KL Capital Limited v Kenneth Townsley & Ors

Thomas Cook Group Plc (“TCGP”) was from June 2009 the ultimate parent undertaking of (i) Thomas Cook Investment 3 Limited (“TCI”), a company incorporated in Jersey, which was dissolved on 12 October 2015, (ii) Thomas Cook Retail Limited (“TCR”) (now in compulsory liquidation), and (iii) numerous other ‘Thomas Cook’ companies that are now in compulsory liquidation or dissolved following the much-publicised collapse of the Thomas Cook travel business in 2019.

The nub of the claim in this matter is that it is alleged that there was a fraudulent conspiracy between the Defendants to overinflate the value of the shareholding in a company called Gold Medal International Limited (or “GMI”), in order to induce TCGP and/or its subsidiaries to purchaseGMI, and subsequently shares in TCI, at an overvalue. I consider the relevant TCGP entities below, along with the exact details of that transaction.

The hearing before me was to determine the Third Defendant’s application to strike out the Claimant’s Claim Form and Particulars of Claim (including the proposed Amended Particulars of Claim) or to grant summary judgment against the Claimant on the entirety of the Claimant’s claim, as proposed to be amended.

A Claim Form or Particulars of Claim may be struck out if it appears to the court that it discloses no reasonable grounds for bringing the claim: CPR 3.4(2)(a).

This ground covers statements of case which are obviously ill-founded and unwinnable (White Book 2025, §3.4.1) including those where the claim is bound to fail because of a point of law (including the construction of a document) (CPR PD3A, para. 1.5; White Book 2025, §3.4.21).

Any allegation of fraud must be pleaded with sufficient particularity to allow the defendant to understand the case he needs to meet: Three Rivers DC v Bank of England (No.3) [2003] 2 A.C 1, at [183] - [186], per Lord Millett; CPR PD 16, para.8.2(1); the Commercial Court Guide at C1.3(i(i), which provides that “full and specific details should be given of any allegation of fraud, dishonesty, malice or illegality”.

An unreasonably vague and incoherent statement of case which is likely to obstruct the just disposal of the case is also liable to be struck out under CPR 3.4(2)(b): Towler v Wills [2010] EWHC 1209 (Comm) at [16] – [19], per Teare J.

Subject to the above, the parties were in agreement, however, that on an application to strike out a claim the facts must be taken to be as pleaded in the statement of claim.

CPR 24.3 provides that:

“The court may give summary judgment against a claimant or defendant on the whole claim or an issue if:

(a)

it considers that the party has no real prospect of succeeding on the claim, defence or issue; and

(b)

there is no other compelling reason why the case or issue should be disposed of at trial.”

An applicant for summary judgment must show that the respondent’s case has a “fanciful” as opposed to “realistic” prospect of success: Swain v Hillman [2000] P.I.Q.R. P51, at P52 – P53, per Lord Woolf. A realistic claim is one that carries some degree of conviction and is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472, at [8], per Potter LJ.

The parties were helpfully agreed that the law in relation to summary judgment was accurately set out in the well known passage of the judgment of Lewison J (as he then was) in Easyair Limited (t/a Openair) v Opal Telecom Limited [2009] EWHC 339 (Ch), in which he said:

“The correct approach on applications by defendants is, in my judgment, as follows:

(i)

The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91;

(ii)

A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];

(iii)

In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman;

(iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

(v)

However, in reaching its conclusion 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: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

(vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

(vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the claimant's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.”

TCI was incorporated on 3 December 2008. At that stage, its two shares were held by nominee shareholders. By 1 January 2009, those shares were held by TCR. There was no direct evidence of when that share transfer took place. I was asked to infer that it must have been prior to the date of the share sale agreement (namely 18 December 2008), principally because it was argued that TCI would not have agreed to take on the obligation to purchase the shares in GMI unless it was by then backed by TCR. Alternatively, it was argued that TCI must have been confident by the date of the agreement that it would be backed by TCR.

The share purchase agreement was entered into between Mr Townsley (as seller) and TCI (as buyer) on 18 December 2008 (GMI SPA). That agreement contained the following material terms:

In more detail, the material terms of the GMI SPA were as follows:

“Clause 1

“Completion” Completion of the sale and purchase of the Shares in accordance with clause 6

“Completion date” the fifth Business Day after the last in time of the Conditions is waived or satisfied or any other date agreed in writing by the Seller and the Buyer

“Conditions” the conditions set out in clause 2.1

“Consideration” the consideration to be paid and issued to the Seller as at Completion pursuant to clause 4

“Options” the Call Option, Deadlock Option, Default Option, Drag-Along Option, Put Option and Tag-Along Option, each as defined in the Shareholders’ Agreement

“Seller Consideration Shares” means 4999 new ordinary shares of £1 each in the capital of the Buyer

Clause 2: Conditions.

