PK Investments Limited v Sebajeevan Sabaratnam

Summary judgment may be granted where the respondent has no realistic prospect of success and no other compelling reason requires a trial. The court must avoid a mini-trial, but need not accept unsupported or inherently implausible assertions. A respondent relying on documents said to be available later must identify their existence, accessibility and relevance. A director cannot rely on the absence of company records where that absence results from a failure to preserve or produce them. Where an insolvent company makes high-risk payments without evidence of commercial benefit, contractual protection or adequate due diligence, unsupported assertions that the payments served the company’s interests may fail to disclose a real prospect of defending a claim under the Companies Act 2006.

PK Investments Limited, as assignee of claims belonging to Finno Medical Limited, sought summary judgment against its former director, Sebajeevan Sabaratnam. The claim alleged that, when Finno was insolvent or bordering on insolvency, he caused substantial payments to be made to foreign companies, individuals and an associated company without adequate due diligence, contractual protection or corresponding commercial benefit.

Mr Sabaratnam relied principally on factual disputes, an assertion that the payments were made in Finno’s best interests, and documents said to be held by the liquidator. The central questions were whether the defence had a real prospect of success and whether there was any compelling reason for a trial.

1. The court applied the summary judgment principles stated in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). The test was whether the defence had a realistic, rather than fanciful, prospect of success. The court was not to conduct a mini-trial, but could examine whether alleged factual assertions had substance.

2. The court also applied Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceuticals Co 100 Ltd [2007] F.S.R 63, ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 and Vistra Trust Corporation (UK) Ltd v CDS (Superstores International) Ltd [2023] EWHC 3382 (Ch). Once the applicant had provided sufficient evidence, the evidential burden fell on Mr Sabaratnam. His defence did not explain the impugned transactions, their commercial benefit, the decision-making process, or the alleged due diligence. It also failed to identify evidence capable of supporting those assertions.

3. Following Korea National Insurance Corporation v Allianz Global Corporate & Speciality AG [2007] EWCA Civ 1066, a party relying on evidence expected to become available at trial must identify its nature, source and relevance. A bare assertion that documents may exist was insufficient, particularly where the alleged documents were within or accessible through the director’s control.

4. The court applied Wetton v Ahmed; Re Mumtaz Properties Ltd [2011] EWCA Civ 610. A director cannot escape liability or rely on a lower standard merely because company documentation is unavailable. The evidence showed that the relevant records had not been produced, and the court would have been required to draw adverse inferences at trial.

5. The court distinguished the fiduciary duty under section 172 from the duty of care, skill and diligence under section 174 of the Companies Act 2006. The claim as presented established no real prospect of defending the alleged breach of section 174 causing loss to Finno. Judgment was therefore given for PK Investments, with Mr Sabaratnam ordered to compensate PK Investments for the losses caused to Finno by causing or allowing the payments. The parties were invited to agree the order.