How to plead fraud claims – and how not to
The judge, Mrs Justice Cockerill, was critical of the approach adopted by the Claimants and her judgment contains important lessons for parties seeking to bring claims for conspiracy, or for fraud more generally, and on how such claims should be pleaded.
The complexity of most fraud claims makes it relatively unusual for them to be dismissed at an interim stage on a summary judgment/strike-out basis. A full trial is often required to ensure that there is a sufficient review of the evidence. However, the 489-paragraph judgment in this case shows that the Commercial Court is willing to grapple with the detail where it is appropriate to do so and to use its power to dismiss a claim at an early stage when the claimants are unable to plead a coherent claim or a complete cause of action.
The case is also a good example of issues that can occur where parties seek to bring multiple related claims arising out of the same set of facts.
The claims made by the Claimants
The allegations of conspiracy were wide-ranging and, as the judge said, the claim “defie[d] any powers of precis”. However, in very broad outline, the proceedings arose out of an earlier misrepresentation claim (the Misrepresentation Claim) brought by the Claimants but discontinued during trial. The Claimants subsequently brought a further claim against the Defendants to the Misrepresentation Claim (the first to fourth Defendants in these proceedings) and a number of their legal advisers in the Misrepresentation Claim (the fifth to tenth Defendants in these proceedings).
The Claimants alleged that the Defendants in these proceedings had conspired to enter into hidden contingency agreements, produce fraudulent costs statements and engage in threatening conduct intended to influence the Claimants and their legal representatives in their conduct of the Misrepresentation Claim. The alleged aims of the conspiracy were (i) to intimidate the Claimants and their legal advisers into discontinuing the Misrepresentation Claim (which the Claimants said would otherwise have succeeded); and (ii) to obtain the Claimants’ shares in a company at less than fair value.
The judge granted the Defendants’ applications to strike out and/or grant summary judgment, saying that the claim pursued at the hearing by the Claimants was “structurally fatally flawed, abusive and lacking in pleadable substance”.
Pleading fraud claims
The judge identified the following three main purposes of statements of case:
- to enable the other side to know the case it has to meet;
- to ensure that the parties can properly prepare for trial; and
- to provide a “critical audit for the claimant and its legal team that it has a complete cause of action or defence.”
The judge added that a claimant’s particulars should set out the essential facts which make up each key element of the cause of action as clearly and concisely as possible. In contrast, the Claimants’ particulars in this case were, in the judge’s words, “profoundly unsatisfactory in a number of respects.” At one point, the judge said that the “pleading is unclear in the extreme, and combines tendentiousness with a combination of oversupply of evidence and undersupply of proper particulars.” She also drew a comparison between the particulars in this case and those in a previous case where Briggs LJ said that the particulars came across as a “rambling narrative …, serving no apparent purpose, and obscuring, rather than clarifying, the claimant's own case”.
This type of approach is particularly problematic in fraud claims because the rules require that the details of any allegation of fraud should be specifically pleaded. Legal advisers are under a professional obligation not to plead fraud unless they are satisfied that there is material to support such a claim. In this case, the judge expressed concern that a number of allegations had been pursued despite the fact that they appeared to lack “basis”.
Inference in fraud claims
At the hearing, the Claimants relied on certain threats that the Defendants were alleged to have made, not as evidence to support the Claimants’ primary case but because they said that it could be inferred from the making of these alleged threats that other threats had been made. These other threats, they asserted, did support their primary case.
The judge accepted that facts in support of an allegation of fraud have to be viewed “cumulatively” and that, where certain statements are shown to be untrue, it can be inferred that other statements are also untrue. However, “[t]hat does not mean that an inference of fraud can be justified by lumping together a number of disparate allegations which bear no relation to the conspiracy, fraud or deceit which is said to sound in damages”. She added, by way of example:
One cannot ask the court to infer fraud against A in relation to a particular transaction because (for example) he once stole a sweet from a shop, or because he lied to get out of an unwanted dinner engagement.
More generally, the judge appeared to have taken the view that the Claimants and their legal advisers were too quick to infer fraud, describing them as adopting a “hair-trigger” approach. She cited a number of examples of fraud being alleged where an innocent explanation was more likely. This resulted in “a huge amount of circular reasoning” in that allegations of dishonesty were based on the assumption that there was a conspiracy. The judge commented:
Thus the desire to allege fraud/dishonesty/conspiracy becomes a kind of philosopher's stone which transforms innocent errors into dishonest conspiracies - from which in turn the main conspiracy can itself be inferred.
