Rahman Ravelli
Rahman Ravelli Solicitors Logo
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

About Us Expertise PEOPLE International Legal Articles News Events Contact Us toggle button for phone toggle button for search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
search

Reverse summary judgment for defendants to defeat a claim in deceit

Author: Nicola Sharp  14 March 2024
3 min read

In a recent application, the Defendants were successful in establishing that the Claimant’s deceit claims were not arguable at trial.

The decision is fairly unusual because (i) it is a reverse summary judgment and (ii) the courts are often hesitant to award summary judgment in claims involving deceit.

In a typical summary judgment application, the claimant would be arguing that the defendants have no real prospect of defending the claim against them. However, in this application, the defendants were arguing that there was no real prospect that the claimants could establish their case in deceit.

The courts do not award summary judgment lightly, particularly in cases of deceit. That is because at a full trial “oral testimony may show that some such cases are only tissue paper strong.”1 The issues are fully explored in a trial to get to the heart of whether or not a party was dishonest.

Why did the courts grant summary judgment in this case, and does that expand the scope for future summary judgment applications?

Background facts

The application was heard on 1 March 2024:Tactus Holdings Limited v Philip Mark Jordan & Ors [2024] EWHC 399 (Comm)

The facts of the underlying claim are that Tactus Holdings Ltd (‘Tactus’) acquired an online retailer, Box Holdings Ltd (‘Box’), in February 2022. In March 2023 Tactus issued a claim accusing five former shareholders and directors of Box of making fraudulent statements in the lead up to the purchase.

Tactus claimed that the directors and the financial adviser manipulated data and financial records to show that the business had earnings of £5 million or more, knowing that it was not true.

The bulk of the claims relate to stock provision. Tactus alleges that there were false misrepresentation made in relation to stock provision, and that the sellers colluded in an unlawful means conspiracy to make those alleged fraudulent misrepresentations.

The impact of the stock provision is an upward or downward effect on EBITDA. The sellers argued that a stock provision release of £820,000 was appropriate, adding an equivalent sum to the projected earnings.

Questions for summary judgment application

The questions for the judge on the summary judgment application in respect of the deceit claim were:

  • is it arguable that the representations (or some version of them) were made?
  • if so, is it arguable that such representations were false?
  • if so, is it arguable that the Defendants knew, or were reckless, as to such falsity?

The Defendants could not succeed on their summary judgment application unless they could show that one of these hurdles could not even arguably be cleared.

Key points from the judgment

Some of the allegations fell at the first hurdle. Simon Colton KC (sitting as a deputy judge of the High Court) found that some of the representations were not made. Looking at the written communications “properly construed”, he decided that they did not constitute the express representations for which Tactus contended.

The third representation fell at the second and third hurdles. The Claimant’s allegation was that the Sellers believed that the stock provision of £1.177m was sufficient to enable all stock to be sold through.

The judge held that neither the pleaded facts, nor the evidence, supported the implication that the Sellers had some objectively reasonable basis for their belief in the sufficiency of the £1.177m provision, as distinct from merely honestly believing in its sufficiency.

He found that the representation was made, and considered whether this was arguably false. Was it arguable that the Defendants did not honestly believe in the sufficiency of this number?

He held that it was not arguable that the Defendants did not honestly believe this. In his judgment there was nothing in the pleaded case or in the evidence to support that contention. On the contrary, the evidence supported the contention that the Defendants’ genuine belief was that £1.17m was a sufficient stock provision.

In reaching his conclusions, the judge “anxiously” considered whether he was conducting a mini-trial. He did not believe he was doing so. He did not seek to weigh evidence pointing in different directions, but simply to identify whether there was any evidence to lend any real support to the Claimant's case. In his judgment, there was not.

While the deceit claims were considered unarguable, the breach of warranty claims will proceed to trial.

Takeaways for cases involving alleged deceit

Defendants who find themselves accused of a claim in deceit will find this judgment encouraging. The court is willing to grant reverse summary judgment where the documentary evidence available shows that there is no arguable case for the Claimant.

What was important in this instance was that there was no additional factual matrix that needed to be taken into consideration to identify the meaning of the written statements. If there is any pleaded context which would make it necessary for some factual investigations at trial, then granting summary judgment will be less likely.

Summary judgment is appealing in order to knock out the claims for fraud or deceit at an early stage, and save the time and cost of progressing those issues to trial.

Sources:

  1. Wrexham Association Football Club Ltd (In Administration) v Crucialmove Ltd [2006] EWCA Civ 237

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
+44 (0)203 910 4567 vCard

Download Profile PDF

View Profile

Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

Share this page on