Failbetter Games Limited v Alexis Kennedy

Strike-out and summary judgment applications should not determine a developing or fact-sensitive question where pleaded evidence could realistically affect the result at trial. A defence may be struck out only where it is bound to fail in law. Summary judgment may determine a short legal issue where the court has the necessary evidence and the parties have had a proper opportunity to address it. In the context of specific performance, unfairness is not confined to matters arising at the time of contracting. Subsequent conduct, and the claimant’s conduct in relation to the circumstances in which the agreement was made, may potentially be relevant. Where such matters could realistically support refusal of equitable relief, the issues should proceed to trial.

Failbetter Games Limited sought specific performance of an alleged agreement under which Alexis Kennedy was to transfer shares to the company. Kennedy denied that a binding agreement had been reached and pleaded, alternatively, that it would be unfair to compel performance because the agreement had involved a sale at an undervalue motivated by goodwill towards the company, which had later dissipated because of the company’s conduct.

The company applied to strike out paragraphs 26.2, 27 and 28 of the Defence under CPR r.3.4(2)(a), or alternatively for summary judgment under CPR r.24.2. The central issue was whether the pleaded facts, if proved, could legally support refusal of specific performance on grounds of unfairness.

1. Applications dismissed. Whether the impugned paragraphs disclosed a legally viable defence, and whether the pleaded evidence could affect the exercise of the discretion to grant specific performance, should not be determined summarily.
2. For strike-out purposes, the court must be satisfied that the defence is bound to fail. Under CPR PD3A para.1.6, coherent facts may still be struck out if, even assuming them to be true, they would not amount in law to a defence. The approach in Hughes v Colin Richards & Co [2004] EWCA Civ 266 was accepted.
3. On summary judgment, the relevant question was whether the defendant had any real prospect of successfully defending the claim and whether there was any other compelling reason for trial. The court could determine a short point of law where it had all necessary evidence and adequate submissions, applying the principles in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 229 (Ch).
4. The court rejected the submission that the pleaded matters were necessarily irrelevant to unfairness. The circumstances surrounding the alleged agreement, Kennedy’s state of mind and understanding, and the company’s subsequent conduct could realistically bear on whether specific performance would be unfair. The possibility of post-contract conduct being relevant was supported by Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187.
5. The court was not prepared to hold that the relevant principles formed a hard and fast perimeter which excluded the pleaded case. The reasoning in Heath v Heath [2009] EWHC 1908 (Ch), concerning a party’s belief at the time of contracting and later conduct inconsistent with that belief, showed that the issue was properly arguable. The evidence and fully developed submissions were therefore to be considered at trial.