Portland Stone Firms Ltd & Ors v Barclays Bank Plc & Ors

This Judgment follows a 3-day application by the Defendants to strike out the Claimants’ claims, with various applications in response by the Claimants for permission to amend their pleadings. The hearing was from 17 to 19 July 2018. The allegations that the Claimants wish to pursue against the Defendants are very serious indeed. It is therefore important to state at the outset that the Court could not conduct and has not conducted a trial of the factual issues; and that, although it will be necessary to refer to the allegations that the Claimant wishes to pursue, none of the disputed facts to which I shall refer have been proved.

The First and Second Claimants [“the Group”] quarry and sell Portland Stone. The Second Claimant is a wholly owned subsidiary of the First Claimant. Until the events with which these proceedings are concerned took place, the entire share capital of the First Claimant was vested in the trustees of a trust, variously described as the Geoffrey King Trust or the G King Trust [“the Trust”]. The Third and Fourth Claimants are trustees of the G King Trust [“the Trustees”]. The main director of the Group at all material times was Mr Geoff Smith, the Third Claimant.

For a number of years up to and including 2010 the First Defendant [“Barclays”] provided banking services to the Group. KPMG LLP are accountants and financial advisers who came into the picture in 2010. Mr Corfield and Mr Graham, the Third and Fourth Defendants, were insolvency practitioners employed by KPMG.

These proceedings primarily concern events that occurred between July and September 2010. The Claimants allege that, during that period, the Defendants conceived and carried into execution an “Exit Plan” to bring the Group to destruction. The alleged motivation on Barclays’ part was to procure the early repayment of a loan that it had made to the First Claimant in 2004 by “as necessary, ultimately forcing insolvency process upon [the Second Claimant], closing off alternative avenues to secure its survival and appointment in due course, of Barclays chosen insolvency practitioners from KPMG to control and manage the formal insolvency process in a way that was to focus on and advance the interests of Barclays and further the Exit Plan by accelerating recovery of the [First Claimant’s] debt.” The alleged motivation on KPMG’s part was to generate fees from its appointment before the Group went under. In the events that happened, Barclays’ alleged motivation was frustrated because the Group did not go into liquidation. Instead, Mr Corfield and Mr Graham were appointed Administrators of the Second Claimant (and thereby generated fees) until that administration came to an end under the terms of a CVA. As a result, the Group came out of administration and continues to trade to this day. It is an unexplained feature of the Claimants’ case on Barclays’ alleged motivation that, rather than opposing the CVA (which would have maximised its prospects of early repayment of its loan), Barclays supported it.

The Claimants issued these proceedings on 22 July 2016, just before expiry of the primary 6-year limitation period. They then waited until 21 November 2016 before serving the amended Claim Form and Particulars of Claim. The Claimants did not comply with the pre-action Protocol.

The applications that now have to be determined were issued as follows:

On 25 October 2017, the KPMG Defendants applied (a) to strike out the claim by the Trustees for damages for conspiracy to cause harm using unlawful means on the basis that the Particulars of Claim served in November 2016 discloses no reasonable cause of action, and (b) for summary judgment against the Trustees in respect of the Trustees’ claim against them alleging conspiracy on the basis that it has no real prospect of success and there is no other compelling reason for allowing it to proceed to a trial;

On 15 January 2018 the Claimants applied for permission to amend the Particulars of Claim;

On 16 January 2018 Barclays applied to strike out (i) the claims by all Claimants against Barclays for damages for conspiracy to cause harm using unlawful means, (ii) the claim by the Group against Barclays for damages for bad faith breach of contract, and (iii) the claim by the Group against Barclays for restitution of an arrangement fee, on the basis that the Particulars of Claim disclosed no reasonable cause of action. Alternatively, Barclays applied for summary judgment on the claims;

On 30 May 2018 the KPMG Defendants issued a further application to strike out the Claimants’ claims or for summary judgment in terms which substantially overlapped Barclays’ application dated 16 January 2018.

The Claimants provided successive draft Amended Particulars of Claim on 25 August 2017, 22 December 2017 and 2 July 2018. On Day 1 of the hearing, 17 July 2018, the Claimants confirmed that, subject to marginal caveats, they took their stand upon the 2 July 2018 draft iteration of their case plus a proposed draft amendment to [115]. On the morning of Day 2, 18 July 2018, the Claimants put forward a further document headed “Exit Plan and Unlawful Means Conspiracy” with the intention that it should replace the existing drafts of [115] and [249A]-[258] as set out in the 2 July 2018 iteration. This last draft superseded the draft amendment to [115] that had been submitted on Day 1.

The successive drafts have involved fundamental shifts in the manner in which the Claimants have attempted to plead their claim, at ever increasing length. The original Particulars of Claim were 70 pages long. No allegations of dishonesty or deceit were made or intended by the initial formulation of the claim, as was confirmed by the Claimants’ solicitors by letters dated 5 September 2017 and 25 October 2017. The version provided in December 2017 introduced allegations of fraudulent misrepresentation that were substantially reworked in the 2 July 2018 iteration. The 2 July 2018 iteration was 104 pages long.

In summary (Footnote: ¹), the case as advanced in the original Particulars of Claim alleged:

A claim for breach of contract against the Barclays:

The Claimants alleged that Barclaysing relationship between the First Claimant and Barclays was governed by an “overarching relational agreement” which they described as the “Customer Agreement” ([54]), and which was said to contain various implied terms ([54]-[57]) [“the Original Implied Terms”].

The Claimants alleged that Barclays had breached the Original Implied Terms of the Customer Agreement by:

arranging for the Second Claimant to be assisted by Barclays business support department ([107], [109], [118], [249a], [249e] and [249g(i)]);

appointing the Administrators of the Second Claimant to prevent it from being wound up by HMRC ([183], [250]); and/or

failing to instruct KPMG to make contact with HMRC ([249h]).

A claim for breach of contract against KPMG:

The Claimants alleged that KPMG’s engagement letter contained various implied terms ([132]-[133]).

The Claimants alleged that KPMG had breached those implied terms by:

rejecting the Second Claimant’s management’s financial projections without giving its management an opportunity to comment ([169], [172], [173]);

discounting the prospect of a solvent outcome ([170], [176], [177]); and/or

failing to recommend to Barclays that the business be supported and/or otherwise assisted in enabling the business to obtain support from third-party funders to enable its survival ( [177]).

A claim for compensation in equity or an account of profits made by Barclays and KPMG:

The Claimants alleged that the appointment of KPMG created a conflict of interest between Barclays and the First Claimant ([134] and [146]).

The Claimants alleged that this enabled the Second Claimant to reclaim the fees which it had agreed to pay to KPMG under the engagement letter.

A claim by the Group for conspiracy:

The Claimants alleged that Barclays had wanted to obtain repayment in full ahead of time and that it ‘engineered’ a default under the loan agreement on which it could rely to demand the immediate repayment of the loan ( [20], [91], [108], [115], [119], [121], [157], [171], [243b], [251] and [258b]). This was described as Barclays “Exit Plan” ([115]).

The Claimants said that Barclays and KPMG intended to injure the Group ([259]-[260]) and that KPMG’s failure to contact HMRC during July 2010 demonstrated the existence of this intention ([137]-[149]).

The unlawful means were said by the Claimants to consist of:

Breaches of contract by Barclays and KPMG ([258c]); and

A breach of duty by the Administrators in treating SFL’s administration as a “category (3)” administration (with the aim of “realising property in order to make a distribution to one or more secured or preferential creditors”), rather than as a “category (1)” administration (with the aim of “rescuing the company as a going concern” ([20], [180], [188], [189], [198], [258d]), referring to para 3(1) of Schedule B1 to the Insolvency Act 1986 (“Schedule B1”), which sets out these categories).

The losses for which compensation was sought in the original pleading were as follows:

The cost of re-financing the First Claimant’s loan facilities with Barclays in March 2011, being:

the exit fee for the termination of the 2004 loan facility ([262a]);

the difference in interest rate payable under the 2004 loan facility (1.3% over LIBOR) and the 2011 loan facility (2.25% above LIBOR) ([262b]); and

the £60,000 arrangement fee for the 2011 loan facility that was ultimately agreed ([262d];

Damages for what was alleged to be the “stigma” of being assisted by Barclays’s business support department, which was said to have made it “impossible” for the Group to obtain finance from other sources ([262c]);

Damages for breach of contract by KPMG or an account of profits or compensation in equity ([262e]);

Damages equal to the cost of SFL’s administration (£794,161) ([263a]) and the cost of KPMG’s reports (£70,000) ([263b]); and

Damages for what was alleged to be the true value of the 5,610 shares in the First Claimant which the Original Trustees agreed to sell to a Mr Stewkesbury for £50,000 as a constituent part of the rescue package ([264]). (This claim was not originally particularised or quantified, though it is now said to exceed £10,000,000.)

The July 2018 draft Amended Particulars of Claim presents a fundamentally changed basis of claim (Footnote: ²), which includes:

A reformulated claim for breach of contract against Barclays:

The claim against Barclays for breach of contract has been entirely reformulated. The concept of the “Customer Agreement” has been deleted ([54]), although a number of references to it survive in other parts of the July 2018 iteration.

Although the Claimants attempt to plead a new contractual claim, the relevant terms of the contract are not identified. There is merely a vague reference to unspecified “contractual arrangements”;

The Original Implied Terms have been deleted, to be replaced by two new implied terms that are said to be implied into the unspecified contractual arrangements ([54]-[55]);

The claim for breach of contract against KPMG has been dropped:

The various implied terms ([133] in the Original Particulars of Claim) have been deleted.

Although [169]-[177] from the original Particulars of Claim are retained, the claim for damages for breach of contract against KPMG has been deleted from paragraph (1) of the prayer for relief.

