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  Judgment - Smith New Court Securities v. Scrimgeour Vickers   continued  
 
 
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The trial and the judgment of Chadwick J. on liability [1992] B.C.L.C. 1104


 
46.         The trial took place between 25 November 1991 and 17 January 1992. The judge gave judgment on 25 March 1992. He found that in advance of earlier criminal proceedings against Mr. Roberts Serious Fraud Office officials had asked Mr. Lewis and Mr. Abrahams to pool their recollections; that they falsely denied this at the criminal trial; and that in the civil trial they falsely pretended that they had forgotten how their statements came into existence. In the result the judge found that the first representation, which depended exclusively on the evidence of Mr. Lewis and Mr. Abrahams, had not been proved. But, in the light of the totality of the evidence before him, the judge found that Mr. Roberts had made the second and third representations on behalf of Citibank; that those representations were false; and that Smith had been induced to enter into the contract by those fraudulent misrepresentations.

The appeal and the judgment of the Court of Appeal [1994] 1 W.L.R. 1271


 
47.         Citibank appealed against the judge's findings on liability. Smith served a respondent's notice which invited the Court of Appeal to uphold the judge's conclusions on liability on additional grounds. And that is what the Court of Appeal did. The Court of Appeal held that the judge had misdirected himself in respect of the 9.43 a.m. conversation by considering the credibility and reliability of Mr. Lewis and Mr. Abrahams in isolation. After a review of all the evidence the Court of Appeal found, as a matter of fact, that all three representations were made and made fraudulently and that they induced Smith to enter into the contract. In the result the Court of Appeal dismissed Citibank's appeal on liability.

The submissions for Citibank


 
48.         Counsel for Citibank put in the forefront of his submissions the undisputed proposition that while as a matter of law fraud only has to be proved to the civil standard, proof to that standard must necessarily take into account the consideration that the more serious the allegation is, the greater the proof is needed to persuade a court that it can be satisfied that the allegation is established. In other words, the very gravity of an allegation of fraud is a circumstance which has to be weighed in the scale in deciding as to the balance of probabilities: In re H. (Minors) (Sexual Abuse: Standard of Proof) [1996] A.C. 563, 586C--587F, per Lord Nicholls of Birkenhead. But counsel accepted that both Chadwick J. and the Court of Appeal correctly directed themselves in accordance with this standard.
 
49.         Counsel for Citibank reviewed the minutiae of the evidence. He highlighted undoubted inconsistencies between the accounts of Mr. Lewis and Mr. Abrahams. He argued that there were improbabilities inherent in their accounts. But throughout his speech there was the theme that since Chadwick J. found on proper grounds that Mr. Lewis and Mr. Abrahams had lied it is impossible to sort out in their evidence truth from falsehood. That is an argument worthy of careful consideration. It has rightly been said that a cocktail of truth, falsity and evasion is a more powerful instrument of deception that undiluted falsehood. It is also difficult to detect. But counsel had to face the fact that on the third representation Mr. Marks supported the accounts of Mr. Lewis and Mr. Abrahams. And at the trial counsel never challenged the credibility of Mr. Marks. Counsel for Citibank put the matter quite simply: he said Mr. Marks' evidence was too thin a thread to bear the weight of an elaborate case of fraud. Moreover, counsel argued that the Court of Appeal was not entitled to substitute their view for that of the judge on the first representation. Once it was accepted that the first representation had not been proved he said that it was simply impossible to be satisfied that the second and third representations were made. In the broadest outline these were the principal submissions of counsel for Citibank.

The approach to an attack on concurrent findings of fact


 
50.         The principle is well settled that where there has been no misdirection on an issue of fact by the trial judge the presumption is that his conclusion on issues of fact is correct. The Court of Appeal will only reverse the trial judge on an issue of fact when it is convinced that his view is wrong. In such a case, if the Court of Appeal is left in doubt as to the correctness of the conclusion, it will not disturb it. That is the first difficulty in the way of upholding the arguments of counsel for Citibank. But there is an additional obstacle. The Court of Appeal upheld the findings of fact of the trial judge on the actionability of the second and third representations. While the jurisdiction of the House is not in doubt, it is most reluctant to disturb concurrent findings of fact. There are two reasons for this approach. First, the prime function of the House of Lords is to review questions of law of general public importance. That function it cannot properly discharge if it often has to hear appeals on pure fact. This point is underlined by the fact that, despite the economy of presentation of counsel, the hearing on liability lasted more than three days. Secondly, in the case of concurrent findings of fact, the House is confronted with the combined views of the first instance judge and the Court of Appeal. A suggestion that the House can be expected to take a different view on concurrent findings of fact generally gives rise to an initial sense of disbelief. Nevertheless, I must examine the merits of the argument of counsel for Citibank.

