Legal briefing | Civil Fraud, Corporate & Commercial Disputes |

The "footballer trusts" case – the Court of Appeal provides an assist to claimants pleading fraud against corporate bodies

Overview

Allegations of dishonesty in English civil litigation – whether against individuals or corporate bodies – are not to be made lightly, and care must be taken over how they are pleaded. This is reflected in paragraph 8.2 of Practice Direction 16, which provides that a claimant must "specifically set out…any allegation of fraud" in the Particulars of Claim. The Court of Appeal has, in the recent case of Sofer v SwissIndependent Trustees SA [2020] EWCA Civ 699, provided useful guidance on the relevant standard when pleading dishonesty against a corporate defendant.

In summary, the Court of Appeal found for the Claimant in holding that it is not necessary specifically to identify in the Particulars of Claim the individuals within the defendant corporate body whom it is alleged had the relevant knowledge of the dishonesty (which knowledge is to be attributed to the corporate defendant). A Claimant is instead to provide the best particulars possible pending disclosure.

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Factual background

The case involved a number of related trusts named after FC Barcelona footballers. The key trust for the purposes of the claim was the Puyol Trust, which was settled by the Claimant's father, Mr Sofer, with the Claimant named as the main beneficiary (Mr Sofer was also made a beneficiary shortly after the Trust's inception). The Defendant was a professional trustee company operating from Switzerland and the trustee of the each of the trusts.

Under the terms of the Puyol Trust, the Defendant had the power to loan trust funds to the beneficiaries, but was barred from transferring any funds to the beneficiaries before the death of Mr Sofer. The terms of the Puyol Trust also contained a trustee exoneration clause, providing that the Defendant would not be liable for any loss or damage "except where the same shall be proved to have been caused by acts done or omissions made in personal conscious and fraudulent bad faith by the Trustee charged to be so liable".

Over the period of a decade, payments amounting to approximately $19.2m were made from the Puyol Trust to Mr Sofer and Mr Sofer's estate was not able to repay the funds after his death. The payments to Mr Sofer were classed as loans, although no provision was made for matters such as security, repayment and interest.  

The proceedings

The Claimant issued proceedings claiming that the transfers of funds to Mr Sofer were not loans, but gifts made in breach of the relevant terms of the Puyol Trust. The Defendant applied to strike out the claim on the basis that the Particulars of Claim contained no properly pleaded allegation of dishonest breach of trust and therefore the trustee exoneration clause provided a complete answer to the claim. 

The strike out application was successful in the High Court before HHJ Paul Matthews on the basis that, inter alia, the Particulars of Claim did not specifically identify the individuals within the Defendant with the requisite knowledge of the dishonesty. On appeal, the Claimant asserted that such a finding was incorrect, since it was permissible to provide such particulars at a later stage, for example following disclosure.

The Court of Appeal's finding

The Court of Appeal unanimously agreed to reverse the first instance decision.

In considering whether HHJ Paul Matthews had erred in holding that it was mandatory for Particulars of Claim to identify the individuals whom the Claimant alleged to have had the relevant knowledge of dishonesty, Arnold LJ acknowledged that the Particulars of Claim in this case were not "well drafted", but noted that "[w]hat matters for present purposes, however, is not the felicity of the drafting, but whether as a matter of substance it pleads sufficient particulars to disclose a case of dishonesty."

Arnold LJ cited with approval Peter Gibson LJ's statement in this regard in Rigby v Decorating Den Systems Ltd (unreported, 15 May 1999): "It does not seem to me a necessary requirement for a pleading of this nature, where it is quite clear that fraud is being alleged and where the pleading expressly states that the defendants had the relevant knowledge, that particulars of knowledge must be given. That to my mind is sufficient to enable the plea to withstand an application to strike out".

Arnold LJ noted that when alleging dishonesty against a corporate body, a claimant must plead that the corporate had the dishonest state of mind at the relevant time – this is hardly surprising. However, a claimant's failure at the pleadings stage specifically to identify the individuals within that corporate body with the knowledge of the dishonesty should not result in an automatic strike out (accepting that occasions could arise where a claimant's refusal or inability to provide such particulars would result in a strike out). Arnold LJ also made reference to the difficulties inherent in the standard position of drafting pleadings prior to disclosure, but noted that a Claimant should always give "the best particulars he could pending disclosure" and further particulars "as soon as is feasible" thereafter.

Conclusion

The drafting of the Particulars of Claim can come at an awkward time for a claimant: the claimant may "know" that the defendant has been dishonest, but – before disclosure takes place – may not yet be in a position to provide all the specifics in that regard. This can be especially challenging in the case of claims against corporate bodies, particularly large ones where information can be shared among a large number of individuals, such that identifying those with the requisite knowledge of dishonesty will be problematic. 

The Court of Appeal's decision should provide some comfort to claimants with strong "general" grounds for alleging fraud against corporate bodies but limited specific information in that regard. However, a note of caution must be struck: the Particulars of Claim must still be the "best particulars [a claimant] could give pending disclosure" and the failure to provide particulars as soon as is feasible may still justify a strike out. In short, whilst the Court of Appeal's "footballers trusts" decision may have provided an assist to a claimant seeking to allege fraud against a corporate body, that claimant will still need to ensure that they are best placed to score the goal of a well pleaded claim.

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