Mellor & Ors v Partridge & Anor

On an application for summary judgment or strike out, the court must decide whether the claim has a realistic, rather than fanciful, prospect of success. It must avoid a mini-trial, but may reject evidence that is internally inconsistent, contradicted by contemporaneous documents or inherently incredible. Claims by shareholders for losses merely reflective of loss suffered by the company are generally barred where the company can pursue its own claim. That rule extends beyond diminution in share value to other payments the shareholder would have received from the company. At the interlocutory stage, causation ordinarily remains for trial where representations and inducement are realistically arguable. Claims based on contingent liabilities require a real evidential basis; speculative or fanciful liabilities may be struck out.

The claimants acquired control of Partridge Fine Arts plc through Amor Holdings Ltd in 2005. They alleged that John Partridge had made fraudulent representations concerning the company’s reputation, financial position, contracts and trading practices. They also pursued assigned claims belonging to Amor and PFA against John and Frank Partridge for alleged fraud, breach of fiduciary duty and breach of contract.

The defendants applied for summary judgment and strike out of the original and later proceedings. The claimants sought permission to amend the original claim. The central issues were whether the pleaded claims had a realistic prospect of success, whether parts were time-barred or fanciful, and whether the reflective-loss rule barred claims by the claimants and Amor.

1. Disposition. The claims against Frank Partridge were struck out. The claims brought as PFA’s assignees concerning contingent liabilities to third parties were also struck out. Parts of the claims against John Partridge concerning PFA’s reputation, possible losses caused by the restoration of the card tables, and certain personal misrepresentation claims were permitted to proceed.
2. On summary judgment and strike out, the court must assess whether there is a realistic prospect of success and must not conduct a mini-trial. The court may nevertheless reject evidence that is internally inconsistent, contradicted by contemporaneous documents or inherently incredible: [2012] EWHC 1415 (QB) at [42].
3. The rule against reflective loss, summarised in Gardner v Parker [2004] EWCA Civ 781, following Johnson v Gore-Wood & Co [2002] 2 AC 1 and Giles v Rhind [2001] 2 BCLC 582, prevented the claimants and Amor from recovering losses merely reflective of losses suffered by PFA. The rule applied to diminished share value and other payments that would have been made by the company if it had retained its funds. The qualification concerning inability of the company to pursue its own claim did not apply because PFA’s claims had been assigned and were being pursued.
4. Claims based on contingent liabilities to customers were unsustainable where the evidence showed no real possibility of those customers bringing claims. Section 10 of the Limitation Act 1980 nevertheless preserved a possible contribution route for PFA’s liquidators if a relevant judgment were later obtained, subject to the statutory period.
5. The misrepresentation claims were not struck out for lack of causation. If the alleged representations were made and induced the transaction, causation and the effect of the claimants’ subsequent conduct required assessment at trial rather than on the strike-out application: [2012] EWHC 1415 (QB) at [73]. Claims based on the balance-sheet and material-contract representations were struck out because the available financial information, independent stock valuation and company records made those allegations unsustainable.

First-instance decision. The judgment itself records an earlier strike-out decision by Mackay J, but gives no citation for it. The present court reconsidered the claims and ordered that specified parts be struck out while allowing other claims to proceed.