Abbar & Anor v Saudi Economic & Development Company (Sedco) Real Estate Ltd & Ors

Alternative claims for fraud and negligence may properly be pleaded where the primary facts justify an inference of dishonesty. The alternative negligence claim recognises that the court may reject dishonesty while finding negligence.

On summary judgment, the question is whether the claim has an absence of reality, not whether it is weak or unlikely to succeed. A claim supported by sufficient evidence of a realistic prospect must proceed to trial.

A representation as to the meaning of contractual terms is ordinarily a matter of construction, not misrepresentation. A written statement of a person’s state of mind may, however, be negligently expressed.

The claimants sought relief against six defendants arising from a £500,000 investment in shares in Pinnacle Holdings, connected with the proposed Pinnacle tower development in London. They alleged that they had been induced by a fraudulent representation that the investment would be realised within 12 to 18 months, and advanced alternative negligence and breach of trust claims.

The sixth defendant applied under Civil Procedure Rules 1998, CPR 3.4 and CPR 24.2, seeking strike-out and summary judgment. It argued that the pleadings disclosed no reasonable grounds, were abusive or failed to comply with the relevant practice direction, and that the claims had no realistic prospect of success.

1. The application was adjourned to enable the claimants to amend and clarify their Particulars of Claim. Several allegations were abandoned or conceded, but the principal fraudulent misrepresentation claim was allowed to proceed.

2. Alternative pleading of fraud and negligence was permissible. The fact that negligence was pleaded in the alternative did not establish that the primary facts were consistent only with honesty. If facts tilted the balance towards dishonesty, fraud could properly be alleged; negligence simply recognised that the court might reject dishonesty while finding negligence.

3. For summary judgment, the relevant question was whether there was an absence of reality. It was insufficient to show merely that the claim was weak or unlikely to succeed. Evidence concerning the sixth defendant’s role in the transaction, its involvement in finance and the apparent intentions concerning development provided a sufficient basis for a trial.

4. The allegation that the sixth defendant was party to the alleged misrepresentation was not fanciful. The evidence raised issues about its involvement beyond the later management agreements, including its possible knowledge of the Information Memorandum and its role in arranging finance. The absence of evidence from a central individual did not improve the defendant’s position on summary judgment.

5. The allegation that the investment was intended to be short term also had a realistic prospect of success. Contemporary evidence suggested an intention to carry the project through construction, while the alleged later change of intention had not been satisfactorily explained.

6. An alleged representation that the investment term could not be extended beyond 18 months without unanimous investor consent was a matter of contractual construction. If it was not a contractual term, that did not convert the issue into fraudulent misrepresentation. A written statement of state of mind could in principle be negligently expressed, but the pleaded oral repetition left no realistic room for that negligence claim.

7. The pleaded Quistclose trust claim was misconceived because the investment money was paid to Soric and used to subscribe for shares, fulfilling the investment purpose. A constructive trust based on fraud remained potentially pleadable, although its practical value was uncertain.

8. The second claimant’s claim was not struck out merely because the shares were purchased by the first claimant. The pleaded representations were made to induce the second claimant to invest, and the first claimant might have invested on his behalf or partly on his behalf.

The application was adjourned. The claimants were directed to serve amended Particulars of Claim within six weeks. Costs were costs in the case provisionally.