KL Capital Limited v Kenneth Townsley & Ors

On an application for strike out or summary judgment, pleaded facts are generally assumed to be true, but a claim may be disposed of summarily where it has no realistic prospect of success and no compelling reason for trial. Alleged fraud must be pleaded with sufficient particularity.

The rule against reflective loss does not bar a claim by a company induced to invest in another company where the loss is suffered in its capacity as an investor, rather than through diminution in the value of an existing shareholding. The rule is not applied retrospectively merely because the claimant later becomes a shareholder. Assignment wording referring to claims in relation to an acquisition may, at least arguably, encompass claims arising from connected funding and subsequent transactions.

KL Capital Limited sought permission to rely on an amended pleading concerning alleged fraudulent conspiracy and deceit relating to the acquisition of Gold Medal International Limited by Thomas Cook entities.

The Third Defendant applied to strike out the Claim Form and Particulars of Claim, including the proposed amendments, or alternatively for reverse summary judgment. The claim had been assigned to KL Capital by Thomas Cook Retail Limited’s special managers under a second deed of assignment, after an earlier assignment was accepted not to cover claims held by that subsidiary.

The central issues were whether Thomas Cook Retail had viable claims despite the rule against reflective loss, and whether those claims were arguably within the scope of the second deed.

1. The application for strike out, reverse summary judgment and consequential refusal of permission to amend was dismissed. The pleaded facts had to be assumed for the application. The claim was not obviously ill-founded, incoherent or legally incapable of success.
2. Under CPR 3.4(2), a statement of case may be struck out where it discloses no reasonable grounds or is likely to obstruct the just disposal of proceedings. Fraud must be pleaded with sufficient particularity. Under CPR 24.3, summary judgment requires both no realistic prospect of success and no other compelling reason for trial. The court must avoid a mini-trial, while still analysing whether factual assertions have real substance and deciding a short point of law where the evidence is sufficient.
3. The alleged stage 1 losses were not barred by the rule against reflective loss. Thomas Cook Retail’s pleaded loss arose from being induced to invest in Thomas Cook Investment 3 and fund the acquisition, not from a diminution in the value of shares already held. It therefore suffered loss as an investor, not in its capacity as a shareholder following the fortunes of the subsidiary. The existence of potentially corresponding claims by Thomas Cook Investment 3 was immaterial, subject to avoiding double recovery.
4. The timing argument did not alter that conclusion. Thomas Cook Investment 3 suffered loss when it entered into a potentially onerous share purchase agreement, notwithstanding conditions that might later release it. In any event, Thomas Cook Retail’s own loss arose when it was induced to invest. The court relied on the distinction between a present loss caused by entering a transaction and a contingent liability that does not become damage until the contingency occurs.
5. The same reasoning applied to the alleged later acceleration and purchase of the consideration shares. Thomas Cook Retail had, at least arguably, viable claims for deceit and conspiracy.
6. The second deed of assignment was, at the very least, arguably broad enough to assign the pleaded claims. The phrase in relation to ordinarily denotes a broad connection, and the reference to the acquisition of Gold Medal International could arguably include claims arising from Thomas Cook Retail’s funding of that acquisition and connected share transactions. The application was therefore dismissed, and the parties were directed to draw up an order.