Introduction

The High Court of Justice has recently dismissed, in its entirety, a multimillion pound claim alleging dishonesty, fraud and unlawful means conspiracy against Barclays Bank PLC and its co-defendant, KPMG.

The claim brought by Portland Stone Firms Limited (and others) was dismissed following a 3 day application in which the court confirmed the case (as already pleaded, and in amendments being proposed by the claimants) had no real prospect of success. It labelled the claims against Barclays and KPMG as "fanciful and vexatious". The court was especially critical of pleading by analogy borne out of the well-publicised 'Tomlinson Report' into lending to distressed customers. This was an attempt to "smear by association of the loosest kind".

The decision also confirms that serious allegations of dishonesty and fraud should not be brought without strong evidence and must be clearly pleaded with cogent justification. The court found Portland's succession of attempts to plead a case "profoundly unsatisfactory and wasteful of time, effort and cost."

Background

Portland quarried, manufactured and sold Portland Stone, used in many well-known buildings and monuments. It had been a Barclays' customer since 2004.

In 2009/2010 Portland was under financial pressure and fell into significant tax arrears with HMRC. Portland sought additional funding from Barclays, during which process the detail of the HMRC debt first became known to the bank. Portland agreed to bring in KPMG to conduct an independent business review to ascertain the full extent of its financial hole. During this period it was also presented with a winding up petition by HMRC. Portland was later saved from winding up and subsequently exited administration and continues to trade.

In the claim, Portland alleged that Barclays and KPMG were engaged in an unlawful means conspiracy to exit the banking relationship and accelerate recovery of all of Barclays' loans. It was alleged that fraudulent misrepresentations were made as to the reasons for and the conduct of the business review. Analogies were sought to be drawn with the alleged conduct of other banks from the Tomlinson Report into business lending to distressed customers, despite the Report not referencing Barclays at all.

Barclays and KPMG denied all of Portland's claims, this being a straightforward case of Portland becoming insolvent by using HMRC monies to fund its cash crisis. As such, applications were brought to strike out the case (and the subsequent attempts at amendment).

The Court's Findings

The court confirmed 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".

Portland had alleged (later withdrawn) that there was an 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." Mr Justice Stuart-Smith confirmed that had Portland not withdrawn those allegations he would have struck them out "as disclosing no reasonable cause of action". The pleading was "not grounded in recognisable contractual obligations."

It was also confirmed that the allegations surrounding the transfer to Barclays Business Support and the wide ranging allegations of breach of contractual obligations of the Barclays "customer agreement" would also have been struck out had they been maintained.

The matters pleaded by Portland in relation to the Tomlinson Report and Andrew Large Report were struck out and held to be "irrelevant and prolix and serve no useful function." To the contrary, the allegations appeared to serve only as an attempt to "smear by association of the loosest kind."

Mr Justice Stuart-Smith struck out the fraudulent misrepresentation and the conspiracy claim as being "fanciful and have no real prospect of success because the facts … do not begin to justify the very serious inferences of fraud and dishonesty that underpin these claims."

The court was critical of the "exorbitant length" of Portland's pleading which "should have been pleaded in a fraction of the length". The court found that Portland's succession of attempts to plead a case "profoundly unsatisfactory and wasteful of time, effort and cost." Had the claims not been struck out as having no real prospects of success, they would have been struck out for being over-long and containing much irrelevant material and therefore non-compliant.

Portland Stone Firms Limited and others v Barclays Bank PLC, KPMG LLP and others [2018] EWHC 2341 (QB)

Addleshaw Goddard and Adam Kramer, 3 Verulam Buildings, acted for the first defendant, Barclays.