Berntsen & Anor v Tait & Anor

Summary judgment is appropriate where a claim is fanciful and has no realistic prospect of success, provided the court considers the evidence reasonably expected at trial and avoids conducting a mini-trial. Serious allegations of fraud require reasonably credible material establishing an arguable case before they are pleaded. A claimant seeking an examination under paragraph 75 of Schedule B1 to the Insolvency Act 1986 must show breach of duty, causative loss and a sufficient pecuniary interest in the relief sought. Members lack standing where any recovery would benefit only secured creditors.

Members of a limited liability partnership in liquidation pursued claims against its former administrators concerning the sale of the partnership’s hotel, alleged failures in the administration, and the administrators’ fees. Earlier case-management orders had dismissed the proposed rescue claim and required any undervalue claim to be properly pleaded and supported. The members then proposed a conspiracy-to-defraud case based principally on an alleged sham marketing process and sought an examination under paragraph 75 of Schedule B1 to the Insolvency Act 1986.

The administrators applied to strike out the remaining claims or obtain summary judgment. The central issues were whether the fraud allegation was properly pleadable, whether it had a realistic prospect of success, and whether the members had standing to pursue the examination claim.

1. Conspiracy and undervalue claim. The proposed allegation that the marketing process was a sham and formed part of a conspiracy to defraud was unsupported by reasonably credible material. The contemporaneous documents showed a genuine marketing exercise by several agents, resulting in competing bids and a sale for £4.25 million. A different earlier valuation did not undermine the market evidence. The allegation was therefore fanciful and should never have been pleaded.
2. Under rule 3.4 of the Civil Procedure Rules, a statement of case may be struck out where it discloses no reasonable grounds or is an abuse of process. Under rule 24.2, summary judgment may be given where the claimant has no real prospect of success and there is no compelling reason for trial. Applying the principles summarised in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), the court considered the evidence available and reasonably expected at trial, without conducting a mini-trial. No compelling public-interest reason justified trying a non-viable claim.
3. Professional conduct rules require counsel to have clear instructions and reasonably credible material establishing an arguable case before pleading fraud. The members’ instructions did not relieve counsel of the independent professional duty identified in Medcalf v Mardell [2003] 1 AC 120.
4. Examination claim. A claim under paragraph 75 of Schedule B1 requires breach of a relevant duty and loss caused by that breach. The applicant must also have a sufficient interest in the relief sought. Any recovery of administrators’ fees would be paid to the secured creditor, with nothing going to the members. They therefore lacked standing, and the claim was dismissed.
5. The remaining claim was dismissed, with consequential matters reserved for a further hearing.

First-instance decision. The court dismissed the remaining claims against the former administrators.