Summary judgment and strike out in civil fraud proceedings

Nicola Sharp of Rahman Ravelli outlines the key issues from two attempts this month to resolve cases in this manner.  

It is rare for summary judgment to be granted in fraud proceedings. Judges are often reluctant to decide a civil fraud case summarily, even if it looks on paper be a cast-iron case.  

As Sir Igor Judge PQBD said, “experience teaches us that on occasion apparently overwhelming cases of fraud and dishonesty somehow inexplicably disintegrate.” (Wrexham Association Football Club v Crucialmove ITD [2006] EWCA Civ 237) In many cases, it will take a full trial to uncover fraud and to establish the requisite dishonesty on the part of the defendant.  

Strike out is also not without its difficulties. It can be tempting for a defendant faced with a claim which is thinly pleaded to seek to strike out the claim in its early stages. But some defendants confuse a pleading which discloses no reasonable grounds for bringing the claim (which may be liable to be struck out) with a pleading which, although not fully particularised, nevertheless discloses a cause of action if the facts pleaded can be established. 

Additionally, there’s a need for caution in fraud cases when deciding cases summarily. As Clare Ambrose underlined when sitting as a Deputy High Court Judge, “where there are allegations of dishonesty which cannot be conclusively determined, for instance by a conviction, then the court should not make a finding summarily and that all the facts and nuance needs explanation.” Rahbarpooor v Suliman [2021] EWHC 2686 

Despite all of these challenges, the High Court granted summary judgment and strike out in two separate, unrelated applications this month. In this article we look at the reasons why these applications were granted.  
Application by the Defendant 

In Complete Facilities Solutions Ltd v Livingstone Consulting Ltd & Ors, the High Court heard an application brought by three of the defendants to strike out the claim against them, or alternatively ask for summary judgment, in the case of Complete Facilities Solutions Ltd v Livingstone Consulting Ltd & Ors [2023] EWHC 571 (Ch). 

The three defendants in question were directors and the allegations were levelled against them in their personal capacity. The claimant accused each of the directors of procuring breach of contract, deceit, conspiracy to injure and joint tort feasorship.  

The allegations against the directors were struck out for the following reasons: 

• The particulars of claim did not plead primary facts from which an inference of the relevant dishonesty or wrongdoing may be made.  
• The pleadings did not reveal primary facts sufficient to satisfy the necessary test in relation to any wrongdoing by the defendants.  
• There is nothing capable of tilting any balance on the question of dishonesty or wrongdoing.  

Even if the claims had survived the strike-out application, the Judge considered that none of them had more than merely fanciful prospects of success on the law and facts to warrant a full trial, and that there were no other compelling reasons for the allegations to proceed to trial. On that basis, summary judgment was granted. 

The main point to be taken from this is that if a defendant has been accused of fraud and thinks that the allegation has no merit, it is possible to strike it out if they can show: 

• The pleadings disclose no reasonable grounds for bringing the claim (CPR 3.4 (2)(a)); or 
• A statement of case is an abuse of the court’s process (CPR 3.4 (2)(b)). 
• The fraud or dishonesty has not been specifically alleged and sufficiently particularised. 
• Based on the facts pleaded, an inference of innocence or negligence is more likely than dishonesty. 

As it was described in Playboy Club v Banca Nazionale [2018] EWCA Civ 2025,  “Courts regard it as improper, and can react very adversely, where speculative claims in fraud are bandied about by a party to litigation without a solid foundation in the evidence.”  

This is a reminder that fraud claims are serious. If there is no basis to bring them, a defendant may be successful in strike out and summary judgment. 

Application by the Claimant 

In Gupta & Anor v Shah & Ors [2023] EWHC 540 (Ch), the High Court heard another application for summary judgment or, alternatively, a striking out of parts of the defences. In this case, it was brought by the claimant. 
  
The underlying case is quite extraordinary. The claimant, Dr Gupta, was defrauded out of US $14 million by Mr Shah. Dr Gupta thought he was investing in a lucrative scheme, but instead the defendants (Mr Shah, his wife and sons) simply dissipated the money, paying substantial sums to themselves and other entities.  

In this case, the claimant’s application for summary judgment was granted for the following reasons: 

• Mr Shah was found to be thoroughly dishonest at all times. Mr Shah knew that he was misappropriating trust money and he lied to cover up the truth and to retain the money.
• There is no defence to the breach of trust which arises. 
• It is not apparent that there was ever a scheme in which Dr Gupta’s money could be invested.  

The claimant also applied to strike out the only defence in law raised by the defendants, who pleaded an elaborate case of illegality. In a few wild assertions, the defendants alleged that: 

• Dr Gupta’s original money was the proceeds of crime because an ophthalmologist could not have such sums and, therefore, the money must have been raised through money laundering. 
• Dr Gupta was a ‘front-man for others’ in a criminal organisation. 
• They had information that a contract had been taken out to murder the first defendant and kidnap other defendants. 

The Judge described these allegations as “so woefully short of particularisation in respect of a very serious matter that it should not be allowed to stand.” Accordingly, these paragraphs of the defence were struck out. 

However, the claim against Mrs Shah for knowing receipt and dishonest assistance was not decided summarily. The Judge decided that an insufficiently strong case was presented to establish that Mrs Shah was a conspirator at the outset. That meant that there was work to do to establish when she acquired any relevant degree of knowledge.  

The Judge recognised that establishing that knowledge is a sophisticated exercise in the circumstances, and considered the chances of her establishing a defence based on ignorance were more than fanciful, if only marginally. Bearing in mind the complexities involved, and the significance of the dishonesty, the Judge concluded that these matters should be considered at a trial.  

As a claimant, it is very unusual to be granted summary judgment in a fraud claim.  It happens in cases where the evidence pleaded is sufficiently powerful and the defendant’s response is unable to deal with it (see Foglia v Family Officer Ltd & Ors [2021] EWHC 650 (Comm)).  

In Gupta, the factors that contributed to overcoming that hurdle were: 

• The defendants filing no evidence in relation to this application.
• Even the evidence and pleadings filed in various interim applications had not advanced any defence to the breach of trust claim.
• The claimant had extensive evidence of the defendants’ dishonesty, including:
  • A series of disclosures, Bankers Trust and Norwich Pharmacal orders which revealed that Mr Shah deposited money in various tranches, in breach of trust. 
  • Emails revealing Mr Shah’s dishonesty, such as his email to Dr Gupta saying “filings for our program have been approved, just waiting for the start date”, when in fact he had already transferred the funds out of the account and has never provided evidence that any program was possible, let alone filings approved. 
  • WhatsApp messages from the defendant that evidently lied to Dr Gupta about the progress of the scheme, while Mr Shah was moving funds for his own benefit.
  • A clear inference of dishonesty from Mr Shah’s behaviour and his concealment of transactions from Dr Gupta. 

Although it is a major task to achieve summary judgment or strike out of fraud claims, the courts are willing to do so where it is clear that a full trial is not necessary.