Mellor & Ors v Partridge & Anor

On an application for summary judgment, a claim has a real prospect of success when it carries some degree of conviction and is more than merely arguable. The court may decide a short point of law or construction where the necessary evidence is available, but should permit a trial where fuller factual investigation may affect the outcome.

A statement which is literally true may be fraudulent if concealed facts make it a half-truth. A claimant in deceit need not have discovered the falsity by exercising ordinary care. The purchase price of an asset may be caused by the deceit inducing its acquisition, although later trading expenditure requires a separate causal connection.

The reflective-loss principle does not bar a claim by a prospective purchaser or guarantor for loss caused before the purchaser became a shareholder.

The appellants established Amor Holdings Ltd to acquire a majority shareholding in Partridge Fine Arts plc. They alleged that the first respondent induced the acquisition and related personal guarantees through fraudulent representations concerning the company’s reputation, accounts and material contracts. As assignees, they also pursued Amor’s claims and claims formerly belonging to Partridge Fine Arts for alleged breaches of contractual and fiduciary duties by both respondents.

Beatson J granted summary judgment on some claims but permitted others to proceed. Both sides appealed. The Court of Appeal had to determine which misrepresentation and assigned claims had a real prospect of success, whether the claimed losses were caused by the alleged deceit or were reflective, and whether the company’s assigned claims were time-barred.

1. Both the appeal and cross-appeal were allowed in part. The Getty and reputation representations were fit for trial. A literally true representation may become misleading through concealment, and words or conduct may carry an implicit representation. What a reasonable person would infer from the representation in context was fact-sensitive and required a trial.
2. The general balance-sheet claim could proceed because the court could not confidently conclude that the accounts required no provision for potential customer liabilities at the relevant dates. The specific allegation concerning the Greenberg liability had no real prospect of success and was struck out. The material-contracts claim could also proceed. A representor cannot defeat a deceit claim merely by showing that records capable of revealing the truth were available to the claimant. Whether the Greenberg settlement was outside the ordinary course of business or might be material required fuller factual investigation.
3. The purchase price paid by Amor and sums paid by the individual appellants under their guarantees were arguably caused by the alleged deceit. The reflective-loss principle did not bar those claims. The individuals had not acquired the shares, while Amor complained of a duty breached when it was still a prospective purchaser. Payments made to finance continued trading, uncrystallised guarantee liabilities, the Takeover Panel investigation and Mr Law’s claimed alternative-business profits were insufficiently caused by the representations. Most were struck out. Acquisition costs, including qualifying legal and due-diligence expenditure, could proceed.
4. The assigned company claims were generally statute-barred under sections 5 and 21(3) of the Limitation Act 1980. Pleading breach of fiduciary duty did not itself plead fraudulent breach of duty. Evidence showed that members of the board knew, or with reasonable diligence could have discovered, the alleged practices, so section 32 did not postpone limitation.
5. The alleged misappropriation of the proceeds from the third Gueridon table fell within section 21(1)(b) and was concededly not time-barred. The unexplained records, payment route and absence of supporting documentation created a sufficient mystery to require trial. The remaining assigned claims, including hypothetical contingent customer liabilities, were struck out to the extent specified in the judgment.

• Court of Appeal (Civil Division): Both the claimants’ appeal and the respondents’ cross-appeal were allowed in part. Some claims and heads of loss were permitted to proceed to trial, while others were struck out.
• Queen’s Bench Division: Beatson J summarily dismissed some claims against the respondents but refused summary judgment on others. No citation for that decision is stated.