Isle of Man fraud claims struck out against two parties

Acting Deemster Hodge KC has struck out fraud claims against two parties, in Bondik v Wilton Trustees (IOM) Ltd (ORD 23/0035) (23.10.26).

The judgment offers useful guidance on pleading fraud and the test for striking out claims in fraud or dishonesty.

Background

C alleged: mismanagement and misappropriation of trust assets by D1-D5 (trustee and service companies); dishonest assistance by D6-D8 (officers of certain of those companies) and unlawful means conspiracy. C sought inquiries, accounts, declarations, equitable compensation and damages. The assets of the four trusts at issue were valued at over £10m.

C pleaded that she was a beneficiary of four trusts, created in 2019, whose trusteeship moved from D1, Wilton Trustees (IOM) Ltd, to D2, Wilton Management Ltd, in Dubai.

C pleaded that D6-D8 dishonestly assisted breaches of fiduciary and non-fiduciary duties, and engaged in a conspiracy causing loss, including the initial 2019 investment, of over £27m.

D7 sought to strike out the claim as disclosing no reasonable cause of action or, alternatively, summary judgment; or, alternatively, an extension to defend, arguing that: the pleading identified no such duties owed by her; that there was no pleaded conduct, or receipt of assets, by her; no particulars of assistance or dishonesty; and no particulars of any combination, attribution of loss, or dishonesty; and that the evidence established no agreement giving rise to any duties on her part, handling or receipt of trust assets by her, assistance or dishonesty, or conspiracy.

D8 alleged that the claim against him was inadequately pleaded and had no real prospect of success. He cited: the absence of allegations of misconduct by him; or pleaded knowledge; or the necessary intention for dishonest assistance or conspiracy; or any pleaded basis for liability against him, after he resigned from companies in the Wilton Group.

At § 29, the Court noted that questions arose as to the transfer on 5th April 2022 of £13m from one of the trusts to Hartley Pensions Trustees Ltd. But there was no indication of contemporaneous involvement in that transfer by D7 or D8.

Pleading fraud

Rule 6.17(2) requires Particulars of Claim to set out: “(a) any allegation of fraud…”.

In Kyrgyz Mobil Tel Ltd & others v CP Credit Prive SA & others (ORD 2011/0048) (04.05.12), Acting Deemster Moran QC held, at §§ 10-11:

“10. … it is vital that the parties are tied down to a clear and fully particularised case, so that opposing parties and the Court need not fear subsequent nuances, ambiguities, doubt or hedging that might emerge – and if they do, to be able to recognise them as such.

11. At the top of the list… are cases involving allegations of complex commercial fraud…”.

In Unidev D.O.O. & another v Fresson & another (ORD 2016/0003) (26.07.16), Deemster Corlett, citing May LJ in Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340, held (at § 33):

“… where fraud or dishonesty is material this must be clearly pleaded, if not explicitly, then in such terms that the reader of the pleading can be left in no reasonable doubt that this is being alleged. … where an element in the alleged fraud or dishonesty relied on is the other party’s knowledge of a given fact or state of affairs, this must be explicitly pleaded…”.

In similar vein, here, Acting Deemster Hodge KC stated (at § 53):

“… particulars of fraud or dishonesty must be distinctly alleged and properly particularised. Bare and generic allegations, collective attribution of knowledge, and reliance on inferences, absent pleaded primary facts, are impermissible, and are liable to be struck out. A claimant must plead primary facts from which dishonesty can properly be inferred, and not merely conclusions, formulaic assertions, or collective knowledge”.

Test for striking out a claim in fraud or dishonesty

At § 32, the Court referred to a summary by Counsel of dicta of Stuart-Smith J in Portland Stone Firms Limited v Barclays Bank PLC [2018] EWHC 2341 (QB) (see §§ 25-29):

“(1) [C]ogent evidence is required to justify a finding of fraud or other discreditable conduct, reflecting the court’s conventional perception that it is generally not likely that people will engage in such conduct.

