Summary

A judge had been entitled to order rescission of an agreement to invest in a failed scheme for the purchase of land in Cambodia on the basis that the investor had been induced to enter into the agreement by fraudulent misrepresentation.

Facts

The appellant (D) appealed against a decision ([2013] EWHC 879 (QB)) that the respondent (B) was entitled to rescission of an agreement because he had been induced to enter into it by fraudulent misrepresentation.

B and D had been next-door neighbours and friends. B claimed that D had told him that he had put together a group of investors to purchase land in Cambodia for approximately US $14 million, that he had invested $1 million himself and that further investment was urgently needed because an investor had dropped out. He claimed that D had indicated that a French hotel chain had paid a non-refundable 20 per cent deposit and was locked in to a "back-to-back" purchase agreement to buy the land for $21 million, and that full planning permission had been granted. A Cambodian national (N) was to implement the purchase, as foreigners were not permitted to hold land in Cambodia. B invested US $1.75 million, made up of an initial $1 million and two further transfers in sterling totalling £318,650. The investment was unsound. N was subsequently convicted of fraud and was ordered to repay D $9.045 million plus $1 million compensation. B sought recovery of his investment from D. The judge found that D had intentionally misrepresented the investment he was inviting B to make, which induced him to invest. He ordered D to repay $1,749,212 with interest.

Held

(1) The focus had to be on whether the judge's findings were properly open to him on the evidence. The first issue was the finding that the case based on fraudulent misrepresentation had been made out. The judge had had to consider the rival accounts of the conversations between B and D and decide who he believed. He found that the representation regarding the $14 million from investors had been made. He considered that D's motive in approaching B was explicable by his own belief that the scheme was likely to be a highly profitable one, but one which could not take place unless the $14 million could be raised. That explained why D should try to give B the impression that the scheme was fully subscribed but for the unexpected withdrawal of an investor. The judge was also entitled to find that D was capable of lying when it suited him, and that his enthusiasm for the scheme overrode any qualms he might have had. The evidence indicated that there were never investors who had expressed a willingness to provide up to $14 million. There was no basis to interfere with the judge's finding. Similarly, his failure to mention each and every one of the discrepancies or variations in B's recollection of events was not to be treated as a failure to take them into account. With regard to the non-refundable deposit paid by the hotel chain, the differences between B and D's accounts were matters for the judge to resolve on the evidence. D's criticisms of the judge in respect of the alleged representation that the sale and purchase would be back to back were also rejected. The judge was also entitled to reject D's evidence as not credible regarding the alleged representation that purchase moneys were needed urgently or the deposit would be lost. With regard to planning permission, the judge thought it likely that D had said little more than that the land was available for development, not that there was full planning permission, but that it was intended to give, and had given B, the impression that all that was required for development had been obtained. However, there was no evidence that B had relied on such an implication and his pleaded case was not made out on that point. That was insufficient, however, to alter the outcome of the appeal. The further payments made by B were also made in reliance on the earlier representations, which remained operative. D's appeal against the order rescinding the investment agreement and ordering repayment was rejected (see paras 10, 12, 38-80 of judgment). (2) The only issue regarding D's argument that the judge should have ordered him to repay B the £318,650 in sterling rather than US dollars, given the increased value of the dollar, was whether restitution should require D to lose the benefit he obtained or should be limited to restoring to B what he paid out in the currency in which payment was made. An order in that limited form would restore B to the position he was in before the payments were made, but it would also leave D with the benefit of the change in exchange rate and mean that he was required to pay back less than he had received. An order for restitution in integrum, even though not technically an award of restitution in the common law sense, should be capable, in principle, of preventing the defendant from being unjustly enriched at the claimant's expense. The purpose of the equitable order made by the judge was to require D to repay not just enough to restore the original balance in the sterling account, but every benefit he had received under the contract that had been set aside. Any benefit resulting from the fact that B had converted his money into US dollars prior to making payment to D should be restored to B (paras 81-86).

Appeal dismissed