Can expert evidence be used to determine dishonesty?

Dishonesty – facts of the claim
Can expert evidence be adduced to determine the standard of honesty?
Comment


Dishonesty in relation to financial market practices should be determined against an objective standard; expert evidence as to market practices cannot be adduced to decide the issue.

Dishonesty – facts of the claim

In the early 2000s, the claimant professional footballers made a number of investments based on the advice of financial advisers Formation Asset Management. Unknown to the claimants at the time of investment, the claimants' agents would receive a share of the commission to be paid to Formation Asset Management.

The claimants brought proceedings against Formation Asset Management, its parent company and several independent agents on the basis that they had not been made aware of the commission arrangements and that the parties' involvement amounted to unlawful conduct (Carr v Formation Group Plc).(1)

Their claims included:

• alleged breaches of fiduciary duties;
• dishonest assistance to commit these breaches;
• liability for the tort of deceit; and
• unlawful means conspiracy.

In response to the claimants' dishonesty plea, at a case management conference three of the defendants applied for permission to adduce expert evidence:

• of the historic regulatory position (to support their argument that commission sharing agreements were an accepted practice within the financial advisory industry prior to 2007);
• to determine whether they had acted with dishonesty when compared against the market standard at the time; and
• to defend the allegation of conspiracy to injure by lawful means and deliberate concealment under the Limitation Act 1980.

Can expert evidence be adduced to determine the standard of honesty?

• The historic regulatory position – no. The judge held that it was unnecessary to adduce expert evidence of the alleged market practice; this evidence would be available from the relevant contemporaneous documents.
• The standard of honesty – no. This would be judged against an objective standard; in other words, did the defendant's conduct fall below the standards of honest and reasonable people? (The subjective element of determining whether the defendant considered their actions dishonest was removed in Ivey v Genting Casinos (UK) Ltd.)(2)
• Limitation – yes. The judge permitted expert evidence as to market practice to be adduced to defend the allegation of conspiracy to injure by unlawful means and deliberate concealment under the Limitation Act 1980. These allegations would turn on evidence as to the defendants' state of mind; specifically, whether the defendants had deliberately committed the wrongdoing alleged, knowing that it was unlawful.

Comment

This case reinforces the courts' desire after Ivey to remain the guardians of honest behaviour in relation to financial market practices; the objective standards of dishonesty are to be set by the courts rather than the market. Parties must therefore rely on contemporaneous documents when trying to prove claims for dishonest assistance, as the court will not permit them to adduce expert evidence of wider market practice.

For further information on this topic please contact Parham Kouchikali or Steven Rajavinothan at RPC by telephone (+44 20 3060 6000) or email (parham.kouchikali@rpc.co.uk or steven.rajavinothan@rpc.co.uk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2018] EWHC 3116.

(2) [2017] UKSC 67.