Grove Park Properties Ltd v The Royal Bank of Scotland Plc

A party alleging fraud must plead the material primary facts from which dishonesty may properly be inferred. A knowingly false case advanced in earlier proceedings may be pleaded where it is capable of supporting an inference that the party committed and sought to conceal the alleged fraud.

Later misconduct in separate litigation will not bar an otherwise valid restitutionary claim on public-policy grounds where denial would be disproportionate. Nor will it engage the equitable doctrine of unclean hands without an immediate and necessary connection to the relief sought. There is no general requirement to plead anticipated challenges to a witness’s credit, although a specific substantive case of dishonesty must be pleaded fairly.

The claimant property company alleged that the defendant bank had fraudulently altered a loan document by changing its repayment date. It claimed that the alteration rendered the loan and associated agreements void. The bank denied any unauthorised alteration and counterclaimed for sums due, alternatively relying on restitution and subrogation.

In earlier proceedings brought by the claimant’s director, the bank had initially alleged that the director fraudulently altered the document. That allegation was later withdrawn. The claimant pleaded that the bank had knowingly advanced a false and misleading case in those proceedings.

The bank applied to strike out that pleading. The claimant alternatively sought permission to plead the earlier misconduct as a defence to the restitution and subrogation counterclaims. The court had to determine the permissible relevance of the bank’s alleged conduct in the earlier proceedings.

1. The bank’s strike-out application was dismissed. The claimant could plead that the bank knowingly advanced a false case in the earlier proceedings, provided the pleading was clarified to identify its relevance. If proved, that conduct and the alleged lies of the bank’s witnesses could constitute primary facts from which the trial judge might infer that the bank made the disputed alteration and did so fraudulently. Such conduct was potentially relevant beyond the witnesses’ general credibility. Whether the inference should ultimately be drawn remained a matter for trial.

2. A party alleging dishonesty must distinctly plead the material primary facts relied upon to support that inference. At the interlocutory stage, the question is whether the pleaded facts would justify the allegation, rather than whether the evidence will establish fraud at trial. Statements of case should otherwise contain only material facts needed to formulate the cause of action or defence, rather than background evidence or prejudicial narrative.

3. Permission to plead an illegality or public-policy defence to restitution was refused. Applying the framework in Patel v Mirza [2016] UKSC 42, the earlier misconduct had no realistic prospect of defeating a restitutionary claim which, on the hypothesis necessary for the issue to arise, remained valid despite the original fraudulent alteration. The law ordinarily addresses fraudulent conduct in litigation through measures such as costs or contempt rather than by defeating a valid claim. Depriving the bank of an otherwise valid claim for about £16 million because of misconduct in separate proceedings would be a severe and disproportionate response.

4. Permission to plead unclean hands against the subrogation counterclaim was refused. That doctrine requires a sufficiently close, immediate and necessary relationship between the misconduct and the equitable relief sought. The alleged false case in separate proceedings occurred years after the transactions underlying the subrogation claim. The bank was not seeking to derive an advantage from that misconduct, and the earlier proceedings had been brought by the director rather than the claimant. There was no real prospect of establishing the required connection.

5. The claimant could not plead the allegations merely to give notice of intended cross-examination. There is no general principle requiring anticipated challenges to a witness’s honesty or credit to be included in pleadings. Fairness does, however, require a specific substantive case of dishonesty founded on particular facts to be pleaded. The parties were directed to revise the pleadings consistently with the ruling; questions of disclosure were left open.

not stated in the judgment.