(1) Portland Stone Firms Ltd (2) Stone Firms Ltd (3) Geoffrey Gordon Smith (Trustee Of G King Trust) (4) Timothy Rex Clotworthy (Trustee Of G King Trust) v (1) Barclays Bank Plc (2) KPMG LLP (3) Ian J
The court struck out a claim by a group of companies that a bank and accountancy firm had purported to support the group through its financial problems but instead conspired to engineer the group's early repayment of its outstanding loan facility where the available evidence did not support the allegations. Further, the group's attempt to amend its claim to add allegations of fraud and deceit constituted new causes of action that were time-barred and had no real prospect of success in any event.
A bank and firm of accountants applied to strike out a claim by a group of companies that the bank and accountants had purported to support the group through its financial problems but instead conspired to destroy it for their own gain. The group applied to amend its claim.
The group had obtained a £6 million loan from the bank in 2004. It complied with its repayment obligations up to July 2010, when some £3.8 million remained outstanding. However, the group suffered severe cashflow shortages during 2009/2010 and fell into tax arrears. HMRC indicated that it would petition to wind up the group, and the group asked the bank for further funding. The bank instructed the accountants to review the group's short-term cash flow requirement and carry out a security. In the event, the scope of the accountants' work was narrowed, which was reflected in the letter of engagement signed by the group authorising the accountants to converse with HMRC on its behalf. The group remained unable to pay its tax arrears and HMRC issued a winding-up petition. The bank issued a demand for early repayment of the outstanding loan and administrators were appointed for the group, which staved off an order for compulsory liquidation. A rescue package was implemented in 2011 with the bank's support, which refinanced the original loan facility and provided new funding. The group came out of administration and continued to trade. In 2016, the group claimed that the bank and accountants had engineered matters in 2010 so that the bank could demand early repayment of the outstanding £3.8 million, the accountants could benefit from fees generated by their appointment, and the group would go under. Before the instant hearing, the group applied to amend its claim to include allegations of deceit in that the bank and accountants had fraudulently misrepresented in 2010 that the bank would provide additional funding once the accountants had carried out the security review, and the accountants would resolve the problem with HMRC.
Reasonable cause of action - The absence of direct evidence meant that the allegations of deceit and fraud depended on inference from documents before the court. Those documents did not support the allegations that the bank and accountants had made fraudulent misrepresentations while secretly and dishonestly implementing a plan to procure early repayment of the loan. They showed that any decision by the bank to provide further funding would be taken on the basis of a cash flow review and security review but that the bank was not committed to further lending even if security levels were shown to be adequate. Nor did the documents justify the implication that the accountants would contact HMRC within any particular timeframe or in any particular terms. Overall, the group had not met the well-established requirement to produce cogent evidence to justify a finding of fraud or deceit. As well as the general unlikelihood of two major financial institutions behaving in the way alleged, other factors stood out. First, there was no reason for the bank and accountants to have engaged in such an elaborate and dishonest charade: the group's financial position was such that an event of default was likely on the basis of the HMRC debt alone and would suffice in triggering early repayment of the loan. Second, the deception would have involved a significant number of people, leading to a high risk of internal detection. Third, the risk of detection by the group was high and obvious. Fourth, the accountants' letter of engagement stated the change in the scope of work they would undertake. Fifth, the bank had supported the rescue package and had not pressed for repayment of the loan, its demand having been made only to see that the group went into administration rather than compulsory liquidation (see paras 38, 81-91 of judgment).
Application for strike-out or summary judgment - The original particulars of claim were variously inadequately substantiated, vague, irrelevant, embarrassing and vexatious. Accordingly, the bank's and accountants' applications for strike-out or summary judgment were well founded (paras 92-115, 140).
Application for amendment of the claim- It was reasonably arguable that the group's proposed amendments were time-barred given that they related to events that had occurred more than six years ago and it was reasonably arguable that the facts of those events had not been concealed from the group within the meaning of the Limitation Act 1980 s.32 so as to stop time running. The amendments sought to add or substitute new causes of action that did not arise out of the same or substantially the same facts as were already in issue in the original action, and would require the bank and accountants to embark on new investigations to deal with the new allegations. Further, the amendments were as incoherent and ill-founded as the original claim and had no real prospect of success (paras 117-120, 125-127, 132-134).
Bank and accountants' applications granted, group's application refused
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14 Sep 2018
Queen's Bench Division
LTL 17/9/2018 :  9 WLUK 168