Darby Properties Ltd & Anor v Lloyds Bank Plc

In this case management conference the question of the admissibility of expert evidence and experts’ reports has been argued and I must give a ruling. The matter arises in an action brought by the claimants, Darby Properties Limited and Darby Investments Limited against Lloyds Bank PLC. The claim form was issued on 13^th October 2015.

In broad terms, the claim is for damages for breach of contract and damages for negligence and/or damages and/or other relief for misrepresentation, all arising out of advice, recommendations, explanations and/or information provided by the defendant in connection with certain interest rate derivative products. They are products, in some cases, for a significant term. The main part of the case is that the defendant Bank negligently, and in breach of contract, recommended certain interest rate hedging products in 2009 (intended to replace ones which had been entered into previously) notwithstanding that they were unsuitable for the claimants.

Particulars are given of the unsuitability in paragraph 23 of the particulars of claim:

“Negligently and in breach of its contractual duties to the claimants, the defendant:

(1)

Recommended the 2009 IRHPs, notwithstanding that they were unsuitable for the claimants. They were and continue to be unsuitable because:

(i)

They exacerbated the harmful pattern referred to in paragraph 11 above.

(ii)

Their tenor is far longer than the term of the claimants’ loan facilities, and significantly longer even that the claimants’ previous IRHPs.

(iii)

Their combined notional amounts were equal to (and now exceed) the claimants’ combined current indebtedness, even though there was no certainty that the claimants would continue to be indebted in that amount even in the short term, let alone for the duration of the 2009 IRHPs.

(iv)

They have inhibited the claimants’ ability to refinance, meaning that if the defendant refuses for whatever reason to extend or renew the claimants’ loan facilities the claimants may be forced into a default situation with potentially disastrous consequences for their business.

(v)

Their long-term nature and inflexibility makes them inherently unsuited to a cyclical business such as the claimants, where the need for loan funding is likely to fluctuate over time rather than remaining static or constantly increasing.

(vi)

They have exposed the claimants to very significant contingent liabilities and risks in excess even of the already significant liabilities and risks associated with the claimants’ previous IRHPs.

(vii)

Although they provided some short term relief from the costs associated with the claimants’ existing IRHPs, overall they made a bad situation worse, as demonstrated by the fact that the claimants continue to suffer losses under the 2009 IRHPs in spite of having received full redress for the mis-sale of the IRHPs previously entered into.”

Secondly, there is an allegation that the defendants failed to provide any adequate explanation for the risks associated with the interest rate hedging products in 2009. In the particulars it is said that the explanation was inadequate because:

“(i)

The defendant failed to point out any of the matters referred to in subparagraph (1) above.

(ii)

The defendant failed to disclose the amount of the breakage costs that were blended into the 2009 IRHPs.

(iii)

The defendant made generic reference in a fact sheet to the possibility of break costs but said nothing to indicate the potential magnitude of such break costs or to warn the claimants that the potential magnitude of break costs would be increased by entering into the 2009 IRHPs because of their complex structure and extended maturity dates.”

Then in paragraph 24 it is pleaded that:

“As a result of the defendant’s breaches of duty as pleaded above, the claimants have suffered loss and damage. [In particular it is stated that] the claimants would not have entered into the 2009 IRHPs if the defendant had not recommended them and/or if the defendant had taken reasonable care to explain the risks associated with them.”

In paragraph 25 it states that:

“… the claimants are entitled to and claim damages … for breach of contract and/or negligence, in a sum to be assessed by the court by reference to (a) the total amount paid under the 2009 IRHPs, (b) an amount equal to the cost of terminating the 2009 IRHPs at the date of judgment, (c) the cost of paying the increased loan margin referred to in paragraph 17 above, and (d) professional costs.”

Then a best estimate is given as at the date of the particulars of £13.133 million.

The defence of the claimants, which is dated 16^th February 2016, makes a number of pleas which are not particularly relevant for the point that I have to determine. What does become clear is that in relation to both paragraph 23(1) and 23(2) there are detailed denials or in some cases admissions of fact but denials of knowledge and of other matters. The terms of paragraph 48 of the defence are that:

“The principal allegation in paragraph 23(1) is that the 2009 IRHPs were unsuitable for the claimants. This is denied. The 2009 IRHPs were suitable for the claimants. The claimants’ objective was to achieve a short term reduction in their interest costs. This was reflected inter alia in Mr. Darby’s statements in the call of 27 January 2009, and in the Strategy Letter of 2 April 2009. The 2009 IRHPs achieved this objective. They were moreover of a type of product that the claimants (in particular through Mr. Darby) were capable of understanding in the light of their (and/or his) knowledge and experience.”

Paragraph 49 of the defence states that:

“Without prejudice to the foregoing denials, as to the subparagraphs of 23(1):

(1)

Paragraph 23(1)(i) is denied.

(2)

Paragraph 23(1)(ii) is admitted (save that the terms ‘far’ and ‘significantly’ are vague and not admitted), but it is denied that this rendered the 2009 IRHPs unsuitable. These were moreover matters explained to the claimants by the Bank and which were obvious.

(3)

Paragraph 23(1)(iii) is admitted but it is denied that this rendered the 2009 IRHPs unsuitable. These were in any event matters explained to the claimants and which were obvious. Moreover, it was highly likely that the claimants would continue to be indebted to that or similar amounts as the claimants’ business model relied on long-term debt as pleaded in paragraph 2(3) above. In the period under consideration, the claimants’ borrowing (with limited fluctuation) increased substantially as pleaded in paragraph 2(3) above.

