Abbar & Anor v Saudi Economic & Development Company (Sedco) Real Estate Ltd & Ors

This is an application by the 6 ^th defendant (“AIL”) for orders:

Under CPR 3.4, striking out the Claim Form and Particulars of Claim on the grounds that:

they disclose no reasonable ground for bringing the claim;

they are an abuse of the Court’s process; and/or

the claimants failed to comply with the Practice Direction to CPR Part 16.

Under CPR 24.2, giving summary judgment against the claimants on their claim on the ground that the claimants have no reasonable prospect of succeeding on their claims or any of them.

I was referred to well-known passages from the judgment of Millett L.J. in Armitage v. Nurse [1998] Ch. 241 at 256-7, and from the speech of Lord Millett in Three Rivers District Council v. Bank of England (No.3) [2001] UKHL 16, [2003] 2 A.C. 1, at §183-6. It is unnecessary to reproduce the whole of these passages, but I should set out the last paragraph of the passage from the second of these authorities:-

In the present case, the claimants have alleged fraud and, in the alternative, negligence. Mr. Reed submitted that this, by itself, must mean that the primary facts were consistent with honesty, and that fraud therefore could not be pleaded. This, if correct, would apply to all cases, and it would never be open to a claimant to plead alternative claims for fraud and negligence. Such alternative claims are of course commonplace, and this submission is wrong. If there are facts which “tilt the balance” and justify an inference of dishonesty, then dishonesty may be alleged. Alleging negligence in the alternative involves no inconsistency: it simply recognises that the court may find that the defendant was not dishonest but merely negligent.

It was made clear in the witness statement of Mr. Bramhall, a partner in AIL’s solicitors, that AIL intended to seek orders that the claimant’s solicitors and counsel show cause why they should not be personally liable for the costs of defending these proceedings, and AIL’s skeleton argument refers me to §2.9 of the Chancery Guide, which provides that allegations of fraud should not be made “unless there is credible material to support the contentions made”, to the Bar Code of Conduct §704(c) and to the Solicitors’ Code of Conduct §11.01(3)(b), both containing passages to similar effect.

I was also referred to the decision of the House of Lords in Medicalf v. Weatherill [2003] 1 A.C. 120, in which Lord Bingham said at §22:-

I should however also refer to what Lord Steyn said at §35:-

I am not concerned with a wasted costs application, but with the question whether (assuming that the pleading discloses a cause of action) it is one which has a reasonable prospect of success in the sense in which that term is used in summary judgment applications. However, this raises a not dissimilar issue. It is not enough for the defendant to show that the claim is weak or unlikely to succeed. The criterion, as Lord Hobhouse put it in Three Rivers at §158(1), is whether there is “an absence of reality”. If not, the claim must proceed (and it is the duty of the claimant’s lawyers, if so instructed, to advance it).

Put shortly at this stage, this action relates to an investment of £500,000 by the claimants in shares in the 3 ^rd defendant (“Pinnacle Holdings”), a company incorporated in Anguilla, which was interested in the development of a site in the City of London, near the Gherkin. This site was to be developed by the construction of a tower known by various names including the Pinnacle Tower and the Helter Skelter.

The claimants’ main case is that they were induced to buy shares in Pinnacle Holdings by a fraudulent representation, for which all the defendants were responsible, that it was a short term investment for a period of between 12 and 18 months and that the intention of those controlling Pinnacle Holdings was that it would sell the site on to another developer within that period and before the construction stage. The claimants allege that the representation was fraudulent because that was not the intention at the time; on the contrary, it was intended that the site would be retained until construction was complete in or about 2012, a period of some 5 years. They allege that, whilst these representations were not made directly by AIL to the claimant, AIL was party to a common design that fraudulent misrepresentations to this effect should be made, principally in an Information Memorandum which was sent to potential Saudi Arabian investors including the claimants.

