Taking the lead
Experts can prove invaluable in fraud cases, but practitioners must give them clear instructions and ensure they don't stray from their role, says Stuart Cakebread
Civil fraud encompasses a very broad range of litigation from simple fraudulent oral misrepresentation '“ 'this car was only used by its old lady owner for going to church on Sunday' '“ to complex serial appropriation of another's property in a commercial context.
For two distinct reasons, proof of fraud can be difficult. First, there is the legal reason that establishing that an act is fraudulent, as opposed to negligent or mistaken, requires proof to a high degree of probability '“ see Re H (Minors) [1996] AC 563. In some cases the damages recoverable may be significantly greater as the only limitation is that they must directly flow from the deceit '“ Smith New Court Securities v Scrimgeour Vickers [1996] UKHL 3.
Second, where there has been deceit, evidence may be deliberately hidden or corrupted. As Morgan J said in Digicel (St Lucia) Ltd v Cable & Wireless plc [2008] EWHC 2522, the tendency of the fraudster is 'to conceal rather than reveal'. For example, the task of establishing as a matter of fact that a franchisee has been sending in false returns to his franchisor may be far more difficult evidentially if his conduct is the result of deliberate concealment and falsification rather than inadequate systems. Documents may have been forged in the audit trail, false accounts produced and so on. Money may even have been paid into concealed bank accounts. By contrast, where poor systems or negligent operation is the reason for the discrepancies, unearthing the truth may not prove too difficult.
It is also very important to have firmly in mind the two different and distinct roles an expert may have in litigation '“ the giving of advice on the one hand and the preparer and presenter of evidence on the other. Strictly speaking, it is only the latter role which will bring an expert within the ambit of CPR 35, although if he is initially retained only to advise but then subsequently instructed to prepare a report he will be bound by the rule's strictures.
It is therefore important to thoroughly understand the effect of CPR 35 and the accompanying protocol because issues of privilege and disclosure can arise. While it is clear and mandatory to disclose the instructions given to an expert when instructed to prepare a report for the court, the situation regarding earlier instructions, which might nonetheless influence his report, is less clear.
Impartiality
In fraud actions the perceived impartiality of the expert is absolutely essential. This can be put at risk unintentionally where he is involved too closely with the party on whose behalf he appears; see for example Cairnstores v Aktiebolaget Hassle [2002] EWCA Civ 1504, where the defendant's expert was criticised by the judge for acting as an advocate because of 'over-exposure' to their case having been involved with their side in similar litigation in several other countries. Because of the nature of many fraud cases, close involvement with the expert initially instructed may be inevitable. The litigator is not simply going to him for an assessment of the effect of established facts as he may himself be instrumental in establishing the facts.
In some cases, therefore, it is desirable to consider instructing a second expert to provide the report to the court on the basis of facts already established. There is then far less likelihood of any perception of bias on his part.
Of course, the above consideration will only apply where the professional judgment of the expert is key. In many cases, an expert's evidence amounts to no more than analysis of established facts.
If the alleged fraud is financial, the early involvement of forensic accountants is essential. The immediate risk is the destruction or concealment of evidence. Before launching applications for search and seize orders, it is vital to know precisely what documents are being sought. It may be that early analysis of the available evidence will yield some clues to the accountants. Clear precise instructions to them and equally clear and precise advice from them is the key to success.
Electronic documents
In the commercial world, a vast amount of communication is done electronically. The seizure of electronic records is usually essential or at least highly desirable in serious cases of fraud, and lawyers involved in such cases must become fully conversant with the technical issues (see Juliette Levy's 'Alice in e-disclosure land', Solicitors Journal Bar Focus, May 2010), but the early involvement of forensic IT experts is highly recommended. Their role is twofold. First, they will be able to advise the legal team as to how concealment could take place. Second, they will know how data may be unearthed and preserved. In any search and seizure exercise, the IT expert is likely to be involved on the ground in securing the data stored or hidden on the target's systems.
