A guide to the tort of conspiracy in the 21st century – part two: strategy and practicalities

Conspiracy is an attractive cause of action for various reasons. One such reason is difference in the level of recoverable damages when contrasted with non-dishonesty based claims such as breach of contract or negligence. In successful conspiracy claims (as in all fraud-based claims) an increased scope of recoverable damages is available and the Court is generally more willing to take an expansive approach to the calculation of loss. Damages in unlawful means conspiracy are “at large”. This means that the amount to be awarded to a successful claimant is not limited to the amount of loss that can be strictly proved, and the claimant does not have to quantify its losses precisely. The unsuccessful defendant will have to pay for all damage arising directly from the conspiracy, and there is no requirement that the damage be of a sort that was foreseeable (in contrast with other torts such as negligence).

Claimants have the burden of proving the conspiracy which presents a challenge. Conspirators are unlikely to have left detailed, direct evidence of wrongdoing, so at the start of a claim the claimant may have limited material on which to base its case. As we explained in part one, the cause of action requires both a combination between two or more persons and intention of the defendants to injure the claimant. Any combination or agreement with such a purpose is unlikely to have been documented, and proving intention, which is to say the defendants’ states of mind, can be difficult. The claimant will therefore usually need to rely on inference to prove its case. Thought should be given at an early stage as to whether it might be possible to supplement the evidential picture with the assistance of investigators or through the strategic use of third party disclosure such as Norwich Pharmacal relief, Bankers Trust orders or, in a case with US-based third parties, Chapter 15 or Section 1782 relief.¹

The English court is willing to accept evidence by inference if that inference has a proper basis. It is important for claimants and their legal representatives to bear in mind the seriousness of an allegation of conspiracy and the consequences this has for pleadings and evidence. The court has commented that it is “a very serious tort, which requires clear evidence”² and has endorsed comments that the standard of proof is commensurate with the seriousness of the allegation.

The particular requirements for any claim that alleges fraud are relevant here. In fraud cases, special requirements are imposed because fraud involves dishonesty, and the law considers dishonesty inherently less likely than honesty. Any allegation of fraud must be specifically set out in the particulars of claim (or counterclaim). The allegation must be supported by the essential primary facts which are said to make up the fraud. Those can be primary facts from which an inference of fraud is to be drawn, however facts which are equally consistent with honesty (including negligence) will not suffice. The balance must be tilted in favour of fraud such that there is an arguable case.

The court has clarified that where a claim is brought for unlawful means conspiracy, the seriousness of the allegation engages many of the same requirements:

“aspects of the applicable principles [for pleading fraud] will be of relevance when allegations of serious wrongdoing are made more generally, even if there is no requirement to plead or prove fraud, as such, as an element of the cause of action (such as in unlawful means conspiracy) and even though the strictures applicable to a plea of fraud or dishonesty are not automatically triggered.”³

In addition, if the unlawful means alleged involve fraudulent or dishonest conduct then those strictures on pleading fraud are necessarily engaged. As the court confirmed in Ivy Technology v Martin [2019] EWHC (Comm), “[w]here a conspiracy claim alleges dishonesty, then “all the strictures that apply to pleading fraud” are directly engaged, i.e. it is necessary to plead all the specific facts and circumstances supporting the inference of dishonesty by the defendants.”

If a claimant fails to meet these requirements, its claim may be struck out or the defendants might apply for summary judgment in their favour (sometimes called “reverse” summary judgment). The court has often stated that it will be cautious about dismissing this type of claim at an early stage because it is mindful of the imbalance of evidence between claimant and defendants, particularly before disclosure. The court will adopt a “generous” approach in favour of claimants for this reason. As such, summary judgment is rarely granted to defendants; the court is willing to consider what additional evidence is likely to emerge during disclosure and to allow a case to proceed so that it can be assessed in light of all that evidence. The court is perhaps less generous to claimants whose pleadings are in and of themselves inadequate, as strike out will be based solely on the statement of case itself without regard to possible additional evidence. We explored the interaction between strike out and summary judgement for fraud claims in our article.

A recent example of a conspiracy claim being struck out because the claimant had failed to meet many of the requirements described above is King and others v Steifel and others [2021] EWHC 1045 (Comm), which we wrote about in our article. The judge found that the claimant had been too quick to infer fraud and had pleaded many facts which were more likely explained by honest conduct. The plea also engaged in circular reasoning, basing allegations of dishonesty on the assumption that there was a conspiracy. To support the inferences needed, the claimants also alleged facts which it accepted were not themselves supportive of the necessary inference but from which it said other facts could be inferred which would then support the inference to the primary claim for conspiracy. This fell a long way short of the type of primary facts needed to sustain a pleading of conspiracy.