AIL accepts that this central allegation is sufficiently pleaded in the Particulars of Claim, but contends that the claimants have no proper basis for making it, and no reasonable prospect of success in establishing either (a) that AIL was responsible for the contents of the Information Memorandum or for certain oral representations made by or on behalf of other defendants or (b) that the statements undoubtedly made in the Information Memorandum to the effect that this was intended to be a short term investment were fraudulent representations, and not, as AIL contends, representations which were true when made, but which it later transpired could not be fulfilled because of changes in the property market following the collapse of Northern Rock. For reasons set out in more detail below, I do not accept this. Of course I express no view as to the likely outcome of this action, but I consider that there is sufficient evidence before me to defeat the claimants’ summary judgment application on this issue.

The Particulars of Claim make a large number of other allegations, which AIL contends are unclearly and in some respects unintelligibly pleaded and that they are similarly unsustainable. As to the first point, I agree. The difficulty with the pleading originates, I think, in §37, which is a compendious allegation covering contractual terms alleged as between the claimants and the other defendants and representations allegedly made by all the defendants, leading to a lack of clarity as to exactly what representations are alleged and confusion later on where the alleged misrepresentations are set out. Difficulty also arises because some allegations (including the main one) are repeated in slightly different terms in different parts of the pleading and because several allegations are supported by references to “the facts and matters” either “above” or “below” which, in a pleading of this length, does not tell the other party what is relied upon in support of the particular allegations. The appropriate way to deal with all this, in my judgment, is not to strike out the Particulars of Claim now, but to adjourn the application to enable the claimants to amend. How this is to be done is a matter for them, but in my view it might be as well (particularly in view of what follows) to recast the Particulars of Claim at least from §37 onwards.

As to the second point, Mr. Reed’s submission as to the unsustainability of the remaining allegations resulted in a number of substantial concessions by Mr. Cakebread. In some or all of these cases, he would, I think, say that these concessions were the result of matters being clarified by recent evidence, but the force of this (now probably relevant only to costs) is lessened by the absence of a letter before action. The defendants had no pre-action opportunity to correct misunderstood facts. In any event, the abandonment of several allegations in the course of the argument will have to be reflected in the amended Particulars of Claim. There are a number of allegations which remain contentious with which I will deal below.

Finally, by way of summary, Mr. Reed submitted that the action should be struck out on the ground that it was vexatious for reasons unconnected with either the pleading or the sustainability of the claims, namely that there was a breach of trust claim which was obviously inflated, that no letter before action had been written, that there had been long and unjustified delays before other defendants were served and that costs which had been awarded to other defendants remained unpaid. I do not consider that any of these matters constitutes a ground for striking out the claim.

The claimants are Saudi Arabian nationals. The 1 ^st claimant is a lawyer. The 2 ^nd claimant, his son, is a businessman.

AIL is an English company carrying on property development, asset and fund management business, especially large commercial developments. Its directors are Khalid, Tariq and Mohammed Saleh Affara. It has 2 issued shares, owned by Mohammed Affara and his wife Mona (the parents of Khalid and Tariq).

The 1 ^st defendant (“Sedco”) was incorporated by AIL in Anguilla in May 2006. Its directors and shareholders are unknown.

The 2 ^nd defendant (“Sedco KSA”) is a Saudi entity specialising in Sharia compliant investments, owned and managed by the Mahfouz family. Mr. Hamid Al-Qumairi is Vice-President of the Real Estate Investments Group.

The 3 ^rd defendant was incorporated in Anguilla by Sedco KSA and AIL in November 2006, as the vehicle for raising equity for the Pinnacle Development.

The 4 ^th and 5 ^th defendants (“Pinnacle” and “Pinnacle 1”) were incorporated in Anguilla at the same time and are subsidiaries of the 3 ^rd defendant.

Another subsidiary (“Pinnacle 2”) was incorporated in Anguilla at the same time.

The site for what is now known as the Pinnacle building was assembled by a German company called Deutsche Immobilien Fonds AG, now Union Investment Real Estate AG (“DIFA”). DIFA agreed to sell it in late 2006 for about £200 million. According to DIFA’s press release at completion, on 30 ^th May 2007, AIL was the buyer. Various other press reports in the Estates Gazette, in the Daily Telegraph and on a website called Skyscrapernews, referred to AIL as the owner of the site, as the head of a consortium which owned it and as the “sponsor” of an offshore investment vehicle called Pinnacle.