(2) Pleadings of fraud should be subjected to close scrutiny and it is not possible to infer dishonesty from facts that are equally consistent with honesty.

(3) However, in view of the common feature of fraud claims that the defendant will, if the underlying allegation is true, have tried to shroud their conduct in secrecy, the court should adopt a generous approach to pleadings.

(4) 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”.

The Court added (at § 33):

“… there must be some fact which tilts the balance and justifies an inference of dishonesty. At the interlocutory stage, the court is not concerned with whether the evidence at trial will or will not establish fraud, but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial, and assessment of whether the evidence justifies the inference is a matter for the trial judge”.

At §§ 38-39, the Court referred to Counsel’s summary of principles as to strike out generally:

“38. (1) The statement of case must disclose no reasonable grounds for bringing or defending the claim.

(2) This means… that the court must be certain that the claim is bound to fail; that it is effectively unarguable, and has no chance of succeeding, and, as such, it is a plain and obvious case.

39. … [I]n Maranello Rosso Ltd v Lohomij BV [2021] EWHC 2452 (Ch)… the view was expressed that even if a statement of case contains all the factual averments necessary to establish a claim, it may still be struck out if it has no realistic prospect of success on the facts…”.

Duties of directors vs duties of trustees

After considering the pleadings, at § 68, the Court held:

“What… the claims against each of [D7 and D8] come to is this: That they were directors of companies that acted as trustees and provided corporate trustee services. As such, it is said that they owed fiduciary duties; and because no proper account of the Trust assets has been given, then [D7 and D8] must be in breach of their fiduciary duties to [C]. The difficulty with this… is that, as directors, no fiduciary duties were owed to [C]. Any fiduciary duties as directors are owed to the trustee company itself. It is the trustee that owes the fiduciary duties to [C]. The claims against [D7 and D8] confuse their duties as directors with the duties of a trustee”.

Conclusions

The Court concluded (at §§ 71-81), also reviewing dishonest assistance and conspiracy tests (see also: Just my Lux: unlawful means conspiracy claims, after Lux Films – Coren Law):

“71. [As to D7]… there is no pleading as to the specific factual or legal basis for any fiduciary or non-fiduciary duty owed to [C]. [D7] has never entered into any contractual agreement with [C], nor… assumed the duty of fiduciary in relation to her. There is no specific conduct or omission on the part of [D7] pleaded as constituting any breach of duty, or causing any loss to [C].

72. … [C]… has adduced no evidence that either [D7 or D8] owed any [fiduciary] duties to her, or that either of them were in breach of any duty that might have been owed. Thus, there is no proper pleading in that regard against either Defendant; and, as such, [C]’s claim for breach of fiduciary or non-fiduciary duties against each of them has no realistic prospect of success.

73. There is no properly pleaded allegation that… [D7 or D8] have received any trust assets… [A] claim for dishonest assistance… [must] establish… three elements. … [(1) T]here is a breach of fiduciary duty by another party. Such breach of duty need not itself be dishonest. … [(2) T]he defendant procured or assisted in that breach of duty. … [T]he claimant must at least show that the defendant’s conduct has made the fiduciary’s breach of duty easier… [(3) D]ishonesty. That is both a necessary, and a sufficient, ingredient… There is no pleading as to any specific conduct or assistance… by… [D7 or D8] to any breach of fiduciary duty, nor is there any adequately pleaded particulars from which any dishonesty could properly be inferred. It is also not [discernible] from… the pleading or [C]’s evidence as to precisely what assistance [either D7 or D8] are said to have provided. Nor is there any pleading, or evidence, of circumstances from which dishonesty on their part could properly be inferred… The pleadings essentially amount to conclusions, but without the material facts required to support those conclusions.