2.1

Completion of the sale and purchase of the Shares under this Agreement is, in all respects, conditional upon the following:

2.1.1

the European Commission having issued a decision under Article 6(1)(b) or Article 6(2) of Council Regulation (EC) 139/2004 (the Merger Regulation) (or being deemed to have done so under Article 10(6) of the Merger Regulation), on terms satisfactory to the Buyer, declaring the purchase of the Target [SC Company] by the Buyer compatible with the common market;

2.1.2

the sale or distribution of the Preston Property to the Seller;

2.1.3

following the completion of clause 2.1.2, the surrender of the Preston Leaseholds to the Seller; and

2.1.4

following the completion of clause 2.1.3, the grant of the Preston Lease in the agreed form.

2.2

If the Conditions are not satisfied or waived by 5.00 p.m. on 30 April 2009, clause 2.1 of this Agreement shall (unless the parties agree in writing to an extension) cease to have effect immediately after that date and time, except for the provisions set out in clause 2.3.

2.3

The following provisions shall continue to have effect, notwithstanding termination of this Agreement: clauses 1, 2.2 and 2.3, 13, 15, 16, 17, 19 and 20.

2.7

The Buyer may, to such extent as it thinks fit and is legally entitled to do so, waive the Conditions by written notice to the Seller.

3.

SALE AND PURCHASE.

On 6 April 2009, TCR acquired an interest in TCI for £21,919,000. The Conditions in clause 2 of the SPA were satisfied at about this time and Completion under the GMI SPA subsequently took place on or after 6 April 2009.

On or after 6 April 2009, TCI, TCR and Mr Townsley entered into a shareholders’ agreement in respect of TCI (“TCI SHA”), which (as indicated in the GMI SPA) included:

Following completion of the GMI SPA and the entering into of the TCI SHA, it is alleged that the Defendants continued the fraud, using around £1,041,000 of further dividend income and around £6,300,000 of sums paid in cash in respect the acquisition of the GMI shares to continue to ‘manage profit’ in order to cause the acceleration of the acquisition by TCR of Mr Townsley’s Seller Consideration Shares in TCI. The acceleration was, it was alleged, induced by reason of TCR’s belief that the longer that it waited to complete the purchase, the more it would pay.

Because of this, it is alleged that TCR was induced to purchase Mr Townsley’s remaining shares in TCI. This purchase was not in fact pursuant to an exercise of the option in the TCI SHA, but was pursuant to an independent agreement.

In summary, as a result of this alleged conspiracy and deceit, various things happened:

On 23 January 2024, there was an assignment by TCGP of claims that it and its subsidiaries might have in relation to the purchase of the shares and assets of GMI (“First DoA”). One key issue raised by Mr Philbin concerned the standing of the special managers of the TCGP to assign on behalf of all of Thomas Cook Group Plc’s subsidiaries. In this regard, a key subsidiary in this case was TCR because it was that subsidiary that (on the Claimant’s case) was induced (i) to acquire shares in the special purpose vehicle (TCI) incorporated by Thomas Cook Group Plc and/or its subsidiaries for the purpose of TCI undertaking the GMI acquisition, and (ii) to enter into option agreements within the TCI SHA to acquire the rest of TCI’s shares from Mr Townsley, and then to accelerate that acquisition of the rest of TCI’s shares.

The Claimant now accepts that Mr Philbin was quite correct in asserting that the effect of the First DoA could never have been to assign causes of action on behalf of TCR. This was because (unknown, it was said, to the Claimant when it entered into the First DoA) the special managers of TCGP and TCR were different, such that TCGP’s special managers had no power to assign any claims held by TCR.

Because of this, the Claimant has had to acquire a deed of assignment from TCR’s special managers, which was done on 4 February 2025 (‘the second DoA’). The Claimant asked the Court for permission to amend its particulars in order to plead reliance upon that second DoA.

As I have already indicated, the parties agreed that I should consider this application on the basis of the Amended Particulars of Claim, with its reference to the Second DoA.

In my judgment, the issues on this application can most helpfully be broken down as follows:

I will take these issues in turn.

TCR’s pleaded claims have been divided into two temporal periods.

As the parties have done, I will look at each stage in turn, starting with the first period.

The Third Defendant argued that any loss suffered by TCR in relation to this first stage of the transaction was irrecoverable by virtue of the rule against reflective loss.

I start with the law on this topic. As explained by Lord Reed in Sevilleja v Marex at [79-84], there is a distinction to be drawn between two types of cases:

“79.

Summarising the discussion to this point, it is necessary to distinguish between (1) cases where claims are brought by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer, and (2) cases where claims are brought, whether by a shareholder or by anyone else, in respect of loss which does not fall within that description, but where the company has a right of action in respect of substantially the same loss.

80.

