Summary

The managing director of a company was personally liable in deceit for fraudulent misrepresentations which he had made to a claimant and which had induced the claimant into entering into transactions causing a substantial loss.

Facts

The claimant (L) brought a claim for damages for deceit against the defendant (O). O was the managing director and majority shareholder of a company engaged in currency conversion. Under the company's standard terms and conditions money which was paid to it by clients was held on trust pending the purchase of the relevant foreign currency. The company began to experience financial difficulties and was unable to pay its debts. Nevertheless, O accepted instructions from L to conduct three transactions in June 2008 and two transactions in September 2008 to convert sterling to euros. In the June transactions the euros were received into L's foreign bank account late. When L complained, he was told that the money had been sent on time, and that a trace had been put on the funds with the company's bankers, which was untrue. O told him that he had sent a duplicate payment to L's account whilst they tracked the funds, but that was also untrue as no original payment had been made. L paid £565,000 to O pursuant to the September transactions. However, instead of using the money to purchase the euros, O used it to pay other creditors, and the company was then declared insolvent. L submitted that he had been induced to enter into the September transactions by O's fraudulent misrepresentations. L argued that the misrepresentations could be implied from the emails O had sent to him. O maintained that he had been unaware that the company was insolvent, and argued that he had a defence under the Statute of Frauds Amendment Act 1828 s.6.

Held

(1) The tort of deceit contained four elements: (a) the defendant must have made a representation of fact which could be clearly identified; (b) the representation was false; (c) it was made dishonestly; (d) the statement was intended to be relied upon and was in fact relied upon. It was well-established that a representation, including a fraudulent misrepresentation, could be implied from words or conduct. However, whether the court would imply a representation depended upon all the circumstances; context was everything, AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) (2006) EWCA Civ 1601, (2007) 1 All ER (Comm) 667 considered. (2) O had lied about the extent to which he was aware of the hole in the company's accounts. The truth was that he was well aware of the hole, having improperly used client monies over some considerable period of time, effectively using it as a personal bank account. He had known by May 12, 2008 that the company was insolvent, although in reality the company was almost certainly insolvent for some months prior to that. When O had accepted L's June orders he knew full well that because of the parlous financial state of the company the sums which L was proposing to trade would not be held in trust until the equivalent euros were purchased but would be used in an illegitimate manner to pay other clients, which was what happened. Against that background, in accepting the order and sending the trade note O represented by implication that the currency business conducted by the company was trading properly and legitimately, in the sense that it was not insolvent, and that the fund would be held on trust in accordance with the terms and conditions until paid out to purchase foreign exchange on L's behalf. On any view those representations were false to O's knowledge and were accordingly fraudulent. Furthermore, since the implied representations were never corrected, they continued as misrepresentations throughout the period during which L continued to trade with the company, being repeated when L relied upon them in entering into subsequent trades, Briess v Woolley (1954) AC 333 HL followed. (3) In a modern context, s.6 of the 1828 Act would clearly be satisfied if the representation was contained in an email, provided the email included a written indication of who was sending it, J Pereira Fernandes SA v Mehta (2006) EWHC 813 (Ch), (2006) 1 WLR 1543 applied, Lyde v Barnard 150 ER 363 Ex Ct considered. The fact that the relevant representation was to be implied from a written document which otherwise complied with s.6 (as O's email enclosing a trade note did, because it included O's electronic signature) did not mean that it was unenforceable pursuant to that section, Contex Drouzhba Ltd v Wiseman (2007) EWCA Civ 1201, (2008) BCC 301 considered. (4) O had made a further fraudulent misrepresentation in stating that a duplicate payment had been made in June, giving the clear implication that the company had already made one payment, and leaving the false impression that the original payment had gone astray through the fault of O's bank. It had been incumbent upon O to correct the misleading and false impression which he knew L had been given, and by failing to do so, he impliedly repeated, by his conduct, the earlier fraudulent misrepresentations which therefore continued as misrepresentations. None of that was caught by s.6 of the Act. It was quite clear that if L had known the true position he would not have parted with his money, he had therefore been induced by O's misrepresentations, Dadourian Group International Inc v Simms (Damages) (2009) EWCA Civ 169, (2009) 1 Lloyd's Rep 601 considered. O liable in deceit for the losses suffered by L.

Judgment for claimant