(4)

Paragraph 23(1)(iv) is not admitted.

(5)

Paragraph 23(1)(v) is denied. The third and fourth sentences of subparagraph (3) of this paragraph 49 are repeated.

(6)

Paragraph 23(1)(vi) is vague such that the Bank is not able to plead to it pending further particularisation of the alleged ‘very significant’ liabilities and risks to which the claimants refer. Pending such particularisation, no admissions are made as to paragraph 23(1)(vi). It is denied in any event that the matters pleaded in paragraph 23(1)(vi) rendered the 2009 IRHPs unsuitable for the claimants.

(7)

As to paragraph 23(1)(vii), it is admitted that the 2009 IRHPs provided short term relief from the costs associated with the claimants’ existing arrangements. That was the claimants’ objective and they were suitable for that purpose. The remainder of paragraph 23(1)(vii) is denied.”

Paragraph 50 of the defence states that:

“Paragraph 23(2) is denied. The 2009 IRHPs were adequately explained such that the claimants understood them. Without prejudice to the foregoing denial, as to the subparagraphs of paragraph 23(2):

(1)

Subparagraph 23(2)(i) is denied in its entirety (including insofar as it incorporates paragraph 23(1)). It is further denied that (even if the Bank was under a duty to provide a sufficient explanation of the 2009 IRHPs) the Bank was obliged to explain the matters pleaded in the subparagraphs to paragraph 23(1). Most of the matters there pleaded relate to characteristics of the claimants’ business in respect of which the Bank had no duty to advise or provide any explanation and no such duty is pleaded. Without prejudice to the generality of the foregoing denials:

(a)

The Bank did explain the length of the 2009 IRHPs and their long-term nature. It went without saying that the length of the 2009 IRHPs was longer than the claimants’ then existing loan facilities and previous IRHPs, but this was both (i) explained and (ii) obvious, such that the claimants cannot claim to have been in any (or any reasonable) doubt as to this.

(b)

The Bank did explain that the 2009 IRHPs would remain in place if the claimants paid off their outstanding borrowings.

(c)

The Bank did adequately explain the liabilities that the claimants would be under in respect of the 2009 IRHPs.

(2)

Subparagraphs 23(2)(ii) and (iii) are denied:

(a)

The Bank adequately explained that break costs, which were potentially substantial depending on market conditions, would be incurred where IRHP transactions were terminated before running to term.

(b)

Mr. Darby confirmed on 11 March 2009 that was ‘perfectly aware’ of break costs by that date.

(c)

The Bank also made it abundantly clear that the 2009 IRHPs would involve breaking earlier IRHPs. This cannot have been misunderstood and the claimants do not claim to have misunderstood this.

(d)

Mr. Darby never asked about the quantum of break costs.

(e)

In these circumstances there was no breach of any explanation duty as regards break costs, even if one were owed (which it was not).”

Paragraph 51 denies paragraph 24, and paragraph 52 denies paragraph 25 (dealing with loss).

One function of the rules of evidence is to make clear what evidence can be admitted at trial. It is a well-known principle of the English common law that, subject to exceptions, evidence of fact is admissible if relevant, but evidence of opinion, even if relevant, is not. The main exception to that rule in relation to evidence of opinion is that evidence of expert opinion is admissible if relevant.

The principle is set out in Phipson on Evidence and in other textbooks. Paragraph 33-01 of Phipson says:

“The general reputation prevailing in the community; and the opinions, inferences or beliefs of individuals (whether witnesses or not) are inadmissible in proving material facts. Evidence of this nature is sometimes said to be excluded by the hearsay rule, but it is, in general, inadmissible whether delivered on oath or not.”

As I say, however, there is an important exception. Paragraph 33-09 of Phipson says:

“Even at common law the opinions of skilled witnesses were admissible wherever the subject is one upon which competency to form an opinion can only be required by course of special study or experience.”

I draw attention to the fact that in that sentence it says “the opinions of skilled witnesses”. The paragraph continues –

“The terms on which expert evidence is admissible is governed in civil cases by the Civil Evidence Act 1972 and the CPR.”

I need not read any further.

For the purposes of civil litigation, Part 35 of the Civil Procedure Rules 1998 deals with expert evidence. Rule 35.1 says:

“Expert evidence shall be restricted to that which is reasonably required to resolve the proceedings.”

This is an attempt by the CPR following the Woolf Report on how to reduce the cost of litigation to ensure that expert evidence does not overwhelm cases by being adduced at trials when it is not necessary to do so. The rules and practice directions in Part 35 are concerned to implement that initial rule.

Accordingly, the courts are astute to allow expert evidence only where it is reasonably required to resolve the proceedings. I drew attention this morning to the decision of Hildyard J in a case known as The RBS Rights Issue Litigation [2015] EWHC 3433 (Ch). There the Judge had to decide whether to admit expert evidence of an equity analyst in a case concerning corporate matters. During the course of his judgment the Judge sets out the test to be applied.

He says this:

“10.

Even where the parties are agreed, and a fortiori when they are not, it is for the court to determine whether to give permission to particular expert evidence.

11.

The test to be applied is set out in CPR 35.1 which is headed ‘Duty to restrict expert evidence’ and is in mandatory terms. There are two elements: (i) is the evidence admissible, and (ii) is the evidence reasonably required to resolve the proceedings?”

