Sunil Gupta & Anor. v Olgun Halil Shah & Ors.

Summary judgment may be granted in a fraud or dishonesty case where contemporaneous evidence shows that the defence has no realistic prospect of success. The court must nevertheless proceed with particular caution where credibility and dishonesty are central, since a trial may be required to test competing accounts.

Trust property retains its character when misappropriated and traced into the hands of volunteers. A proprietary claim may therefore be summarily determined where the tracing is clear and the recipient gives no consideration. Serious allegations of illegality, fraud or money laundering must be fully and specifically particularised. A speculative pleading may be struck out.

The claimants sought summary judgment, alternatively strike-out, in claims arising from the alleged misappropriation of US$14m paid to the first and second defendants for an investment programme. The claims included breach of trust, proprietary relief, knowing receipt, dishonest assistance and conspiracy.

The first defendant admitted that he and the second defendant held the money on trust, but relied on alleged illegality in the source of the money and later asserted that the claimants’ interest had been switched to funds supposedly held at Citibank. The other defendants relied principally on innocent receipt and the same alleged switch. The defendants did not attend or participate in the hearing.

The central issues were whether the pleaded and evidential defences had any real prospect of success, whether tracing established proprietary claims against recipients, and whether allegations of illegality were adequately pleaded.

The application succeeded against the first defendant, succeeded in part against the remaining defendants, and the allegations of illegality were struck out.

1. Summary judgment test. Under Civil Procedure Rules 1998, r 24.2, the question was whether the relevant defendant had a realistic prospect of successfully defending the claim and whether there was any other compelling reason for trial. The principles in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) applied. The court must avoid a mini-trial, but need not accept unsupported or contradicted factual assertions at face value.
2. Dishonesty cases. The court must exercise considerable caution where dishonesty is critical, particularly where competing witness accounts require testing. That caution does not prevent summary judgment where firm, unanswerable contemporaneous evidence leaves no realistic defence. The evidence established that the first defendant had treated trust money as his own, concealed its removal and advanced a fabricated Citibank explanation.
3. Trust and tracing claims. The first defendant was liable for breach of trust in respect of the whole US$14m. The money retained its trust character through successive transfers. The sums paid to the third defendant’s solicitors and the £300,000 paid to the children were traceable trust money in the hands of volunteers, and the proprietary claims were summarily established.
4. Claims depending on the third defendant’s state of mind. The claims for knowing receipt and dishonest assistance concerning money she had disposed of required assessment of when and how she acquired knowledge, or whether she acted dishonestly. Her defence was marginal but more than fanciful. Those issues were therefore left for trial.
5. Illegality pleading. Allegations that the claimants’ money was criminal proceeds or involved money laundering were speculative and lacked the required particulars. The relevant paragraphs of the Defences were struck out. The court did not decide whether illegality would in principle provide a defence.

The freezing orders were continued pending a further hearing concerning payment out, costs, directions to trial and consequential relief.