The Information Memorandum on which this claim is largely based is dated 1 ^st March 2007, that is just after contracts were exchanged. Although it is not formally signed, on a fair reading it appears to be a document issued by Sedco (the 1 ^st defendant), and it seeks to raise £122,500,000 through the issue of 122,500 shares in Pinnacle Holdings at £1,000 each by the Closing Date, 15 ^th April 2007.

The resulting investment structure, assuming full subscription, would be that Pinnacle Holdings would have share capital of £150 million, held as to 81% (122,500 shares) by the investors, as to 14% (20,000 shares) by Agar Holdings Limited (a subsidiary of Sedco KSA) and as to 5% (7,500 shares) by AIL. AIL’s share was in fact taken up by a subsidiary or associated company incorporated in the Dutch Antilles called Caraways Holdings N.V. (“Caraways”).

It is then made clear the Pinnacle Holdings will “leverage the acquisition by approximately 55% … using third party Shariah compliant financing”. The total acquisition cost is shown as £270 million, including demolition costs.

AIL is identified in the Information Memorandum as “the firm appointed by (Sedco) to advise on acquisition and disposal for the Property, as well as the management of the Property” (but it is said that it may be replaced from time to time). AIL was entitled to 0.5% of the gross acquisition value of the Property at the time of acquisition, and AIL (or its replacement) was entitled to 0.2% of the total property value annually for the performance of various specified management tasks. Sedco and AIL were entitled to share in profits in excess of an IRR of 10%.

Various health warnings and risk factors are stressed, and it is made clear that the shares in Pinnacle Holdings are not quoted on any stock exchange and that there is no intention to develop a secondary market for them.

For present purposes, the important passages in the Information Memorandum relate to the intended duration of the investment, and these are as follows:-

On the front page “Targeted Return on Investment (ROE) of Approximately 20% per annum Over the Anticipated 1-1½ Year Holding Investment Horizon”.

The “Property Holding Period” is defined as “the anticipated 1-1½ year holding period or such other period as may be determined in the manner as specified in the section headed “Summary – Property Holding Period”.”

This reads:-

The summary also says in relation to “Principal Risk Factors” that “no assurance can be given that the investment objections will be achieved”, and the Risk Factors include warnings that there is not guarantee that Pinnacle Holdings will be able to generate returns and that there is a possibility that applicants might lose some or all of their money.

There is then also a section headed “Exit Strategies”, which is important:-

the sell (sic) of the site will take place after completion of the following activities:-

demolition and site preparation will be undertaken;

cost of the construction will be fixed with reputable contractors;

will try to improve the scheme to add 30,000 sq ft rentable area;

make the project ready to proceed with no further lead-in period;

sell the site to developers during the holding period;

alternative exits with better returns will be considered during the period; …”

Taking these passages as a whole, what was clearly represented was an intention to carry out the specified pre-construction activities and then sell the site on to developers, or exit in some alternative way providing a better return, within 18 months. This much is clear. What is perhaps less clear is what was to happen if this proved impossible. The document specifies that the duration of the company cannot be extended beyond the 18 months without the unanimous consent of the investors, but the mechanism for terminating the company’s existence in such a way as to realise the investment is not made clear.

The Information Memorandum was sent to the claimants by Mr. Al-Qumairi, and their evidence is that the 2 ^nd claimant spoke to Mr. Al-Qumairi on the telephone in the third week of March and were assured that the investment was for the short-term only, that is for the 12-18 month period, and that the investment and profit were to be realised by selling on to a third party developer. The 1 ^st claimant thereupon remitted £515,000 (£500,000 plus placement and structuring fees totalling 3%) to the specified account in the name of Soric NV, which is a company associated with Sedco KSA.

In the meantime, on 3 ^rd April 2007, a Loan Agreement had been completed between Pinnacle 1 as borrower, Pinnacle as guarantor and a syndicate of banks led by HSH Nordbank as lenders. This provided for interest in the usual way, and was not Shariah-compliant. AIL accepts that it was involved in the raising of this finance.

