Lexana Finance Limited v Jason Andrew Francis

On an application for summary judgment, a strong claim will fail where the defendant has a realistically arguable case requiring factual investigation. A contractual deeming provision requiring knowledge after specified enquiries may establish an objective basis for assessing awareness, but does not necessarily determine what enquiries were required or conclusively establish the defendant’s state of mind. Those questions may remain fact-sensitive and unsuitable for summary determination. In an allegation of deceit, recklessness requires more than indifference to whether a statement is true or false. The court must also be able to conclude that the representor had no belief in its truth. Gross carelessness alone is insufficient.

Lexana Finance Limited applied for summary judgment against Jason Andrew Francis concerning alleged breaches of warranties in a share purchase agreement under which he sold the entire shareholding in Jaama Ltd for £50 million. The warranties concerned third-party intellectual property rights and necessary licences, each qualified by the seller’s awareness.

The agreement also deemed the seller to have knowledge of matters which would have been revealed by due and careful enquiries of specified individuals. The claimant argued that this defeated the contractual defence and that the evidence established recklessness, defeating a contractual liability cap. The central questions were whether the defendant had a reasonable prospect of defending liability and whether the evidence established fraud, dishonesty or fraudulent conduct at the summary judgment stage.

1. Application dismissed. The court was not satisfied that the defendant had no real prospect of successfully defending the claim. The strength of the claimant’s case did not remove the need for a trial.
2. The interpretation of the contractual qualification was at least reasonably arguable. Applying the reasoning in Triumph Controls v Primus International [2019] EWHC 565 (TCC), clause 5.3 operated as a deeming provision concerned with the knowledge, information and belief the defendant would have had after due and careful enquiries of the identified individuals. The nature and extent of the enquiries required, and what they would have revealed, were fact-sensitive matters.
3. The deeming provision did not separately warrant that the defendant had actually made those enquiries. It remained relevant to deciding whether the warranties had been breached. In the circumstances, the defendant’s limited involvement in the business, his reliance on senior employees, the absence of previous licensing concerns and the context of the due diligence exercise made his defence reasonably arguable.
4. The principles governing summary judgment, including the possibility of summary judgment in an appropriately clear fraud case subject to caution, were drawn from Lex Foundation v Citibank NA [2022] EWHC 1649 (Comm), The LCD Appeals [2018] EWCA Civ 220, Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) and Swain v Hillman [2001] 1 All ER 91.
5. Under the principles stated in Derry v Peek (1889) 14 App. Cas. 337, recklessness requires both indifference to truth and absence of belief in the truth of the representation. Mere carelessness, even gross carelessness, is insufficient. The evidence did not conclusively establish that the defendant lacked an honest belief in the licensing position.
6. Consequential matters were deferred to a further directions hearing. The court noted that the parties might consider alternative dispute resolution.