Lloyds TSB Insurance Services Ltd v Shanley

This is the hearing of a claim commenced by the claimants by Part 8 claim form by which they seek the committal of the defendant (“Mr Shanley”) to prison for contempt. The circumstances in which this claim comes to be made in summary are as follows. Between 20 and 22 February 2013, I tried a claim by which Mr Shanley claimed relief in respect of an alleged breach of copyright in respect of what was called, in the proceedings, a “scoping tool” - a piece of software that enabled those carrying out household insurance claim appraisals to carry out that task more quickly and at less cost. The claim broke broadly into two parts, being first a claim against the second claimant in these proceedings (“Halifax”) for breach of an alleged licensing agreement, and as against both claimants in these proceedings for unauthorised sub-licensing of the first claimant (“Lloyds”) in these proceedings by Halifax. In the result, the first part of the claim failed, but the second part of the claim succeeded.

The first claim had, until a month before trial, been advanced by reference to an alleged written agreement. Initially, the claim was put in correspondence on a different basis and that resulted in a letter of 15 December 2011 from the solicitors acting for Halifax and Lloyds. This letter is referred to in paragraph 22 of my substantive judgment. It was, in a number of respects, false as explained in that paragraph. It is not necessary that I repeat what I had said previously. I incorporate, by reference, what I say in paragraph 22 into this judgment. Equally untrue was an assertion that the copyright in the scoping tool was owned by Halifax. I deal with that in paragraph 23 of my judgment in the main proceedings. In the result, and as I summarise at paragraph 24 of my judgment, the proceedings in the main claim were commenced by a claim form issued on 2 March 2012.

The claim pleaded on behalf of Mr Shanley was advanced by reference to an alleged written agreement that had not been mentioned in the correspondence between the parties that I have previously referred to. The thrust of the alleged written agreement is set out in paragraph 16 to 18 of the Particulars of Claim in the main proceedings. They are summarised in paragraph 24 of my judgment in the main proceedings. The Claim Form was of course supported by a statement of truth signed by Mr Shanley.

On 16 April 2012, Halifax and Lloyds served their Defence. They asserted that the written agreement relied upon by Mr Shanley, and which it was alleged by Mr Shanley had been signed by an official employed by Halifax called Mr Monteith, was a fabrication that had not been signed by Mr Monteith, and that the signature on the document was therefore a forgery.

A Reply was filed dated 8 June 2012, also containing a statement of truth signed by Mr Shanley in which the allegation of forgery and fabrication was denied.

Witness statements were ordered to be exchanged and as part of that exercise, on 26 October 2012, Mr Shanley’s second witness statement was served. It contained a statement of truth signed by him. At paragraph 33 to 43, as I rehearse in paragraph 25 of my main judgment, Mr Shanley sought to support his case as to the making of the fabricated agreement with detailed evidence that was inevitably false on Halifax’s and Lloyds’ case.

That was the shape of the main claim as it proceeded to trial, but on 25 January 2013, Mr Shanley filed a third witness statement, the general thrust of which is summarised in paragraph 26 of my judgment in the main proceedings but which, in essence, contained an admission by Mr Shanley that he had created - that is to say fabricated and forged - the written agreement on which his case had been advanced and maintained in his Particulars of Claim, the Reply, and the witness statement to which I have referred. An alternative case based on an alleged oral agreement was set up in the alternative, which I need say no more about in these proceedings. In the result, however, the claim against Halifax that I have described as being the first part of the claim, ultimately failed. Following the handing down of my judgment in these proceedings, Lloyds and Halifax commenced these proceedings. They sought permission from me to bring these proceedings, which I granted.

In the most recent iteration of the Claim Form, contempt is alleged under a number of different heads which are set out in the Claim Form in these terms:

“Under (a) (interference with the due administration of justice)

“(i)

on or about 19th December 2011, the Defendant forged a written agreement, purporting to have been signed by an employee of the Second Claimant and relied upon the same in Action No. HC12C00789...”