I can ignore paragraph 12. Paragraph 13 states:

“The admissibility of expert evidence (as an exception to the general rule that opinion evidence is inadmissible) was summarised by Evans-Lombe J in Barings Plc v. Coopers & Lybrand [2001] PNLR 22, [45] as follows:

‘In my judgment the authorities which I have cited above establish the following propositions: expert evidence is admissible under section 3 of the Civil Evidence Act 1972 in any case where the court accepts that” – I am inserting numbers – “[1] there exists a recognised expertise governed by recognised standards and rules of conduct [2] capable of influencing the court’s decision on any of the issues which it has to decide and [3] the witness to be called satisfies the court that he has a sufficient familiarity with and knowledge of the expertise in question to render his opinion potentially of value in resolving any of those issues.’

14.

Thus, the first issue is whether there is a recognised body of expertise governed by recognised standards and rules of conduct relevant to the question which the court has to decide. Unless there is, the court should decline to admit evidence which ex hypothesi is not evidence of any body of expertise but rather the subjective opinion of the intended witness.

15.

There are two further restrictions:

(1)

An expert is not to find facts but to express an expert opinion on the basis of assumed facts (JP Morgan v. Springwell [2007] 1 All ER (Comm) 549 [2006] EWHC 2755 (Comm) [21].

(2)

An expression of the opinion of what the expert would have done in the hypothetical situation is inadmissible (Midland Bank Trust Company Ltd. v Hetts Stubbs & Kemp [1979] 1 Ch 384, 402).

16.

If the evidence is admissible, CPR 35.1 provides,

‘Expert evidence shall be restricted to what is reasonably required to resolve the proceedings.’

17.

In determining whether particular evidence is reasonably required a key question will be:

‘… whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge or human experience would be able to form a sound judgment on the matter without the assistance of witnesses possessing special knowledge or experience in the area.’

See R v Bonython (1984) 38 SASR 45 and 46, cited in JP Morgan Chase v. Springwell at [20] and Barings at [38].

18.

The burden of establishing that expert evidence is both (i) admissible and (ii) reasonably required (i.e. not just potentially useful) is on the party which seeks permission to adduce the evidence concern (see JP Morgan Chase at [19] per Aikens J (as he then was)). He continued (at [23]):

‘I should mention one further practical matter, which I think is relevant to large commercial disputes. It is inevitable when there is a dispute between commercial entities that covers a long period of time (as this case does) and concerns a very large sum of money, that a huge amount of documents will have to be considered. There is a natural tendency of parties and their advisors to consider employing experts to assist in digesting this material, particularly if it relates to any area that might be recondite, such as trading in Russian debt in the 1990s. There is a tendency to think that a judge will be assisted by expert evidence in any area of fact that appears to be outside the 'normal' experience of a Commercial Court judge. The result is that, all too often, the judge is submerged in expert reports which are long, complicated and which stray far outside the particular issue that may be relevant to the case. Production of such expert reports is expensive, time-consuming and may ultimately be counter-productive. That is precisely why CPR Pt 35.1 exists. In my view it is the duty of parties, particularly those involved in large scale commercial litigation, to ensure that they adhere to both the letter and spirit of that rule. And it is the duty of the court, even if only for its own protection, to reject firmly all expert evidence that is not reasonably required to resolve the proceedings.’

19.

Further, in British Airways Plc v Spencer[2015] EWHC 2477 (Ch) Warren J (at [68]) has recently proposed a three-stage test for the application of CPR 35.1 which brings out the sliding scale implicit in the assessment of what is ‘reasonably required’, from the essential to the useful (emphasis as in the original):

‘(a) The first question is whether, looking at each issue, it is necessary for there to be expert evidence before that issue can be resolved. If it is necessary, rather than merely helpful, it seems to me that it must be admitted.

(b)

If the evidence is not necessary, the second question is whether it would be of assistance to the court in resolving that issue. If it would be of assistance, but not necessary, then the court would be able to determine the issue without it (just as in Mitchell the court would have been able to resolve even the central issue without the expert evidence).

(c)

Since, under the scenario in (b) above, the court will be able to resolve the issue without the evidence, the third question is whether, in the context of the proceedings as a whole, expert evidence on that issue is reasonably required to resolve the proceedings. In that case, the sort of questions I have identified in paragraph 63 above will fall to be taken into account. In addition, in the present case, there is the complication that a particular piece of expert evidence may go to more than one pleaded issue, or evidence necessary for one issue may need only slight expansion to cover another issue where it would be of assistance but not necessary.

Further, although CPR 35.1 does not refer to issues, but only to proceedings, if evidence is not reasonably required for resolving any particular issue, it is difficult to see how it could ever be reasonably required for resolving the proceedings. I therefore see a test directed at issues as a filter. That, at least, is an approach which can usefully be adopted.’

20.

As to Warren J's reference to paragraph 63 in his judgment, he there said this:

‘A judgment needs to be made in every case and, in making that judgment, it is relevant to consider whether, on the one hand, the evidence is necessary (in the sense that a decision cannot be made without it) or whether it is of very marginal relevance with the court being well able to decide the issue without it, in which case a balance has to be struck and the proportionality of its admission assessed. In striking that balance, the court should, in my judgment, be prepared to take into account disparate factors including the value of the claim, the effect of a judgment either way on the parties, who is to pay for the commissioning of the evidence on each side and the delay, if any, which the production of such evidence would entail (particularly delay which might result in the vacating of a trial date).’

Competing arguments as to the application of the test and guidelines

21.