Some elements of the Claimants’ particulars in this case were said to be “pending disclosure.” Disclosure is an important feature of litigation in England & Wales that can result in parties obtaining documents to support their case. However, the judge made it clear that it is not permissible to avoid the need for giving particulars by saying that particulars will be given at a later stage. A party alleging misconduct must give particulars before obtaining disclosure. Or, as the judge said elsewhere in her judgment, “when faced with a summary judgment application it is not enough to say, with Mr Micawber, that something may turn up”.
A further problem with the Claimants’ particulars in this case was that, by the time of the hearing, their case had substantially changed but their particulars had not been amended to reflect this. Whilst the judge was, in this case, willing to consider the unpleaded aspects of the claim to “ensure the [Claimants] understand that the case they advance has been considered”, she also said that “[s]trictly speaking it would probably be right to proceed only on the basis of the pleaded case”. It is common for fraud claims to evolve as different lines of enquiry are pursued. However, it is important that claimants amend their particulars of claim to reflect developments. Otherwise, they risk being precluded from advancing arguments that they wish to make.
It is not unusual for complex commercial disputes to give rise to a series of separate sets of proceedings raising different issues and between similar and/or different parties. This dispute is a good example of this. The judge referred to a number of other disputes between the parties and said that the Misrepresentation Claim had given rise to “a multiplicity of litigation which must inevitably put any observer with a taste for nineteenth century fiction in mind of the infamous Jarndyce case.”
Parties who find themselves fighting on several “fronts” in this way should be aware that arguments that they raise (or should raise) in one set of proceedings can have a significant impact on other related litigation. For example, in this case the judge found:
- certain elements of the claim in this case were inconsistent with the professional negligence claim, which the Claimants have brought against the legal advisers who acted for them in the Misrepresentation Claim. That undermined the Claimants’ position in this case;
- it was an abuse of process for the Claimants to try to run arguments in these proceedings, which could and should have been raised in the detailed assessment proceedings arising out of the Misrepresentation Claim. A claim may comprise an abuse of process as amounting to an attempt to relitigate a point which was or should have been raised in earlier proceedings, even if the parties to the second set of proceedings are not identical to those in the first set of proceedings; and
- it was an abuse of process for the Claimants to argue that they “would have won” the Misrepresentation Claim, if (allegedly) an unlawful means conspiracy had not caused them to discontinue those proceedings. In reaching this conclusion, the judge clarified that the rules on abuse of process are engaged where there has been a discontinuance (and not just where there has been a judgment or settlement in the earlier proceedings).
These findings demonstrate the necessity for claimants seeking to bring multiple related sets of proceedings (whether concurrently or successively) to ensure that their claims are consistent with one another. Parties who wish to delay bringing parts of their claim should draw this to the attention of the court and the other side in accordance with the guidelines in Aldi Stores Ltd v WSP Group plc  EWCA Civ 1260 to reduce the risk that the later proceedings will be found to be an abuse of process. Judges are more likely to endorse this approach if they can be persuaded that there are sensible case management reasons for delaying claims (or parts of claims) than if they take the view (as happened in this case) that claimants have decided not to run relevant arguments for tactical reasons. If parties consider that a judgment is wrong, they should appeal that decision, rather than trying to re-run the same or similar arguments in another set of proceedings. Parties who discontinue claims should be aware of the risk that an attempt to resurrect the same or similar claims in later proceedings may be regarded as an abuse of process.
The judge noted that the Claimants in this case had a “passionate belief in the merits of this claim”. This is a common feature of fraud claims, where allegations of dishonesty can cause tensions to run high on all sides. It is also common for fraud claims to be factually complex and claimants often have to grapple with the problem that perpetrators of a fraud (if there has been one) will have taken steps to cover up their actions.
These features increase the importance for parties and their legal advisers to adopt a measured and precise approach – despite the fact that there is often a strong temptation to do otherwise. In particular, it is vital that claimants take care to identify and plead all aspects of their cause of action and to ensure that there is sufficient material to justify allegations of dishonesty.
Ultimately, in this case, the Claimants’ claim failed because they had not pleaded, and could not identify, a complete cause of action.
James Popperwell, Ed Llewelyn-Evans and Alex Douty of Macfarlanes LLP acted for the successful First to Fourth Defendants.