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Early strike out of £39 million fraud and conspiracy claim achieved for Ernst & Young

3rd Dec 2018

Cunningham v Ellis & Others [2018] EWHC 3188 (Comm)

James Brocklebank QC and Ralph Morley have successfully secured the dismissal of a £39m Commercial Court fraud and conspiracy claim against their client, Ernst & Young (EY). The claim was struck out and summary judgment was given in favour of EY.

The claimant had been majority shareholder of Allerton Group Limited, the parent company of a steel fabrication and bridge building group. The group had gone into administration in 2009 as a result of severe cashflow pressures and consequent insolvency, which EY had identified in the course of an independent business review engagement.  The claimant advanced wide-ranging allegations of fraud against EY, alleging in particular that EY had made fraudulent misrepresentations and had fraudulently conspired with the group’s directors and its bank to drive the business into insolvency in order to sell it to the directors at an undervalue. The claimant brought proceedings more than 6 years after the accrual of the alleged causes of action but sought to rely on the provisions of section 32 of the Limitation Act 1980 to delay the start of the limitation period (on the grounds that he had only discovered the alleged frauds less than 6 years before issuing proceedings and/or that matters relevant to his causes of action had been deliberately concealed). EY applied to have the claim struck out and/or for summary judgment in its favour after the close of proceedings but before disclosure.

After a four-day hearing in the Commercial Court, in which EY took the lead, Teare J struck out the claimant’s claim in its entirety and gave summary judgment in favour of EY and the other defendants. He held that:

  1. the claimant had failed to plead facts from which an inference of fraud or fraudulent conspiracy could be drawn;
  2. the allegations of fraud in any event had no realistic prospect of success;
  3. the claims were also time-barred, including because  the burden was on the claimant to show that he could not with reasonable diligence have discovered the matters complained of more than six years before he brought proceedings, but he could not do so.

The decision is notable for its recognition of the seriousness with which allegations of fraud are to be taken and its consideration of the pleading requirements for such allegations, as well as for its analysis of the principles applying to section 32 of the Limitation Act 1980. The judgment underlines the Commercial Court’s readiness, in appropriate cases, to make use of its powers to dismiss claims at an early stage even in cases which appear at first sight to be factually complicated.

James Brocklebank QC and Ralph Morley were instructed by Orrick Herrington & Sutcliffe LLP.

Please view the judgment here.