Indemnity Costs Awarded For Unsubstantiated Fraud Allegations In Original Pleading.

LOGIX AERO IRELAND LIMITED V SIAM AERO REPAIR COMPANY LIMITED [2025] EWHC 1283 (KB)

In Logix Aero Ireland Limited v Siam Aero Repair Company Limited [2025] EWHC 1283 (KB), the court considered costs issues arising from the defendant’s application to strike out the claimant’s claim and sought indemnity costs. The claimant alleged breach of a confidentiality clause and advanced an alternative claim based on apparent authority, both of which were dismissed as unarguable. The court held that the claimant’s original pleading inappropriately implied fraud without proper evidential basis, justifying an indemnity costs order under CPR 44.3(1). The defendant’s application for indemnity costs succeeded due to the claimant’s unreasonable conduct in pleading fraud, which was outside the norm under _Excelsior Commercial and Industrial Holdings Ltd. The court struck out the claim under CPR 3.4(2)(a) and awarded the defendant indemnity costs for the defective pleading, with further costs issues to be addressed via written submissions.

The claimant's original pleading did not meet the strict requirements for pleading fraud (para 69 above). Neither party suggests that it did. However, the fact that the pleading was somewhat equivocal on the question of whether the defendant had committed fraud, does not mean that it was unobjectionable. One of the purposes of the strict requirements for the pleading of fraud (in addition to the other party being able to clearly understand the case against it, when this is asserted), is because something this serious should not be alleged lightly or without a sufficient evidential foundation. In my judgment, it was wholly inappropriate for the claimant to raise the possibility that the defendant was involved in the fraud at para 9 of the pleading and to list a series of matters at para 11 that were said to "suggest that the Defendant was complicit in the fraud", in circumstances where, as Mr Page accepts, there was insufficient material to warrant a fully pleaded case of fraud. A statement of case is a document which members of the public can generally obtain from the court records pursuant to CPR 5.4C(1).

Citations

Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd and Another [1964] 2 QB 480 Where a principal represents, by words or conduct, that another has authority to act on its behalf, the principal is estopped from denying the agent’s apparent authority and is bound by the agent’s acts within that authority. Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717 Apparent authority must be based on a representation from the principal, not the agent, and does not arise merely from placing the agent in a position that allows the agent to commit fraud. London Joint Stock Bank Ltd v Macmillan and Arthur [1918] AC 777 A party may be liable for losses caused by a third-party fraud where that party’s negligence created the opportunity for the fraud to occur, provided the loss was a natural consequence of the negligence. The Law Debenture Trust Corpn plc v Ukraine [2023] UKSC 11, [2024] AC 411 A principal is bound by the acts of a third party who acts with apparent authority when the principal’s representation, by words or conduct, leads a contractor to reasonably believe that authority exists and act upon it. Swain v Hillman [2001] 1 All ER 91 A claim will be summarily dismissed where it has no real prospect of success and is not supported by convincing evidence or reasoning. ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472 A claim has a realistic prospect of success if it carries some degree of conviction beyond merely arguable assertions. Altimo Holdings v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804 A claim is liable to be struck out where it is bound to fail on the facts and legal principles applicable to the pleaded case. Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) When considering summary judgment, the court may engage in a limited evaluation of the evidence and assess whether the claim has a sustainable prospect of success. Begum v Maran (UK) Ltd [2021] EWCA Civ 326 When considering strike out and summary judgment simultaneously, the applicable tests are the same: whether the claim is bound to fail, assessed on realistic grounds and not hypothetical cases. Sofer v Swiss Independent Trustees SA [2020] EWCA Civ 699 Allegations of dishonesty must be specifically pleaded, based on primary facts that justify the inference, and cannot rely on material equally consistent with innocence. Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1 A serious allegation such as fraud must be pleaded with precision, including the factual matrix necessary for the court to infer dishonesty on a more likely than not basis. Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 An award of indemnity costs is appropriate where the conduct of the litigation is out of the norm and falls outside ordinary and reasonable behaviour in litigation. Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 Awards of indemnity costs are justified by unreasonable or improper conduct that is outside the ordinary and reasonable conduct of litigation, without necessarily requiring bad faith.

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Key Points

The court may order indemnity costs where a party conducts litigation in a manner that is outside the ordinary and reasonable conduct of proceedings, even absent bad faith. [110, 115]
Allegations of fraud must only be made where supported by a proper evidential foundation; it is inappropriate to include speculative or equivocal references to fraud in a statement of case. [69, 110]
A statement of case is a public document under CPR 5.4C(1), and the inclusion of unfounded or suggestive references to fraud may justify an indemnity costs order. [110]
The context in which proceedings are issued, including time constraints or foreign procedural deadlines, does not justify pleading fraud without sufficient basis or without affording the defendant an opportunity to respond. [113]
Pleading a serious allegation such as fraud without first seeking disclosure or giving pre-action notice may justify the court awarding costs on the indemnity basis due to the procedural unfairness involved. [113–114]

"Furthermore, the matters that were said to be suggestive of fraud are, on examination, insubstantial. There was no evidence that the defendant had copied the email sent at 02:16 hours on 29 July 2024 to the fraudster, contrary to the suggestion or implication at para 11(1) of the original pleading. Far from it being "very odd" that the defendant did not continue communicating with the claimant so as to finalise the purchase, as stated at para 11(2); the fraudster's deception led Mr Gofshteyn to believe that he was still communicating with the claimant, as he had already explained to Mr Krys before the pleading was prepared during the WhatsApp conversations after the fraud was discovered (para 32 above). Furthermore, information was not "known only to the Defendant" as alleged at para 11(4); it had been sent unwittingly to the fraudster, as Mr Gofshteyn had also explained during the WhatsApp communications."

