Stokors SA & Ors v IG Markets Ltd

MR JUSTICE TEARE: This is an application, in form, at any rate, by the defendant to amend its statement of defence to raise an allegation that the claimants have engaged in the criminal activity of insider trading. The claim, which is brought by the claimants against the defendant, is a claim framed in accessory liability, that is, knowing assistance and knowing receipt.

The matter arises following what is said to have been a breach of trust by a Scottish broker, Echelon, with whom the claimants and the defendants dealt.

The application to amend is in reality not opposed. The real question between the parties is whether, in circumstances where the trial date of this matter is fixed for four weeks beginning in November of this year and has so been fixed since 27 July 2011, the trial date should be vacated as in effect the defendants say, or whether there should be a split trial as the claimants say.

The relevance of the allegation of insider trading is twofold. Firstly, it goes to the quantum of the claimant’s recoverable losses. They cannot recover full losses which would be illegal, and secondly, it goes to the availability of the equitable remedies which they seek because if they come to the court without clean hands, equity will not grant them the remedies they seek.

The claimants say that there should be a split trial. At the first stage of the trial, which would be in November of this year, the liability of the defendant as accessories to the breach of trust by Echelon could and should be decided as a discrete issue. It is said that the determination of that issue is not dependent on whether the claimants have engaged in the suggested criminal activity.

The defendants say firstly, that they have pleaded the case on insider trading a reasonable period of time after they were able to inspect the claimants’ disclosure in January of this year. It is true that they inspected the claimants’ documents in January of this year though insider trading or the possibility thereof had been in the defendants’ minds for some time before that.

It is unnecessary to go into the detail of what the defendants knew or suspected but the position is that no steps were taken to bring the matter on to the face of the pleadings or to suggest that following disclosure that might be the case until the matter has been raised as it has which has given rise to the application today.

The defendants say that they will wish in the context of the trial of their liability to cross-examine the claimants’ witnesses as to credit. They will wish to raise the insider trading allegations in that context. The defendants therefore say that if there is to be a split trial, there is a risk that the claimants’ witnesses will have to give evidence twice. There is also a risk that inconsistent decisions could be reached at separate hearings. Problems might also arise in the context of possible appeals from the first stage of the trial. In short, counsel for the defendants says that there is a risk that the trial process will be, in his words, “a mess”.

He further submits that in any event the four-week trial timetable is very tight. There is the position also of the third party, Craigcrook, to be considered and the claimants’ proposed amendment to plead a positive case on motive. Essentially for those reasons, therefore, the defendants say that the trial date should be vacated so that a new trial date can be fixed at which all issues can be resolved at the same time. That is of course the ideal position but the court and the parties have to deal with the position as it presently is which is one where the trial date of November of this year has been fixed since 27 July of last year.

The court’s task is to make such an order as is just and convenient or, as one of the counsel put it, to make that order which is the least unjust and inconvenient.

In considering the rival considerations the matters which have particularly struck me are these. Firstly, the trial date has been fixed for almost a year. In those circumstances the claimants have a legitimate expectation that a trial will take place in November of this year.

Secondly, it is important to bear in mind that the defendants have alleged no positive case against the claimants’ case on their relationship with the broker, Echelon. To an extent, therefore, one can only speculate as to the extent, if any, to which there is scope for cross-examination of the claimants’ witnesses as to credit.

The third matter which flows from the second matter is that it follows that the risk of witnesses having to give evidence twice and the risk of the court reaching inconsistent decisions is much reduced.

The fourth matter which has struck me is that although the trial timetable is tight, it is scheduled to end in, I think, mid-December, so that there is the prospect that an extra week will be available to be listed now to ensure that the trial of the defendants’ liability at any rate, can take place.

I bear in mind the over-riding objective, the need to deal with cases justly and expeditiously. The conclusion I have reached is that the trial date should be kept for a trial of the defendants’ liability, though the question of quantum of damages and, indeed, the availability of the equitable remedies sought in the event that it is later proved that the claimants do not have clean hands must await the second part of the trial.

