NON-DISCLOSURE AND FRAUD: PLEAD ONLY ON CREDIBLE EVIDENCE

Fraud and the set aside jurisdiction

Sharland v Sharland [2015] UKSC 60 (14 October 2015) has reminded lawyers of the importance of fraud in family proceedings, especially in the non-disclosure set aside area. The subject must recall for any lawyer the dangers inherent in pleading fraud or other serious misconduct. Family proceedings rules on the set aside jurisdiction do not exist. Family Procedure Rules Committee have been trying to sort them out for three years and more; and that now have some tips from Lord Wilson as to what to do (Gohil v Gohil [2015] UKSC 61 (14 October 2015) at §[18]). The subject of pleading is not part of Lord Wilson’s §[18] suggestions.

I have suggested elsewhere (see guide to procedure at https://dbfamilylaw.wordpress.com/2015/10/17/application-to-set-aside-a-family-proceedings-order-a-procedural-guide/) that to get properly off the ground a claim must surely be properly pleaded alongside a Family Procedure Rules 2010 Part 18 application in the cause in which the alleged non-disclosure, or other grounds for set aside, occurred. On Lord Wilson’s recommendation (§[18](c)) that claim will then go to the same level of judge as dealt with the impugned order.

This, and a following, note will be addressed specifically to two controversial areas implied by any set aside procedure:

  • Allegations of fraud or other wrong-doing in a pleaded set aside (or any other) case; and
  • Aspects of legal professional privilege (‘LPP’) which impinge on the process.

The first of these will be addressed now. The second will be dealt with in a separate article.

Guidance on pleading

The bar Guidance on Pleading Fraud in the light of Medcalf v Mardell and others [2002] UKHL 27 and its own Conduct Code para 704(c) records first that the paragraph

‘states that a barrister should not draft a document containing any allegation of fraud “unless he has clear instructions to make such an allegation and has before him reasonably credible material which as it stands establishes a prima facie case of fraud” [emphasis added]….Lord Bingham of Cornhill, with whom the other law lords agreed, said that:

‘“… the requirement is not that counsel should necessarily have before him evidence in admissible form but that he should have material of such a character as to lead responsible counsel to conclude that serious allegations should properly be based upon it”’.

The Professional Standards Committee (PSC), the Guidance records, believes that ‘there is no litmus test for determining whether it is proper to allege fraud.’ In Medcalf Lord Bingham said: ‘Counsel is bound to exercise an objective professional judgment whether it is in all circumstances proper to lend his name to the allegation’. So, says PSC, the pleader’s ‘decision will depend on the individual facts of each case;’ and this will in practice ‘apply to any other allegation of serious misconduct’.

This guidance is likely to apply to any lawyer pleading a case of fraud or other serious misconduct.

Medcalf v Mardell

What had happened in Medcalf was that during the course of an appeal by the unsuccessful defendants to a High Court action, leading and junior counsel who represented the defendants – on instructions – made serious allegations of fraud against the claimant in a draft amended notice of appeal, in a supplementary skeleton argument and at the hearing of the appeal. An application to amend the notice of appeal and the substantive appeal were disallowed. The claimant applied for a wasted costs order against the barristers saying they had acted in contravention of paragraph 606 of the Code of Conduct of the Bar (as it then was) in that they could not have had before them ‘reasonably credible material’ which established a prima facie case of fraud.

The defendants themselves refused to waive privilege. The barristers could not therefore put before the court confidential material relating to their instructions so as to demonstrate that they had ‘reasonably credible material’ to justify the allegations. A majority of the Court of Appeal (Wilson J dissenting) held that the barristers’ conduct had been improper: counsel, they said could not have had before them sufficient material (per paragraph 606) to justify the allegations; that their inability to reveal privileged or confidential material did not make the hearing unfair; and that, making every assumption favourable to counsel on points where the court did not have evidence before it, it was nevertheless just to exercise its discretion in favour of making the order to compensate the claimant for wasted costs.

Fraud and the set aside jurisdiction

For the pleader the most difficult aspect of the non-disclosure jurisdiction will be that in many cases – Sharland was a cinch in this respect – by definition there will not be evidence. The allegation that a spouse has not disclosed will remain hidden. It must be teased out from circumstantial evidence and, for example, accidental references to parties’ children or family friends. To that extent Lord Bingham’s insistence on ‘reasonably credible’ evidence is a great help. It must always be recalled, if this all goes wrong, the pleader may end up on the wrong end of a wasted costs order application at the suit of the offended spouse; and as with Mardell’s lawyers LPP may not be waived by the pleader’s clients.

This point was emphasised by Lord Steyn, in typically economic style, in Medcalf:

[35] This particular professional duty sometimes poses difficult problems for practitioners. Making allegations of dishonesty without adequate grounds for doing so may be improper conduct. Not making allegation of dishonesty where it is proper to make such allegations may amount to dereliction of duty. The barrister must promote and protect fearlessly and by all proper and lawful means his lay client’s interests…. Often the decision will depend on circumstantial evidence. It may sometimes be finely balanced. What the decision should be may be a difficult matter of judgment on which reasonable minds may differ.

Credible evidence in an admissible form

The final say for this stage of the enquiry goes to Lord Bingham:

[22] Paragraph [704(c)] lays down an important and salutary principle. The parties to contested actions are often at daggers drawn, and the litigious process serves to exacerbate the hostility between them. Such clients are only too ready to make allegations of the most damaging kind against each other. While counsel should never lend his name to such allegations unless instructed to do so, the receipt of instructions is not of itself enough.…

The pleader lawyer must exercise objective judgement, and not simply follow his or her instructions (perhaps the most difficult bit of all this):

[22] … Counsel is bound to exercise an objective professional judgment whether it is in all the circumstances proper to lend his name to the allegation. As the rule recognises, counsel could not properly judge it proper to make such an allegation unless he had material before him which he judged to be reasonably credible and which appeared to justify the allegation…. I would however agree with Wilson J that at the preparatory stage the requirement is not that counsel should necessarily have before him evidence in admissible form but that he should have material of such a character as to lead responsible counsel [or other lawyer pleading the case]  to conclude that serious allegations could properly be based upon it. On this point I would accept the judgment of Wilson J.

Lord Bingham was still operating at a time when it was probably inconceivable that anyone other than learned counsel pleaded cases. I assume what he, and paragraph 704(c), says applies equally to any lawyer – or even lay – pleader; though the wasted cost jurisdiction is not designed for the lay adviser or, plainly, for litigants in person.

Carefully check your sources, is best advice to any lawyer, I would suggest; minute your conclusions and set them out in an advice to the client; and plead in each case what level of credibility of evidence leads to the fraud allegation.

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