Because fraud claims involve disputed allegations of dishonesty, generally the court will not decide them without a full trial. This is because dishonesty is a serious allegation that ought to be examined fully in light of all available evidence. However, in Jinxin and other recent cases, the court has shown that it will dismiss fraud allegations at an interim stage where the relevant tests are met, rather than permit them to proceed to trial.

In Jinxin, the claimant had brought claims of fraudulent misrepresentation and unlawful means conspiracy valued at over US$661 million against the defendant sellers of shares in MP & Silva, an international sports marketing and media rights firm.  One of the defendants, MPS LLC, applied for strike out of the claim against it and, in the alternative, for reverse summary judgment dismissing the claim. The court granted strike out of two of the three allegations of fraud, although the alternative claim for summary judgment was dismissed.

Pleading fraud

As the test for strike out concerns the adequacy of statements of case, it is useful first to recap the particular requirements on parties and their legal representatives pleading a claim or counterclaim in which they allege fraud. In Three Rivers District Council v Governor and Company of the Bank of England [2001] UKHL 16; [2003] 2 AC 1, the House of Lords confirmed two key principles for pleadings where the claimant wishes the court to infer fraud:

1. The function of statements of case is to give the defendant sufficient notice of the case pleaded against them. If that case is one of fraud, then the claim must be clear on that point. It must not be equivocal.
2. An allegation of fraud must be supported by the essential facts which are said to make up the fraud. This means the claimant must prove their case using facts from which, on the balance of probabilities, fraud is inferred. Facts which are equally consistent with honest conduct (including negligence) are not sufficient.

This complements the requirement in Practice Direction 16 paragraph 8.2(1) of the Civil Procedure Rules that any allegation of fraud must be specifically set out in the particulars of claim. For litigants in the Commercial Court, there is a further requirement in the Commercial Court Guide at paragraph C1.3(c) that “(i) Full and specific details should be given of any allegation of fraud, dishonesty, malice or illegality; and (ii) where an inference of fraud or dishonesty is alleged, the facts on the basis of which the inference is alleged must be fully set out.”

The legal representatives of a party alleging fraud must also have regard to their professional code of conduct. Solicitors must “only make assertions or put forward statements, representations or submissions to the court or others which are properly arguable”. And barristers, who must also personally sign the statement of case that is submitted to the court, are subject to the Bar Code of Conduct which provides that a barrister “must not draft any statement of case, witness statement, affidavit, notice of appeal or other document containing…(c) any allegation of fraud unless [they have] clear instructions to make such allegation and have reasonably credible material which as it stands establishes an arguable case of fraud”.

There is therefore an additional burden on parties pleading fraud to be clear and unequivocal in what they are alleging, and to provide a proper basis for those allegations. These particularly robust requirements for fraud pleadings feed into the court’s assessment of any application to strike out.

Strike out applications

Under CPR rule 3.4(2), the court can strike out a statement of case (or part of a statement of case) if it appears:

1. that the statement of case discloses no reasonable grounds for bringing or defending the claim;
2. that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; or
3. that there has been a failure to comply with a rule, practice direction or court order.

In Jinxin, MPS LLC argued that this test was met and so the allegations against it should be struck out, both because they disclosed no reasonable grounds for bringing the claim and because they failed to comply with Practice Direction 16 paragraph 8.2(1).

Jinxin claimed MPS LLC had committed fraudulent misrepresentation in respect of three representations made during the share sale. Jinxin alleged MPS LLC had known these representations were false, and so were fraudulently made, for three reasons, being (i) allegedly pervasive illegal conduct in respect of a key part of the MPS Group’s business, (ii) an individual holding a role that meant he “must have been aware of” the allegedly illegal conduct, and (iii) certain emails put in evidence.

The court found that none of these primary facts, either alone or together, justified an inference of fraudulent knowledge in respect of two of the representations. The facts were likely to be more consistent with honesty than dishonesty.  The fact that allegedly illegal conduct was said to be pervasive did not, even if assumed to be true, justify an inference that the relevant people were aware of that conduct. Similarly, pleading the fact that a person held particular roles could not justify an inference that they must have known of the alleged illegal conduct. The allegation of dishonesty in respect of the third representation was allowed to proceed as it was based solely on one email, the significance of which was properly a matter for trial.

The judge had observed that the court should assume for the purposes of the strike out application that the facts pleaded are true, and that it should adopt a generous approach when assessing the pleadings of the party alleging fraud, given that claimants do not have access to all of the evidence which pertains to their allegation at the pleadings stage (especially as the putative fraudster may have sought to conceal the fraud from the claimant).  However, such generosity “should not circumvent the requirements of pleading fraud and supportive particulars, but should be exercised, for example, where the issue whether the plea of fraud is justified is evenly balanced.” Ultimately, the judge decided that “any flexibility in this regard cannot overcome the inadequacy of the particulars of fraud pleaded in this case.”