In applying these criteria and guidelines to the present case, the starting point is to identify the questions which are ultimately to be resolved by the Court in relation to which it is suggested by the Defendants that (a) there is a recognised body of expertise and (b) in respect of which the relevant evidence is reasonably required.”

I do not need to read any more of that decision, but those are, as it seems to me, the main principles by reference to which I should decide this question.

I was, however, referred by Mr. Edwards QC, on behalf of the claimants, to three further authorities which I should mention. The first of these in time was a decision of Tim Kerr QC (as he then was) sitting as a Deputy Judge of this Division of the High Court in Crestsign Limited v. National Westminster Bank PLC and Anr.[2015] 2 All ER (Comm) 133. That was a case where the claimant sought to refinance its borrowing on certain terms which involved an interest rate swap. The Bank effectively sold the swap to the claimant. When the position turned sour for the claimant, the claimant sued the Bank. It was held by the Judge that the Banks in fact owed the claimant no duty to use reasonable care and skill in the giving of advice about the swap and had owed, in the first instance, no duty to explain the nature and effect of the proposed transactions to the claimant. However, there was a duty on the salesman to explain fully the nature and effect of the products in respect of which he had chosen to volunteer an explanation. Nevertheless, the Judge also held that the Banks had not acted in breach of their duty relating to the provision of information and the explanations of the salesman had not been misleading but had been adequate. In the result, the claim was dismissed.

However, it is clear from paragraphs 2 and 3 of the report that the Judge heard not only factual evidence from certain witnesses but also expert evidence on each side. In the case of the claimant this was from Mrs. Jackie Bowie, a lady who is put forward in the present case as an expert on behalf of the claimants. She is described by the Judge in Crestsign as

“… an expert adviser on the hedging of interest rate risks and on the suitability of financial products called derivatives, in which risk and liability are linked to fluctuations in interest rates.”

In relation to the Banks, in paragraph 3, the expert evidence was from a

“Mr. Nicholas Gibson, an expert with long experience in the financial services regulation and compliance, who now provides consultancy services to businesses in relation to risk and compliance.”

The Judge went on to refer at various points in his judgment to the expert evidence, certainly to that of Mrs. Bowie. He concluded that, if he had been wrong in finding that the Banks did not owe a duty of care to the claimant in relation to the giving of advice and recommending suitable products,

“I would find a clear breach of the duty in recommending structures 3 and 4, and subsequently what became structures 1 and 2, as suitable products, for reasons similar to those advanced by Mrs. Bowie. I did not find any effective answer to the criticisms in paragraph 12.3 of her report, either in Mr. Mitchell’s challenges to those criticisms in cross-examination, or in the evidence of Mr. Gibson, who did not address the suitability of the swap head on.”

As Mr. Edwards QC submitted, the Judge in that case first of all heard and, secondly, was indeed influenced by, the opinion of Mrs. Bowie.

There is then the case of St. Dominic’s Limited v.The Royal Bank of Scotland Plc. Unlike the Crestsign case, which was a decision at trial, this was a decision on case management by His Honour Judge Havelock-Allan QC sitting in the Mercantile Court in Bristol. Again, this was, as the Judge puts it “a swaps mis-selling case”. The Judge says at paragraph 8:

“The first CMC in this case was held on 22September 2015” – then ignoring the details of counsel – “Only one matter was controversial, which was whether expert evidence should be allowed.”

In paragraph 9 he says:

“This is not the first such battle. This is the 47^th swaps mis-selling case to be case managed by me in the Bristol Mercantile list. My experience is that a number (but not all) of the defendant banks have opposed the introduction of expert evidence. None has been more rigorous in its opposition of expert evidence than the present defendant, RBS.

10.

The arguments are becoming familiar (and so are counsel: it is perhaps not entirely irrelevant to note Mr. Edwards was the claimant’s counsel in Crestsign and that Miss Loveridge’s leader in this case, Andrew Mitchell QC, was leading counsel for the defendant bank in both the Crestsign and Thornbridge cases. I dealt with some of the arguments in Battrick v. Royal Bank of Scotland Plc [2013] EWHC 4848 (QB). I concluded that judgment with a cautionary postscript to the effect that it was not a tablet of stone to be touted around other Mercantile Courts as support for an order for expert evidence because there might well be other swaps cases where, on the particular facts, expert evidence was not appropriate.” – Then there is a sentence or two I do not need to read.

“11.

My impression is that, pre and post Battrick, expert evidence has been ordered in swaps cases on more occasions than it has not.” – Then he gives a list of some cases where it was and a list of some cases where it was not. He goes on in paragraph 12 –

“This is not, however, a numbers game. Each case has to be approached on its own facts. I have not always granted expert evidence in swaps cases. In one or two swaps cases the claimant has not asked for it. But in most of the swaps cases where an order for expert evidence has been requested, I have granted it. I have heard it suggested that this has led to a degree of forum shopping between Mercantile Lists. If that is so it is regrettable. The purpose of this judgment is to reiterate this court’s general approach to a request that expert evidence be permitted in swaps cases and to address, shortly, the reasons why expert evidence has been ordered in this case on the issues defined in the schedule to the CMC order.

13.

The essential pre-conditions to an order for expert evidence are: (1) that there should be an acknowledged body of expertise in the issues in respect of which the expert evidence is to be adduced (see eg. Barings Plc (In Liquidation v. Coopers & Lybrand (No. 2) [2001] Lloyd’s Rep PN 379). and (2) that the expert evidence should be reasonably required to resolve the proceedings (CPR 35.1).”