On 29 ^th May 2007, Pinnacle granted a 999 year lease of the site to Pinnacle 1 for a premium of £209,456,457.79 (representing the cost of acquisition). The relevant page of the Lease, as originally printed, had square brackets with blanks in various places, and the square brackets were deleted when the details were filled in. Against the premium for the lease, what is shown is £209,456,457.79. One of the claimants’ allegations, persisted in until abandoned in the course of Mr. Cakebread’s submissions, was that this represented a sale of the site for £1,209,456,457.79, entitling the claimants to their share of the resulting profit. It is perfectly obvious, looking at the page, that the premium was £209 million plus, not £1,209 million plus, and it was also self-evidently an internal transaction.

The Lease also contains a series of provisions (clauses 4.12.4, 4.12.5 and 4.14.3, together with the definition of “Redevelopment”), the effect of which is to prohibit an assignment unless the proposed assignee has executed a Deed of Covenant in relation to provisions governing redevelopment. These provisions, as Mr. Reed correctly submitted, were entirely consistent with the short-term nature of the project as represented in the Information Memorandum.

On the same day, there was an agreement for the sale of a 999 year lease by Pinnacle 1 to Pinnacle 2. This is not in the documents exhibited to the witness statements on this application, but it is referred to in a later agreement (with which I deal at §38 below). This divided the beneficial ownership from the borrower and guarantor companies which had entered into the banking arrangements, and created a Sharia compliant ownership structure. This has no significance in the present dispute. Such a structure would have been required whether the investment was intended to be short-term or long-term.

On 16 ^th June 2007, the Estate Gazette published an interview with Khalid Affara which he himself had arranged. Relevant extracts include the following (my emphases):-

An article on the Daily Telegraph website on 31 ^st May 2007 also refers to AIL having raised the financing to ensure that the tower was built.

On 31 ^st August 2007 both Pinnacle and Pinnacle 1 entered into agreements with AIL as asset manager, in very similar if not identical terms. Clause 3 contained broad General Obligations to manage and promote the interests of the Owner, and clause 4 added some specific duties of a conventional nature. Clause 23.1 provided:-

A few days earlier, the Estates Gazette had reported that AIL “which bought the Pinnacle site in May” had agreed a building contract for the construction of the skyscraper with the Australian group Multiplex, and quoted Mr. Affara as saying:-

On 4 ^th December 2007, Pinnacle Holdings entered into an agreement with a company called Eurx Delta Investment S.P.R.L. (“Eurx”), which was part of the Pramerica (Prudential America) group, for the purchase of 30,000 shares in Pinnacle Holdings. It is clear from clause 3.1.2 of the agreement that the negotiations for the agreement had commenced no later than 8 ^th November 2007. Pinnacle Holdings’ business is defined as that of a holding company involved in the development, construction (my emphasis), and letting of the (Pinnacle site) as an Investment”, and clause 4 sets out its present intention to raise further equity capital for the purpose of the business of up to £20 million in 2008, £65 million in 2009/10 and £40 million after practical completion. Mr. Cakebread submitted, I think correctly, that this evidenced an intention by at the latest early December 2007, and probably earlier since the negotiations must have taken some time, that Pinnacle Holdings should retain the Pinnacle site and develop it.

On 11 ^th February 2008, SEDCO sent the 1 ^st claimant a report on the Pinnacle Tower. It referred to its purchase having been “for a term of 12-18 months..expected to yield a revenue of 20% (IRR) annually” and to its value having risen following demolition of the old buildings, site preparation and improvements in the design. It then referred to Pramerica having purchased a 23% shareholding with a view to continuing in the construction phase, with the remainder of the first phase being effected “through the formation of a second investment fund”. Existing participants were to have the opportunity of opting out at the end of the originally anticipated investment term with a profit of 30% p.a. or investing in the second phase, and were provided with a form on which they were to select their preferred option. The accompanying report made it clear that Pinnacle Holdings would continue to develop the project and contained information to projected profits.