A claim for fraudulent misrepresentation has been introduced for the first time against Barclays and KPMG about the purposes of KPMG’s review of SFL’s business:

It is now said by the Claimants that Barclays and KPMG represented that KPMG’s review of the Second Claimant’s business would include a “security review” to enable Barclays to decide whether to advance further lending ([20a]) and that this representation was false and dishonest because Barclays and KPMG had agreed between them to narrow the scope of KPMG’s review so as to exclude any security review ([20c]);

The claim for fraudulent misrepresentation has been pleaded at greater length at [126]-[137A]. In summary:

The new factual background to the new misrepresentation claim is set out at [126A];

The new alleged representations about the scope of the KPMG review are pleaded at [126B]. They are said to have been continuing representations at [126D] and the factual allegations in support of this are pleaded at [126E]-[126G];

There are alleged to have been further misrepresentations in connection with HMRC ([126H]-[127]), the purpose of which is alleged to have been to induce Mr Smith to sign the KPMG letter of engagement urgently and to do so for the purpose of enabling KPMG to “speak with HMRC”;

There is a new case on inducement ([128]), which is that Mr Smith was induced to sign the KPMG letter of engagement;

The representations are said to have been false ([129]), essentially on the basis of an allegation that the scope of KPMG’s remit had been altered by agreement between KPMG and Barclays to as to exclude a security review without informing the Group ([129A]-[129B]);

There is a new plea that the falsity of the representations was known to KPMG because of an alleged oral agreement between Barclays and KPMG that the scope of the engagement letter was not to include a security review ([130]-[136]);

It is also said that KPMG knew of the falsity of representations regarding HMRC’s attitude ([136A]-[137A]). It is now alleged that Mr Flood of KPMG was dishonest;

The 2 July 2018 draft contains further new allegations of deceit at [141], [143], [144A], [154A], [157], [180A] and [180B];

The Claimants plead a different claim alleging conspiracy between Barclays and KPMG. The differences include:

The object of the conspiracy has changed. According to the 2 July 2018 draft, the principal object of the conspiracy was alleged to have been to induce Mr Smith and the Group to engage in a tripartite agreement under which KPMG was to undertake a review of the business, in reliance upon misrepresentations made by KPMG that the review would include a security review ([249A]-[249B] and [249E]). This is now said to have been part of the “Exit Plan” ([115a]);

There is a new allegation of intention to harm the First Claimant’s shareholders ([249F] and [258]);

The unlawful means on which the Claimants rely have changed. In summary, the unlawful means alleged in the 2 July draft consist of the newly alleged deceit and fraudulent misrepresentation and a new breach of duty by the Administrators ([249G]). In relation to the alleged breach of duty by the Administrators, additional duties are pleaded at [186c]-[186j]; and the Administrators are said to have acted in breach of their duties by “accepting their appointment in circumstances where to their knowledge KPMG had together with Barclays and through fraudulent misrepresentations induced Mr Smith to engage KPMG” ([187a]);

The 18 July 2018 draft document replaced Section M of the 2 July 2018 draft, which included [249A]-[249G]; but it did not expressly replace [187a]-[187j]. However, the Court was told that the Particulars listed under [C] of the 18 July 2018 draft document were now the particulars of unlawful means upon which the Claimants relied for the purposes of the alleged conspiracy. In addition:

At [A] of the 18 July 2018 draft document the Exit Plan was pleaded in the following, shortened, terms:

[I] of the 18 July 2018 draft document states that “the Administrators became conspirators with Barclays in breach of duties owed by them at common law and under the Insolvency Act 1986”. This allegation is not further explained or particularised, but there is a reference to “[181]-[198]” which I take to be intended to incorporate those paragraphs from the 2 July 2018 draft.

In the absence of cogent justification, this succession of attempts to plead a case is profoundly unsatisfactory and wasteful of time, effort and cost, irrespective of the length and clarity of the pleadings to which I will return later. One of the consequences of the changes in the formulation of the Claimants’ case is that the Defendants may, with justification, say that many of their original objectives in issuing their applications to strike out and for summary judgment have been achieved because the Claimants have abandoned their original targets. This is unsatisfactory and unfair in the absence of cogent explanation and justification, of which there is none.

It is, however, equally important to record that my purpose throughout this judgment will be to try to identify whether the Claimants have identified a case that is fit to go forward. When considering whether the Claimants have put forward a reasonable cause of action, whether permission to amend should be given and whether summary judgement is appropriate, I will take the Claimants’ case as being set out in the 2 July 2018 iteration as amended by the 18 July 2018 draft.

I shall tackle the issues in the following order:

The legal principles to be applied;

The factual basis advanced by the Claimants;

The central factual issue: is there a realistic claim?

Barclays’ applications to strike out or for summary judgment;

KPMG’s applications to strike out or for summary judgment;

The Claimants’ application to amend;

Other observations on the pleadings.

The Court will not allow a party to amend if the proposed amendment would be liable to be struck out or susceptible to adverse summary judgment.

It is common ground that the ability to amend to bring a new claim where questions of limitation arise is governed by s. 35 of the Limitation Act 1980 and CPR 17.4. Both are so well known that it is not necessary to set them out in full here.

The effect of these provisions was summarised by Millett LJ in Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400, 404:

The provisions give rise to a three-stage analysis: Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [15]. The stages are:

Is it reasonably arguable that the opposed amendments are outside the applicable limitation period?

If the answer to (i) is yes, do the proposed amendments seek to add or substitute a new cause of action?

If the answer to (ii) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue on any claim previously made in the original action? If not, the amendment cannot be allowed. If so, then the Court has a discretion under CPR 17.4(2) to allow the amendment.

When assessing question (i), it is well established that the burden is upon the Claimant who wishes to amend to establish that the Defendant does not have a reasonably arguable case that the proposed new claim is statute barred.

When assessing question (ii), the test is derived from the classic definition by Diplock LJ in Letang v Cooper [1965] 232, 242 that a cause of action is “simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”. I therefore agree with and follow the approach of Robert Walker LJ in Smith v Henniker-Major & Co [2003] Ch 182 at [86] (by which I am in any event bound) that “… in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleading is to be compared with the minimum as it would be constituted under the amended pleading.” One consequence of adopting such an approach is that “an amendment to make a new allegation of intentional wrongdoing by pleading fraud … where previously no intentional wrongdoing has been alleged constitutes the introduction of a new cause of action”: see Paragon Finance at 406 per Millett LJ. See also D&G Cars Ltd v Essex Police Authority [2013] EWCA Civ 514 at [59]-[54] where it is also made plain that there may be a new cause of action for the purposes of s. 35 even if the amendment does not introduce a new type of cause of action.

When assessing question (iii) above, it is material to ask whether “the defendants would be required by the new claims to embark on an investigation of facts which they would not previously have been concerned to investigate”: see Ballinger v Mercer Ltd at [38]. Ballinger at [37] also contains the salutary reminder that “the same or substantially the same” is not synonymous with “similar”. The word “similar” is often used in this context, but it should not be regarded as anything more than a convenient shorthand.”

S. 32 of the Limitation Act, so far as material, provides:

The circumstances in which s. 32 is applicable are established by high authority. “Section 32 deprives a defendant of a limitation defence in two situations: (i) where he takes active steps to conceal his own breach of duty after he has become aware of it; and (ii) where he is guilty of deliberate wrongdoing and conceals or fails to disclose it in circumstances where it is unlikely to be discovered for some time”: see Cave v Robinson Jarvis & Rolf [2003] 1 AC 384 at [25] per Lord Millett.

The applicable principles set out in and flowing from CPR 3.4 and 24 are also extremely well known. The summary by Lewison J in Easyair Ltd v Opal telecom Ltd [2009] EWHC 339 (Ch) at [15] was relied upon by all parties as a convenient summary:

I adopt and will apply those principles in the present case. I would only add that, where a claim is defective and therefore susceptible to be struck out or subject to summary judgment, the Court should consider whether the defect in question might be cured by amendment and, if it might, should consider whether it is right to give the party in default an opportunity to make the defect good: see Hockin and Ors v RBS [2016] EWHC 92 (Ch) per Asplin J. This is another facet of the Royal Brompton Hospital principle that the Court should not merely look at the materials before it but should take account of what can reasonably be expected to be available at trial. I have borne this approach in mind in reaching my conclusions in the present case.

Where, as here, a Claimant wishes to amend to plead fraud and the application is opposed, it is material to bear in mind the approach that the Court routinely takes to proving fraud in civil litigation. A sufficient summary for present purposes is provided by Fiona Trust & Holding Corp v Privalov [2010] EWHC 3199 (Comm) at [1438]-[1439] per Andrew Smith J:

This summary is consistent with many other decisions of high authority which establish that pleadings of fraud should be subjected to close scrutiny and that it is not possible to infer dishonesty from facts that are equally consistent with honesty: see, for example, Mukhtar v Saleem [2018] EWHC 1729 (QB); Elite Property Holdings Ltd v Barclays Bank [2017] EWHC 2030 (QB); Three Rivers DC v The Governor and Company of Barclays of England (No 3) [2003] 2 AC 1 at [186] per Lord Millett – see below.

One of the features of claims involving fraud or deceit is the prospect that the Defendant will, if the underlying allegation is true, have tried to shroud his conduct in secrecy. This has routinely been addressed in cases involving allegations that a defendant has engaged in anti-competitive arrangements. In such cases, the Court adopts what is called a generous approach to pleadings. The approach was summarised by Flaux J in Bord Na Mona Horticultural Ltd & Anr v British Polythene Industries Plc [2012] EWHC 3346 (Comm) at [29] ff. Flaux J set out the principles in play as described by Sales J in Nokia Corporation v AU Optronics Corporation [2012] EWHC 731 (Ch) at [62]-[67], which included the existence of a tension between (a) the impulse to ensure that claims are fully and clearly pleaded, and (b) the impulse to ensure that justice is done and a claimant is not prevented by overly strict and demanding rules of pleading from introducing a claim which may prove to be properly made out at trial but may be shut out by the law of limitation if the claimant is to be forced to wait until he has full particulars before launching a claim. Sales J indicated that this tension was to be resolved by “allowing a measure of generosity in favour of a claimant.” Flaux J continued at [31]:

These are salutary warnings and necessary protections for the Claimants, which I bear in mind. It is, however, to be remembered that the Court’s concern in these passages was in large measure based upon a lack of knowledge on the part of the Claimant before disclosure had been given. In the present case, the Defendants have given disclosure based upon wide-ranging search terms relating to multiple custodians. Although the Claimants submit that the Defendants’ disclosure is not complete, they have not identified any specific omissions or areas of default that would justify the Court in treating the Claimants as if they were still materially excluded from access to relevant disclosure for present purposes.

In any event, if a case alleging fraud or deceit (or other intention) rests upon the drawing of inferences about a Defendant’s state of mind from other facts, those other facts must be clearly pleaded and must be such as could support the finding for which the Claimant contends. This is clear from numerous authorities: see Three Rivers District Council v The Governor and Company of Barclays of England (No 3) [2003] 2 AC 1 at [55] per Lord Hope and [186] per Lord Millett. I endorse and adopt the statement of Flaux J in JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at [20] that:

It should not need repeating that Particulars of Claim must include a concise statement of the facts on which the Claimant relies: CPR 16.4(1)(a). The “facts on which the Claimant relies” should be no less and no more than the facts which the Claimant must prove in order to succeed in her or his claim. Practice Direction 16PD8.2 mandates that the Claimant must specifically set out any allegation of fraud, details of any misrepresentation, and notice or knowledge of a fact where he wishes to rely upon them in support of his claim. The Queen’s Bench Guide provides guidelines which should be followed: they reflect good and proper practice that has been universally known by competent practitioners for decades. They include that “a statement of case must be as brief and concise as possible and confined to setting out the bald facts and not the evidence of them”: see 6.7.4(1). A statement of case exceeding 25 pages is regarded as exceptional: experience shows that most cases can be accommodated in well under 25 pages even where the most serious allegations are made. Experience also shows that prolix pleadings normally tend to obfuscate rather than to serve their proper purpose of identifying the material facts and issues that the parties have to address and the Court has to decide.

Where statements of case do not comply with these basic principles, the Court may require the Claimant to achieve compliance by striking out the offending document and requiring service of a compliant one: see Tchenquiz v Grant Thornton [2015] EWHC 405(Comm) and Brown v AB [2018] EWHC 623 (QB). It has always been within the power of the Court to strike out either all or part of a pleading on the basis that it is vague, irrelevant, embarrassing or vexatious.

The facts that are undisputed or clearly documented may be stated relatively shortly. The Claimants rely upon the documents to justify the inferences of fraud and deceit upon which they rely.