“Under (b) (making false statements in documents verified by a statement of truth)

“(ii)

the Defendant caused to be made the false statement in paragraph 16 of the Particulars of Claim to the effect that on 8th September the Second Claimant entered into a written agreement with the Defendant (‘the Pilot Agreement’) on the terms there set out, and the other statements in the Particulars of Claim to the effect that the Pilot Agreement existed, as verified by the signed statement of truth of Lorna Brazell dated 2nd March 2012;

“(iii)

the Defendant made the false statement in paragraph 3 of the Reply, as verified by the statement of truth signed by the Defendant on 8th June 2012, denying the Claimants’ allegation that the Defendant had forged the Pilot Agreement and positively asserting a false version of events relating to the creation and signing of the Pilot Agreement in 2006 and the finding of the signed Pilot Agreement in December 2011;

“(iv)

the Defendant made the false statement in paragraph 2 of his First Witness Statement to the effect that the Pilot Agreement was signed by Mr Monteith at a meeting on 8th September 2006 and that the Defendant saved a copy of the Pilot Agreement on a floppy disk.; in paragraph 6 to the effect that he found a copy of the Pilot Agreement on the floppy disk in his garage; in paragraph 7 that he was ecstatic to have found the documentl; all the said false statements being verified by a statement of truth signed by the Defendant on 13th June 2012;

“(v)

the Defendant made the false statements in paragraphs 37-43 of his Second Witness Statement verified by a statement of truth signed by the Defendant on 26th October 2012...

“Under (c) (making a false disclosure statement)

“(vi)

the Defendant made a false disclosure statement on 6th July 2012 in which he listed the Pilot Agreement signed on 8th September 2006 as being a document that he once had in his control.”

In the normal way, these allegations would have to have been proved to the criminal standard, that is to say, beyond reasonable doubt, by Lloyds and Halifax. In fact, Mr Shenley, to his credit, by counsel, admitted each of the allegations that had been made. In consequence, therefore, the whole of these proceedings have been concerned with mitigation and with what, if any, penalty ought to be imposed in the light of what has been admitted.

It is difficult to see, save in one respect, how there could be a more serious or flagrant contempt by the facts of this case. The defendant sought to advance a claim which, in the course of this hearing, I suggested was worth several hundred thousand Pounds, by reference to a fabricated agreement to which a forged signature had been appended. The sole mitigatory factor in relation to these stark facts is the point that the defendant contended that he was driven to take this course by the deception of Halifax and Lloyds, as manifested in the letter to which I have referred and which I describe as being false in the various ways identified in paragraph 22 of my judgment in the main claim.

Although it was submitted on behalf of Mr Shanley that this was not a case in which fabrication took place for the purpose of advancing a non-existent claim as opposed to bolstering an otherwise proper claim, that is of limited significance, in my judgment, given that the deception was maintained throughout most of the period the litigation was on foot and was withdrawn only one month before the start of the trial and then only in the face of expert evidence concerning the fabricated document. Indeed, the explanation that was given by Mr Shanley in the course of his cross-examination in the main proceedings as to why he withdrew it at that point is perhaps instructive. At page 72 on the transcript for day 1 of the trial and in answer to the question:

“Q. You would have liked to have admitted it was a forgery earlier, but you were very busy with other things, is that your evidence?

“A.

No, I was dealing with a lot of unjust things and I wanted to deal and I knew I would deal with it, but I buried my head in the sand, and all the other unjust things that were going on. I knew that I wouldn’t come into this court today with that document. I’m a Catholic and I’m under oath. I would not have come into this court today, I can assure you.”

This explanation is to be considered in the light of a submission made by counsel, and I think also reiterated by Mr Shanley in the course of his evidence at the main trial, that his hope and expectation was that the proceedings would be settled before trial.

The principles that apply in a case of this sort are those identified in South Wales Fire and Rescue Service v Smith [2011] EWHC 1749 Admin. That case concerned an application to commit the defendant in those proceedings to prison for contempt on the ground that having been injured at work as a fireman, he made a false claim that he was unable to work. The Divisional Court sentenced that individual to 12 months in prison. The sentence was, however, suspended specifically because of particular circumstances of that case and, in particular, delays since the offence had occurred. The statement of general principle which applies in such cases was that set out by Moses LJ in paragraphs 2 to 7 of his judgment in that case. It merits setting out in full:

“For many years the courts have sought to underline how serious false and lying claims are to the administration of justice. False claims undermine a system whereby those who are injured as a result of the fault of their employer or a defendant can receive just compensation.