For present purposes the most relevant passage is the one relating to “Deal Basis”, which reads as follows:-

The claimants completed the form, exercising the option to realise their investment and sent it off.

On 9 ^th November 2008 (just under 18 months after the acquisition of the site) the first claimant wrote to Mr. Al-Qumairi, stating that he had on 23 ^rd February 2008 indicated his desire to opt out within the original investment period and asking for the return of his capital and the profit of 30%. A copy of the form, with the opt-out ticked, was attached. Mr. Al-Qumairi replied on 30 ^th November 2008 to the effect that Sedco had offered the claimants’ shares, but had not found a buyer in view of current economic conditions, as indicated in his attached further report.

He then went on to summarise various possible ways forward which had been considered and said that it had been decided to continue the development works, utilising further capital to be raised. This was confirmed in greater detail in the attached report, which referred to the current financial crisis, and justified the recommendation to continue by referring, amongst other reasons, to any sale of the shares in the market at that time being a “distress sale” and to the depreciation in the value of sterling.

Thus, despite the original basis on which the investment was placed, the claimants were told in effect that they were locked in until the development was completed.

I am not concerned on this application with the claimants’ breach of contract and other claims against the 1 ^st to 5 ^th defendants. I am concerned only with the claims against AIL and, in this section, only with the claim that AIL fraudulently misrepresented that this was intended to be a short term investment, to be sold to another developer before the construction stage, when in truth a long term investment was always intended, with Pinnacle Holdings as the developer.

In relation to this allegation, it is not suggested that AIL made the allegedly fraudulent misrepresentation directly, either as the issuer of the Information Memorandum or in any telephone conversation. What is alleged is that AIL was party to a common design and is therefore liable as a joint tortfeaser, a basis for liability which is virtually identical with conspiracy: see Clerk and Lindsell §25-120.

As already indicated, no issue arises in relation to this allegation as to the sufficiency of the pleading. Mr. Reed submits on behalf of AIL that there is no proper basis for this allegation, and that it lacks reality on two grounds:

there is no justification for alleging that AIL was in any way responsible for the contents of the Information Memorandum; and

there is no justification for alleging that the representation as to Sedco/Pinnacle Holdings’ intention, that this was to be a short term investment, was false when made, or at any time prior to May 2007: the intention only changed due to economic circumstances following the collapse of Northern Rock.

As to the first of these points, Mr. Reed submitted that AIL’s role was simply that of asset manager, in accordance with the terms of the agreements referred to at §36 above, which explicitly state that there is no other agreement or understanding between the parties. Therefore, even if the Information Memorandum contained a fraudulent misrepresentation, there is no basis for alleging that AIL was party to it.

As I see it, it is this contention, rather than the allegation, which lacks reality. In the first place, there is clear evidence that AIL or Mr. Affara was the owner of the site: see §21, 34, 37 above. Mr. Reed submitted that the claimants could not properly rely on unsubstantiated newspaper reports. There is perhaps some force in this, where it relates to a website with no respectable pedigree established by any evidence which is before the Court. However, there is less force where the evidence is based on reports in the Estates Gazette and the Daily Telegraph, and in any event there is the DIFA press release and the interview with Darren Lazarus, in which he is apparently setting out what Mr. Affara told him.

Mr. Reed submits that, whatever Mr. Affara may have said to Mr. Lazarus, it is clear that AIL’s only equity interest in the property is its (or rather Caraways’) 3% interest. But that is the ownership structure resulting from the Information Memorandum; and there is no reliable information as to what the ownership structure was at the time of the purchase. There is no suggestion that Mr. Affara sought to correct Mr. Lazarus’ article, or any of the other articles. He has not himself provided a witness statement, nor did the witness statements of Mr. Bramhall give a detailed account of Mr. Affara’s role in relation to, or knowledge of, the Information Memorandum. There is thus no evidence that Mr Affara did not know of the contents of the Information Memorandum, or indeed that he did not participate in its drafting.

