Hardy & Anor v Washington Green Fine Art Publishing Company Ltd

An adverse inference from a failure to call a relevant witness must remain within the issues fairly raised by the pleadings and evidence. It cannot, without proper notice and an opportunity to answer, convert an allegation against a company into a finding that an uncalled individual personally committed dishonesty. Where a first-instance judgment is materially tainted by such a finding, the appellate court may set it aside and determine the remaining issue on the existing evidence if that issue was fully tried. The claimant retains the burden of proving that the defendant assumed possession and became a bailee; neutral matters such as common ownership, packaging, pleading changes and a witness’s absence may not discharge it.

The respondent claimed for the loss of a painting purchased from Castle Galleries and stored at its premises. Castle Galleries and the appellant, Washington Green, were sister companies within the Halcyon group. After Castle Galleries entered administration, the claim proceeded against Washington Green alone.

The trial judge found that Washington Green had possessed the painting and inferred that Mr Sheleg, a senior figure in the group who did not give evidence, was personally and dishonestly responsible for its loss. Judgment was entered for the respondent. Washington Green appealed, arguing that it had never possessed the painting and that the finding of personal dishonesty had improperly tainted the possession finding. The central issues were whether the judgment should be set aside, whether a retrial was necessary, and whether the evidence established possession sufficient to create a bailment.

1. Appeal allowed. Longmore LJ delivered the leading judgment. Lady Justice Smith and the Master of the Rolls agreed. The trial judgment was set aside, the respondent’s application for a retrial was refused, and the claim against Washington Green was dismissed.
2. Finding of personal dishonesty. The trial judge had gone beyond the pleaded case. The allegation concerned corporate dishonesty and did not identify Mr Sheleg as the person who had stolen the painting. He had not been personally sued, accused or given notice that such an allegation would be made. The judge should not have proceeded as though that allegation had been made. The judge’s approach also went further than the limited inference discussed by Lord Diplock in British Rail v Herrington [1972] A.C. 877, which concerned negligence in the absence of evidence from relevant witnesses.
3. Possession and bailment. The burden was on the respondent to prove that Washington Green had possessed the painting. Evidence that artwork was delivered in Washington Green wrapping did not establish prior custody, since wrapping was likely to have occurred for transport. The original pleading description of the corporate relationship was an uncertain guide once the distinction became material, and no admission had been made that Washington Green possessed the painting. The evidence of mixed stock, the pleading amendment and Mr Sheleg’s absence were neutral or insufficient. The stronger evidence showed that Castle Galleries’ and Washington Green’s stock were kept separate. The respondent had therefore not discharged the burden of proof.
4. Retrial and orders. The parties had fully deployed their evidence on possession, so the Court of Appeal could decide the issue without ordering a retrial. The respondent was ordered to pay the appellant’s costs, make an interim payment of £50,000 on account, and permit the appellant’s solicitors to receive £134,500 paid into court together with accrued interest.

• Court of Appeal (Civil Division) allowed Washington Green’s appeal against the order dated 18 June 2009, refused a retrial, set aside the relevant paragraphs of the lower order and dismissed the claim against Washington Green.
• High Court, Birmingham District Registry HHJ Simon Brown QC, sitting as a High Court Judge, found for the respondent after inferring that Washington Green had possessed the painting and that Mr Sheleg was personally and dishonestly responsible for its loss.