costs against the 'unsuccessful' Claimant.
- This has been a short trial of essentially a very simple factual issue with 5 witnesses and 500 pages of documents (mostly irrelevant about 10% relevance) lasting just 2 days plus short oral submissions. The Claimant was only represented until the proceedings began and again shortly before trial. He is heavily indebted to the Defendant in the sum of £2.45m. It therefore seemed just to assess the costs summarily rather than send them for potentially expensive 'detailed assessment'.
- The Claimant's cost schedule is therefore rather modest at £22,003.75 and the rates charged are within costs guidelines.
- The Defendant's costs amount to £202,480.50. The panel arrangement agreed with the Bank and its litigation lawyers is that each phase of litigation is budget capped. Accordingly, £48,409.25 is above the budget cap and is being borne by the Defendants' solicitors. £154,071.25 is now sought for dealing with these short preliminary issues concerning 5 transactions amounting to £265,000. One point was abandoned by the successful bank but I am satisfied that it had little costs involved.
- I have been critical of the 'conduct' by the Bank of its disclosure and its electronic disclosure.
- As regards disclosure, the Bank failed to give disclosure of the Transfer Sheets referred to in paragraph 53 of the witness statement of Katharine Shelley. They were clearly relevant under the narrow test of CPR 31.6 to the primary issue in the case. The very fact that they were referred to in the carefully crafted witness statement proves that and it ought to have been obvious to the Defendants lawyers. Their absence made the task of the Court immeasurably harder to the extent that it considered lengthy submission as to whether or to draw adverse inferences against the Bank itself. I am satisfied that it was a decision of the legal team on the erroneous grounds of disproportionality.
- As regards electronic disclosure, the Bank, through its in-house counsel, Elizabeth Freeman, should have procured and retained Mr Leech's e-mail account and phone records for the period covered by the three transactions questioned in the letter before action from Lodders dated 18th October 2007. In house Counsel should not have simply accepted Mr Leech's word that there were no relevant e-mails. His lap top should have been retained in 2007 and certainly ascertained upon his leaving the Bank in November 2008. This earlier non disclosure of the e-mail records should have featured in the disclosure statement. It is accepted that it was strictly under no procedural duty to do so in civil procedure law. However, "conduct' before proceedings can be taken into account in dealing with costs under CPR 44.3 (5).
- Secondly, the Bank's litigation lawyers should have "discussed" with the Claimant well "prior to the case management conference" the electronic disclosure of both Mr Earles and Mr Leech's phone and e-mail records as expressly provided by CPR 31PD.2A2 . It did neither but did rehearse the issue of disclosure with the Claimant two years later in August 2009 shortly before trial. This was far too late with the result that the witnesses and the court have had to deal with a case with critical contemporaneous documents missing. This is contrary to the Overriding Objective of "ensuring" that the case is "dealt with expeditiously and fairly."
- It might be contended that CPR 31PD 2A and electronic disclosure are little known or practised outside the Admiralty and Commercial Court. If so, such myth needs to be swiftly dispelled when over 90% of business documentation is electronic in form. The Practice Direction is in the Civil Procedure Rules and those practising in civil courts are expected to know the rules and practice them; it is gross incompetence not to.
- This is long established. In Fletcher & Son v. Jubb, Booth & Helliwell  1 K.B. 275 at page 280, Scrutton LJ approved a passage from a judgment of Tindal CJ in Godefroy v. Dalton (1830) 6 Bing. 460:
"It would be extremely difficult to define the exact limit by which the skill and diligence which an attorney undertakes to furnish in the conduct of a cause is bounded or to trace precisely the dividing line between the reasonable skill and diligence which appears to satisfy his undertaking, and the crass negligentia or lata culpa mentioned in some of the cases, for which he is undoubtedly responsible. The cases, however, which have been cited and commented on at the bar, appear to establish, in general, that he is liable for the consequences of ignorance or non-observance of the rules of practice of this court; for the want of care in the preparation of the cause for trial; or of the attendance thereon with his witnesses and for the mismanagement of so much of the conduct of a cause as is usually and ordinarily allotted to his department of the profession [emphasis added]
- As regards "disclosure" (and this includes electronic disclosure), it is worth repeating here what was said in Woods v. Martins Bank Ltd  1 Q.B. 55 at 60, where Salmon J. said "It cannot be too clearly understood that solicitors owe a duty to the court, as officers of the court to make sure, as far as possible, that no relevant documents have been omitted from their client's list".
- The disclosure of only the key documents in a case is absolutely essential to a Court if it is to achieve the accurate and efficient fact finding sought by the parties to civil litigation.
- In my judgment, the 'conduct' of electronic disclosure by the Bank and its lawyers fell far below the standards to be expected of those practicing in the civil courts and I am going to take that into account under CPR 44.3 in the award of costs to the successful party.
