Creative attempts to sue banks fail to overcome the high threshold for claims in conspiracy

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Claims in conspiracy are notoriously difficult to plead. Whilst that has not deterred claimant law firms in their attempts to bring such claims against major financial institutions, the courts continue to demonstrate that they will take a strict approach to serious claims alleging fraud and dishonesty. The High Court recently handed down its decision in Portland Stone Firms Limited and Others v. Barclays Bank PLC and Others [2018] EWHC 2341 (QB), which highlights the court's starting point in cases involving dishonesty: there is more likely to be an innocent explanation than not.

The facts in Portland

In Portland, the claimants sought to bring claims for damages for conspiracy to cause harm using unlawful means. The court subjected the pleadings to close scrutiny before striking them out in their entirety. The first and second claimants (the Group) alleged that Barclays Bank PLC (Barclays) and KPMG LLP (KPMG) conspired together to execute an "Exit Plan" to bring the Group to destruction. The Exit Plan was described as follows: Barclays "engineered" a default under a loan agreement, which it then used as a basis to demand the immediate repayment of the loan.

Barclays' alleged motivation was to ensure early repayment of that loan by forcing an insolvency process on the second claimant whereby it could appoint KPMG to manage such process and further the Exit Plan by advancing Barclays' interests. KPMG's alleged motivation was to make money from its appointment. However, Barclays' alleged motivation was in any event frustrated as the Group did not go into liquidation. Instead, KPMG's administration came to an end under the terms of a CVA, which (contrary to its alleged Exit Plan) Barclays supported.

Both Barclays and KPMG applied to strike out the claims in their entirety on the basis that the original particulars of claim disclosed no reasonable cause of action and the claims had no real prospect of success. Those applications were met with a cross-application by the claimants for permission to amend their particulars of claim, in which the object of the conspiracy had changed as well as the unlawful means on which the claimants relied. On the facts, Barclays' and KPMG's applications were successful.

Threshold for claims in conspiracy

The judge, Mr Justice Stuart-Smith, followed the routinely adopted approach of the court in cases involving fraud in civil litigation, reflecting the court's "conventional perception" that "it is generally not likely that people will engage in such conduct". This was particularly so bearing in mind the parties involved – they were not known fraudsters – and the unlikelihood of two major financial institutions behaving in the way alleged.

The starting point of the threshold for evidence to prove claims in dishonesty, because of their inherent improbability, is therefore very high from the outset. In line with this principle, Mr Justice Stuart-Smith made a number of observations in his judgment, as follows:

  1. there was no direct evidence of any dishonest conspiracy, meaning that "the existence of the case alleging deceit and fraud depends upon inference from documents";
  2. there was no reason for either Barclays or KPMG to have "engaged in such an elaborate and dishonest charade";
  3. the sheer number of people who would have needed to be included within the alleged "circle of deception" was high, meaning that there would have been a consequential risk of being found out internally (as well as being found out by the Group);
  4. the documentation relied on by the claimants was actually evidence contrary to any inference of dishonesty; and
  5. Barclays' own actions in supporting the CVA frustrated the Exit Plan it had allegedly conspired with KPMG to put into place.

The judge's comments are consistent with recent decisions, which establish that claimants should not assume dishonesty from facts that are similarly consistent with honesty; see Elite Property Holdings Ltd v. Barclays Bank [2017] EWHC 2030 (QB).

The conspiracy claims in Elite

In Elite, which was against Barclays, the claimants made an application for permission to amend in which they sought to introduce more wide-ranging claims in conspiracy than in Portland. They sought damages for both unlawful means conspiracy and lawful means conspiracy (or conspiracy to injure), as well as wrongful interference. The difference between the two conspiracy claims can be summarised briefly. Unlawful means conspiracy (as alleged in Portland) requires a combination of two or more persons, where the combination must be to use unlawful means, and which has an intention of causing damage to the claimant (which need not be predominant) through the use of those unlawful means. In lawful means conspiracy/conspiracy to injure, there must be a combination of two or more persons where the predominant purpose is to injure the claimant. In both cases damage must be caused to the claimant as a result.

The facts in Elite

In Elite, the claimants had entered into various interest rate hedging products (IRHPs). Whilst those IRHPs were being considered in the Financial Conduct Authority's (FCA) past business review into the sale of IRHPs, Barclays agreed with the FCA that, other than in exceptional circumstances, it would not foreclose upon or adversely vary existing lending facilities (the Undertaking).

The claimants alleged that Barclays conspired with BDO LLP (BDO) to engineer a position whereby it could take enforcement action in relation to their facilities (in breach of the Undertaking), inflicting intentional harm on them. The unlawful means relied on by the claimants was the alleged breach of the Undertaking. Barclays was successful in opposing the application again on the basis that the claims had no real prospect of success. HHJ Waksman QC held that the conspiracy to injure claim should never have been made.

The judgment in Elite

HHJ Waksman QC held that, on the facts (where there had been a series of events of default which led to Barclays taking enforcement action), there could be no serious argument that the circumstances were not exceptional and accordingly that there was no breach of the Undertaking.

More importantly, in relation to the conspiracy to injure claim, the judge held that the alleged predominant intention to injure the claimant (to deprive Elite of the cashflow it needed to run its business), was a "ridiculous allegation to make against the Bank and BDO as the obvious question was 'Why?'". Indeed the claimants had failed to either suggest or plead what the motive for that could have been. The claimants instead suggested the facts raised sufficient inference for the allegation to be made and the notion of the alleged motive could await trial. The judge, however, strongly disagreed because of the seriousness of the allegations made.

It followed that the unlawful means conspiracy was bound to fail, in light of the finding that there was no breach of the Undertaking and therefore no relevant intention. Nevertheless the judge again highlighted the deficiencies in the fact pattern, in particular that the facts relied upon did not add up at all, and that this was a "very odd" conspiracy claim as the alleged "combination" took place after everything Barclays and BDO had allegedly set out to do had already happened.

HHJ Waksman QC concluded that, whilst much of a conspiracy claim may need to set out initial facts and rely on inferences, it is imperative (particularly with a conspiracy to injure claim) to plead the motive of the intention to injure unless it is obvious, in the absence of which "a court may be left puzzled". The appeal in this case is listed for January 2019.

Conclusion

Conspiracy claims are becoming more common in the banking world, and Mr Justice Stuart-Smith's comments in particular are useful to bear in mind when defending allegations of this nature. On the basis of the court's approach to date, and the high threshold that claimants need to overcome given the seriousness of the allegations being made, these claims should continue to be robustly defended by banks and financial institutions alike.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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