On 9 November 2004 the First Claimant and Barclays entered into a loan facility agreement in the amount of £6,000,000. In the period to July 2010 the First Claimant had complied with the terms of the facility such that there was approximately £3.8 million outstanding. Condition 12(e) of the agreement provided that in the event of any legal proceedings or other step being taken in relation to winding up either the First or Second Claimant or for the appointment of an administrator in respect of either the First or Second Claimant, that would be an Event of Default and the whole amount of the outstanding loan would become repayable forthwith on demand in writing.

During 2009/2010 the Group experienced significant and increasingly severe cashflow shortages. In various documents Mr Smith explained to Barclays that the Group’s financial problems were the result of (a) the recession and its impact on the construction industry, (b) exceptional expenditure on legal fees in excess of £700,000, (c) additional expenditure caused by the relocation of the Second Claimant’s factory, and (d) the failure of a Spanish contractor to pay £450,000 to the Second Defendant. Another constituent element of Group’s cash-flow requirement was its liability to HMRC. On numerous occasions in the period to April 2010, HMRC had cause to write chasing for immediate payment and imposing penalty interest. By May 2010 the sum outstanding (including Aggregates Levy) was just short of £386,000; and on 11 May 2010 HMRC wrote demanding payment of over £235,000 in full within 7 days, failing which HMRC would instruct its solicitors to present a winding up petition without further warning.

On 23 May 2010 Mr Smith requested a loan of £650,000 with a five year term from Barclays. He submitted with his request a cash-flow projection that did not refer to sums outstanding and owed to HMRC. Mr Smith entered into negotiations with HMRC which led to agreement on 28 May 2018 that £10,000 would be paid within a week, £90,000 on approval of his loan (from Barclays) and £400,000 by the end of June 2010. In the context of his application for further funding, Mr Smith did not tell Barclays that PAYE and Aggregate tax were in arrears until 7 June 2018, though he says that the Group’s liabilities to HMRC were included in periodic balance sheets that it was providing to Barclays as a matter of routine reporting. The following day he told them that he had agreed to pay £500,000 “at the end of June”. The internal report prepared by Mr Gibbons of Barclays drew attention to the late disclosure of the HMRC difficulty and the fact that this made the business very vulnerable to the actions of the Crown; and he submitted the report for “feedback on appetite”, noting that “clearly this will now need to be tempered on the back of Crown arrears.” His recommendation was notably cautious in the absence of full and meaningful financial information; and it identified the need for confidence about the extent of present cash issues, along with future serviceability and cash generation.

At the end of June the Group failed to make payment to HMRC in accordance with its agreement; and at some stage during June Barclays decided to transfer the business internally to its Business Support Group [“BSU”]. There was then a series of communications, dealt with in more detail below, which the Claimants allege (at [126B]-[127] of the 2 July 2018 draft) amounted to representations that:

Barclays would consider further lending to the Group if it was satisfied that the Group had adequate independently verified security to support the loan: [126B] of the 2 July 2018 draft;

A key purpose of the review to be undertaken by KPMG was to undertake a “security review” to enable Barclays to determine (on conventional loan-to-value principles) whether or not to advance to the Group further lending facilities that had been requested: [20(a)] of the 2 July 2018 draft;

KPMG would, if appointed, make contact with HMRC to discuss a resolution of the Group’s outstanding liabilities: [126H]-[126J] and [136D] of the 2 July 2018 draft.

It is the Claimants’ case that these representations were or became false on or before 16 July 2010 because Barclays had by then determined that no further funding would be provided to the Group: see [129B] of the 2 July 2018 draft. They plead that Barclays had communicated its decision to KPMG (and, specifically, Mr Corfield) so that, by the time that KPMG sent its engagement letter to Mr Smith for signature, it deliberately set out a limited scope of engagement which did not include a security review. This is alleged to have been pursuant to an oral agreement made between Barclays and KPMG, as is made clear by [20(c)] of the 2 July 2018 draft and [C(6)] of the 18 July 2018 draft. In this way, the Claimants allege, when Mr Smith signed the engagement letter (without, as it happens, reading it) the Claimants fell into a dishonest trap laid for Mr Smith by Barclays and KPMG whose real purpose was to pursue Barclays’ Exit Plan as set out above. This change of purpose and deliberate concealment of the Exit Plan from the Claimants in general and Mr Smith in particular is central to the case that the Claimants now wish to pursue against the Defendants.

There is no direct evidence of this alleged change of plan on the part of Barclays and KPMG. In the course of submissions Counsel for the Claimants expressly acknowledged that they have no direct evidence that Barclays’ intention (as represented by the “Exit Plan”) was transmitted by Barclays to KPMG before 19 July 2010. The Claimants submit that this is not inherently surprising if they are right that it was a dishonest conspiracy to injure the Claimants and their shareholders. But the absence of direct evidence means that the existence of the case alleging deceit and fraud depends upon inference from documents. I shall review the documents upon which the Claimants rely when dealing with the central issue in more detail below. For present purposes I outline the chronology of events that is broadly agreed and which provides an outline framework for the matters in issue.

KPMG’s letter of engagement was signed by Mr Smith on behalf of the Claimants in the afternoon of Friday 16 July 2010. HMRC issued a petition to wind up the Second Claimant in the sum of £675,433 on 28 July 2010. The hearing date endorsed on the Petition was 22 September 2010. It was served on the Second Claimant on 12 August 2010. On 6 August 2010 KPMG sent a Draft Short Term Cashflow and Options Review to Mr Smith. It sent him a further Draft Short Term Cashflow and Options Review on 11 August 2010. On 20 August 2010 the Group drew down on a £350,000 facility from Lloyds Bank. KPMG issued further reports on 20 August, 24 August, 26 August and 14 September 2010. On 20 September 2010 Barclays issued a demand for £3.7 million from the Second Claimant. The following day the Third and Fourth Defendants were appointed as Administrators of the Second Claimant. This had the effect of staving off an order for compulsory liquidation on the hearing of HMRC’s petition the following day.

During October 2010 negotiations with Betterment Properties (Weymouth) Limited [“BPWL”], the corporate vehicle for Mr Stewkesbury, led to the agreement of heads of terms. Ultimately a CVA was proposed which would give unsecured creditors 56p in the £. According to the draft Amended Particulars of Claim the terms of the rescue package included a direct investment by BPWL of £1 million to purchase a factory from the First Claimant and an interest-free loan to the First Claimant of £1.2 million. In return the existing Trustees’ shareholdings were diluted so as to give Mr Stewkesbury and BPWL 51%; and Mr Smith agreed to forego £250,000 that he had previously loaned to the First Claimant. The dilution of the existing shareholding was achieved by the existing Trustees selling 5,610 of their shares in the First Claimant to Mr Stewkesbury for £50,000 and the First Claimant issuing 250,000 new “C” shares to BPWL. In return for Mr Smith’s waiver of the debt owed to him by the First Claimant, the First Claimant issued 250,000 “D” shares to him. That proposal was supported by Barclays and approved by the creditors of the Second Claimant on 23 February 2011. The administration of the Second Claimant therefore ended and the terms of the rescue package were in due course implemented. Part of the arrangements which enabled the Group to continue as a going concern was the refinancing of the original Barclays’ loan with a new facility for the First Claimant in the sum of £3.7 million, terms for which were agreed on 16 March 2011. The CVA was brought to completion by 3 February 2012 and the Group has continued to trade since then.

I have outlined the procedural chronology above. Two points may be added here. First, the December 2017 version of the Amended Particulars of Claim, which was the first to allege deceit and fraudulent misrepresentation, was sent under cover of a letter from the Claimants’ solicitors dated 22 December 2017 in which they said “On the material now available, there are serious prima facie cases of deceit and dishonesty that require an answer.” The letter then outlined the matters upon which the Claimants relied to justify the inferences of deceit and dishonesty that were set out in greater detail in the draft Amended Particulars of Claim. Second, the Claimants pursued applications for disclosure against both Barclays and the KPMG Defendants. Those applications led to orders for disclosure by the Defendants and Claimants (the order governing Barclays and the Claimants being by consent, with which they have purported to comply. So far as the Court is aware, the only document that has been disclosed that is material to the present applications and was not already in the possession of the Claimants before disclosure is an email exchange on 19 July 2010 to which I shall refer below.

The Claimants’ allegation at [126B] of the 2 July 2018 draft that Barclays represented to Mr Smith and the Group that “it would consider further lending to the Group … if it was satisfied that the Group had adequate independently verified security, to support the loan” and that, to that end, it required the Group to engage KPMG in order to provide independent valuation and verification of available security is the subject of detailed particularisation.

The Claimants allege that there was a meeting on 30 June 2010 at the Second Claimant’s offices at which Barclays explained that the involvement of their Mr Brown and their Business Support Team was the result of Barclays’ concern about the company’s cashflow, the request for a £650,000 loan, and “Crown Arrears”. It is alleged that Barclays explained that KPMG would be engaged to “see what’s needed”.

Thereafter the Claimants rely upon a sequence of email correspondence:

On 2 July 2010 Ms Unwin of KPMG wrote to Mr Smith saying she would like to visit the Group’s premises “to begin work on the report. The scope of the report is to review the short term cash flow requirement (i.e. the next 13 weeks) and to carry out a security review.” She then listed the information KPMG required for the short term cash flow review and the security review respectively. The information for the security review included the most recent balance sheet, copies of the last valuations of land and buildings and any other assets, fixed asset and hire purchase schedules and copies of the last stock take and stock ageing;

On 6 July 2010 Mr Smith replied and asked Ms Unwin whether she was in the administration and receivership department of KPMG. In the same email he said that his cashflow was already under pressure from a factory move, “thus no income temporarily and the request for a short term loan against valued security”;

Mr Corfield replied the same day saying that they were all based within KPMG’s Restructuring team. He also said: “In this instance, Barclays is looking to be supportive but requires a more detailed understanding of the position. As such, your Bank relationship vests with a team focussed on support and not recovery. … Whilst we understand that the business faces cash flow pressure, I understand from [Mr Brown of Barclays] that any future support from Barclays is dependent upon us undertaking a review of the 13 week short cash flow forecast and security available for Barclays. … I would like to reiterate that the purpose of the review is establish [sic] the cash needs of the business and provide a basis on which Barclays can, in a responsible manner, consider your funding request. Without such a review, it may be difficult for Darren to recommend providing the facilities you have requested.”;

The following day, 7 July 2010, Mr Brown wrote to Mr Smith informing him that he worked in Barclays’s “Business Support” team and not its “Recovery Section”. He said that Barclays wanted to work with the Claimants and see how it could support them “however given the factory move, lack of trading and pressure on cash I need to assess the true picture as we sit here today. I acknowledge that there are some very positive opportunities going forward and the challenge is to see how we can support you in the short/medium term when hopefully these will come to fruition. I do require KPMG’s involvement in order to provide Barclays with a “sense check” and detailed understanding of your current trading position. ...”;

Mr Smith replied to Mr Corfield’s email of 6 July on 8 July 2010. He asked if KPMG wanted the Claimants to extend the cash-flow forecasts further into the future and raised a question about KPMG’s requirements relating to security;

Mr Corfield replied the same day. Referring to security he said “the purpose of this part of the exercise is to assess whether there is sufficient loan-to-value (using normal lending %s and principles) to allow Barclays to extend the forecast facilities. The 2 parts of the scope are intrinsically linked I’m afraid.”