In cases of the first kind, the shareholder cannot bring proceedings in respect of the company's loss, since he has no legal or equitable interest in the company's assets: Macaura and Short v Treasury Comrs . It is only the company which has a cause of action in respect of its loss: Foss v Harbottle . However, depending on the circumstances, it is possible that the company's loss may result (or, at least, may be claimed to result) in a fall in the value of its shares. Its shareholders may therefore claim to have suffered a loss as a consequence of the company's loss. Depending on the circumstances, the company's recovery of its loss may have the effect of restoring the value of the shares. In such circumstances, the only remedy which the law requires to provide, in order to achieve its remedial objectives of compensating both the company and its shareholders, is an award of damages to the company.

81.

There may, however, be circumstances where the company's right of action is not sufficient to ensure that the value of the shares is fully replenished. One example is where the market's valuation of the shares is not a simple reflection of the company's net assets, as discussed at para 32 above. Another is where the company fails to pursue a right of action which, in the opinion of a shareholder, ought to have been pursued, or compromises its claim for an amount which, in the opinion of a shareholder, is less than its full value. But the effect of the rule in Foss v Harbottle is that the shareholder has entrusted the management of the company's right of action to its decision-making organs, including, ultimately, the majority of members voting in general meeting. If such a decision is taken otherwise than in the proper exercise of the relevant powers, then the law provides the shareholder with a number of remedies, including a derivative action, and equitable relief from unfairly prejudicial conduct.

82.

As explained at paras 34-37 above, the company's control over its own cause of action would be compromised, and the rule in Foss v Harbottle could be circumvented, if the shareholder could bring a personal action for a fall in share value consequent on the company's loss, where the company had a concurrent right of action in respect of its loss. The same arguments apply to distributions which a shareholder might have received from the company if it had not sustained the loss (such as the pension contributions in Johnson ).

83.

The critical point is that the shareholder has not suffered a loss which is regarded by the law as being separate and distinct from the company's loss, and therefore has no claim to recover it. As a shareholder (and unlike a creditor or an employee), he does, however, have a variety of other rights which may be relevant in a context of this kind, including the right to bring a derivative claim to enforce the company's rights if the relevant conditions are met, and the right to seek relief in respect of unfairly prejudicial conduct of the company's affairs.

84.

The position is different in cases of the second kind. One can take as an example cases where claims are brought in respect of loss suffered in the capacity of a creditor of the company. The arguments which arise in the case of a shareholder have no application. There is no analogous relationship between a creditor and the company. There is no correlation between the value of the company's assets or profits and the “value” of the creditor's debt, analogous to the relationship on which a shareholder bases his claim for a fall in share value. The inverted commas around the word “value”, when applied to a debt, reflect the fact that it is a different kind of entity from a share.”

I was also referred in this context to the discussion of the rule in Premio Fund v Bank of Bermuda [2021] UKPC 22 which reiterated the law as set out in Marex.

Building on this, the Third Defendant submitted as follows:

For its part, the Claimant submitted as follows:

Neither are TCR’s losses merely reflective of the diminution in the value of TCI’s shares. On the pleaded case, had it known the truth TCR would not have entered into those transactions or entered into them on much reduced terms. Paying more for shares than they are worth is not a diminution in the value of those shares but an immediate, separate and distinct loss.

Finally, the fact that TCI would undoubtedly have had its own causes of action against the Defendants (and that such causes of action might well have involved substantially similar losses) is immaterial.

That merely requires the Court to manage recovery to ensure no double recovery (not relevant here given TCI’s liquidation) and is the second category of case in Lord Reed’s analysis in Marex.

Overall, therefore, the short answer to the Defendant’s point was that, irrespective of the “timing” points, TCR’s claims (which had been assigned to the Claimant) did not come within the first of Lord Reed’s categories in paragraph 79 of Marex. These were not claims made by a shareholder in respect of the diminution in value of its shareholding caused by a wrong in respect of which the company had a cause of action, and which had to be pursued by the company and not the shareholder by reason of the rule in Foss v Harbottle. Instead, these claims fell within the second of Lord Reed’s categories. The nub of the claim was that TCR had been induced to inject money into TCI and buy shares in order to enable TCI to make a purchase of the GMI shares, which injection would never have been made had it not been for the deceit practised on TCR (a deceit which, for the purposes of this application, I must assume was indeed practised).

As regards the timing points, these were in reality irrelevant. However, insofar as they were of any relevance:

In my judgment, TCR suffered its loss, not because its shares were reduced in value, but because it was induced to purchase those shares in the first place. Its claim is not one for the diminution in value of its shareholding, within the rule against reflected loss as enunciated in Marex.

Put another way, TCR’s loss was not suffered in its capacity as a shareholder in TCI, but in its capacity as an investor in TCI.

