Barrowfen Properties Ltd v Patel & Ors

The claimant applied to strike out paragraphs added to the Amended Defence of the second defendant, Stevens & Bolton LLP, at a late stage before trial. The court applied the strike-out test in CPR Part 3.4(2) and the guidance on pleading fraud and dishonesty from JSC Bank of Moscow v Kekhman and related authorities. The judge held that the detailed allegations about the Aumkar Plantations in Malaysia were supported by evidential material and, on their merits, had a real prospect of success and should not be struck out on that basis.

However, the court found that the defendant firm did not have permission to amend its Defence to plead the Challenged Paragraphs arising after the court’s determination of the privilege application, and those paragraphs did not fall within the scope of the permission that had been given. Further, allegations based on without-prejudice communications (the so-called "undocumented arrangement") were inadmissible on the material before the court and incapable, as pleaded, of surviving strike out. For those reasons the court struck out the Challenged Paragraphs under CPR Part 3.4(2)(c) (failure to comply with an order or rule) and also under CPR Part 3.4(2)(a) (no real prospect of success as to some pleaded matters).

Background and nature of the application: The claimant, Barrowfen Properties Ltd, applied to strike out paragraphs 5A–5J (the "Deliberately Concealed Matters") and related material newly pleaded in the Amended Defence of the second defendant, Stevens & Bolton LLP, which were added on 24 November 2020. The strike-out application was determined at a pre-trial stage shortly before the listed trial.

Relief sought: Strike out of specified paragraphs of the Amended Defence and associated particulars and witness material.

Procedural and factual context: The dispute arises from multi-jurisdictional family and corporate litigation involving the Patel family and a contested group of historic Malaysian proceedings concerning Aumkar Plantations. There had been earlier orders on disclosure (Model D of Practice Direction 51U) and a separate privilege application which led to an order for certain disclosure. The challenged allegations included (i) elaborate allegations of conspiracies and fraud in Malaysia (the "Aumkar fraud" allegations), (ii) allegations that family settlement negotiations concealed an "undocumented arrangement" to elicit false admissions in these proceedings, and (iii) further parasitic allegations and particulars.

Issues before the court:

• Whether S&B had no real prospect of proving the Aumkar fraud allegations;
• Whether S&B had no real prospect of establishing an illegality defence tied to those allegations (including reliance on the Proceeds of Crime Act 2002);
• Whether the documents relied on to support the "undocumented arrangement" were admissible, in particular whether they attracted without-prejudice protection or fell within recognised exceptions such as unambiguous impropriety;
• Whether S&B had permission to amend to plead the Challenged Paragraphs in the terms served.

Reasoning and conclusions:

• The court applied the strike-out principles in CPR Part 3.4(2) and the test for pleading dishonesty set out in JSC Bank of Moscow v Kekhman. On the facts and material put before the court (notably the 4 October 2013 draft email within the 13 May 2018 email chain and supporting documents), the Aumkar fraud allegations were capable of supporting an inference of dishonesty and therefore had a real prospect of success; they could not be struck out on the merits without conducting an impermissible mini-trial.
• As to illegality and a defence under POCA, the court held that S&B had not demonstrated a realistic prospect that Bedford (a named vehicle) had in fact received the proceeds of criminal conduct or that the alleged conduct amounted to criminality such that a defence of illegality would be made out; the pleaded specifics and evidential connection were insufficient for a successful illegality defence on the material before the court.
• The communications relied on for the "undocumented arrangement" allegation included without-prejudice family settlement exchanges. The court concluded it was not possible on the interlocutory material to conclude that those exchanges fell outside without-prejudice protection or that the unambiguous impropriety exception applied; there was scope for dispute about what was said and meant and the exception is tightly limited.
• On permission to amend, the judge held that the prior orders permitting amendments after the privilege determination were not a free licence to plead matters that did not arise out of the categories of disclosure ordered following the privilege hearing. The Challenged Paragraphs did not arise from the disclosed S&B legal-advice materials identified in the court's privilege order and therefore S&B lacked permission to make those amendments.

Disposition: The Challenged Paragraphs were struck out under CPR Part 3.4(2)(c) because S&B lacked permission to amend and also under CPR Part 3.4(2)(a) for lack of real prospect of success on some pleaded matters (in particular the undocumented arrangement and related illegality content). The judge clarified that the Aumkar material which is admissible may nevertheless be put to witnesses for credibility at trial.

The claimant's strike-out application is allowed. The court struck out the Challenged Paragraphs of the Amended Defence because Stevens & Bolton did not have permission to amend to plead those matters arising after the privilege determination and because some of the pleaded allegations (notably those relying on without-prejudice family settlement communications and the "undocumented arrangement") had no real prospect of success or were inadmissible on the interlocutory material. The judge nevertheless found that the Aumkar fraud allegations, supported by the 4 October 2013 draft email and other documents, were capable of supporting an inference of dishonesty but the amendments introducing those matters were not within the scope of the permission the court had given; accordingly the Challenged Paragraphs were struck out under CPR Part 3.4(2)(c) and also under CPR Part 3.4(2)(a).