On 13 July 2010 Mr Flood emailed Mr Smith informing him of progress, in the course of which he wrote: “… we still require the information listed below under Initial Information Request for both the short term cash flow and security review.” He re-sent an email he had previously sent on 9 July 2010 which set out “the outstanding items that are required prior to our being able to issue an engagement letter and commence work.” The items included the request for information that Ms Unwin had sent on 2 July 2010 (indicating that some items had been received).

The statements set out at [44] (i), (iii), (iv) and (vi) above are relied upon by the Claimants as continuing representations by Barclays, KPMG and Mr Corfield as to their understanding of the purpose of KPMG’s engagement: see [126D] of the 2 July 2018 draft.

On 13 July 2010 HMRC wrote to Mr Smith. The letter noted the involvement of KPMG and pointed out that the expected payment of £400,000 at the end of June had not happened. The letter informed Mr Smith that, to protect its position, HMRC “will move ahead with a winding-up petition.” HMRC told Mr Smith that “if the company wants to avoid proceedings it needs to conclude the refinancing as swiftly as possible and pay down the Crown debt.” Mr Smith sent this letter to KPMG on 15 July 2010, asking Mr Corfield: “how can we stave them off as they seem determined to close us down …”

Later on 15 July 2010 there was an internal exchange of emails within KPMG in the course of which Mr Spare, who is apparently a specialist in dealings with HMRC, wrote to Ms Unwin, Mr Corfield and Mr Flood: “Once HMRC reach the “our hands are tied we must issue winder” stage it’s hard to pull them back without some concrete, supportable evidence that resolution is around the corner. And we have to exercise caution putting KPMG name on these situations unless we are very confident. Based on the letter they can expect a Court hearing in late September/early October.”

On Friday 16 July 2010 Ms Unwin emailed Mr Smith saying “I will send over the engagement letter and written authorisation to allow KPMG to speak with HMRC in the next hour. I would be grateful if you would sign and return both ASAP but at the latest by close of business today so that we can speak with HMRC.” A little later, Mr Flood sent the engagement letter to Mr Smith, requesting that he sign and return it before close of business that day. He also provided “a link to the authorisation form that we will require to be filled in and returned to us before we are able to speak to HMRC.”

The KPMG engagement letter identified that it was to confirm the appointment of KPMG by Barclays and the First Claimant “to perform the Services and Deliverables specified in Appendix 1 hereto.” Appendix 1 was headed “Our Services and Deliverables” and stated:

High level review of the short term cash position of the Group, including review and comment on the 13 week forecast cash position.

The review will include commentary on:

The methodology used to prepare the forecast;

The principal assumptions and their vulnerability;

Sensitivity analysis in the event of any material variations in key assumptions;

The anticipated level of short term finding required in the 13 week short term cashflow and on a sensitised basis.

Provide an illustrative estimated outcome for stakeholders based on our experience of such scenarios.

High level options analysis for Barclays and Company going forward.”

Mr Smith returned the signed documents under cover of an email timed at 12.29 pm the same day. Shortly after that, at 12.54 (Footnote: ³) pm Mr Flood emailed Mr Corfield, copying in Ms Unwin: “I have spoken to [Mr Spare] about contacting HMRC and he has recommended that we do not pick up the phone yet but wait till we have had a chance to, at least, start our review and get a clearer picture of what is required.” Mr Corfield replied asking Mr Flood “to communicate the plan to [Mr Smith].” Mr Flood did so on Monday 19 July 2010, stating in an email to Mr Smith: “In relation to the crown arrears, I have spoken with our VAT specialist about your case. As you have already highlight [sic] to HMRC that we are engaged, he has recommended that we wait to contact HMRC until we have had some time to carry out our review so that we are in a better position to influence their process.” Mr Smith replied suggesting that it might pay to put a preliminary note over to HMRC at that stage, to which Mr Flood replied:

The sole document upon which the Claimants rely and which was not in their possession before being disclosed pursuant to the Court’s orders is an exchange of emails that occurred later on 19 July 2010. Given the importance that they have assumed in the Claimants’ submissions, I set them out in full.

At 5.31pm Mr Flood send an email to Mr Corfield, which he copied to others including Ms Unwin the text of which was:

Mr Corfield replied a minute later, at 5.32pm:

Six minutes after that, at 5.38 pm, Mr Corfield sent a further email which said:

On 21 July 2010 Mr Flood reported back to Mr Brown and Mr Corfield on his visit. He reported on discussions about the pressing immediate need for cash flow including that “[t]hey had no answer to how they were going to meet the immediate cash requirement”, and concluded his email by saying “In summary, I think they have now grasped the seriousness of the situation and have some real challenges simply to get through the next few weeks.”

On 23 July 2010 Mr Smith wrote to Mr Brown referring to the withdrawal of a £25,000 overdraft for the Group and suggesting that the only problem the Group had was the Crown debt. Mr Brown replied stating (in terms which made plain that further support for the Group was not a foregone conclusion) that “the real concern at present is whether [the Second Claimant] can meet its obligations especially HMRC, how much is required to bring payments [up] to date and what income/profit can the business generate to service its debt obligations.”

On 25 July 2010 Mr Brown wrote to Mr Smith explaining that Barclays could not lend against an outstanding claim as there was no guaranteed outcome or date of settlement. He wrote “we are being asked to lend funds which are outside of normal lending parameters and it is not normal policy to advance funds to pay off HMRC in full. What I have asked KPMG to do is look at your full creditor list together with your working capital requirements in order to see if we can find a way to support you, until one of your opportunities come to fruition, while you pay down your arrears. It is key that once we have the short-medium term cash flow we can then look at the options including putting a proposal to HMRC.” On the Claimants’ case, this was all deceitful window dressing as Barclays and KPMG were intent on bringing Barclays’ Exit Plan to fruition and had no intention of pursuing any other option. On any view, however, from this date on Mr Smith knew that lending to pay off HMRC was outside normal Barclays lending policy.

Also on 25 July 2010 KPMG wrote to Mr Smith summarising the information they required to enable them to complete their report. KPMG suggested that the Group’s directors should consider seeking independent legal advice as to their responsibilities given the issues currently facing the Group and concluded: “Finally, in light of the Group’s funding requirement indicated by your draft cash flow forecast, can you please confirm your thoughts/proposals as to how this funding requirement will be funded should Barclays decide it has not appetite to provide additional funding.” This email was copied to Mr Brown. On the same day KPMG provided Mr Brown with a brief update. It referred to a maximum cash flow funding requirement of over £800,000 and the advice given by Mr Spare to which I have referred above; and it referred to possible early releases of cash (including the potential loan of £350,000 from Lloyds Bank). It concluded by saying that there had been delays in receiving management information and accurate or meaningful cash flow and recommended that Barclays should instruct its solicitors to report on title for the land that formed the basis of Barclays’s security. Mr Brown replied that it was “disappointing that Geoff [Smith] has still not grasped the seriousness of the situation.”

On 27 July 2010 Mr Brown wrote to Mr Gibbons, who had been the Group’s relationship manager at Barclays before its transfer to the Business Support Group, that he had “instructed [Lawrence Graham] re legal assistance as we need to review the Mineral Permissions and whether these terminate/fall way on insolvency as this may impact Barclays’s strategy in terms of potentional administration/realisations.” On the same day he emailed Mr Cottee at Lawrence Graham about the Group, saying “I … have instructed KPMG to carry out a review focusing in on short/medium term cash” and requesting Mr Cottee’s assistance with reviewing the First Claimant’s Mineral Permissions and whether they would terminate or fall away on insolvency as that may impact Barclays’s strategy in terms of potential administration/realisations. This is said by the Claimants to be a key document in not referring to KPMG being instructed to do a security review.

On 29 July 2010 an internal Barclays document headed “Business Support Regions Zeus Application Remarks” recommended a course of action including KPMG’s cash flow review to ensure Barclays had a robust business (as the forecasts provided by the company were not reliable), on receipt of which Barclays and the company could plan the strategy for the way forward. The recommendation stated “It is not clear … we have the appetite to “pawn broke” the Windmill site (Footnote: ⁴) and if this was the case I would not want to pay the crown down in full but rather agree an upfront payment and time to pay on the balance. It may well be that we are past this and some form of insolvency on [the First Claimant] is the way forward.” Taken at face value, this indicates that Barclays was still considering whether or not it would provide further support.

On 2 August 2010 KPMG passed on to Mr Smith a request for title and other information from Lawrence Graham, Barclays’ solicitors who were advising Barclays on title. On the same day, Mr Corfield emailed Mr Smith saying that KPMG were “undertaking this work as it is a necessary part of Engagement letter to which you have agreed (i.e.: considering cash flows and options).” He said that the requests for information were necessary for KPMG to deliver their report and to provide the Group and Barclays with as many options as possible with as much insight as possible. He continued:

On 5 August 2010 Mr Corfield sent to Mr Spare a draft letter to HMRC for his approval. The draft included a request for forbearance in any winding up while forecasts and proposals were prepared for provision to HMRC by 3 September 2010. The letter was sent by Mr Spare to HMRC on 6 August 2010, which was after issue (on 28 July) but before service (on 12 August) of the winding up proceedings.

On 6 August 2010 KPMG sent Mr Smith their draft report “entitled Project Chalfont – short term cash flow and options review” requesting him to sign and return it if he was happy with its factual accuracy. A number of features of the report may be noted, most of which were carried through in subsequent versions that were provided to Mr Smith:

The phrase “short term cash flow and options review” reflected the services identified in Appendix 1 of the Letter of Engagement;

The introductory notes to the report stated that “nothing in this report constitutes a valuation or legal advice”;

The report stated that the Group had requested Barclays to provide additional funding of £650,000 to pay Crown arrears and reduce creditor pressure but that KPMG had been informed that a cash injection would be made available;

The report stated that it was highly likely that the Group would need to settle a large proportion of its arrears with HMRC during the Short Term Cash Flow period to avoid a winding up petition being served and “Furthermore, it is unclear how long the business will be able to continue to trade by relying on the “goodwill” of local suppliers and incurring credit it can not currently afford to repay. To return the business to “normal” trading conditions additional cash of approximately £1.2million would be required.”;

The report set out options for the Group and, separately, options for Barclays, in each case including a range of options. The Options for Barclays were identified as (1) do nothing, (2) provide funding/repayment holiday or (3) formal insolvency. The report said that “as a result of the limited forecast information available we do not recommend that Barclays increase their exposure to the Group”;

As a result, Mr Smith must have appreciated from 6 August 2010 at the latest that further support from Barclays was not inevitable and that, whatever else it was doing, KPMG was not carrying out a legal review of title or valuation of security.

A draft executive summary was sent to Mr Smith on 11 August 2010 with a request for confirmation of the factual accuracy of the 6 August draft. The headlines included that KPMG “cannot recommend that Barclays provides any additional cash support to the Group, and that any short term cash needs are met by the shareholders.” KPMG recommended that management vigorously pursue the proposed cash injection to meet short term cash needs of the group which, it was said, did not constitute financial advice but merely reflected management’s stated intentions; and that contingency plans should be prepared in readiness for formal insolvency should the Group face creditor action or the projected finance from Lloyds not become available.

Once again, it is the Claimants’ case that the production of these reports (and those that followed) was all deceitful window dressing in suggesting that Barclays or KPMG contemplated that they would pursue any other outcome than Barclays’ Exit Plan. On any view, it was plain from the 6 August and 11 August 2010 reports that KPMG was not recommending that Barclays provide further cash support for the Group.