I pause there simply to observe that Judge Havelock-Allan QC has not in fact stated the substance of what Evans-Lombe J said in Barings v. Coopers & Lybrand. He has omitted that part which after the words “body of expertise” went on: “governed by recognised standards and rules of conduct and capable of influencing the court’s decision”. These are words which, in my judgment, are significant.

In paragraph 14 he goes on:

“The argument in swaps cases has moved beyond the question whether there exists a body of expertise as to the characteristics of hedging instruments, what is expected as a minimum to be done, and what in practice is done, by a bank selling swaps to comply with the regulatory requirements of the COB or COBS Rules or any duty of care to the customer derived from the regulatory regime, and as to KYC (Know Your Client) issues and as to the pricing of swaps and the pricing of their alternatives, such as interest rate caps. It is now accepted that there is a body of such expertise and some of the individuals who have been instructed by customers and banks in swaps litigation are coming to be well known (e.g. Mrs. Jackie Bowie and Mr. Nicholas Gibson who were, respectively, the claimant’s and the defendant’s experts in Crestsign). I know of no swaps case where a valid objection has been taken that the chosen expert lacked the expertise to express an opinion on the issues put to him or her. In my experience the focus of the debate is on whether an expert opinion is necessary to resolve one or more issues or, if not necessary (in the sense that a decision could not be made without it), would be sufficiently helpful to the court that it would be just and proportionate to allow it to be introduced. If it is likely to be only of marginal relevance, it will not usually be allowed (see the recent judgment of Warren J in British Airways Plc v. Spencer [2015] EWHC 2477 (Ch).”

I pause there to note one further point. This is that the instances which Judge Havelock-Allan QC offers there,

“as to the characteristics of hedging instruments. What is expected as a minimum to be done and what in practice is done by a bank selling swaps to comply with the regulatory requirements of the COB or COBS Rules or any duty of care”

seem to me in at least part, maybe large part, to amount to statements of a factual rather than of an expert opinion nature. What a particular market consists of, what actually happens in that market and the current practices of that market are things which can be stated as facts. Obviously they may come with more weight if they come from someone who is indeed an expert in that area. But, as it seems to me, some (maybe a large part) of what the Judge is referring to there is really factual rather than opinion evidence. Of course, when a medical expert is asked in the witness box whether the conduct of the defendant doctor fell significantly below the standard reasonably expected of a competent practitioner etc., there the witness is being asked to make a value judgment on the conduct of the defendant in relation to what he is alleged to have done. If an architect is sued for building a bad house, it is the same point: did the conduct of the architect fall significantly below etc. One can say the same about almost any professional who might be sued and, of course, it is a well-known principle that it is not fair to a professional to find him guilty of negligence unless there is evidence of experts in that field that say that he did fall below the standard expected of ordinary competent professionals of that kind.

So I am not entirely sure how far the reasoning of the Judge in paragraph 14, that there is a recognised body of expertise in the field that he describes, is helpful in answering the question posited by Evans-Lombe J in the Barings case. I am thinking in particular of the fact that the Judge in paragraph 13 of his judgment did not refer to that part of the Barings judgment which referred to the “expertise governed by recognised standards and rules of conduct”. So, for example, if a doctor is accused of potential negligence, what are in play are the recognised standards applying to doctors professing ordinary skill in that particular field of medicine; similarly with architects; similarly with accountants; similarly with other professionals.

All of those professionals are part of or members of professional bodies which are regulated. Of course, one could easily see that the relevant expert for that purpose is going to be a member of the same organisation or group as the defendant. Here, however, there is something rather different going on, because it is not suggested, I think, that there is one particular professional body which has the recognised expertise. The Judge is merely saying that there are a number of individuals in the market-place at present who have sufficient experience and indeed expertise in this field, that they know about these particular things. In a case where you are asking for a judgment call to be made about whether such a product was suitable or whether adequate information was provided, it does not seem to me that what the Judge is saying here really addresses that point. If the expert goes on to say, “This is not a suitable product in those circumstances”, there is a real danger that the evidence is shading into simply a version of, “Well, I would not have done it that way” or “I would not have sold this” which, of course, as Hildyard J said, is an impermissible or inadmissible form of evidence.

Judge Havelock-Allan QC went on in paragraphs 15 and 16 of his judgment to refer to certain other matters. In paragraph 16 he says this:

“An expert can give evidence about that context.”

And that, of course, is essentially a factual context. This chimes with what I have already said about his paragraph 14, when he was describing the areas that the expertise might go on.

However, he then goes on to say, in the latter part of paragraph 16:

“But the reality is that where an expert expresses an opinion about breach, for example in the context of the alleged mis-sale of a swap, his answer is simply evidence that what the bank did or did not say or do was insufficient in his view to meet the standards expected in the industry of financial institutions seeking to comply with the relevant regulatory rules, or the duty of care derived from them.”

Then he says this:

“It is the expert’s evidence of the standard of conduct that matters. The issue should always be framed in such a way as to elicit that evidence. The expert’s opinion about breach is secondary; but I would not regard it as inadmissible (unlike expert evidence as to the content of the duty).”

I find this rather difficult to follow. It seems to me that, in so far as the expert is stating the content of the rule or the duty of care, those are matters for the Judge. On the other hand, whether the particular defendant has fallen below the standard and, if so, significantly, is something which a relevant expert can properly give opinion evidence about. But it seems to me that it must be the kind of expertise that fulfils the requirements set out by Evans-Lombe J in Barings v. Coopers & Lybrand.

