Law Report: Fraud claim based on inference: Creditcorp Ltd v Kingston and others - Court of Appeal (Lord Justice Fox, Lord Justice McCowan and Lord Justice Steyn), 30 July 1992.

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A cause of action based on allegations of fraud could properly be pleaded on inferences legitimately drawn from circumstantial evidence. But the critical inference must be logically supportable by the facts and circumstances relied upon.

The Court of Appeal dismissed an appeal by the plaintiff, Creditcorp Ltd, against a decision by Michael Beloff QC, sitting as a deputy High Court judge, to strike out its claim against three defendants under order 18, rule 19 of the Rules of the Supreme Court, on the ground that it was unsustainable.

Michael Burton QC and Fay Stockton (Warner Cranston) for the plaintiff; Nicholas Padfield QC and Timothy Dutton (Titmuss Sainer Webb) for the second and fourth defendants; Nicholas Strauss QC and John McCaughran (Sprecher Grier) for the third defendant.

LORD JUSTICE STEYN said the plaintiff alleged that the defendants, as directors of Celebrity Group Holdings Ltd, had, when applying for trade finance, fraudulently concealed that they were contemplating and negotiating the sale, which later took place, of the most profitable part of Celebrity's business. Celebrity was now in liquidation and owed dollars 1.3m (pounds 684,000) to the plaintiff.

The judge considered that the primary case against one of the directors was not sustainable, 'bearing in mind that inference will not suffice . . .'

In his Lordship's judgment, it was not correct to say that a fraud case could not properly be pleaded on inferences. On the contrary, it was by the drawing of inferences from circumstantial evidence that most fraud cases were pleaded. That was also the way in which most fraud cases were proved at trial. On the other hand, a court must always be conscious of the risk of piling inference upon inference, that being on manifestation of the drawing of illegitimate inferences.

However, his Lordship agreed with the judge that the critical inference on which the plaintiff's primary case relied was not logically supportable on the pleaded facts.

It was essential to look at the cumulative effect of the facts and circumstances. On the other hand, a number of makeweights did not usually add up to an arguable case. So it was here.