Dispute Resolution analysis: The Court of Appeal has overturned a decision of ICC Judge Jones in which he found in favour of an individual who claimed that the share in a company which provided alternative legal services to financial institutions was beneficially owned by a partnership of which he was a member.
Keane v Sargen and ors [2023] EWCA Civ 141
What are the practical implications of this case?
This is a judgment of the Court of Appeal which addresses three areas of interest. First, it highlights the fairly limited circumstances in which an appellate court can overturn a finding of fact of a trial judge. This includes circumstances in which the findings lacked an evidential foundation. Second, it addresses when and how a party who considers that their opponent is going beyond the scope of their pleaded case should act. It emphasises the importance of raising the issue at trial and asking the trial judge to make an express ruling that the other party be preventing from departing from their pleaded case. Such a ruling would offer the party wishing to depart from the pleaded case an opportunity to seek permission to amend. It would be unfair to take the point on appeal that there has been a departure from the pleaded case without affording the other side such an opportunity during the trial. Finally, it offers useful guidance for trial judges about their exercise of judicial restraint when it comes to intervening during cross examination. Such interventions can interrupt the flow of a cross examination in such a way as to inadvertently protect the witness and give them additional time to address possible inconsistencies and uncertainties in their evidence. Nevertheless, it does not follow that where such interventions go beyond which would be considered appropriate, the trial is necessarily unfair.
What was the background?
This was an appeal against the decision of ICC Judge Jones (sitting as a Judge of the High Court) at a trial which took place between 21 and 28 February 2022. The claim related to a business which was started in 2009 to provide alternative legal services to financial institutions. The Defendants in the claim were the founders of the business. The business first belonged to a company, Document Risk Solutions Ltd ("DRSL") which was incorporated in 2009. The business was transferred to Derivatives Risk Solutions LLP ("LLP") in May 2012. In 2012, the possibility of the Claimant ("Mr Keane") joining the business was discussed. He was then the global head of collateral operations projects with Bank of America Merrill Lynch. In June 2012, he left his employment at Bank of America Merrill Lynch and entered into an agreement with the four Defendants and DRSL to join the LLP. Mr Keane argued that, either through or a partnership or as a result of a constructive trust, he had and continues to have an equal beneficial interest in the share capital of DRSL. The four Defendants argued that they held the legal and beneficial interest in the shares of DRSL. They pointed to a meeting in May 2012 in which Mr Keane rejected their offer to become an equal shareholder of DRSL when joining the LLP for tax reasons. They argued that in 2013 Mr Keane willingly transferred his interests for good consideration knowing that he would reduce his interest in the LLP and not benefit from DRSL's purchase. The Defendants' alternative argument was that Mr Keane settled this dispute when by a deed in November 2017 he sold his remaining interest in and ceased to be a member of the LLP. That same deed sold the business back from the LLP to DRSL and the Defendants gifted their interests in the LLP to the Company. At trial, the Judge found that the beneficial interest in the issued share capital of DRSL is the partnership property of a partnership formed between Mr Keane and the individual Defendants on 18 June 2012. The Defendants appealed.
What did the court decide?
Although there were five grounds of appeal, the Court of Appeal narrowed them down to three main issues. (1) Whether the Judge was wrong to allow Mr Keane to advance and himself proceed to make findings on a case which was outside the scope of Mr Keane's pleadings (the "Pleadings Issue"). (2) Whether the trial was procedurally unfair as a result of interventions by the Judge (the "Interventions Issue"). (3) Whether the Judge was wrong to find that there was a partnership between Mr Keane and the four individual Defendants (the "Partnership Issue"). The judgment of the Court of Appeal addressed those issues in reverse order. In relation to the Partnership Issue, the Court noted that the circumstances in which an appellate court should interfere with a finding of fact are limited. The Appellants, nonetheless, argued that the Judge's conclusions lacked an evidential foundation and could not reasonably be justified. The Court of Appeal agreed. Documents had been drafted to make Mr Keane a partner back in 2012, however, those documents remained in draft and the discussions were never concluded. In light of that finding, it was not necessary to determine the other issues in the appeal. Nevertheless, the Court went on to set out its conclusions on those remaining issues. On the Interventions Issue, the Court was critical of the extent and nature of the Judge's interventions during the cross-examination of Mr Keane, some of which were quoted from the transcript in the judgment. The Judge would have been better advised to hold off a number of the questions which he had until after the cross examination had concluded. That said, the Court of Appeal did not consider that the interventions either prevented the Appellants from fully presenting their case at trial or impair the Judge's decision-making. The Court of Appeal would not have allowed the appeal based on the Pleadings Issue. Although the case presented at trial and the slightly different case on which the Judge ultimately founded his decision were not within the scope of Mr Keane's existing pleading, the Judge was entitled to take the view that the Defendants would not suffer any relevant prejudice if the possibility of a partnership coming into being slightly earlier in 2012 were entertained. Counsel for the Appellants at trial did not insist that the Judge make a formal ruling on whether Mr Keane could go beyond the scope of his pleading. Overall, the appeal was allowed and the claim was dismissed.
Case details
- Court: Court of Appeal (Civil Division)
- Judges: Lord Justice Newey (with whom Geoffrey Vos, MR and Lady Justice Simler agreed)
- Date of judgment: 15 February 2023
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