On 17 August 2010 HMRC responded to KPMG’s letter stating that “while HMRC will certainly consider any offer, it should be noted that we rarely quit proceedings without being paid in full.” HMRC informed KPMG that the hearing of the petition was listed for 22 September and said that “having reached this point it would need a very substantial upfront payment and a very short-term offer for the balance, to dissuade HMRC from simply seeking a winding-up Order.” Mr Smith says that he saw this letter from HMRC on 18 August 2010. On 20 August 2010 he emailed Barclays proposing that HMRC should be asked to agree an adjournment on the basis that they have a CVA proposal before the hearing date and expressing the view that there was time to put a CVA proposal together. Later that day he wrote again to Mr Brown, saying:

Mr Smith says that when it became apparent to him that it would not be possible to formalise a proposal which Barclays was willing to support in time he took urgent steps to secure sufficient funding to discharge the debt to HMRC. Three potential sources of funding are identified:

Before the KPMG reports, an email from a Mr Fitzsimmons dated 3 August 2010 proposed an asset sale for £300,000 with an overage agreement;

On 8 September 2010 DJ Property wrote to Barclays stating that they were in discussions with the First Claimant “to establish a line of finance for the future that will be in the region of £250-300k”.. It was said to be an “in case of need” facility for working capital purposes and involved their own financial investigations and due diligence procedures;

On 16 September 2010 Portland Stone Ltd wrote offering a cash loan of £200,000 at reasonable rates for three years, which was said to be available for drawdown.

None of these were taken forward, nor did any of them (as evidenced in these proceedings) obviously constitute the basis for proceeding to a CVA. The Court has not been told of any other realistic proposals for funding identified by Mr Smith in August or September 2010: there is no evidence that there were any. An allegation that being transferred to the Business Support Group made it impossible to raise finance has now been abandoned.

It is worth noting that, on the Claimants’ case, the issuing of the winding up petition opened up a short and direct route for Barclays’ Exit Plan as it constituted an Event of Default entitling Barclays to call for repayment of the outstanding loan forthwith. Barclays did not do so until 20 September 2010, when it acted to stave off the order for compulsory liquidation that would otherwise have been made on the hearing of HMRC’s petition on 22 September 2010.

The later versions of the KPMG reports again outlined various options. The reports issued on 20 and 26 August 2010 were later drafts of the reports that had been sent to Mr Smith on 6 and 11 August 2010 respectively. A further, final, version of the report that had been issued on 20 August was dated 24 August 2010. It exhibited a confirmation of accuracy signed by Mr Smith on 23 August 2010. It recorded that “in the absence of robust financial forecasts and proposals, the Group’s stakeholders (including HMRC and Barclays) will not support the Group” and that “as such, Management have been considering other funding options given that Barclays had already confirmed that no further funding would be forth coming due to lack of financial forecasts and potential need to fund HMRC.” The report provided a comparison of estimated outcomes in the event of insolvency, sale as a going concern or forced sale by reference to the security that was available. Appendix 5 made clear that KPMG had not sought to verify the validity of Barclayss’ security documentation (that task having been given to Lawrence Graham) and that KPMG were not professional valuers of security or securities. The 26 August version of the executive summary report recorded that Management had stated that they believed a CVA was the best option for the Group but that on the information provided KPMG did not think that a viable CVA proposal existed.

Taken at face value, the comparison of outcomes in the 24 August 2010 report satisfies the undertaking in KPMG’s Letter of Engagement to provide “an illustrative estimated outcome for stakeholders based on our experience of such scenarios.”

By the time that a further review was prepared on 14 September 2010 the Group’s management had presented proposals for continuing to trade through the First Claimant, which KPMG reviewed. The 14 September 2010 version recorded that management had decided not to pursue a CVA and therefore, following the presentation of the HMRC winding up petition, it was expected that the Second Claimant would be placed into Administration. By then Mr Fuller, who was Mr Smith’s co-director, had confirmed to KPMG on 7 September 2010 that the cost of running the factory to finish off current work in progress would result in more costs being incurred than any realisation for the creditors. He therefore recommended that they should not pursue completing the WIP.

On 3 September 2010 a Mr Dennis of Barclays had written to various others within Barclays (including Mr Brown) saying that the winding up petition had been discovered in the previous week, “which is due to be advertised on 9 September so the plan is to appoint before then.” This was evidently a reference to appointing administrators.

A KPMG file strategy note for the Second Claimant in administration dated 21 September 2010 concluded that rescue of the company as a going concern was unlikely to be to achieved due to the substantial HMRC arrears, complicated lease structures and the Second Claimant’s inability to trade in the short to medium term. It therefore concluded that objective (b) – achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up – should be pursued. It stated that “[s]hould a sale of business process result in proposals being received that would enable a going concern rescue to be effected, this will be reconsidered.” A letter from KPMG to Barclays the same day recorded that they had seen no evidence of any investor interest in a rescue beyond a letter from DJ Trust for a “line of finance of £250-300k”. Should this assessment prove wrong, they said, then it was still open for Geoff Smith to pursue a rescue of the First Claimant even post administration.

It should be noted that an earlier draft of the 21 September 2010 strategy note is dated 6 September 2010. It states more shortly under the heading of the statutory objective that “A rescue of the company as a going concern was not possible as the liabilities far exceed any anticipated asset realisations. … In this case the purpose of the administration is (b) to obtain a better realisation of the assets than a winding up.”

I start by reminding myself that I am not conducting a mini-trial and am not in a position to make findings about disputed facts. Instead, what I am concerned to resolve is whether the primary facts that the Claimants have pleaded are capable of sustaining the allegations of dishonesty that the Claimants now wish to plead, in accordance with the principles that I have summarised at [23] to [29] above. To that end I have set out in some detail both (a) the representations that are alleged to have been made and (b) the primary facts that are said to give rise to the inference that the representations were knowingly false on 16 July 2010.

The Claimants’ approach is neatly encapsulated in [180(a)] of their skeleton argument for the present hearing, which states:

This statement is highly questionable on at least two fronts. First, although the Group occupied a niche market for a prestige product and held extensive land and mineral rights, it had an acute cash flow problem which calls into question the use of the term “successful”. Even assuming (without deciding) that it was only HMRC that was pressing for immediate payment, the cash flow projections produced by the Group demonstrated a chronic and deteriorating cash flow problem and, for a number of reasons, no obvious means of generating cash to meet it over the contemplated period. In addition, HMRC was pressing hard, the Group had failed to adhere to the payments it had agreed to make by the end of June 2010, it was outside Barclays’ normal lending parameters to lend in order to discharge Crown debt (for good reason, namely that this was a matter for equity, not debt, funding), and, as appears from HMRC’s correspondence, once HMRC had issued winding up proceedings they would rarely quit without being paid in full: see [66] above. This attitude was entirely consistent with the advice that Mr Spare gave internally to KPMG and KPMG gave to the Group: see [47] and [50] above. The terms of the rescue package from BPWL are consistent with and validate the assessment in KPMG’s reports that £1.2 million was required to return the business to normal trading conditions. In these circumstances, and in the absence of a viable rescue package, it is not inexplicable that the Group should go into administration.

The second questionable aspect is the statement that “Barclays had promised that it would consider the loan application subject to KPMG being satisfied of the sufficiency of security.” If this is intended to convey the meaning that Barclays had promised to provide the requested loan of £650,000 (or any loan) if the Group could show sufficient security, it goes far too far.

The representations now alleged by the Claimants are set out at [36] above. The matters that are pleaded as constituting or giving rise to the representations are summarised at [42] above For convenience I set the representations out again here:

Barclays would consider further lending to the Group if it was satisfied that the Group had adequate independently verified security to support the loan: [126B] of the 2 July 2018 draft – [“the First Alleged Representation”];

A key purpose of the review to be undertaken by KPMG was to undertake a “security review” to enable Barclays to determine (on conventional loan-to-value principles) whether or not to advance to the Group further lending facilities that had been requested: [20(a)] of the 2 July 2018 draft – [“the Second Alleged Representation”];

KPMG would, if appointed, make contact with HMRC to discuss a resolution of the Group’s outstanding liabilities: [126H]-[126J] and [136D] of the 2 July 2018 draft – [“the Third Alleged Representation”].

The materials that have been placed before the Court justify the Claimants in pleading that Barclays made the First Alleged Representation: see [43] and [44(iv)] above. But it should be noted that the representation as pleaded and the materials that are relied upon as constituting or giving rise to the representation are limited. Barclays would consider further lending. That consideration would involve Barclays achieving a detailed consideration of the Group’s current trading position; Barclays did not represent that if the Group had sufficient security then Barclays would lend. It is clear from the matters relied upon by the Claimants, as summarised at [44] above, that Barclays was not committing itself to lend, and that any decision to lend would be taken on the basis of a cash flow review and a review of security. In other words, the Group’s overall position would be considered and, while inadequate security might be a reason why Barclays would not lend, Barclays was not committed to further lending even if security levels were shown to be adequate. Neither the draft pleaded representation nor the materials upon which the Claimants rely justify the contention at [2(a)] of the Claimants’ skeleton argument for the present hearing that “Barclays and KPMG in July 2010 deceived Mr Smith [and the Group] in leading them to believe that Barclays was in principle willing to extend further facilities to the Group, that had been requested in the sum of £650,000, subject to Barclays being satisfied that there was adequate security that could be provided to support the lending requested.”

So far as I can tell (and so far as has been identified by the Claimants), the specific matters that are pleaded as forming the basis for the Second Alleged Representation are also those set out in [44] above. The representation is alleged to have been made by Barclays and KPMG. On 2 July 2010 Ms Unwin said that the scope of KPMG’s report was “to review the short term cash flow requirement … and to carry out a security review.” On 6 July 2010 Mr Corfield said that any future support from Barclays was dependent upon KPMG “undertaking a review of the 13 week short cash flow forecast and the security available for Barclays.” Mr Brown did not refer expressly to a security review in his email to Mr Smith on 7 July 2010, referring instead to the need for a “detailed understanding of your current trading position.” On 8 July 2010 Mr Corfield explained that the purpose of the security part of the exercise KPMG were undertaking was “to assess where there is sufficient loan-to-value (using normal lending %s and principles) to allow Barclays to extend the forecast facilities”; and he said that the two parts of the scope (cash flow and security) were intrinsically linked. On 13 July 2010 Mr Flood wrote in terms that indicated that KPMG were going to undertake a “security review”.

What is striking about each of these elements that are said to justify the pleading of the representation is that none identifies the precise nature or scope of the security review that was being contemplated. Specifically, although extensive requests for information were made, neither KPMG nor Barclays stated or implied that KPMG’s “security review” would include their carrying out an independent valuation of identified securities or advice on the legal validity of securities. It is the Claimants’ case, apparently, that a security review was carried out by Lawrence Graham rather than KPMG and that it was carried out for a purpose other than the purposes identified by KPMG in July 2010 (Footnote: ⁵). This does not clarify what KPMG were supposed to have done in carrying out a security review such as was discussed in July 2010. The materials upon which the Claimants rely justify them in pleading that the Group were told that KPMG were going to carry out a security review which would include an assessment whether there was sufficient loan-to-value to allow Barclays to extend further facilities; but, once again, there is nothing to justify the implication that Barclays was committed to further lending if sufficient loan-to-value was assessed to be present; and there is nothing that determines the nature or scope of the security review that KPMG were to undertake. Reverting to the terms in which the Second Alleged Representation is pleaded, there is no basis for the implication that the security review would determine that Barclays would provide further facilities, though it might determine that Barclays would not.