I have grave doubts as to whether the kind of expertise that is referred to in this case does satisfy that test. Nevertheless, putting those doubts on one side for now, in paragraph 17 the Judge says this:

“Thus, accepting (as I do) the qualifications expressed in the Midland Bank case, it seems to me that evidence of the practice of banks and other lending institutions who sell financial instruments such as interest rate hedging products is likely to be helpful and in some cases necessary to resolving the issues of breach of duty which arise in swaps mis-selling cases. As I said in Battrick, the court cannot (or at least should not) construe the regulatory regime and its component rules in a vacuum. If the evidence is confined to evidence from the fact witnesses, it will be one sided. Only the banks can speak to the systems and practice they have adopted in the selling of IRHPs. Moreover, if the court is to find that the systems and practice of a defendant in any given case fell short of discharging the relevant duty of care, it must do so on a reasoned and principle basis.”

With the exception of the last sentence, which seems to me to come back to the question of making a judgment call (which I have already discussed) the Judge is, in the earlier part of that paragraph, referring to evidence, as it seems to me, of a factual nature which is useful for the court to have in order to understand what is going on in the case and what the Judge will have to decide.

It is here that the third authority referred to by the claimant becomes particularly relevant. That is the decision of the Supreme Court in an appeal from Scotland in the case of Kennedy v Cordia (Services) LLP[2016] 1 WLR 597. This case was one where the pursuer, employed as a home carer by the defenders, slipped and fell on an icy path leading to a client’s house and injured her wrist. She raised an action of damages against the defenders on the grounds that their assessment of the risk of home carers falling on snow or ice had been inadequate, in breach of Regulation 3 of the Management of Health and Safety at Work Regulations 1999, that they had failed to ensure that suitable personal protective equipment was provided or that the risk was adequately controlled by other means which would be equally more effective in breach of Regulation 4 of the Personal Protective Equipment at Work Regulations 1992, and that they had breached their common law duty of care.

The defenders had in fact carried out a risk assessment. This assessed the risk of slipping and falling as tolerable but, despite a history of accidents, had not considered providing equipment such as anti-slip footwear attachments, merely advising carers to wear appropriate footwear. The pursuer led evidence from a Consulting Engineer with qualifications and experience in the area of Health & Safety at Work. The Judge at first instance accepted some of his evidence and found the defenders in breach of their duties. There was an appeal to the Inner House of the Court of Session which allowed the appeal holding that the judge had impermissibly admitted the evidence of the Consulting Engineer.

On the appeal to the Supreme Court it was held, allowing the appeal, that the health and safety practice of employers could properly be the subject of expert evidence and the pursuer’s expert had given evidence of factual matters that he had the experience and qualifications to describe and which were admissible because they were relevant and might assist the Judge. There were certain other points as well but I need not discuss those.

Paragraphs 39, 40 and 41 of the joint judgment of Lord Reed and Lord Hodge, with which Baroness Hale, Lord Wilson and Lord Toulson all agreed, were as follows:

“39.

Skilled witnesses” – I interpolate here to say that ‘skilled witnesses’ is, apparently, the term applied to expert witnesses in Scots law – “unlike other witnesses, can give evidence of their opinions to assist the court. This gives rise to threshold questions of the admissibility of expert evidence. An example of opinion evidence is whether Miss Kennedy would have been less likely to fall if she had been wearing anti-slip attachments on her footwear.

40.

Experts can and often do give evidence of fact as well as opinion evidence. A skilled witness, like any non-expert witness, can give evidence of what he or she has observed if it is relevant to a fact in issue. An example of such evidence in this case is Mr Greasly’s” – I interpolate to say that he was the particular expert – “evidence of the slope of the pavement on which Miss Kennedy lost her footing. There are no special rules governing the admissibility of such factual evidence from a skilled witness.

41.

Unlike other witnesses, a skilled witness may also give evidence based on his or her knowledge and experience of a subject matter, drawing on the work of others, such as the findings of published research or the pooled knowledge of a team of people with whom he or she works. Such evidence also gives rise to threshold questions of admissibility, and the special rules that govern the admissibility of expert opinion evidence also cover such expert evidence of fact. There are many examples of skilled witnesses giving evidence of fact of that nature. Thus Dickson on Evidence, Grierson’s ed (1887) at section 397 referred to Gibson v Pollock (1848) 11 D 343, a case in which the court admitted evidence of practice in dog coursing to determine whether the owner or nominator of a dog was entitled to a prize on its success. Similarly, when an engineer describes how a machine is configured and works or how a motorway is built, he is giving skilled evidence of factual matters, in which he or she draws on knowledge that is not derived solely from personal observation or its equivalent. An expert in the social and political conditions in a foreign country who gives evidence to an immigration judge also gives skilled evidence of fact.”

I confess that until I had seen these paragraphs I was not aware of a distinction being drawn between evidence being given by an expert witness of a purely factual matter which was something, let us say, observed or experienced directly by the witness, such as the slope of the pavement on which the pursuer was walking when she fell; and, on the other hand, factual evidence being based on knowledge and experience of a subject matter or drawing on the work of others such as the findings of published research or pooled knowledge. According to the decision of the Supreme Court in this case, the law of evidence in Scotland draws a distinction between those two classes of factual evidence. In the first case, as their Lordships say, there are no special rules governing admissibility but, in relation to the second, it gives rise to a threshold question of admissibility. An example is given of the engineer describing how a machine is configured or how it works.