Mr. Reed’s response to this is to say that there could be no detailed evidence from Mr. Affara because that would inevitably lead to a suggestion by the claimants that the issue could only be decided after he was cross-examined at trial. That may be so, but where questions clearly arise from (principally but not solely) what he himself appears to have said, and these questions have not been answered, to say that AIL cannot provide evidence because it would then need to be tested at trial simply emphasises precisely the need for a trial. AIL cannot put itself in a better position on an application of this kind by not giving evidence.

In any event, I do not accept that providing evidence would inevitably mean that the application would be defeated. It would depend on whether the evidence convinced the court that there was no realistic prospect of the claimant succeeding. On certain issues, for example whether the shares in Pinnacle Holdings have been issued, and the amount of the premium for the lease, AIL’s evidence has convinced me that there is nothing in the claimants’ case.

Even if one leaves aside the question of ownership, there are two places in Mr. Lazarus’ article from which it appears that AIL was involved, not only (as it concedes) with the raising of the Nordbank loan, but also with the raising of equity finance from the Saudi Arabian investors, and the Estates Gazette article (§37 above) implies the same. Mr. Reed submits that one can see from the claimants’ own evidence that the finance was raised by Sedco, not AIL, but the claimants (jointly) are only one investor and in any event the fact that approaches may have been made directly by Sedco does not preclude substantial AIL involvement in the process. Again, the interview provides as least prima facie evidence that AIL was involved in this aspect of the matter, and it is not answered.

Whether or not AIL or Mr. Affara owned the property at the outset, and whatever the extent of its role in relation to the raising of equity finance may turn out to be, it seems to me to be at least possible, on the evidence presently before the Court, that AIL played a central role in the transaction, and that this both preceded the Management Agreements and was not limited to the functions set out in them. Whatever clause 27.1 may have said, there clearly were agreements or understandings beyond what was set out in the Management Agreements: these did not provide, for example, for the profit share to which AIL was entitled, or for it to negotiate bank finance, as it admittedly did.

Whilst, as I have said, Mr. Affara has not provided any detailed evidence, he has provided some evidence through Mr. Bramhall, giving the impression (at §22, 26 and 45) that AIL had no role other than that of asset manager. There is in my view force in Mr. Cakebread’s submission that AIL’s case, as presented by it through Mr. Bramhall’s witness statement, may turn out at trial to have been lacking in candour. There is a considerable amount of evidence, set out earlier, suggesting that its role may have been much more than that. Mr. Cakebread made it clear that this submission related to AIL, not to its lawyers, who have acted on its instructions.

Looking at this point overall, I think that the evidence discloses ample justification for the claimants to allege that in view of AIL’s role in the transaction generally, and in the raising of finance specifically, Mr. Affara must (a) have been fully aware of the contents of the Information Memorandum and (b) have known whether this was to be a short term or long term investment project, so that (c) if there was a fraudulent misrepresentation, AIL must have been party to it. Whether this allegation will be proved at trial is another matter, but there is in my view no basis for striking it out.

I turn next to the second question, whether there is justification for alleging that the defendants (including AIL) did not in March and April 2007 intend that the investment was to be short term, with the property being sold on to another developer within 18 months. In my view, there is, for the following reasons:

Again, there is the interview, in which Mr. Affara is reported as having made statements which appear to evidence an intention that AIL should carry the project through to construction. Mr. Reed submits that AIL could have intended to be involved with the development after Pinnacle Holdings’ interest had been sold to another developer. This is possible, but the article reads as if there was to be one continuous development with the existing investors, and indeed that AIL has been the developer throughout.

Mr. Reed also submits that the report may be inaccurate, or may represent “PR” on the part of Mr. Affara, but in the absence of any evidence supporting either of these suggestions I do not see how a court could, on an application of this kind, say anything other than that the report must be taken at its face value. I must assume, for present purposes, that the claimants will or may be able to call Mr. Lazarus to say that what he wrote was true.

As submitted by Mr. Cakebread, the terms of the Eurx/Premarica agreement suggest that a long-term investment was intended by at the latest December 2007. It is possible that it was the addition of Pramerica as a significant investor in the project which caused the change of mind, in which event there was no misrepresentation at the time of the Information Memorandum. But there is no evidence to support this, and it is not AIL’s case. No explanation was given to investors for the change of plan at the time of the Eurx agreement in early December 2007.