Turning to the Third Alleged Representation, there is nothing in the materials identified at [126H]-[126J] of the 2 July 2018 draft that justifies the implication that KPMG would contact HMRC within any particular timeframe or in any particular way or in any particular terms. The two emails from KPMG to Mr Smith on 16 July 2010 made clear that his signature on the authorisation form was necessary to enable KPMG to speak to HMRC. That is as far as the emails go; nothing else is relied upon by the Claimants. There is no suggestion that this limited representation was untrue.

Although some precision is required in identifying what representations the Claimants could justifiably propose in a pleading, the central matter at issue is whether it is justifiable for the Claimants to prove that they became fraudulent representations on and from 16 July 2010. It is worth summarising the Claimants’ case in stark terms. It is alleged that:

Barclays decided on or before 16 July 2010 that, contrary to the supportive indications it had been giving, it would not provide any further support to the Group but would secretly and dishonestly implement the Exit Plan;

Having reached that decision Barclays informed KPMG of its decision, and secured KPMG’s dishonest agreement, in the knowledge that Barclays had decided not to provide any further support to the Group:

To conspire to bring about the Exit Plan with the intention that KPMG should profit dishonestly from fees charged for a sham investigation of the Group and, ultimately, on the Group’s insolvency;

To downgrade any review of security so that it became effectively meaningless, useless and worthless;

To undertake work for no purpose other than the dishonest generation of fees;

Not to contact HMRC as it had previously planned to do, and to put nothing in the way of HMRC presenting a winding-up petition that would enable accelerated recovery of the 2004 loan (Footnote: ⁶).

While not impossible, the unlikelihood of what is alleged means that cogent evidence is required, while bearing in mind that these are applications to amend or to strike out: see [29] above. In my judgment, it is not merely the general unlikelihood (though not impossibility) of two major financial institutions behaving in such a way that needs to be borne in mind. As soon as the detail is examined, various points spring out. First, there is no reason for the Defendants 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 Crown debt alone. Second, the number of people who needed to be included within the circle of deception was significant, with high consequential risk of internal detection. Third, the risk of detection by Mr Smith was high and obvious. Fourth, the first act that is alleged to have taken place in pursuance of the dishonest plan was for KPMG to send their Letter of Engagement which, on the Claimants’ case, revealed the change in the scope of work they would undertake and, hence, would disclose the secret plan to Mr Smith if only he took the trouble to read it before signing. Fifth, when it came to the crunch, Barclays frustrated the plans it had taken such trouble to put into place by supporting the CVA and not pressing for repayment of the loan.

The starting point is the Letter of Engagement. It set out the terms of KPMG’s engagement with clarity: see [49] above. If there would otherwise have been a continuing representation in accordance with the more expansive interpretation of the Second Alleged Representation, it is hard to see how it could survive delivery of the Letter of Engagement: it set out expressly and openly what services KPMG offered and intended to undertake. It did so in terms which did not include a security review of the type now apparently contemplated by the Claimants; but its terms were consistent with the limited extent of the Second Alleged Representation so far as that is sustainable, since it did not specify any particular type or scope for the anticipated security review. For that reason, the letter does not provide any evidence of a change of plan or the existence of a conspiracy to implement Barclays’ exit plan because there is no material inconsistency between KPMG’s services as set out in Appendix 1 of the Letter and what had been said about a security review in the statements on which the Claimants rely. Further proof of this point emerges from the reports which KPMG ultimately produced which provided high level options analyses for Barclays and the Group based upon a review of the available security, albeit not such a review as is apparently contended for by the Claimants.

The Claimants’ case involves the proposition that, within a very short time of entering into a dishonest conspiracy with Barclays (with the normal expectation that such a person would wish to shroud their dishonesty in secrecy), KPMG declared the change of plan by setting it out in the Letter of Engagement. In submissions the Defendants emphasised the inherent unlikelihood of this proposition and, in my judgment, they were right to do so. If it were right that the Group had been led to believe that KPMG were being brought in to do a particular type or scope of security review and that purpose had been dishonestly subverted on or very shortly before the Letter of Engagement was sent, it would (putting it at its lowest) be highly risky behavior for the dishonest fraudster to send details of the change to Mr Smith, because there was no way of knowing that he would not take the trouble to read the letter before signing it. For these reasons, in my judgment the sending of the Letter of Engagement to Mr Smith as happened is evidence that is contrary to any inference of dishonesty as alleged by the Claimants.

I turn to KPMG’s dealings in relation to HMRC. I have already said that the Third Alleged Representation is unsustainable if it is intended to imply that KPMG represented that it would contact HMRC within any particular timeframe or in any particular way or in any particular terms: see [84] above. There is nothing in any of the available materials which supports an inference that the timing of KPMG’s approach to HMRC or the terms in which it was ultimately made was the product of anything other than a genuine professional judgment. To the contrary, there is complete consistency between the internal exchange of emails within KPMG and what KPMG told Mr Smith about their prospective approach to HMRC: see [47] and [50] above. The existence of that internal exchange contra-indicates a dishonest change of plan during the course of 16 July 2010 (or at any earlier time). The correctness of the KPMG advice is shown by HMRC’s response when KPMG did write in August 2010: see [66] above: HMRC’s stance was in accordance with KPMG’s prediction and advice.

The Claimants place very great weight on the email exchange on 19 July 2010, which I have set out at [52]-[54] above. Taken on their own, the words “Bank will not be providing any funding…” provide evidence in support of a case that Barclays had made a decision. They provide no evidence of when such a decision was made or of communication of that decision to KPMG the previous Friday. However, once the words are taken in context, the potential weight to be attached to that evidence is dissipated. First, Mr Flood’s email at 5.31pm, to which Mr Corfield was replying, is not readily consistent with him having knowledge of a prior decision to enter into the alleged dishonest conspiracy: it has the appearance of an accountant going about his normal business in the early stages of a routine investigation into a distressed company. Second, the terms of Mr Corfield’s reply suggest that the first mini-paragraph (“Darren agrees/is interested to see what the place looks like, what is going on etc”) is a response to the paragraph in Mr Flood’s email saying he was going to visit the Group’s premises. If that is right, the words in Mr Corfield’s next paragraph (“Bank will not be providing any funding so it is quite possible that the companies will drift until HMRC take action”) are, in context, consistent with being a reaction to Mr Flood saying that Geoff Smith was trying to buy some land and asking “with what I wonder?”. Seen in this way, Mr Corfield’s words are simply an indication that Barclays will not be providing funding for buying additional land. Whether or not this is the correct interpretation of a few words in an informal email, Mr Corfield’s email (a) provides only limited support for an inference that Barclays had reached an irrevocable decision not to support the Group further and (b) provides no support for an inference that Barclays had previously informed KPMG of this decision and had entered into a conspiracy to bring down the Group by furthering the Exit Plan.

Once the context is widened further, the available materials between 16 July and 21 September 2010 are all consistent with (a) KPMG conducting a genuine exercise with a view to giving honest advice and (b) Barclays having had an open mind on and after 16 July 2010 about whether it would provide further support. In addition, the facts that Barclays (a) didn’t call in the loan on becoming aware of the Event of Default represented by the HMRC winding up petition, (b) didn’t let the HMRC petition take its course but intervened so as to put the Group into administration rather than allowing it to go into compulsory liquidation, (c) supported the CVA, and (d) provided further facilities to the Group are all evidence contrary to the Claimants’ central case about a dishonest conspiracy to implement their Exit Plan. In reply submissions the Claimants placed great weight upon real or perceived differences between submissions made by KPMG at a previous hearing and those made by Barclays in this; and upon what were submitted to be material developments in the formulation of Barclays’ case. These matters do not, in my judgment, affect the overriding balance of the case or lend any real substance to the merits of the Claimant’s claims.

The Original Particulars of Claim at [228], [230-232] and paragraph (4) of the Prayer included a claim in restitution for £60,000 which represents the arrangement fee in respect of the further loan made pursuant to the agreement reached on 16 March 2011. Because of a delay by the First Claimant in making a repayment of £1 million that was due by 16 March 2012, the arrangement fee became payable in the sum of £100,000, of which Barclays waived £40,000. The First Claimant therefore paid the £60,000 which is now reclaimed by both the First and Second Claimants. Although it is not clear precisely how the claim is advanced, because of the length and construction of the Original Particulars of Claim, [134] and [146] allege the existence of a conflict of interest between the Group on the one hand and Barclays and KPMG on the other.

There is no pleaded basis for a claim by the Second Claimant in respect of the payment of an arrangement fee due and payable by the First Claimant.

The £60,000 was paid pursuant to a binding contractual arrangement that arose pursuant to a contract between Barclays and the First Claimant which has not itself been challenged. Barclays therefore applies to strike out the claim because there can be no legal basis for a claim in restitution: see Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349, 408 per Lord Hope; and Fairfield Sentry Ltd v Migani [2014] UKPC 9 at [18] per Lord Sumption.

The Claimants did not formally abandon this head of claim; but they did not advance any written or oral submissions in opposition to this aspect of Barclays’ application. There is no apparent basis for maintaining this claim in restitution for sums paid pursuant to a valid and subsisting contract and the claim should be struck out.

Section E of the Original Particulars of Claim was entitled “CCL’s Agreement with Barclays” and set out what was then alleged to be the relevant contractual basis for any claim that might follow. [54] alleged “an overarching relational agreement” without specifying what the agreement was in any terms that could be related to any demonstrable contractual obligation. [55] alleged an implied term of the overarching relational agreement that each party “would cooperate with the other on the basis of mutual trust and confidence and act in good faith towards the other.” [57] alleged more specific implied terms that could be read as further particularisation of the implied term alleged under [55].

Section G of the Original Particulars of Claim was entitled “Transfer to Barclays’ “Business Support” and included, at [103]-[110], wide ranging allegations of breach of the contractual obligations pleaded at [55] and [57]. Further allegations of breach of Barclays’ “customer agreement” were pleaded at [249] of the Original Particulars of Claim. It is not necessary to try to summarise those alleged breaches here, save to say that they were wide-ranging and, once again, included the transfer of the Group’s banking affairs to Barclays’ Business Support Group.

Since Barclays’ application to strike out the original claims in contract was issued, the Claimant have withdrawn reliance on [54], [55] and [57] by deleting them in the subsequent iterations of the Particulars of Claim for which they now seek permission to amend. Subject to the separate question whether permission to amend should be given, there is therefore no continuing basis for the allegations of breach at [103]-[110] or [249] of the Original Particulars of Claim. Barclays’ purpose in pursuing this part of its application has therefore been achieved, the question now being whether the Claimant should have permission to amend. It is therefore sufficient to record that, had the Claimants not withdrawn those paragraphs, I would have struck them out as disclosing no reasonable cause of action. The pleading of the “overarching relational agreement” was vague, embarrassing and not grounded in recognizable contractual obligations. In particular, the original pleading did not identify terms of either the original Loan Facility or any other contractual agreement, terms or conditions; nor did it identify actual contractual provisions by reference to which it would have been possible to assert the implied terms that were alleged. Since the Original Particulars of Claim raised no proper contractual basis upon which to found allegations of breach, I would therefore also have struck out Section G and [249] of the Original Particulars of Claim.