I have to say I have never met this in English law before. I did, over the short adjournment, have a look at Phipson. I did not find any reference to such a distinction, at any rate in relation to whether there is a requirement to obtain the permission of the court for the admissibility of the evidence, or, indeed, whether this is to be properly described as expert evidence at all. It is clear that, when CPR rule 35.1 says that, “Expert evidence shall be restricted”, and indeed when expert evidence is referred to throughout Part 35, it plainly refers to expert opinion evidence and not expert factual evidence. In English law it is only because it is given by an expert that the opinion evidence is admissible at all. So far as I can see there is nothing in Part 35 to restrict factual evidence, whether given by an expert or not.

Paragraph 33-10 of Phipson contains a useful statement in relation to this point:

“There is an important if elusive distinction to be made in the categorisation of expert evidence. It is generally accepted that there is a difference between evidence of fact and evidence of opinion, notwithstanding that it may be difficult to identify the line which divides the two. Whether a statement is one or the other may depend on the extent to which the evidence goes beyond the witness’s direct observations and perceptions. It is also well understood that in practice a witness of fact may not be able entirely to disentangle his perceptions from the inferences he has drawn from them. Although the courts often talk of ‘expert evidence’ as if it were a single category, representing in every case an exception to the rule against the reception of opinion evidence, it is suggested that a similar distinction exists in the evidence of experts, and it is one which has considerable relevance both to the procedural aspects and to the assessment of the weight of expert evidence. Expert witnesses have the advantage of a particular skill or training. This not only enables them to form opinions and draw inferences from observed facts, but also to identify facts which may be obscure or invisible to a lay witness. The latter might simply be described as ‘scientific evidence’, the former as ‘expert evidence of opinion’. A microbiologist who looks through a microscope and identifies and microbe is perceiving a fact no less than the bank clerk who sees an armed robbery committed. The only difference is that the former can use a particular instrument and can ascribe objective significance to the data it perceives. The question of subjective assessment and interpretation which is the essence of opinion evidence hardly enters into the matter at all.” I do not think I need to read any more of this paragraph.

This chimes with something which I said in argument this morning, that a forensic pathologist, for example, at a criminal trial might well be asked (i) to say what he found at the post mortem examination, and then (ii) to give an opinion as to the cause of death. In relation to the first point, he is undoubtedly giving factual evidence although he will perceive things that the lay person will not and he will know that something is significant when he sees it that the lay person would not. In the second part, however, he is plainly giving opinion evidence because he was not there, he did not see the attacker attack the deceased with a knife or shoot him with a gun or whatever.

So, in my judgment, at least on the rather fragmentary material which I have been able to look at, the distinction that seems to exist in Scots law between (i) factual evidence given by an expert which does not require any kind of decision on admissibility (assuming it is relevant) and (ii) factual evidence given by an expert which draws on the expertise of the witness, for example in relation to knowledge and training, such as the engineer dealing with the workings of a machine, which does require a decision on admissibility, does not exist in English law. So far as I can tell, an expert giving either kind of factual evidence in England would be able to do so without reference to Part 35 of the CPR because it would not be expert opinion evidence at all; it would be, at best, factual evidence given by somebody with expertise.

That being the case, it may be that some of the evidence which the claimants wish to adduce in this case may be given without permission, in particular that which was described by Mr. Edwards QC as “didactic” or “tutorial” evidence, to explain to the Judge, for example, the characteristics of the financial instruments products involved in this case and (it may be) aspects of the market for those products. But I am not now trying to define exactly where the line is. It may well be capable of being given by a witness, whether or not Mrs. Bowie or someone else, without the need for any permission by the court. But such “didactic” evidence is either evidence of fact, in which case if relevant it is admissible without permission, or it is opinion evidence, and to that extent it falls to be tested against the threshold questions for admissibility to which I have already referred.

The further evidence over and above this which the claimants would like the expert to give relates to the suitability of the products in question and the adequacy of the information provided by the defendant to the claimants. This is clearly opinion evidence. It seems to me that in relation to the question whether or not permission should be given by the court, I should, first of all, consider the three-stage test set out by Warren J in British Airways plc v. Spencer [2015] EWHC 2477 (Ch). He says (at [68]):

“(a)

The first question is whether … it is necessary for there to be expert evidence before the issue can be resolved.”

I think that Mr. Edwards, QC, certainly by the end of his submissions, accepted that neither the didactic evidence nor the evidence in relation to inadequacy he wished to admit was such that the Judge could not decide the issues without reference to such evidence. He did not go so far as to say it would be impossible. But he did, of course, say that it still would be useful.

In relation to the question of suitability, I am not so clear that he would not make such a straightforward concession although I sense that he was wavering, even in relation to that.

In my judgment, notwithstanding the complex nature of the products concerned, which can, as I see it, be described to the Judge in a factual way, and thus not requiring permission, it seems to me that on none of these issues is it actually necessary for there to be expert evidence in the sense that the issues simply cannot be determined without that expert evidence.

Therefore, I go on to the second stage:

“(b)

If the evidence is not necessary, the second question is whether it would be of assistance to the court in resolving that issue.”

Then (c) says:

“… the third question is whether, in the context of the proceedings as a whole, expert evidence on that issue is reasonably required to resolve the proceedings.”