I also consider it sensible to request the listing office to increase the length of the trial so that it runs to the end of term.

This is an application by the claimants to strike out witness evidence sought to be adduced by the defendants going to the character of several of the defendant’s witnesses. The application is the last of several which have been dealt with today on a CMC. The claims made by the claimants against the defendant are framed in accessory liability, knowing assistance and knowing receipt, one element of which is dishonest behaviour.

It is perhaps understandable that the witnesses concerned who are facing allegations of dishonest conduct and who deny such allegations wish to call evidence of their general reputation for honesty from a number of people; I think about 12. Included are a vicar, managers from industry, a barrister, a recorder, a chancellor of the Diocese of Rochester, work colleagues, university friends who have shared houses with the witnesses, friends, and others who have worked with the witnesses.

However, the attempt to introduce such evidence faces formidable difficulties. They have been taken on board by Mr Downes who has submitted that the evidence is relevant and on that account should be admitted. The difficulty faced by the defendant in wishing to adduce this evidence can be seen by having regard to Phipson on Evidence, 17th Edition, paragraph 18.25 which stated as follows:

“There is clear, uncontroverted authority establishing that, even where relevant to some fact in issue the good character of a party to a civil action may not be adduced. The reason why the civil law differs from the criminal was explained well by Baron Martin in Attorney General v Radloff, [a case from 1854, in which he said], ‘In criminal cases evidence of the good character of the accused is most properly and with good reason admissible in evidence, because there is fair and just presumption that a person of good character would not commit a crime; but in civil cases such evidence is with equal good reason not admitted, because no presumption would fairly arise, in the very grave proportion of such cases, from the good character of the defendant, that he did not commit the breach of contract or of civil duty alleged against him’.”

The editors of Phipson go on to say:

“Given that Radloff itself was concerned with recovery by the Crown of a penalty in respect of customs and excise offences, the argument that the position of the defendant should be the same as that of the accused in criminal proceedings could hardly have been stronger so the case must be decisive across the whole range of civil proceedings. By parity of reasoning the claimant is equally prevented from adducing evidence of his good character as going to some fact in issue. It must be taken that the same would go for good character of a witness for either side.”

Similar statements are made in other textbooks to which reference has been made. Not withstanding the genesis of the decision in Attorney-General v Radloff (1854) 156 ER 366 which, as Mr Downes submitted, stemmed from an act of 1851 and notwithstanding that the court which decided Attorney-General v Radloff was divided, the statement in that case, quoted in Phipson, has been taken for many, many years as a clear statement of the law and practice to such an extent that although, particularly in this court, allegations of dishonesty are often made, evidence of general reputation for honesty is not admitted.

Mr Downes has referred to the case of Bryant v The Law Society [2007] EWHC 3043, a decision of the Divisional Court. In that case a solicitor had been subjected to disciplinary proceedings, had sought to adduce evidence of his good character and the tribunal had refused to admit that evidence. The Divisional Court held that the tribunal had erred in law in refusing to admit that evidence. Consideration was given by the Divisional Court to the test of dishonesty which was material in that context. In paragraph 153 Richards LJ said:

“In our judgment the decision of the Court of Appeal in Bultitude stands as binding authority that the test to be applied in the context of solicitors’ disciplinary proceedings is the Twinsectra test, as it was widely understood before Barlow Clowes, that is a test that includes the separate subjective element.”

The important point to note there is that the relevant test of dishonesty applicable in the context of the Solicitors Disciplinary Tribunal was one analogous to that in the criminal law which contains both a subjective and an objective element.