Mr. Reed submits that, on the evidence, the reason for the change of mind was the economic downturn affecting property following the Northern Rock debacle which occurred in the autumn of 2007, but in fact nothing was said about this in the letter and report of February 2008 either. They gave no real reason (other than possibly the acquisition of a 23% stake by Pramerica). It did not refer to changed economic circumstances and appeared to offer investors an unconditional exit which, if it had been honoured, would have left the claimants with no reason to complain of the change of mind.

Nor is there any other evidence that this was a change of mind stemming from Northern Rock. It was only in the November 2008 letter and report that adverse economic circumstances were referred to, and with reference only to then recent circumstances, not to anything (such as Northern Rock) that had happened in late 2007/early 2008.

In short, if there was a change in intention after March 2007, the reasons for it have never been explained.

For these reasons, I reject AIL’s summary judgment application in relation to the main allegation that AIL was party to a fraudulent misrepresentation that the investment was intended to be a short-term investment to be realised within 18 months after the acquisition of the property. In my opinion, there is a proper basis for alleging both that there was a fraudulent misrepresentation and that AIL’s role, the nature of which is unclear, was in any event so central that it must have been party to it.

As indicated earlier, the claimants have conceded that a number of the allegations of fraudulent misrepresentation made against AIL cannot be sustained. It is unnecessary to do more than record the paragraph numbers in the Particulars of Claim, namely:-

The claimants have also accepted that no loss can have resulted from any false representation made after payment of the £515,000 in March 2007, and therefore that various subsequent allegedly false statements do not give rise to any claims in tort. This can be clarified easily, by accurate references back at what is now §113 of the Particulars of Claim.

The pleading at §37.5, taken together with §83-87.2, seeks to allege fraudulent misrepresentation in relation to the wording in the Information Memorandum to the effect that the investment term could be extended beyond a maximum of 18 months without the knowledge and unanimous consent of all the investors. The claimants’ primary case is that this was a term of the Information Memorandum which became part of the contract when they invested. Mr. Cakebread submitted that, should this not be the case, then there was a fraudulent misrepresentation that there was such a term. This seems to me to be misconceived. There was no representation (such as that in Curtis v. Chemical Cleaning and Dyeing Co . [1981] 1 K.B. 805) as to the meaning of a set of contractual conditions. Either there was a term or there was not. If not, then all that can be said is that on the proper construction of the Information Memorandum this was not a term. I can see no basis for alleging misrepresentation, and certainly not a fraudulent one.

The allegation at §37.8, taken together with §95-98, is unclear, but is said to be an allegation of fraudulent misrepresentation arising from the fact that the claimants were allegedly not registered as shareholders in Pinnacle Holdings. Presumably what is meant to be alleged is that there was no intention at the outset to register them, although this is not said in terms. In any event, it is in my opinion clear from the evidence that there is nothing in this. A mistake was made on the share register, showing Pinnacle Holdings to be a Dutch Antilles company rather than an Anguillan company, but this has been corrected. There is no basis for an allegation of fraudulent misrepresentation in relation to this.

Mr. Reed submitted that the 2 ^nd claimant had no valid claim, because the shares were purchased by the 1 ^st claimant only, and that the 2 ^nd claimant’s claim should be struck out. This would mean that, if the 2 ^nd claimant has an interest in the shares, his claim would be lost, and the 1 ^st claimant’s claim would be reduced in value. I do not think that there is anything in this point. Representations are alleged to have been made to the 2 ^nd claimant, with a view to inducing him to invest in the shares, and if the 1 ^st claimant has invested on his behalf, or partly on his behalf, then I can see no reason why he should not have a claim. AIL will no doubt be entitled, in due course, to further information setting out respective interests of the claimants, but there is no basis for striking out the 2 ^nd claimant’s claim at this stage.