The reasons why the concurrent findings are unassailable


 
51.         It seems to me that there are five principal reasons why the attack on the concurrent findings of fact must fail. First, having found that Mr. Lewis and Mr. Abrahams had lied on a collateral matter, the judge approached their evidence with great caution. Rightly, he rejected the notion that falsity in one thing involves falsity in all. Reviewing their accounts as to the second and third representations against the whole body of evidence he accepted, as he was entitled to do, their accounts. Secondly, the judge was plainly considerably influenced by the fact that on the third representation Mr. Marks in all material respects supported Mr. Lewis and Mr. Abrahams. He accepted the evidence of Mr. Marks. Thirdly, it is not in dispute that between 10.00 and 10.30 a.m. on the morning of 21 July 1989, at the pricing meeting, which was attended by Mr. Lewis, Mr. Abrahams and Mr. Marks, Smith fixed their bid at 82p on the footing that they would be bidding in competition with two other bidders, one of whom was from outside the securities industry. This fact strongly supported Smith's case. Fourthly, while disputed by counsel for Citibank, it seems to me inescapable that on Citibank's theory of the case, Mr. Lewis and Mr. Abrahams fabricated the story that they had been told that there were other bidders and the price of the bids several months before the issue of misrepresentation arose. There is the undisputed evidence of Mr. Smith, another employee of Smith, that the account of the rival bids surfaced on 21 July 1989, i.e. the day of the transaction. Given this fact, and Mr. Marks' evidence, the theory of a fabrication is absurd. Fifthly, as against these factors, the judge had to weigh the evidence of Mr. Roberts. The judge rejected Mr. Roberts' evidence. That necessarily involved a finding that Mr. Roberts gave untruthful evidence. The judge was entitled to take this course. Taking into account counsel's submissions I have reviewed the whole of the evidence of Mr. Roberts, given over more than two days. He was a most unimpressive witness. He testified that at the midday meeting he had said that Aeritalia had given an indication (shorthand for saying they were interested parties) at 81p. It is perfectly clear, however, that Aeritalia was only interested in an option to buy the Ferranti shares for two months. The sale of the shares was, however, a matter of urgency and both Citibank and Parent, acting through Mr. Peck, wanted an outright sale. Mr. Roberts said that he had been told by another Citibank employee that Mr. Peck had said that Aeritalia might make an outright bid. In Mr. Roberts' own words that was "a zero possibility" by midday on 21 July 1989. Cumulatively, these five factors are sufficient in the particular circumstances of this case to demonstrate convincingly that the attack on the concurrent findings of Chadwick J. and the Court of Appeal must be rejected. In sustaining the second and third representations as actionable fraudulent misrepresentations Chadwick J. in my judgment came to a correct conclusion. So far as the Court of Appeal affirmed the findings of Chadwick J. I am in respectful agreement with their concurrent views.

The Court of Appeal's views on the facts


 
52.         It is now necessary to consider the exceptional course taken by the Court of Appeal regarding the first representation. It will be recollected that the judge did not find the first representation proved but he did find the second and third representations proved. The clue to this conclusion is to be found in the following passage in the judgment at first instance [1992] B.C.L.C. 1104, 1116C:
     " . . . it would, in my view, be unsafe to make a finding of dishonesty against Mr. Roberts on the unsupported evidence of Mr. Lewis and Mr. Abrahams, I approach the examination of the events of 21 July 1989 on the basis that little, if any, weight can be given to their evidence where it is in conflict with that given by Mr. Roberts."
 
53.         The Court of Appeal concluded that the judge erred by not subsequently reviewing this conclusion in the light of all the evidence. Counsel for Citibank vigorously challenged the conclusion of the Court of Appeal. It is necessary to analyse the position on a step by step basis.
 
54.         In making findings of credibility and reliability it is unsafe for a trial judge to compartmentalise the case. In Attorney-General of Hong Kong v. Wong Muk Ping [1987] A.C. 501, 510, Lord Bridge of Harwich explained:
     "It is commonplace of judicial experience that a witness who makes a poor impression in the witness box may be found at the end of the day, when his evidence is considered in the light of all the other evidence bearing upon the issue, to have been both truthful and accurate. Conversely, the evidence of a witness who at first seemed impressive and reliable may at the end of the day have to be rejected. Such experience suggests that it is dangerous to assess the credibility of the evidence given by any witness in isolation from other evidence in the case which is capable of throwing light on its reliability; . . ."
 