If the fraud is likely to be complex, then pre-action time spent thoroughly briefing accounting and IT experts is always time well spent '“ 'festina lente'. Forensically experienced experts may be more expensive than others at first blush. Experience shows, however, that familiarity with court procedures and the requirements of CPR 35 and the protocol is essential at every level for an expert. Even at the early advisory stage, damage can be done to a party's case if the wrong approach is taken.
Whether or not there have been pre-emptive measures once the claim form is served, the process of disclosure will kick off. A thorough process of e-disclosure will need to be followed in commercial fraud cases. IT experts in this field know how to sift through millions of gigabytes of material to find the needle in the electronic haystack. This is a crucial process. It should be borne in mind that it is virtually impossible to lose or corrupt electronically stored data so as to make it irretrievable. I remember many years ago being told by a forensic IT expert that the only way to destroy data on a hard disk would be to physically destroy the disk or drop it in the sea. If the latter course was chosen, it was essential to drop it far out at sea in an unknown place as otherwise it could be recovered and the data revealed. Yet it is surprising how often applications for specific e-disclosure are met with the response that the back up/ storage tapes have been corrupted and the data unusable. Bear in mind that this is very rarely, if ever, true. The involvement of an IT expert throughout will enable the litigator to deal with such obstruction firmly and effectively.
Guiding the expert
The work of forensic accountants and indeed any expert working on documents will need to be carefully monitored by the litigator. Originals should always be inspected, not just copies. If the litigator is dealing with a crook then that crook is not going to stop at falsification. The whole process of disclosure needs to be more thorough and the experts need at all times not to take things for granted. Experts less experienced in the forensic context do not always appreciate the evidential burden placed upon the litigator of establishing fraud. The expert must ensure that he is scrupulous about identifying sources of information and must avoid making any assumptions which are against the defendant but which have not been or are not capable of being established as correct.
In this latter respect, the litigator has a non-delegable role of testing any report the expert prepares to ensure that its contents and conclusions are evidentially sound. The litigator will be aware of his own role under the guidelines not to attempt to influence the expert or to succumb to the temptation to rewrite parts of his report.
Fraud may take many guises, and in fraud litigation the outcome may turn on issues of law or fact or both. An area where expert evidence at trial may be crucial will be where the issue is whether a particular course of action was a) normal in the particular trade or business; b) indicative or resulting from poor business administration or even sharp practice; or c) highly likely to be the result of deliberate fraud. Although 'expert evidence could only provide guidelines within which the facts fell to be decided by the judge'¦' (per Wall J in Miller v C and G Coach Services Ltd [2003] EWCA Civ 442) and whether someone acted fraudulently is pre-eminently a question of fact, objective and careful analysis by an expert of the conduct and its comparison with the normal practice in the trade, or perhaps standard accounting principles, may be of central relevance in assisting and guiding the trial judge. The role of the litigator is to ensure that the expert addresses the precise issues about which he can give evidence as an expert, and avoids trespassing into issues of fact as to whether someone had acted deceitfully.
The guidelines given in Oldham MBC v GW, PW and KPW [2007] EWHC 136 (Fam) on the role of an expert where his opinion is important to the outcome are worthy of very careful consideration by a litigator in a fraud action (although the case itself concerned care proceedings). The judge emphasised that:
a) An expert requires clear instructions and access to all relevant documents, not ones selected by the litigator.
b) His report should set out his analytical process and ensure that it distinguishes between facts, assumptions and deductions. He should also note inconsistent or contradictory features of the case.
c) Where appropriate the expert should identify the range of opinion and consider using a 'balance sheet' approach to his own opinion.
d) He should identify where necessary where the court would benefit from other or additional expertise.
e) The expert should avoid straying into the role of decision-maker.
A feature of many fraud actions is concealment of assets by the perpetrator to protect both their own property and their ill-gotten gains. Always remember that the litigator is not dealing with someone who plays by the rules (I do not suggest that will usually apply to the defendant's legal team). Where there has been apparent or actual concealment of assets prior to trial, this can have a serious affect on the credibility of the defendant at trial; see for example Dadourian Group International Inc v Simms and others [2006] EWHC 2973 (Ch). Asset chasing experts, therefore, may provide invaluable evidence which may help defeat a defendant where, for example, as in Dadourian, the issue of deceit rested largely on questions of credibility.