Moreover, TCR did not suffer its loss at a time at which it had committed to following the fortunes of TCI, within the rule in Foss v Harbottle. As noted, TCR was induced to follow the fortunes of TCI by reason of the conduct of the Defendants which, for present purposes, I must assume to have been fraudulent.

Overall, therefore, I hold that TCR’s claims in relation to what have been termed the stage 1 losses would not have been barred by the rule against reflected loss.

I do not think that the date on which the loss was suffered affects this conclusion one way or the other, although I would accept the submission that the relevant date for these purposes was the date on which the SPA was entered into by TCI. I would have reached this conclusion for the following reasons:

In the second of these two cases, Lord Hoffman explained the difference between Sephton and Forster v Outred by quoting the decision of the Australian High Court in Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514:

“17.

The High Court said, at pp 529, 531, 532, that Forster v Outred & Co was explicable:

“by reference to the immediate effect of the execution of the mortgage on the value of the plaintiff's equity of redemption… It has been contended that the principle underlying the English decisions extends to the point that a plaintiff sustains loss on entry into an agreement notwithstanding that the loss to which the plaintiff is subjected by the agreement is a loss upon a contingency. For our part, we doubt that the decisions travel so far. Rather, it seems to us, the decisions in cases which involve contingent loss were decisions which turned on the plaintiff sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date… If… the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred.

18.

I say at once that I am in complete agreement with this analysis, which provides the answer to this appeal.”

In my judgment, therefore, the first question is whether there was damage at the moment that TCI entered into obligations, albeit obligations which were subject to conditions subsequent, in December 2008, or whether that damage was only suffered when those various conditions were satisfied in early April 2009. It is my view that TCI suffered loss and damage when it became a party to a potentially onerous contract in the form of the SPA in December 2008, even though it might have been released from the obligations in that contract if the various conditions subsequent were not satisfied or waived. TCR (which is the relevant party, as the alleged assignor of the claim to the Claimant) then suffered loss because it was induced to invest in TCI on 1 January 2009 at the latest by reason of the fraud of the Defendants, which must be assumed to have been committed for the purposes of the present application.

However, I would reiterate that I take the view that this timing point is really of no relevance. I prefer to base my decision on the fact that TCR’s loss is not reflective within the rule against reflective loss.

In the light of the discussion above, I can take this relatively briefly.

To sum up, TCR would have had an arguable claim against the Third Defendant for deceit and/or conspiracy.

The Third Defendant argued that the claims pleaded by the Claimant (both at stage 1 and stage 2) were not assigned by Second DoA.

The relevant provision of the second DoA read as follows:

“2.

ASSIGNMENT

2.1

The Company (acting by the Office Holders) assigns to the Purchaser, with no title guarantee, such rights, title, interest and benefit in as it may have in and to the Proposed Claims (if any) with effect from the Effective Date (the Assignment).”

The Proposed Claims were then defined in Schedule 1 to the Second DoA as including

“Any and all claims (whether in law or equity) that the Company may have in relation to the purchase of the shares and assets of Gold Medal International Limited from 2007 to 2014, against: (i) the former directors and/or shareholders of Gold Medal International Limited and its subsidiaries and associated companies; and/or (ii) Atticus Legal LLP now known as By Corporate LLP, in particular:

1.

Mr Kenneth Townley;

2.

Mr Stephen Bacon;

3.

Mr Terry Steven Fisher;

4.

Mr Kevin Philbin;

5.

Atticus Legal LLP now known as By Corporate LLP (with company number OC322305);

and

6.

Mr David Robinson.

(each a Potential Defendant and together, the Potential Defendants), and each Potential Defendant’s assigns, connected parties or associates (as defined by sections 249 and 435 of the Insolvency Act 1986). Such claims shall include, but not be limited to, claims for breach of contract, breach of duty at common law, breach of fiduciary, statutory or other or equitable duty, claims in fraud (whether common law or equity), and/or any claim under the Companies Act 2006.”

In this respect, the Claimant argued as follows:

The Third Defendant, for his part, contended as follows:

In my judgment, the second of these points is that with which I have already dealt.

The first point raises a question of the construction of the assignment agreement. In oral submissions, the Third Defendant expanded upon his submissions, as follows:

The Claimant, in oral submissions, argued that the important consideration was the wording of the deed, and that the Court must conclude that there was no relevant factual matrix. It reiterated that the only reason for including the period until 2014 was to ensure that the claims in relation to what had been termed stage 2 were indeed validly assigned by reason of the Second DoA.

I have concluded that the Claimant’s pleaded claims are, at the very least arguably, assigned by the Second DoA. I have reached this conclusion for the following reasons:

Overall, therefore, I have concluded that:

In these circumstances, the application by the Third Defendant to strike out the Claimant’s Claim Form and Particulars of Claim (including the proposed Amended Particulars of Claim) and/or for reverse summary judgment must be dismissed.

I would be grateful if the parties would draw up an Order giving effect to this judgment.