“They undermine that system in a number of serious ways. They impose upon those liable for such claims the burden of analysis, the burden of searching out those claims which are justified and those claims which are unjustified. They impose a burden upon honest claimants and honest claims, when in response to those claims, understandably those who are liable are required to discern those which are deserving and those which are not.

“Quite apart from that effect on those involved in such litigation is the effect upon the court. Our system of adversarial justice depends upon openness, upon transparency and above all upon honesty. The system is seriously damaged by lying claims. It is in those circumstances that the courts have on numerous occasions sought to emphasise how serious it is for someone to make a false claim, either in relation to liability or in relation to claims for compensation as a result of liability.

“Those who make such false claims if caught should expect to go to prison. There is no other way to underline the gravity of the conduct. There is no other way to deter those who may be tempted to make such claims, and there is no other way to improve the administration of justice.

“The public and advisers must be aware that, however easy it is to make false claims, either in relation to liability or in relation to compensation, if found out the consequences for those tempted to do so will be disastrous. They are almost inevitably in the future going to lead to sentences of imprisonment, which will have the knock-on effect that the lives of those tempted to behave in that way, of both themselves and their families, are likely to be ruined.”

As I have said, the sentence in that case was suspended, but that was only because of the delay that had occurred - a factor not present in the one I am concerned with. It was, therefore, an exception to the general rule, as is apparent from the terms of Moses LJ’s judgment and also is clear from the later case, also before the Divisional Court, decided on 13 July 2011, of Nield and Acromas Insurance Company Limited v Loveday and Loveday [2011] EWHC 2324 (Admin). That case was concerned with a grossly exaggerated claim which was advanced by fabricated documents. In the result, both Mr and Mrs Loveday were sentenced to terms of imprisonment, though the imprisonment on Mrs Loveday was suspended, essentially because of the delay that had occurred between the events with which she was involved and the commencement of proceedings against her in respect of her offence. The claim against Mr Loveday, having been proved, there was an immediate sentence of imprisonment imposed upon him. The President of the Queen’s Bench Division, Sir Anthony May referred, at paragraph 215 of his judgment in those proceedings, specifically to South Wales Fire and Rescue Service v Smith, to which I have referred above, and to what Moses LJ had to say in that case. Having informed Mrs Loveday that her sentence of imprisonment would be suspended because of the delay that had occurred, Sir Anthony then said this at paragraph 217:

“...this does not, I regret, apply in your case, Mr Loveday, because the defendant in that case had admitted knowingly making four false statements of truth, which regrettably you did not, and also partly because, in the present case, there is no comparable delay. Nevertheless, we endorse what Moses LJ had said about people making such false claims, expecting to go to prison. We should perhaps explain that a deterrent sentence sometimes means a sentence which is more severe than it otherwise might have been, because the offence is prevalent in a particular area more generally, and the severity of the sentence is intended in part to deter others. Mr Loveday, we do not intend to increase your sentence for deterrent purposes, but we do take account in sending you to immediate prison today, that it is the court’s direct experience that fraudulent insurance claims of this kind in road traffic cases or personal injury cases are endemic. As Moses LJ said, those who are caught should expect to go to prison. Those are our reasons for doing what we are about to do.”

In the result, Mr Loveday was sentenced to a term of imprisonment of 9 months.

In my judgment, the facts of this present case clearly do not engage the issues of endemic falsity that arise in personal injury litigation of the sort that Sir Anthony May was referring to in Nield v Loveday. Nonetheless, in my judgment, the facts of this case plainly satisfy the threshold for the imposition of a custodial penalty, essentially for the reasons already given. This was a very serious case of advancing a claim admittedly considered by Mr Shanley to be genuine by a fabricated document. Whilst I could accept that a document could be fabricated in the heat of the moment as the result of a reaction of rage, perceived impotence, and a sense of gross injustice caused by the letter sent on behalf of Halifax and Lloyds; the reality is that there was an opportunity for Mr Shanley not to initiate proceedings at all by reference to the fabricated document, and having initiated proceedings on a false basis, there were countless opportunities thereafter to correct what had occurred. The defendant did not take any of these opportunities. He maintained his false claim for many months and did so in the face of an assertion of fabrication in the Defence by his Reply and thereafter in the witness statements, as I have described. This position altered only on the eve of the trial and in the face of expert evidence and then only for the reasons identified by the defendant himself in the part of the evidence he gave to me at the main trial that I have set out above.

