Schenk v Cook & Ors

A claimant induced to transfer money by knowingly false representations may recover against participants in the fraud through conspiracy, deceit, fraudulent misrepresentation, dishonest assistance, knowing receipt and, where applicable, breach of fiduciary duty. Unlawful means conspiracy requires an agreement, an intention to injure, unlawful means, implementation of the agreement and resulting damage. For relief from sanctions under CPR rule 3.9, the court must assess the seriousness and significance of the breach, the reason for it, and all the circumstances. The underlying merits may exceptionally be considered where the circumstances make that assessment relatively straightforward, but the approach is fact-sensitive.

The claimant alleged that the defendants fraudulently induced him to transfer CHF 3 million for investment in medium term notes, diverted the money, and subsequently represented that it had been invested in shares in Fluid Leader Group plc. He claimed recovery for conspiracy, deceit, fraudulent misrepresentation, knowing receipt, dishonest assistance and breach of fiduciary duty.

The fourth and sixth defendants were treated as one person, Mr Bawany, whose defence had been struck out for non-compliance with an Unless Order. He appealed against that order and the judgment entered against him. The central issues were whether the fraud claims were established, whether the sanction had been triggered, and whether relief from sanctions should be granted.

1. Liability. The claims against the relevant defendants succeeded. The evidence established a dishonest plan to induce the claimant to transfer CHF 3 million, divert the money, and make further false representations concerning Fluid Leader shares.
2. Conspiracy. The tort required an agreement or combination, an intention to injure, unlawful means, acts implementing the agreement and resulting damage. The defendants participated in a two-stage plan involving the initial MTN representations and the later Fluid Leader representations. The requisite intention and unlawful means were established.
3. Deceit and fraudulent misrepresentation. The representations were statements of present fact or law, made knowingly, without belief in their truth or recklessly, intended to be acted upon and relied upon by the claimant. Representations conveyed indirectly through another participant remained actionable.
4. Equitable liability. Mr Bawany, Mr Cook and Mr Sun dishonestly assisted the breach of trust or fiduciary duty and were accountable to make good the claimant’s losses. Mr Stramandino also owed fiduciary duties arising from the relationship of trust and confidence created by his holding himself out as an attorney at law and investment adviser. He breached those duties by subordinating the claimant’s interests to his own and those of the other defendants.
5. Appeal and sanctions. The Master was correct to find breaches of the Unless Order. The breaches concerned potentially significant documents, followed repeated earlier defaults and were serious and significant. Under CPR rule 3.9, the court applied the three-stage approach in Denton v TH White Ltd: seriousness and significance, the reason for default, and all the circumstances.
6. The merits may ordinarily be irrelevant to relief from sanctions, but may exceptionally be considered where the claimant has a sufficiently strong case and the merits can be assessed without an inappropriate summary trial. On these unusual facts, the merits favoured the claimant. Relief from sanctions was refused and the appeal failed. The court would hear further submissions on relief and interest.

The judgment itself records an appeal by the fourth and sixth defendants against the Master’s order striking out their defence and entering judgment following non-compliance with an Unless Order. The High Court dismissed that appeal and upheld the sanction.