Both the Original Particulars of Claim (at [111], [114], [201], [241]-[248] and [249(g)]) and the draft for which permission is now sought (at [111]-[112], [114], [200], [240A]-[247] and [248(g)] contain extensive references to the Tomlinson Report into the Global Restructuring Group of RBS and the Report of Sir Andrew Large, commissioned by the Chairman of RBS.

These references offend against every known principle of proper pleading as summarised at [30] above. The Tomlinson Report was about a different department of a different bank and did not refer to Barclays. The matters pleaded by the Claimants about the Tomlinson report are not material facts to be pleaded; nor are they evidence that can properly be said to support material facts that have been pleaded elsewhere. They are irrelevant and prolix and serve no useful function. To the contrary, if knowingly included, they appear to serve only as an attempted smear by association of the loosest kind – namely that RBS and Barclays are both banks with separate internal departments. I echo what was said by Hamblen LJ in Serene Construction Ltd v Barclays Bank plc [2016] EWCA Civ 1379, where references to the Tomlinson report had been pleaded on the different facts of that case: “None of this material relates to this case, to this property or to this branch of Barclays. None of it begins to show that in this case there was an engineering of the default.” The same could and should be said of the Report of Sir Andrew Large.

I strike out the paragraphs identified above as irrelevant, embarrassing and vexatious.

The Claimants’ case on conspiracy has been fundamentally changed in the proposed draft amendments. This may be illustrated by the following summary which identifies the paragraphs of the Original Particulars of Claim that Barclays seek to strike out under this limb of their application:

[20] has been withdrawn. A new [20] is much more extensive and changes the objects of the conspiracy that are alleged;

[115] has been withdrawn. The substance of it was withdrawn and replaced with new allegations in the 2 July 2018 draft. [115] as it appeared in the 2 July 2018 draft was itself withdrawn and replaced by the 18 July 2018 draft, which is different again;

[119]-[120]: [119] has been substantially amended, introducing the allegation that the Exit Plan included as one of its purposes that KPMG would “control and manage the formal insolvency process in a way that was to focus on and advance the interests of Barclays and further the Exit Plan by acceleration recovery of [the First Claimant’s] debt”. [120] survives in its original form;

[125]-[126]: [125] is amended to allege that Mr Smith was to continue to operate the Group’s business in the false belief “known by Barclays and KPMG to be false” that it was Barclays’ intention to support the Group; and that, “in fact, from about 16 July 2010 Barclays had determined that [the Second Claimant] should not receive further lending support from Barclays. The same was known to KPMG and Mr Corfield….” . [126] is largely deleted, and replaced by new section HH, which is the pleading of alleged fraudulent misrepresentation. This process also involves the deletion of much of [127] and [128], the reworking of the contents of [129], and the deletion of [130]-[136];

[143] is largely withdrawn and new content added;

[147] survives substantially unchanged;

[157] is substantially withdrawn and new content added;

[160]-[161] survive largely unchanged;

[222] survives, now numbered [221];

[243] survives essentially unchanged, now numbered [242];

[251] and [258] survived in the 2 July 2018 draft, but have been withdrawn and superseded by the 18 July 2018 draft;

[261] survives, now numbered [260]

Paragraph (3) of the Prayer, which originally claimed “(First and Second Claimant) damages for conspiracy against Barclays KPMG and the Administrators” has been replaced by a new (3) which claims “(First and Second Claimants) damages against Barclays, KPMG and the Administrators for unlawful means conspiracy.” It is not clear to me what purpose this amendment is meant to serve. Paragraph (5) of the Prayer, which originally claimed “(Third and Fourth Claimant) damages for conspiracy” has been replaced by a new (4) which claims “(Third and Fourth Claimants) damages against Barclays, KPMG and the Administrators for unlawful means conspiracy.” Once again the intended purpose of this amendment is not clear to me.

The withdrawal and reworking of the original pleading is so substantial that it would be idle to deal with it in any detail save for two discrete points. In substance, Barclays and KPMG have achieved their end because the Claimants no longer rely upon a claim formulated in the way that they wished to strike out when issuing their applications. Instead of concentrating further on the original formulation, I shall look at the proposed amended claim to see whether permission should be given for the claim to go forward in its amended formulation.

The first discrete point relates to the Trustees’ claim, which was formulated in the Original Particulars of Claim at [9], [10], [204], [235], [261], [264] and paragraph (5) of the prayer. It is that the formulation did not include an allegation of intention to injure the Trustees by the unlawful means conspiracy. Barclays and KPMG applied to strike those claims on the basis that an intention to injure a Claimant is an essential averment in order to plead a reasonable cause of action in conspiracy to injure by unlawful means. The 2 July 2018 draft remedies the asserted defect, but the point was argued and could be material to issues of costs.

The Claimants relied upon the first-instance judgment of Peter Smith J in Emerald Supplies Ltd v British Airways [2014] EWHC 3513 (Ch) in support of a submission that the issue was not cut and dried and is not susceptible to decision on a strike out. However, his decision on this point was reversed by the Court of Appeal: [2015] EWCA Civ 1024. In the course of its judgment the Court of Appeal affirmed that an intention to injure the Claimant is an essential element of the tort of conspiracy to injure by unlawful means. Mere foreseeability of loss is not sufficient to found a cause of action, though it may be sufficient for a Claimant to establish that a defendant intends to cause harm to the members of a particular class, only some of whom suffer loss: see [167]-[169]. The Original Particulars of Claim did not plead an intention to cause harm to the Trustees as individuals or to a class which included the Trustees as part of its formulation of the conspiracy claim against the Trustees. It was therefore deficient and liable to be struck out on this point.

The second discrete point relates to the period and duration of the conspiracy. As now presented, the case is that Barclays and KPMG entered into the conspiracy on 16 July 2010, though the Claimants leave open the possibility that it might have been a short while earlier. As originally pleaded, the conspiracy was alleged to have run from “some time between about mid-2009 and early 2010.” The abandonment of the Original [115] and formulation of the new conspiracy of itself represents a significant (though partial) achievement for the Defendants in their application to strike out the claims as originally formulated.

There are three substantive references in the Original Particulars of Claim to a conflict of interests between Barclays and the Group:

[112] pleads that Barclays’ Business Support Team “constituted an internal profit centre the interests of which were in actual, or foreseeable, conflict with the interests of [the Group] as Barclays’ customers”. This paragraph remains unchanged in the 2 July 2018 draft;

[134] pleaded that Barclays, by appointing KPMG to prepare a report “created an actual or foreseeable conflict of interest between Barclays and KPMG on the one part and [the First Claimant] in particular where Barclays’ objects and purposes were not communicated to [the First Claimant] or its management”. This allegation is withdrawn in the 2 July 2018 draft;

[231] pleads that Barclays were unjustly enriched by receipt of the £60,000 arrangement fee (referred to above) “at the expense of the [First Claimant] the injustice being by reason of facts and matters hereinbefore pleaded and in particular Barclays engineering [the First Claimant’s] default under a conflict of interest and by bringing about, unnecessarily, [the Second Claimant’s] administration”. This allegation is maintained in the 2 July 2018 draft;

The prayer in each version includes a claim by the Group for “compensation in equity or an account of profits made by Barclays and KPMG as a result of the fees paid under [pursuit of the Exit Plan] undertaken under a conflict of interest together with payment of sums payable upon the taking of such an account.”

The Claimants did not deal with this part of the application in either written or oral submissions. At the start of his submissions, counsel for Barclays pointed this out and indicated that he considered the claim to have been abandoned. Nothing was said thereafter by the Claimants to contradict this assumption.

As set out above, the Claimants have attempted to plead claims in contract. Those claims are inadequate, but they assert the fact that the Group were Barclays’s customers trading on contractual terms. That does not of itself either necessarily or probably give rise to or evidence a fiduciary relationship between Barclays and its customers. To sustain a claim for equitable compensation it is necessary for the Claimants to plead and prove the existence of a fiduciary duty. They have not done so. Nor have they alleged facts which give rise to a necessary or probable inference that a fiduciary relationship existed. Specifically, the alleged fact that the Business Support Group was an internal profit centre which had its own commercial interests is not, without more, sufficient to give rise to an inference of a fiduciary relationship; nor, if proved, would the allegation that Barclays brought about the administration of the Second Claimant.

The pleading, both originally and in the 2 July 2018 draft, is therefore inadequate to sustain a claim for equitable compensation and the relevant paragraphs should be struck out.

I have dealt with the Claimants’ references to the Tomlinson report. Barclays also object to paragraphs [116]-[118] of the Original Particulars of Claim as “fishing”. These paragraphs substantially survive to the 2 July 2018 draft. They assert that it is to be inferred, pending disclosure, that Barclays was subject to severe pressure to reduce risk-weighted loans of the kind represented by the 2004 loan to the First Claimant; and that it should be inferred that individual managers within Barclays were subject to pressure to identify suitable candidates for transfer to Barclays’ Business Support Unit. The Claimants go on to plead that it should be inferred that the transfer to the Business Support Unit was “calculated or in any event foreseeably likely to transform the nature of Barclaysing relationship from a relationship where the interests of the parties were common/coincident … to an adverse relationship where Barclays’ primary interest and object lay in recovery of outstanding lending to the business and exit from Barclaysing relationship.”

These paragraphs are rightly described as “fishing” because there are no primary facts pleaded from which such inferences can properly be drawn. In addition, the reference to transforming the nature of Barclaysing relationship perpetuates the canard that Barclays and its customers did not have separate commercial interests at all material times; and it is irrelevant in the absence of a fiduciary relationship which, as identified earlier, is not pleaded or sustainable. These paragraphs should be struck out.

KPMG’s first application was to strike out the Trustees’ claims for damages for conspiracy to cause harm using unlawful means against the KPMG Defendants or for summary judgment on those claims. The application relied upon the legal deficiency identified at [104] above and was well founded for the reasons there set out.

KPMG’s second application was to strike out the Group’s claims for unlawful means conspiracy. It sought an order striking out [20], [108], [115], [125]-[126], [140]-[142], [143], [147], [149], [157], [160], [171], [179], [180], [199], [222], [251], [258-260], [261], and paragraph (3) of the prayer of the Original Particulars of Claim, all of which are correctly identified as paragraphs relating to the Group’s claims for unlawful means conspiracy. I have dealt with most of these paragraphs at [102] above. Those highlighted in italics were not included in Barclays’ list of paragraphs for strikeout and I comment on them as follows;

[140]-[142] pleaded that inaction by KPMG was foreseeably likely to prejudice the Second Claimant’s position with HMRC [140]; that the natural inference is that KPMG knew or should be taken as knowing that, in the absence of communication from the Second Claimant via KPMG, presentation of a petition was highly probable [141]; and that KPMG nevertheless took no steps to avoid that eventuality thereby putting at risk the Second Claimant’s ability to continue to trade outside insolvency process, as happened [141]. In the 2 July draft [140] and [142] are substantially retained, and [141] is substantially amplified;

[147] survives essentially unchanged;

[149] is an allegation that it is to be inferred that the position adopted by KPMG in relation to HMRC was known to and agreed by KPMG with Barclays. It survives essentially unchanged but amplified by a reference to an email sent by Mr Corfield on 19 July 2010;

[179] survives unchanged;

[180] survives with the addition of an allegation of bad faith on the part of the Administrators;

[199] survives with substantial amendments and amplification;

[261] is an allegation of loss to the G King Trust, which survives.