Richards LJ went on to say at paragraph 154:

“In any event there are strong reasons for adopting such a test in the disciplinary context and for declining to follow in that context the approach in Barlow Clowes. As we have observed earlier, the test corresponds closely to that laid down in the criminal context by R v Ghosh; and in our view it is more appropriate that the test for dishonesty in the context of solicitors' disciplinary proceedings should be aligned with the criminal test than with the test for determining civil liability for assisting in a breach of a trust. It is true, as Mr Williams submitted, that disciplinary proceedings are not themselves criminal in character and that they may involve issues of dishonesty that could not give rise to any criminal liability (e.g. lying to a client as to whether a step had been taken on his behalf). But the tribunal's finding of dishonesty against a solicitor is likely to have extremely serious consequences for him both professionally (it will normally lead to an order striking him off) and personally. It is just as appropriate to require a finding th,at the defendant had a subjectively dishonest state of mind in this context as the court in R v Ghosh considered it to be in the criminal context. Indeed, the majority of their Lordships in Twinsectra appeared at that time to consider that the gravity of a finding of dishonesty should lead to the same approach even in the context of civil liability as an accessory to a breach of trust. The fact that their Lordships in Barlow Clowes have now taken a different view of the matter in that context does not provide a good reason for moving to the Barlow Clowes approach in the disciplinary context.”

Richards LJ went on to consider the exclusion of character evidence. He said, at paragraph 163:

“The tribunal's refusal may perhaps cast some light on the legal test that it thought it was applying: if the test was a predominantly objective one, then one can see how the tribunal would have considered the character evidence to be irrelevant (though we do not say that such a view would necessarily have been correct). But if, as we have held, the test to be applied included a subjective element, then the character evidence was clearly relevant to it and capable of having real weight.”

As those extracts indicate, the law has now been stated with clarity in the Barlow Clowes [2005] case that in the context relevant to the present case, that of liability as an accessory to a breach of trust, the relevant test of dishonesty is the objective test. In Starglade Properties v Roland Nash [2010] EWCA Civ 1314 the Chancellor referred to the interpretation of Twinsectra by the Privy Council in Barlow Clowes and said at paragraph 30:

“In the fourth case to which I referred in paragraph 23 above, Abu Rahman v Abacha [2007] I Lloyd's Rep 115, the Court of Appeal indicated that the correct approach to questions of dishonesty is that indicated by the Privy CounciI in Barlow Clowes. At paragraph 26 Rix LJ indicated that it is now sufficient to concentrate on what was said in Barlow Clowes about the element of knowledge required to set up and investigation of the subsequent element of dishonesty. Arden LJ considered (paragraph 69) that the law of England and Wales is that laid down in Twinsectra as interpreted in Barlow Clowes. Pill LJ acknowledged (paragraph 94) the value of Barlow Clowes in its explanation of Twinsectra.”

The Chancellor continued at paragraph 32:

“For my part, I consider that the deputy judge's comments are apt to mislead. The relevant standard, described variously in the statements I have quoted, is the ordinary standard of honest behaviour. Just as the subjective understanding of the person concerned as to whether his conduct is dishonest is irrelevant so also is it irrelevant that there may be a body of opinion which regards the ordinary standard of honest behaviour as being set too high. Ultimately, in civil proceedings, it is for the court to determine what that standard is and to apply it to the facts of the case.”

Thus it is clear that the test of dishonesty which the court in this case will be concerned with is different from the test of dishonesty in the criminal context exemplified by Ghosh and in the context of solicitors disciplinary proceedings indentified in the case of Bryant v The Law Society.

One can understand why Mr Downes placed reliance on the judgment of the Divisional Court in Bryant, particularly with its references to the effect of a finding of dishonesty on a solicitor. He says there are echoes with the position in which his witnesses find themselves in this case. But the explanation for the decision in Bryant must pay due regard to the equivalence which the court found between the criminal test of dishonesty and the test of dishonesty which it was applying in that case. It is therefore perhaps not surprising that when dealing with the question of the admissibility of character evidence it followed the criminal practice rather than the civil practice.

In my judgment, the court, certainly a court of first instance, must follow the established practice set out in Phipson and other text books with regard to civil proceedings which is that evidence of character and general reputation for honesty is not admissible. Mr Downes also submitted that this evidence was relevant to the element of knowledge which is alleged by the claimants. In particular, blind eye or Nelsonian knowledge. I am not at all persuaded that evidence of general reputation and honest conduct is relevant to questions of knowledge. For those reasons I must accede to the claimant’s application to strike out the witness evidence going to character.