Jinxin had sought to overcome the issues alleged in the strike out application by submitting additional non-pleaded evidence.  The court refused to engage with that evidence in the context of the strike out application on the basis that the power to “strike out a pleading relates to the adequacy” of the pleading alone and “not with extraneous material”.  This contrasts with the position in relation to summary judgment, where additional evidence may be considered.

Summary judgment

Summary judgment is available under Part 24 of the CPR. The court has discretion to grant summary judgment if it considers that a party has no real prospect of succeeding on the claim or issue, and that there is no other compelling reason why the case or issue should be disposed of at trial.  In reaching its conclusion as to whether a party has a real (as opposed to ‘fanciful’) prospect of success at trial, the court should not conduct a ‘mini-trial’ (though this does not mean it must accept at face value everything the applicant says); rather the court only has to decide if the case is more than merely arguable.

The court “must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial” (Easyair Ltd v Opal Telecom Limited [2009] EWHC 339 (Ch)).  Consequently, and in contrast to a strike out application (where the court will only consider the pleadings themselves), in the summary judgment context the court can consider the pleaded evidence as supported by any additional evidence that has become available. It can also consider the likelihood of additional evidence emerging during disclosure, although there must be a credible basis for expecting additional evidence to emerge and the court will not indulge blind optimism that “something may turn up”. That criticism was made by the judge in King and others v Steifel and others [2021] EWHC 1045 (Comm) when dismissing a series of improperly pleaded allegations of fraud that the court considered had no proper basis. We have written previously about this case, on which this firm acted.

In fraud cases, as we have noted, the court will be cautious about granting summary judgment because dishonesty is critical to such claims. Dishonesty frequently has to be proved by inference, as unequivocal direct evidence is rarely available.  As the court acknowledged in Jinxin, it therefore usually takes a full trial to assess whether an inference of fraud is justified, because such an inference will generally need to be tested against the documentary, witness and expert evidence.  The judge stated, however, that summary judgment remains available in principle; there could be cases where despite proper particulars of claim being provided, it is obvious that an allegation of fraud is unsustainable and so suitable for summary dismissal.

In Jinxin itself, having granted strike out of two of the allegations of fraud, the court considered the remaining allegation and determined that it was not appropriate to grant summary judgment as there was sufficient justification for a pleading of fraud such that the case was arguable, and so the point should go to trial for determination.

Summary judgment for fraud claimants

As well as summary dismissal of unsustainable allegations of fraud, the court will exceptionally grant summary judgment in a fraud claim in favour of the claimant if the evidence pleaded is sufficiently powerful and the defendant’s response is unable to deal with it. That is what happened in Foglia v Family Officer Ltd & Ors [2021] EWHC 650 (Comm) (Foglia).

In Foglia, the claimant applied for summary judgment and submitted with that application detailed additional evidence it had obtained from third parties of mobile phone records, “spoofed emails” and payments which either provided “an inference or a strong inference” of fraud. This evidence was left largely unanswered by the defendant, whom the court found had “done nothing” in response in the seven months following the application for summary judgment.  Taken together, the evidence justified the conclusion that “any innocent explanation” on behalf of the defendant was “fanciful”.  This was sufficient to justify summary judgment in the claimant’s favour, as the defendant had no real prospect of successfully defending the claim.

The additional evidence the claimant had obtained in Foglia was available through third party information orders obtained from the court compelling a mobile phone network operator and a bank to provide information. Third party information orders are a useful tool in fraud claims in England, as they may be available where a claimant has reason to believe a third party has information that it needs for its case.¹ Foglia shows how helpful those orders can be, as the evidence received in response in that case was sufficiently forceful to obtain summary judgment.

Conclusion

Jinxin and other recent judgments provide a reminder to parties to rigorously analyse the primary facts of their case before inferring or defending allegations of fraud.  Although applicants seeking to have allegations of dishonesty dealt with on an interim basis must meet a high bar, the English court has recently shown a willingness to “grasp the nettle and decide” to strike out or give summary judgment even in respect of fraud claims where the test is met and so a full trial is not necessary.

Such cases also offer encouragement to parties planning a proactive approach to articulating their case at an early stage by carrying out fact-finding investigations, including through third party disclosure orders.  This can lead to discovery of compelling evidence.

Finally, this case reminds practitioners that while applications for both strike out and summary judgment aim to close or narrow the scope of proceedings and, as in Jinxin, it is common for parties to combine these applications, the court’s considerations are distinct.  Strike out is focused on the quality of the pleaded evidence alone, while the evidential ambit for a summary judgment application is wider.

This article was published in the Young Fraud Lawyers Association Winter Newsletter 2022 – 2023.

¹ We explain such orders in more detail here in the context of seeking information from third parties based overseas.