Then there was an issue about the negligence claim pleaded at §103. Mr. Reed submitted that it was not possible to negligently misrepresent one’s own state of mind. Such a claim is a claim for fraud or nothing. Mr. Cakebread submitted that, whilst this might be so in relation to an oral misrepresentation, it was possible to negligently misrepresent one’s own state of mind, by negligently expressing it badly in a written document, here the Information Memorandum. This is correct, but in this case the claimants allege that the written representation was repeated orally, which seems to leave no room for a negligence allegation.

Accordingly, I do think that, in addition to the abandoned allegations, the claimants have no realistic prospect of success in relation to the allegations dealt with at §61, 62 and 64 above. However, in circumstances in which the claim will go forward anyhow, I would not strike them out. To do so might lead to an appeal, which would cause unnecessary expense and delay. I doubt if the presence of these allegations, if they are repeated, will add greatly to the burden of preparation for, or the length of, the trial. Therefore the claimants are free to plead these allegations in the revised Particulars of Claim if they wish to, and any issue as to the sufficiency of the pleading should be resolved by the trial judge. The claimants will be at risk as to costs, if he takes the same view as I have.

That leaves the claimants’ claims for breach of trust, which are pleaded at §47, 109-112 and 120-1. These were dealt with relatively briefly in the course of the hearing, but both parties supplemented their argument by extensive written submissions. I am satisfied that there is no basis for the claims as pleaded, at least because it is clear (a) that the claimants’ money was received by Soric Finance N.V. and not by the defendants or any of them and (b) that the development has not yet realised a profit.

I also do not consider that there is any basis for alleging breach of a Quistclose trust when it is clear that the claimants’ investment was paid to Soric, and resulted in the issue of shares in Pinnacle Holdings. The purpose of the investment was thus fulfilled. The claimants’ attempt to characterise the representation that it was to be a short term investment as part of the purpose of the payment, as a foundation for a Quistclose claim, is in my view misconceived.

However, it is possible that the claimants will be able to plead a constructive trust claim based on their allegations of fraud. Whether this would add anything to the claim for damages for fraudulent misrepresentation, in circumstances in which (a) there is as yet no profit except possibly minimal amounts paid to AIL which could be said to be in small part derived from the claimants’ money and (b) the defendants may well accept that the claimants are entitled to their share of the profit from the development, if and when a profit is realised, is another matter. However, the claimants should have another opportunity to plead breach of trust if they wish, although it might be a good idea to ascertain the defendants’ position in correspondence first.

Procedurally, what I propose to do is to adjourn this application on the basis that the claimants will amend their Particulars of Claim to clarify it. It seems to me that this case really involves only one allegation, which is a straightforward one and which can be much less elaborately pleaded. The revised draft should be served within 6 weeks.

I hope that there will be no need for any further interlocutory argument. I have already said that I would not strike out the allegations referred to at §64 above, if repeated, even though I do not consider that they are sustainable, since the action will proceed anyhow. I would be likely to take the same view on any repleaded breach of trust allegations, even if they are unsustainable, including the Quistclose claim, unless they would significantly increase the length of the trial if allowed to stand. It would be preferable for any further argument as to the sufficiency of the pleading against AIL to be dealt with by AIL agreeing to permission to amend without prejudice to its right to apply to strike out at the hearing of the action if so advised. In relation to the trust allegations, it might in any event be sensible to have a split trial, with issues as to the existence of a trust and as to breach decided first, and remedies (if any) at a later hearing. That should mean that the trust issues would not greatly affect the preparation for trial, or its length. However, if notwithstanding the above the parties wish me to decide any further issue before permission is given, then I will hear further argument.

I indicated at the hearing that I would let the parties know what my provisional view on costs was, so as to avoid the need for further argument if possible. Taking into account (a) the claimants’ success on the main issue (b) the defendants’ success on a number of other issues (c) the need in any event for the claimants to plead the claim more clearly and (d) my view that some additional cost has been incurred on matters which would have been cleared up earlier if there had been a letter before action, my present view is that the right order is costs in the case. But I will consider oral or written argument on costs, if asked to do so by either or both the parties.