For the same reasons as apply to the Barclays strikeout application, it would be idle to deal with the original pleading in detail. The original pleading of unlawful means conspiracy has gone.

As already outlined, the substance of the Claimants’ proposed amendments are now contained in the 2 July 2018 draft, subject to the further changes introduced by the 18 July 2018 document. The three main areas covered by the proposed amendments are summarised at [10] above and are:

A different claim for breach of contract against Barclays;

A claim for fraudulent misrepresentation against Barclays and KPMG

A different claim alleging unlawful means conspiracy against Barclays and KPMG.

Yes. The facts that are raised in the proposed amendments occurred in 2010 or 2011, more than 6 years ago. The proposed amendments are therefore outside the applicable limitation period unless s. 32 of the Limitation Act 1980 applies. It is reasonably arguable that s. 32 does not apply because the facts relevant to Claimants’ right of action were always available to them and cannot be said to have been concealed within the meaning of s. 32.

Specifically, it is at least reasonably arguable that, if the Claimants’ case on what was represented to them as the purpose of the engagement of KPMG and Barclays’ attitude to further supporting is correct, the Claimants knew in 2010 that something had gone seriously wrong. First, the terms of the engagement letter were (on the Claimants’ case) contrary to their expectations to an extent that evidences the emergence of the alleged dishonesty on 16 July 2010. Mr Smith had and signed the engagement letter. It cannot be said that the relevant facts that emerge (on the Claimants’ case) from its contents were concealed from him. Second, the terms of KPMG’s reports (which were provided to Mr Smith at the time) made clear that they were not conducting and had not conducted a “security review” of the type that the Claimants assert they should have conducted. Third, the Claimants knew when and in what terms KPMG had contacted HMRC. Fourth, all the emails and documents which are extensively pleaded and relied upon in the proposed amendments were within the Claimants’ possession contemporaneously, bar one. The sole exception is the exchanges on 19 July 2010. Viewed on their own those exchanges are at best equivocal, for the reasons I have given above. Viewed in context, it cannot be said that the non-availability of those exchanges meant that the relevant facts were concealed within the meaning of s. 32 so as to stop time running, because there was so much else in the Claimants’ possession. Fifth, the Claimants knew the advice that KPMG were giving Barclays and Barclays’ stance on further lending at all material times. Sixth, the substance of the new allegations of fraud and dishonesty were first advanced in the December 2017 draft, which was before either Defendant gave disclosure. It is therefore impossible for the Claimants to argue that the basis for pleading the claim only emerged on disclosure being given. Seventh, nothing has been identified between 2010/2011 and December 2017 that could amount to concealment and subsequent revelation so as to stop the limitation period running for all or part of that period.

Without finally deciding the issue of limitation, I conclude that it is reasonably arguable on the part of the Defendants that s. 32 will not prevent the normal application of the six year limitation period. Accordingly, I conclude that it is reasonably arguable that the opposed amendments are outside the applicable limitation period.

Yes, in each case.

The claim for breach of contract against Barclays has been substantially changed. Although there is still a complete failure to plead a recognizable basis for the contractual terms that are now pleaded in (new) [54]-[55], the new contractual terms are substantially different from those that were originally pleaded in the (now withdrawn) [54]-[57]. The difference is not merely technical. For example, the (old) alleged implied term that “each party would … cooperate with the other on the basis of mutual trust and confidence and act in good faith towards the other” is replaced by a (new) alleged implied term that “Barclays would manage/exercise its right to manage Barclaysing arrangements/facilities of [the First Claimant] … only for the advancement of Barclays’ legitimate commercial purposes or interests….”. The bare minimum of essential facts to be abstracted from the original pleading is therefore different from the minimum as it would be constituted under the amended pleading.

There was no claim for fraudulent misrepresentation in the original pleading. That is sufficient to demonstrate that the proposed amendment adds a new cause of action: see the citation from Paragon Finance at [19] above.

Although there was a claim alleging conspiracy by unlawful means in the original pleading, the case has undergone fundamental change: see [10(iv)] above. In briefest summary, the object of the conspiracy has changed, there is a new allegation of intention to harm the First Claimant’s shareholders, and the unlawful means upon which the Claimants rely have changed. Applying the same tests as before, the allegedly essential facts set out in the original pleading and those set out in the proposed amendments are materially different.

The parties have produced a composite and multi-coloured document which demonstrates the full extent of the changes in the allegedly essential facts originally pleaded and now proposed by the Claimants. It is not clear to me whether or to what extent the Claimants contest a finding that the new case on conspiracy does not seek to add a new cause of action. In any event, I conclude that it does for the reasons stated above.

No, in each case.

Each of the new claims would require the Defendants to embark on investigations of facts which they would not previously have been concerned to investigate.

The newly proposed implied terms require a different enquiry to find any cogent contractual basis for them than would have been required in order to find a cogent contractual basis for the different terms that were originally pleaded. Quite apart from that, the old claim required an enquiry into levels of cooperation and acting in good faith that forms no part of the new; and the new requires an enquiry into Barclays’ legitimate commercial purposes or interests that forms no part of the old. Each therefore requires investigation of facts that, viewed overall, are not the same or substantially the same as the other.

The proposed claims in fraudulent misrepresentation require investigation into the following facts, none of which were in issue in any claim previously made in the original action, in addition to damage, which has been substantially re-pleaded, the new investigation must cover:

The representations now alleged to have been made by the Defendants;

The falsity of those representations (and each of them);

Whether the misrepresentation was material and was intended to and did affect the minds of the Claimants;

Alteration of their position by the Claimants in consequence of the misrepresentations;

Whether the misrepresentations were fraudulent.

It is not necessary to go into the detail of what enquiries would have to be made by the Defendants in order to deal with these new allegations. However, I note in passing that the proposed claim involves very serious allegations of dishonesty against a number of employees of both Barclays and KPMG who would have been regarded as relatively peripheral to the claims as originally formulated. For each of these individuals, an adverse finding of dishonesty when working in the financial services sector could and should rightly be regarded as having the potential to end their careers. The need to investigate and, as appropriate, protect their positions provides a clear and practical illustration of the extent to which the proposed amendments would expand the scope of the enquiries that the Defendants would have to undertake.

The new claims in conspiracy require investigation of (a) a different alleged object of the conspiracy, (b) the allegation of intention to harm the Shareholders of the First Claimant, and (c) a different alleged object of the conspiracy. It is not unfair to observe that the new draft and the old have almost nothing in common other than the bare allegation that there was a conspiracy involving unlawful means.

There is no power in the Court to allow the amendments. If the Claimants think that they have an answer to the Defendants’ limitation arguments, their only course of action is to issue new proceedings, if so advised.

My conclusions on limitation are sufficient to dispose of the application to amend, which must be dismissed. However, the Defendants also launched a full-frontal attack on the proposed amendments on the basis that they would have no real prospects of success if allowed to go forward. I deal with the new causes of action in the same order as before.

In my judgment the revised claim in contract is as incoherent and ill-founded as the original claim that has now been withdrawn, because the Claimants have not pleaded any recognizable contractual framework. [52] and [53] refer to the relationship between the parties over the years in strictly non-contractual terms. [52] alleges that, over the years that the Group were customers of Barclays “Mr Smith, [the Group] and Barclays intended to develop and developed a long-term relationship the essential incidents were” a number of characteristics, none of which give rise to contractual obligations. [53] pleads that Barclays, Mr Smith and the Group shared “stated and unstated understandings” about their relationship in terms which, once again, do not demonstrate the existence of any particular contractual obligations. What is completely lacking is any recognition that the terms of the relationship were subject to actual contractual obligations arising, for example, under the terms of the 2004 loan agreement. Nor is there anything identified that would indicate that the Group’s relationship with Barclays was anything other than a normal, contractual, arm’s length commercial arrangement between banker and business customer. As a result, there is nothing in the original or the proposed amended pleading that could be described as a recognizable contractual framework to provide the basis for the newly proposed implied terms that are pleaded at [54]-[55] of the 2 July 2018 draft or for any claim based upon alleged breaches of those terms.

I therefore conclude that the proposed claim in contract would have no real prospects of success if it were allowed to go forward. Because I reach my conclusion on this basis it is not necessary to deal separately with the allegations of breach pleaded at [248]-[249]. I merely note that (a) they are very wide ranging and appear to be based upon a long term plan on the part of Barclays to bring down the Group for which there is no evidence and (b) in the case of the breaches pleaded at [249], the contractual obligation that is alleged to have been breached has been withdrawn and no longer forms part of the Claimants’ intended case.

In approaching the proposed fraudulent misrepresentation claim and the conspiracy claim, I bear in mind the imperative need to apply the principles I have outlined at [23] ff above. That said, for the reasons outlined at [76] ff above I have reached the conclusion that the claims being advanced are fanciful and have no real prospects of success because the facts and matters on which the Claimants rely do not begin to justify the very serious inferences of fraud and dishonesty that underpin these claims. I reach that conclusion bearing in mind both (a) that this is an interim stage in the litigation and (b) the cogency of evidence that is required to justify even pleading an allegation of fraud or dishonesty. For the reasons I have set out above, the short statement in Mr Corfield’s email of 19 July 2010 is incapable of bearing the weight that the Claimants seek to place on it and, in a review of the materials upon which the Claimants rely, there is nothing else that supports the inferences that the Claimants wish to draw.

I would therefore refuse the amendments on the merits after full argument, quite apart from the limitation reasons which I have set out. This has clear implications if the Claimants were minded to issue new proceedings; but it is not for me to rule prospectively on the viability of potential future proceedings and I do not do so.

The applications before the Court have been made unnecessarily complicated by the prolix and repetitive nature of the Original and draft Amended Particulars of Claim in their successive iterations. The exorbitant length was not justified by any complexity in the underlying claim: it could and should have been pleaded in a fraction of the length. Nor was it justified by any absence of knowledge on the part of the Claimants because, as I have indicated, they had the necessary knowledge to plead a case succinctly from the outset, if there was any merit in it.

There is one additional deficiency in the Particulars of Claim which requires mention because it contributed to making an over-long pleading even longer. Section C was entitled “Background”. It included pages of background information of which the great majority was irrelevant and should not have appeared in a pleading. It may be of anecdotal interest to know that Sir Christopher Wren’s specification for St Paul’s Cathedral included the use of Portland stone, but it could not be relevant to a claim by a customer alleging fraudulent misrepresentation or breach of contract against its banker and a financial adviser in the 21^st Century. Nor could it be relevant that a previous owner of the quarries had been Hanson Industries and that Mr Smith understood their operation on Portland to have been only marginally profitable. These are particularly egregious examples, but they are illustrative of a wider problem of lack of discrimination that pervades the pleadings in general and Section C in particular.

If it mattered, I would have struck out most of Section C and much else on my way to directing the Claimants to provide a compliant pleading to replace those that had been produced thus far. In the light of my conclusions set out above, there is now no need.

The Defendants’ applications to strike out or for summary judgment were well founded. The Claimants’ attempts to remedy the position by withdrawing large parts of the original pleading and the production of successive amendments fails and permission to amend in the form of the iterations before the Court is refused. It follows that there is no subsisting basis for advancing the claim, which should be struck out.