Sharp & Ors v Blank & Ors

Summary judgment on a discrete issue is appropriate only where the claimant has no real prospect of success and the court can confidently conclude that the case is fanciful, lacks reality or is incapable of succeeding. The court must not conduct a mini-trial. It should consider evidence reasonably likely to become available at trial, particularly where disclosure has not occurred and the opposing party holds most of the relevant material.

A claim which presently appears thin may nevertheless survive if further disclosure could materially affect the factual inference required. This does not permit a claimant to advance an allegation unsupported by any known facts. The question is whether the case is presently shown to be without substance.

The claimants, who were or claimed to be shareholders in Lloyds Banking Group plc, alleged that the directors made material misrepresentations and omissions in connection with Lloyds’ acquisition of HBOS plc. One pleaded allegation was that the directors knew that HBOS, through Bank of Scotland, was manipulating its GBP and USD LIBOR submissions and failed to disclose that fact.

The defendants applied for summary judgment under CPR 24.2 on the LIBOR allegation. The issue was whether the available material established that the allegation had no real prospect of success, or whether disclosure and trial evidence might support the pleaded inference that the directors knew of the manipulation.

1. The application for summary judgment on the LIBOR allegation was refused. The court was not able confidently to conclude that the claim was fanciful, lacking in reality or inconceivable.

2. The pleaded case depended on actual knowledge that HBOS was manipulating LIBOR submissions. The court distinguished that allegation from blind-eye or Nelsonian knowledge. The pleading did not encompass a case based merely on a suspicion or fear that the submissions might be manipulated.

3. The FCA’s findings that certain traders and managers at Lloyds and Bank of Scotland knew of or participated in manipulation did not establish that the defendant directors knew of it. Nor did HBOS’s difficulty in borrowing from the wholesale market, together with its continuing LIBOR submissions, necessarily show that the submissions were fictitious. Market illiquidity and the judgment involved in making LIBOR submissions could produce divergence without manipulation.

4. Those difficulties might ultimately defeat the claim, but the court lacked evidence of the scope of Lloyds’ due diligence and of the questions actually asked about LIBOR. Disclosure might show that someone had noticed the apparent inconsistency between HBOS’s funding difficulties and its LIBOR submissions and had pursued the issue. That possibility was not fanciful.

5. The applicable approach under CPR 24.2 was whether there was an absence of reality, rather than whether success was probable. The court had to consider evidence reasonably expected to be available at trial and avoid a mini-trial. Entering judgment at this stage could also create a res judicata effect in circumstances where later disclosure might reveal supporting material.

6. The court emphasised that claimants cannot rely on the hope that something might turn up where they know of no facts supporting their case. This claim nevertheless fell into the category where fuller material might support it. Summary judgment was therefore declined.

First-instance decision. No appellate history was stated in the judgment.