Cunningham v Ellis & Ors

Fraud and conspiracy claims must plead the primary facts relied on to support dishonesty. The pleaded facts must make an inference of dishonesty more likely than innocence or negligence, although the court should adopt a generous approach because fraudulent conduct may be concealed. Conclusions and speculation are insufficient. Where the pleaded case lacks that foundation, the claim may be struck out. Summary judgment may also be granted where the underlying allegations have no realistic prospect of success. For limitation purposes, Limitation Act 1980, section 32 postpones time only where fraud or deliberate concealment concerns an essential element of the cause of action and was not discoverable with reasonable diligence. A fraudulent breach of fiduciary duty may be subject to section 21, but that does not save an inadequately pleaded claim.

The claimant, a former majority shareholder in Allerton Group Ltd, brought claims against three former directors, Bank of Scotland plc and Ernst & Young. He claimed personally and as assignee of claims belonging to Allerton Group. The claims alleged unlawful conspiracy, fraudulent misrepresentation, breaches of duty and losses arising from the group’s administration and sale of its business and assets in 2009.

The defendants applied to strike out the claims or obtain summary judgment. The principal issues were whether the allegations of fraud and conspiracy were adequately particularised, whether they had any realistic prospect of success, and whether the claims were time-barred under the Limitation Act 1980.

1. Strike-out. The claims against all defendants were struck out because the Particulars of Claim stated conclusions but did not plead primary facts from which it could rationally be inferred that the defendants had participated in a deliberate and unlawful conspiracy or fraudulent misrepresentation. The court applied the principles discussed in Portland Stone Firms Ltd v Barclays Bank [2018] EWHC 2341 (QB) and JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm).
2. Although fraud allegations should receive a generous pleading approach, the pleaded facts had to make dishonesty more likely than innocence or negligence. The alleged under-invoicing, withholding of CID payments, non-reporting in the independent business review, referral to Sterling, board minutes, forecasts and order book did not satisfy that test. The court considered the allegations speculative and unsupported by pleaded facts.
3. Summary judgment. Alternatively, summary judgment was granted. The claimant’s calculations concerning under-invoicing and withheld CID payments were too simplistic to carry conviction and therefore gave the conspiracy allegations no realistic prospect of success. The court applied Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch).
4. Limitation. The claims were time-barred under section 32 of the Limitation Act 1980, except for the claim against the directors alleging fraudulent breach of fiduciary duty. Fraud had to be an essential element of the cause of action for section 32(1)(a) to apply. Under section 32(1)(b), the concealed fact also had to be an essential element. The claimant had not shown that the relevant frauds or facts could not have been discovered with reasonable diligence.
5. The burden of proving reasonable diligence lay on the claimant. The question was whether the fraud could have been discovered, not merely whether it should have been discovered sooner. The relevant standard was fact-sensitive and required consideration of what an ordinarily prudent person in the circumstances would have done.
6. Section 21 of the Limitation Act 1980 removed the limitation defence for a claim alleging fraudulent breach of fiduciary duty by the directors. That point could not assist the claimant because the allegations had already been struck out. The court did not decide the reflective-loss issue.