74. … [T]o support a claim for dishonest assistance: (1) the assistance must be of more than minimal importance, and must have enabled the breach of trust or fiduciary duty to be committed; and (2) such assistance should normally precede the breach, or at least be contemporaneous with it. … [E]ven if all other requirements of a claim in dishonest assistance were satisfied, the post-transfer activities of [D8] would not amount to relevant assistance...

75. For there to be an unlawful means conspiracy, the pleadings must establish: (1) a combination or agreement between two or more persons; (2) concerted action pursuant to that agreement; (3) the use of unlawful means; (4) an intention to injure the claimant (at least as a means to an end); and (5) resulting loss.

76. … Lakatamia Shipping Co Limited v Nobu Su [2021] EWHC 1907 (Comm) at [§] 41, [cited] an earlier judgment of Mr Andrew Henshaw QC… : Conspiracy to injure must be pleaded to a high standard, particularly where the allegations include dishonesty: (i) Allegations of conspiracy to injure must be clearly pleaded and clearly proved by convincing evidence. (ii) The more serious the allegations made, the more important it is for the case to be set out clearly and with adequate particularity. (iii) Unlawful means conspiracy is a grave allegation, which ought not to be lightly made, and like fraud must be clearly pleaded and requires a high standard of proof. (iv) Where a conspiracy claim alleges dishonesty, then all the strictures that apply to pleading fraud are directly engaged, i.e. it is necessary to plead all the specific facts and circumstances supporting the inference of dishonesty by the Defendants.

77. … [T]hat sets quite a high bar; … it is not met… The pleading must identify the conspirators, the gist, timing and scope of the agreement, the specific unlawful means, and the causative link to loss. Collective attribution and generic assertions are insufficient. … [See] Jinxin Inc v Aser Media Pte Ltd [2022] EWHC 2988 (Comm) at [§§] 29 to 40, and especially at [§§] 34 and 37.

78. The dishonest assistance case pleaded… discloses no reasonable cause of action against either [D7 or D8]. It is impermissibly generic, and lacks the necessary primary facts which satisfy the [RHCJ] and the authorities on pleading dishonesty. … Essentially:

(1) There is no identification of any specific primary breach of trust or fiduciary duty to which either [D7 or D8] allegedly rendered assistance, nor of any causal pathway from any such act to the alleged loss.

(2) There is no sufficient plea of any acts of assistance by either [D7 or D8].

(3) The allegations of knowledge and dishonesty are pleaded in formulaic terms, without primary facts showing what either defendant knew when, or how such knowledge rendered the alleged assistance dishonest by objective standards.

(4) The Particulars of Claim impermissibly attribute corporate conduct and knowledge to each of [D7 and D8]. … [T]here is no real prospect of the claim in dishonest assistance succeeding.

79. [As to] unlawful means conspiracy, there must be a pleaded combination to use unlawful means with the intention to injure and actual injury… [T]here are no pleaded particulars of any combination, no identification of the unlawful means used,… no plea of overt acts relied upon to infer the involvement of… [D7 or D8], and… nothing to give rise to any inference of dishonesty.

80. In short, therefore, these are wholly inadequate pleadings which do not enable either [D7 or D8] to know the case that they have to meet at trial.

81. … [T]he Particulars of Claim do not disclose any reasonable grounds for bringing this claim against either [D7 or D8].”

The strike-out applications were, therefore, granted.

Note for practitioners: The judgment in Wilton offers useful guidance on the requirements for pleading fraud and the test for striking out a claim in fraud or dishonesty. It also sets out the requisite elements for claims of dishonest assistance and conspiracy.

Disclaimer: professional advice should be sought before applying any information in a given case.

For advice on litigation relating to Isle of Man civil procedure, or disputes involving fraud or relating to trusts, contact Coren Law.

See other Coren Law Legal Updates on civil procedure, fraud and trusts.

See also Coren Law’s Isle of Man civil procedure portal: Click On | Coren Law.

Photo credit: ZQ Lee