Is there any mitigation available? That which is relied upon and which I accept as relevant to the question of whether or not I should suspend any sentence of imprisonment are: (1) that the defendant comes before the court as a man of good character; and (2) it is desirable, if at all possible, that first time offenders should be kept out of prison. I bear these factors in mind and return to them at the end of this judgment.

In the ordinary way, in my judgment, contempt at this level of flagrancy would merit an immediate custodial term of 6 months’ imprisonment because, although this is not a fabricated PI claim of the sort being considered in the cases which I have so far referred to where there was perceived to be an endemic problem, it is nonetheless a very serious contempt which was maintained over several months for the purpose of supporting a very substantial claim and resiled from, only on the doors of the court or slightly before the trial, in the face of expert evidence and for the reason identified by the defendant in his evidence to me. Conduct of this sort must be visited with imprisonment for the purpose of eliminating all doubt in the minds of anyone as to the risk they run from such conduct and is necessary in order to protect the civil justice system from deliberate abuse in the interests of everybody.

There are, however, factors which justify a reduction from that figure in the circumstances of this case. They are, in summary, the following: (a) the claimant did withdraw his claim, based on the fabricated material, before trial, albeit just before trial; (b) he has fully and frankly admitted his fault as and from that stage, albeit, as I have said, very late in the litigation; (c) the imposition of a term of imprisonment of any length on a person of good character will, of itself, be disastrous for the reasons identified by Moses LJ and therefore leads strongly to the view that if any term of imprisonment is to be imposed it should be the shortest commensurate with the nature of the offence identified; and (d) the defendant is someone from a stable family with at least one dependant child and I do not, in any sense, underestimate the effect of imprisonment on family life in circumstances such as this, essentially for the reasons also identified by Moses LJ in the case that I cited from earlier in this judgment.

I leave out of account a suggestion of ill health. There is no medical evidence filed in support of such a suggestion even though it was mentioned in passing by counsel. In my judgment, if a suggestion is to be advanced that imprisonment, which is otherwise appropriate, should not be imposed because of a subsisting medical condition then medical evidence to that effect is required.

Specific to this case I also take account of what had led to the initial fabrication of the document. In my judgment, whilst there can be no suggestion that two wrongs make a right or that in any sense at all Mr Shanley’s conduct was justified by the falsehoods contained in the letter sent on behalf of Halifax and Lloyds, nonetheless, it is appropriate to take that into account for the purpose of arriving at an appropriate custodial term.

All these factors lead me to conclude that a penalty of 3 months’ imprisonment is appropriate.

The only question that remains is whether I ought to suspend it. Suspension is not merely appropriate where it is perceived that a suspended sentence will coerce proper conduct thereafter, either in relation to the grant and continuation of an injunction or because proceedings are ongoing, in which similar issues could arise, it is also a relevant step to take where mitigatory circumstances justify it. In my judgment, however, this is not a case where I ought to suspend imprisonment. The cases to which my attention was drawn where suspension has occurred and in circumstances where coercion in future compliance was not an issue are all cases where there were very strong personal mitigation available or where there was unacceptable delay. That is not this case. It is of course the case that there are ongoing proceedings between the parties in which the defendant will have to give evidence and file witness statements. In my judgment, however, to suspend what would otherwise be an appropriate custodial term in the expectation that that will coerce someone to tell the truth (as is their duty in any event) is an inappropriate step to take in a case such as this.

It is of course the case that the defendant is a man of good character and if I could, in all conscience, suspend, I would do so given the policy of avoiding the imprisonment of those of good character if at all possible. I recognise, of course, that Mr Shanley is entitled to credit for not contesting these proceedings, albeit that when the matter was last before the court there was an agreed time estimate of two days arrived at (presumably, on the basis that, at that stage, it was intended that the allegations would be contested) and for not maintaining the deceptions that had been practised on the claimants in these proceedings to final trial.

I have taken those factors into account in heavily reducing what I consider to be otherwise the appropriate sentence to be imposed but, in my judgment, those factors do not address the very serious level of misconduct maintained over many months nor does it adequately take account of his own explanations for why the deception was maintained over that period and only withdrawn at the end. In the result, therefore, the defendant must go to prison for three months.