55.         In other words, an initial and provisional conclusion that a witness is not credible on a particular point may be falsified when considered against the possibilities, probabilities and certainties emerging from the whole body of evidence before the court. That is the error into which the judge fell. He ought to have reconsidered his understandable unwillingness to act on the unsupported evidence of Mr. Lewis and Mr. Abrahams in respect of the first representation in the light of the evidence about the pricing meeting, Mr. Marks' account and the inherent probabilities. There is no internal indication in his judgment that he ever did so.
 
56.         It follows that the Court of Appeal was entitled to conclude that in respect of the first representation the trial judge misdirected himself. That meant that the Court of Appeal was at large to disregard the judge's findings of fact, even though based on credibility. I understood counsel for Citibank at one stage to suggest that this vitiates all the judge's findings of fact and the whole case on fraud collapses. That is quite unrealistic. The impact of a misdirection is not governed by fixed rules. The appropriate course is dictated by considerations of common sense and fairness as well as close attention to the nature of the misdirection and the circumstances of the particular case. Here the Court of Appeal was fully entitled to take the view that the misdirection only vitiated the judge's findings on the first representation. In all other respects the Court of Appeal was entitled to act on the judge's findings so far as they were unaffected by the misdirection.
 
57.         On the first representation the Court of Appeal was entitled to come to its own conclusion. The principal reasons for the conclusion of the Court of Appeal were spelt out as follows [1994] 1 W.L.R. 1271, 1279:
     "Events at the pricing meeting and the making of the second and third representations as found by the judge are all inexplicable unless the first representation had also been made. . . . The judge failed to stand back and consider his finding as to the first representation in the light of his findings as to the second and third. Had he done so, we have little doubt that he would have been driven to conclude, as we do, that the first representation was also made."
 
58.         In effect the Court of Appeal held that on the first representation the judge should in all the circumstances also have accepted the evidence of Mr. Lewis and Mr. Abrahams, and rejected the evidence of Mr. Roberts. To this extent I respectfully agree with the admittedly exceptional course taken by the Court of Appeal.
 
59.         That is, however, not the end of the matter. On the first representation, counsel for Citibank was able to demonstrate that, even on an acceptance of the evidence of Mr. Lewis and Mr. Abrahams, there was considerable scope for misunderstanding between the participants in the 9.43 a.m. telephone conversation. In the discussions at 10.42 a.m. and at midday Mr. Lewis and Mr. Abrahams on their evidence (and the evidence of Mr. Marks) unambiguously spoke of actual bids. But Mr. Lewis and Mr. Abrahams were less clear about the discussion at 9.43 a.m.: they both said that Mr. Roberts either spoke of bids or about bids to be made. Counsel for Smith argued that Mr. Roberts impliedly represented that he had bona fide and reasonable grounds for saying that bids would be made that day and that he had no such grounds. There is force in this argument. But on any view that is a far less clear-cut position than existed in respect of the second and third representation. That brings me back to another passage in the judgment at first instance. The judge said [1992] B.C.L.C. 1104, at 1129C:
     "I am not satisfied that the first representation was made in the earlier telephone conversations in the morning of 21 July 1989 in sufficiently unequivocal terms for it to form the basis for an action in deceit. . . ."
 
60.         Making due allowance for the judge's earlier misdirection, I attach weight to this passage. On balance I too am not persuaded that the evidence of Mr. Lewis and Mr. Abrahams established the first representation in clear enough terms sufficient to justify a finding of deceit. Differing from the Court of Appeal on the interpretation of the evidence of Mr. Lewis and Mr. Abrahams, I would hold that in respect of the 9.43 a.m. conversation an actionable fraudulent misrepresentation has not been established.

Conclusion on cross-appeal


 
61.         In my view the conclusion that the actionability of the first representation has not been established does not affect the outcome of this appeal. The misrepresentations at the midday meeting on 21 July 1989 induced Smith to enter into the transaction shortly after 5 O'clock on that day. After all, the trial judge found on ample evidence (including that of Mr. Marks) that Smith would have withdrawn from the transaction if these misrepresentations had not been made. The Court of Appeal agreed with this conclusion. So do I. The essentials of the tort of deceit were established. I would dismiss the cross-appeal on liability.