Conspiracy claims can be expensive for claimants. By their nature, they involve multiple defendants, who can be separately represented. Not only is preparing a case against multiple defendants likely to be more expensive to begin with, it also automatically increases the costs risk for a claimant. If they lose, they will be exposed to having to pay costs for all defendants. As noted above, this risk is increased if it is found the claim should not have been brought at all. In those circumstances, the court might award indemnity costs to the defendants.

Relatedly, claimants who are vulnerable to security for costs applications can expect to be required to provide security for multiple defendants. In a complex and substantial piece of litigation, the level of security required may be significant.

An allegation of conspiracy can reduce the prospects of reaching an out of court settlement. It is emotive to accuse other parties of conspiracy and dishonest conduct, and so more difficult to engage in dispassionate and pragmatic settlement discussions. An accused party may also feel compelled to publicly clear their name at trial which, again, may impact the prospects of settlement.

Claimants to conspiracy claims will find themselves fighting on numerous fronts given they will be facing multiple defendants, often with separate representation. The practical realities of this are obvious and claimants must ensure they are properly resourced and ready to face what may turn out to be a group of independent defendants focussed on a common adversary.

Lastly, consideration should be given to the insurance position of the defendants. Any claim which establishes dishonesty (i.e. by means of final judgment or award which is not capable of being appealed) on the part of the insured (including unlawful means conspiracy) will not be covered under an insurance policy. Claimants will therefore want to consider the defendants’ ability to pay any damages or compensation awarded if there is no insurance to respond to a claim based in fraud.

Defendants to a conspiracy claim must grapple with the other side of the evidential difficulties discussed above. A claimant may struggle to produce direct evidence that there was a conspiracy, but a defendant may find it even more difficult to produce evidence that there was not a conspiracy. Proving a negative is notoriously hard to do. The defence is more likely, therefore, to be based on undermining the inferences the claimant seeks to make. The defendants should seek to convince the court that the balance of probability is against dishonesty and conspiracy, and that plausible honest explanations are available.

Defendants may feel especially vexed by conspiracy claims. Honest defendants are often outraged to be accused of such conduct. Despite this, they are required to devote time and money to defeating the claim. Defendants may want to reduce the cost by seeking early determination of the claim, either through strike out of the conspiracy allegations if they have not been pleaded correctly, or through summary judgment if the claimant’s case has no real prospect of success. However, as we noted above, summary judgment is not often available in cases involving allegations of dishonesty. This should not, however, deter defendants from applying to have inadequately pleaded allegations struck out.

Tactically, defendants might wish to find ways to put pressure on a claimant and to flush out weaker claims. If a claim is for conspiracy with an alternative claim in negligence, defendants might aim to pressure the claimants to drop the conspiracy aspect through applications for strike out and security for costs to bring home that a claimant is taking unnecessary costs risk by trying to prove the more difficult allegation of deliberate wrongdoing.

Equally, defendants should consider whether there are other parties who are liable for the claim such that they should be joined to the proceedings as an additional defendant (pursuant to Part 20 of the Civil Procedure Rules). Alternatively, and if the claim has already been resolved through trial or settlement, a defendant may consider whether there is an available contribution claim against a third party (pursuant to Civil Liability (Contribution) Act 1978).

As we noted above, aggrieved defendants will often be most unwilling to engage in settlement discussions. The result is that unfortunately the parties may end up spending a considerable amount on such a claim and must hope to recover as much of that outlay as possible either in an award of costs if they win at trial or as part of a settlement agreement if they feel able to reach one.

Insurance is also relevant to defendants facing conspiracy claims in two ways. First, insurance will not cover an insured’s acts of dishonesty. This means that an insurer will not pay any damages awarded where an insured’s fraud has been established. Further, an insurer may not agree to contribute to any settlement, even on a “no admission of liability” unless it is satisfied the insured has not been dishonest. Second, to the extent that an insurer has paid legal defence costs for the lifetime of any claim brought against an insured in which fraud/dishonesty is alleged, any binding/final decision which establishes fraud/dishonesty on the part of the insured will usually trigger a clawback provision in the insurance policy which enables the insurer to recover from the insured all sums paid under the insurance to that point. Insured defendants will need to consider all of these risks as part of any settlement strategy.

Any fraud claim requires a claimant to comply with additional requirements for their statement of case. However, the broad ambit of unlawful means conspiracy means that defendants are also faced with significant challenges. It is not necessary to prove that each defendant took part in each unlawful act pursuant to the conspiracy. Indeed, the current legal position is that it is possible for a defendant to be liable for a conspiracy without personally having undertaken or induced any of the unlawful acts. Should that defendant be found to have been a party to a combination and the unlawful acts were undertaken (by other defendants) pursuant to that combination, then that defendant will be liable. Therefore, defendants who may not have considered themselves to be part of a conspiracy nor aware that the combination involved means which are unlawful find themselves caught by the broad ambit of the tort, largely and unusually as a result of the actions of others.