Berry Piling Systems Ltd v Sheer Projects Ltd

Under rule 32.14 of the Civil Procedure Rules 1998, a false statement verified by a statement of truth may amount to contempt where its maker knew it was false or was consciously reckless as to its truth. Conscious recklessness means having no idea whether the statement is true or false. Mere carelessness, negligence or optimism does not suffice.

Permission to bring committal proceedings requires a strong prima facie case, careful avoidance of prematurely determining the merits, and consideration of the public interest, proportionality and the overriding objective. The court may refuse permission where the evidence does not strongly establish the required state of mind and the proposed proceedings would be disproportionate to the amount and issues involved.

Berry Piling Systems Ltd obtained enforcement judgment for an adjudicator’s award against Sheer Projects Ltd. Sheer’s application for a stay of execution was dismissed after evidence from Berry Piling’s managing and finance directors that the company could repay the judgment sum if required.

Berry Piling later entered administration and Sheer obtained an arbitration award. Sheer then sought permission to bring committal proceedings against the former directors, alleging that their earlier statements about the company’s solvency and ability to repay were false and made knowingly or recklessly. The central issues were whether the evidence disclosed a strong prima facie case of contempt and whether committal proceedings would be proportionate.

1. The application was dismissed. Sheer had not established a strong prima facie case that either former director knowingly made a false statement, or consciously made a statement without knowing whether it was true or false. The accountant’s evidence identified matters which the directors ought to have known, but did not strongly establish their actual knowledge or conscious recklessness.

2. The court held that rule 32.14 of the Civil Procedure Rules 1998 encompasses conscious recklessness. A person who represents a matter as true while consciously having no idea whether it is right or wrong lacks an honest belief in its truth. That is distinct from carelessness, negligence, or an optimistic value judgment. Contempt must ultimately be proved beyond reasonable doubt.

3. Applying the approach in Kirk v Walton [2008] EWHC 1780 (QB), permission should be granted only with great caution. The applicant must show a strong prima facie case; the court should not determine the merits prematurely; and it must consider public interest, proportionality and the overriding objective. The limited analysis of seven alleged bad debts did not justify a strong inference that the directors knew their statements were false.

4. The first supporting affidavit did not comply with paragraph 5.2 of Practice Direction 81 because it failed clearly to identify the alleged false statements and the basis for alleging knowledge of falsity. A later affidavit cured that defect in sufficient time to permit a fair response, so the application could be considered on its merits.

5. In any event, committal proceedings would have been wholly disproportionate. The original judgment involved about £24,000, whereas a contested committal case with factual and expert accounting evidence would entail substantial costs, documents and court time. In those circumstances, permission was neither proportionate nor in the public interest.

This was a first-instance application. Earlier enforcement proceedings resulted in judgment for Berry Piling Systems Ltd and dismissal of Sheer Projects Ltd’s application for a stay of execution on 2 February 2012. The judgment states no appellate history.