Key Findings In The Case

The claimant’s alternative case that the fraudster acted as an agent with the defendant’s apparent authority was found to have no realistic prospect of success, as the fraudster’s involvement was unknown to both parties, and there was no conduct or representation by the defendant capable of giving rise to such authority. The claimant believed it was dealing directly with Mr Gofshteyn throughout and not a third party agent. [90–93]
The court found that both parties had unwittingly disclosed information to the fraudster, enabling him to manipulate email correspondence and documentation from each side to progress the fraudulent scheme, indicating that any breach of confidentiality was mutual and the sole cause of loss was the fraudster’s deception, not any particular act of disclosure by the defendant. [98–100]
The claimant’s claim for breach of the Confidentiality Clause was held to have no real prospect of success because, even if a breach had occurred, the loss was not causatively linked to the specific disclosures pleaded; instead, the successful fraud required actions and communications from both parties. [97, 103]
The court found that the inclusion of suggestive allegations of fraud in the original Particulars of Claim was inappropriate and unjustifiable given the absence of any sufficient evidential foundation, particularly as the claimant had failed to seek disclosure or pre-action engagement before issuing proceedings. [110–114]
Despite asserting time pressure due to a foreign court’s procedural deadline, the claimant did not pursue reasonable alternatives such as issuing the Claim Form ahead of expiry and then seeking information before serving its Particulars of Claim, further contributing to the conclusion that its conduct justified an indemnity costs order. [113–114]

"For these reasons, I am quite satisfied that the way the claim was originally pleaded in the Particulars of Claim was highly inappropriate and that the explanations which have been advanced do not provide any justification for this. The course that was taken was indeed outside the ordinary and reasonable conduct of proceedings and I award the defendant its costs on an indemnity basis."

Background

The case of Logix Aero Ireland Limited v Siam Aero Repair Company Limited [2025] EWHC 1283 (KB) arose from a commercial dispute involving the sale of two Pratt & Whitney 127 aircraft engines. The parties had entered into a Letter of Intent (LOI) on 4 July 2024 (signed by the defendant) and 9 July 2024 (signed by the claimant), which was partially subject to the execution of subsequent Sale and Purchase Agreements (SPAs). Negotiations were conducted primarily by email. From 29 July 2024, a fraudster intercepted and manipulated email communications between the parties, leading the claimant to pay the purchase price of USD 824,900 into the fraudster’s bank account rather than the defendant’s. The defendant, having not received payment, refused to release the engines.

The claimant issued proceedings on 21 October 2024, seeking declarations, damages, and/or delivery up of the engines. The defendant applied on 27 December 2024 to strike out the claim under CPR 3.4(2)(a) and/or for reverse summary judgment under CPR 24.3, arguing the claim had no reasonable prospects of success. The defendant also sought indemnity costs due to the claimant’s original pleading, which included unsubstantiated allegations of fraud. The claimant subsequently submitted a draft Amended Particulars of Claim (draft APC), which removed the fraud allegations and reframed the claim around breach of a confidentiality clause and apparent authority.

Costs Issues Before the Court

The key costs-related issues before Mrs Justice Heather Williams were:

Whether the defendant was entitled to indemnity costs due to the claimant’s original pleading, which included unsubstantiated allegations of fraud.
The appropriate costs order following the court’s determination of the strike-out and summary judgment applications.

The Parties’ Positions

Defendant’s Submissions on Indemnity Costs:
The defendant argued that the claimant’s original Particulars of Claim improperly alleged fraud without sufficient evidential basis. The pleading included speculative assertions (e.g., para 11) suggesting the defendant’s complicity in the fraud, despite the claimant having no concrete evidence to support this. The defendant contended that such allegations were inappropriate and warranted indemnity costs under CPR 44.3(1), as they fell outside ordinary and reasonable conduct of litigation.

Claimant’s Submissions on Indemnity Costs:
The claimant accepted that the original pleading did not meet the strict requirements for pleading fraud but argued that it was an honest attempt to set out suspicions based on the limited information available at the time. The claimant emphasised the urgency of issuing proceedings due to French interim seizure orders and the lack of pre-action disclosure from the defendant. It was submitted that the inclusion of the fraud allegations did not justify an indemnity costs order.

The Court’s Decision

Indemnity Costs:
The court held that the claimant’s original pleading was inappropriate. The allegations of fraud were inadequately particularised and lacked a proper evidential foundation, contrary to the principles set out in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1. The court rejected the claimant’s justification for the pleading, noting that the urgency of the French proceedings did not necessitate the inclusion of unsubstantiated fraud allegations. The defendant was awarded indemnity costs in relation to the original Particulars of Claim.

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