Success for 4 New Square in proving security industry fraud in defence to a contractual claim

News & Judgments
26 October 2023

On 25 October 2023, Andrew Lenon KC handed down judgment in the High Court in Lawrence & Keyguard v Cowell and Ors [2023] EWHC 2644 (Ch) dismissing a claim to enforce a share purchase agreement and guarantee on the grounds that the agreements were procured by fraudulent misrepresentation. Carl Troman and Hannah Daly represented the successful Defendants.

The claim brought to light a fraud practiced in the security guarding industry known as “ghosting”. Ghosting is the illegal and dishonest practice of charging a client for time which is not in fact worked. It can be notoriously difficult to detect in the industry.

In this case, the Defendants entered into a share purchase agreement in 2017 to buy the majority of the shares in ‘Keyguard’ – a security guarding company owned by the First Claimant. They did so in reliance on, inter alia, company accounts apparently showing the company in very good health. It transpired that in fact there was widespread and intentional ghosting at Keyguard, practiced over many years and which had remained undetected by industry accreditors and compliance officers. The effect of the fraud was to inflate the company’s turnover and profits so far as those were generated by ghosted hours, and to understate its liabilities to the same extent.

The Judge found that the First Claimant knew about the fraud and must have known (or that he had Nelsonian blind-eye knowledge) of the resultant falsity of the financial information being presented to the Defendants. An attempt by the First Claimant to rely on a contractual non-reliance clause was rejected.

A separate claim was also brought by Keyguard against two of the Defendants for breach of their statutory duties as directors of the company following the acquisition. Save in two minor respects, that claim (comprising 18 separate allegations) were all dismissed.

The claim is an instructive example of how fraud may be proved by a careful accumulation of factual and expert evidence when, as is so often the case, there is otherwise no ‘smoking gun’.

If you would like more information, please contact Alex Dolby.

Related People

Carl Troman

Call: 2001

Hannah Daly

Call: 2017



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