But the Judge went on to say that this should be dealt with on an “issues” basis because it is only if it is necessary and reasonably required for resolving a particular issue that the evidence can be said to be reasonably required for resolving the proceedings.

In that connection I was taken by Mr. Blakeley for the defendant to the particular allegations which are made by the claimants and the defendant in their respective statements of case on the two questions of suitability or unsuitability of the products and the adequacy or inadequacy of the information provided.

In relation, first of all, to the question of suitability, the pleading of the claimants in paragraph 23(1) sets out the particulars that go to make the products in the view of the claimants unsuitable. The defence deals with these in paragraph 49. As to the first allegation, that the swaps exacerbated the pattern in paragraph 11 of the particulars of claim, the question of exacerbation is a simple factual point. There is nothing special about it. The pattern referred to in paragraph 11, as it seems to me, is stated to be this:

“The overall pattern was that as the claimants’ debts increased, the term of the lending reduced but at the same time the tenor of the IRHPs increased and the percentage of the debt that was hedged increased also.”

I am bound to say that I do not see anything other than factual points being made there. I accept that the products are complex. I accept also, however, that they can be explained. It seems to me that that explanation is a factual explanation, and not a matter of opinion evidence. So in relation to that first point, the exacerbation of the pattern, that can be dealt with by factual evidence which can be put to the witnesses on each side and the court can make a decision.

In relation to the second point, in para 23(1)(ii) the claimants rely on the length of the tenor of the swap. The facts alleged in para 23(1)(ii) are admitted, but it is denied that it rendered the products unsuitable. So the question that the Judge has to decide is simply whether, on those facts, this product was suitable or unsuitable. The same is true of the third allegation which is where the claimants rely on the combined notional amounts equalling and then exceeding the claimants’ indebtedness. No expert evidence, as it seems to me, is required in either of these two cases.

In relation to the fourth point, the claimants claim that the swaps inhibited their ability to refinance. It seems to me that that is entirely a matter of factual evidence: either it did or it did not.

In relation to the fifth point, the claimants rely on their fluctuating need for funding. I do not see how expert evidence has any bearing on this question at all.

As to the sixth point, the claimants claim that the swaps exposed them to very significant contingent liabilities and risks. This is criticised by the defendant as “too vague’. It is also, to my mind, very difficult to know what the Judge should be looking for in deciding whether it is found to be true or not and then to say what, if anything, is the consequence of this. At all events, it seems to me that the question whether these swaps exposed the claimants to any liabilities and risks at all is a purely factual question and then the degree of risk or liability is again a matter of assessment from the evidence which is adduced and judgment by the Judge. In my view, expert evidence is not going to be very helpful in relation to that.

The seventh allegation is where the claimants say the swaps “made a bad situation worse” on the basis that they suffered losses. But that, in my judgment, is a question which is entirely capable of proof by factual evidence and not expert evidence.

Then, turning to the question of adequacy of information, which is pleaded out in paragraph 23(2) of the particulars of claim and dealt with in paragraph 50 of the defence, the first point is that the defendant is alleged to have failed to point out certain matters relied on in the previous subparagraph. Either the defendant did point them out or it did not. This is a factual matter and no expert evidence is going to be required.

Secondly, the claimants plead that the defendants failed to disclose the amount of break costs. Again, that must be capable of proof by factual evidence: either it is true or it is not true.

Thirdly, the claimants claim that the defendant made only generic reference to break costs. Certainly that is either true or it is not true. It is a factual matter and can be dealt with by evidence of fact. What the claimants understood as a result is also a matter which is entirely to be proved by factual evidence and I do not see how the court is going to be assisted if expert evidence is adduced in relation to it.

So my conclusion at this point is that, although I think there would undoubtedly be some assistance to the court in giving the court the benefit of a tutorial on the nature of the products, I am not at all sure that that kind of evidence requires the permission of the court, and it is not the case that it is required in the sense that the court could not reach a decision without it. In relation to the questions of suitability and inadequacy of information, the pleaded allegations do not seem to me to depend on expert evidence at all.

The form of the draft order which is put forward by the claimants at page 88 of the bundle contains at paragraph 10 this draft form that:

“Each party has permission to adduce oral expert evidence in the field of Interest Rate Hedging Products to address the following issues:

(a)

the range of hedging options that were available to the claimants in (i) March 2009 and (ii) October 2009;

(b)

the relative suitability for the claimants of the options available including the products that were entered into by the claimants at each of those times;

(c)

the adequacy of the information provided by the defendant about the risks associated with the products; and

(d)

the amount of any loss suffered by the claimant as a result of entering into the products.”

As to the first two of these, (a) and (b), Mr. Blakeley, for the defendant, says, “but there is no pleaded case about these points”. I agree with him. To that extent, therefore, there cannot be an order made giving permission to adduce oral expert evidence in relation to those issues because they are not issues in the case.

In relation to the third, the adequacy of the information provided (that is to say, those are the allegations at paragraph 23(2) of the particulars of claim with which I have already dealt) does not seem to me that there is sufficient assistance being given to the court that I should give permission for that expert evidence to be adduced.

The fourth category for which permission is sought is the amount of loss suffered by the claimants. That is dealt with at paragraph 25 of the particulars of claim which I have already read out. But that consists of four points of fact which, ultimately, will be capable of assessment without the need for any expert evidence and certainly not expert evidence of the kind that an expert in hedging products could offer.

So overall my view is that, when I come to consider whether I should give permission for expert evidence of the kind sought to be adduced in this case, my conclusion is, for these reasons, that I should not do so.