- In my judgment, if disclosure of these records had taken place two years ago on August 2007, there was a reasonable prospect that this matter would not have proceeded to trial and so incurred the legal costs it has. The Bank's case, on my judgment, would have been unanswerable but of course the Claimant's attitude may have been to ignore that. However, if the documents had been disclosed then a Summary Judgment application might well have been successful.
- In my judgment, there were reasonable prospects of saving the main body of these itemised costs which are mainly those for trial but I accept that the additional work on proper disclosure would have added to the itemised bill before me. In my judgment, a fair assessment of this would be to award the successful party 50% of its costs against the unsuccessful Claimant.
- Secondly, the Schedule of Costs of the Defendants in my judgment is "disproportionate" to the sums and issues involved in what was only a simple factual trial on preliminary issues involving 5 witnesses &, in reality 50 or so pages of documents, and no issues of law or construction of contract.
- I accept that the Bank is entitled to instruct the very best City of London firms (as Simmons & Simmons undoubtedly are) and Counsel from leading commercial chambers as Fountain Court in London undoubtedly are too. I also welcome such excellent representation in the Mercantile Court in Birmingham as it makes the task of judging much easier when good preparation and advocacy is displayed.
- However, in making what is a "costs transference" order, in my judgment the sum to be ordered to be transferred must objectively be a reasonable one for the unsuccessful party to bear. The overriding objective requires the court to observe "proportionality" and to "ensure that the parties are on an equal footing". Here we have an impecunious bank customer facing the might of one of the country's largest banks and a blue chip legal team to match when he has struggled to afford to have a highly competent but small firm from Stratford upon Avon to represent him just for the trial. Ordinary citizens must have proper access to civil justice without the fear of exclusion by the prospect that they will face paying for the exorbitance of their adversary should they be unsuccessful in their litigation.
- Many other banks who come before the Mercantile Court on similar cases, such as HSBC, use in house legal teams only and able solicitor advocates charging similar rates as Lodders (solicitors for the Claimant here) that lie within the Birmingham cost Guidelines.
- In my judgment, it is only fair and just that the bill of costs adopts rates similar to those and not top class City of London rates this is not the type of case that merits those. In my judgment this halves the rates a London partner charging £420-£425 is half that here at the maximum Birmingham rates of £217. It is simply not acceptable to sanction rates of £235 to £250 per hour for an Assistant Solicitor admitted to the Roll in March 2008 when the Birmingham Cost Guideline rates for Inner Ring senior partners at the top firms is "only" £217. In my judgment, this case was tried in the Birmingham Mercantile Court by choice of the Claimant and the Defendant agreed with this (the Defendant normally having the right to request venue at its registered address- here London: CPR 26.2 and (2) & 30.3(2)). In those circumstances, I believe it is just that Birmingham rates, not City of London rates, prevail.
- Again comparison of Counsel's fees shows a discrepancy between Counsel from St Phillips of Birmingham for the Claimant (2001 call) of £6,195 for three day trial and £18,400 for Counsel (2002 call) for the Defendant from Fountain Court of London. I accept that Counsel for the Defendant was briefed earlier and had more preparation time. I would like to stress that both performed to a very high and helpful standard but I do believe that the sum of £18,400 is far too high for this case and half that is reasonable in all the circumstances.
- On the question of hours spent, I am prepared to accept the hours worked. However, these hours seem excessive for what is quite a simple case. 41 hours on dealing with Statements of Case and a mind boggling 223.1 hours in dealing with the Defendant's evidence of 5 witnesses and 500 pages of documents is far too much. However, I take into account that this is leavened by the fact that these excesses have been borne by the Defendant's solicitors thereby cutting it down to what was deemed reasonable by the Bank itself when it set its budget cap. I therefore accept the hours being charged for and sought against the unsuccessful Claimant.
- It would, however, have been much more preferable if Costs Management had been applied during Case Management and at the Case Management Conference as per the pilot scheme in this court as part of the Review of Costs in Civil Proceedings by Lord Justice Jackson. This would have controlled the costs before they were actually spent. The Defendant was facing a litigant in person for much of this action and that places a very onerous burden on the opposition to fairly and diligently prepare the case for trial. Not many litigants in person appreciate that when they are spending nothing on legal services themselves but only vicariously so riding everything on the result vis a vis costs as well as the outcome of the action.
- Accordingly, in my judgment, the fair award of costs is that the unsuccessful Claimant should pay the successful Defendant 25% of its Schedule of Costs (including VAT) amounting to £38,517.81 a sum that is proportionate and fair.
His Honour Judge Simon Brown QC
Sitting as an Additional High Court Judge
8th October 2009