- Bookmark
- Share
- CaseIQ
Barley v Muir
Factual and Procedural Background
This action arises from the Plaintiff's investment of £1.25 million in Company A in two tranches of £625,000 in October 2011 and October 2012. The Plaintiff claims that her investment was induced by fraudulent misrepresentations made by the Defendant, a director of Company A, to her husband and agent. Company A went into liquidation in July 2014 and was struck off the Companies Register in June 2015, having never traded or generated revenue. The Plaintiff lost all her money.
The Plaintiff claims damages for loss in the tort of deceit; alternatively on the basis of breaches of warranty and other contractual terms contained in a Shareholders' Agreement entered into by the Plaintiff, Company A, the Defendant, and others at the time of the first investment. Further or alternatively, she claims the Defendant is liable in equity and/or law for a sum paid over by Company A to the Defendant immediately upon her first investment. The Defendant denies liability in every respect.
Prior to the dispute, there was a close friendship between the Plaintiff's family and the Defendant's family, involving regular socialising and informal discussions about the proposed investment. Both parties had professional backgrounds; the Plaintiff had been a solicitor and the Plaintiff's husband a chartered accountant, who acted as her agent in managing investments. The Defendant was a solicitor specialising in corporate finance and had retired from private practice in 2008 to pursue business opportunities, including with a third party.
The principal witnesses were the Defendant and the Plaintiff's husband. The central issue concerns the Defendant's honesty in dealings with the Plaintiff's husband. The Plaintiff's counsel relied on the Defendant's admitted deceit towards Company A's Finance Director and an accountant concerning payments made to himself and another individual after the first investment, arguing this demonstrated dishonesty. The Defendant's counsel did not suggest dishonesty on the part of the Plaintiff's husband but submitted his account was unreliable and inconsistent.
The Defendant was found to have to be approached with caution due to admitted deceit in certain matters, but the court was not persuaded he was dishonest in his dealings with the Plaintiff's husband and accepted that he honestly believed the truth of what he said to him. Other witnesses were found to have given honest evidence.
Legal Issues Presented
- Whether the Defendant made fraudulent misrepresentations to the Plaintiff's husband inducing the Plaintiff's investments.
- Whether the Defendant is liable in equity and/or law for the repayment of a sum paid to him by Company A immediately after the Plaintiff's first investment.
- Whether there was a breach of warranties or other contractual terms in the Shareholders' Agreement entitling the Plaintiff to damages.
- Whether the Defendant breached provisions of the Shareholders' Agreement concerning the appointment of independent non-executive directors and the provision of accounts and other information.
Arguments of the Parties
Plaintiff's Arguments
- The Plaintiff contended that the Defendant made fraudulent misrepresentations, including that Company A had commenced trading, had entered joint venture agreements, and was generating revenue, which were false.
- She argued that the Defendant's payment to himself immediately after her first investment was wrongful and that he held the sum on resulting trust or was otherwise liable to repay it.
- The Plaintiff claimed breach of warranties in the Shareholders' Agreement, particularly that Company A was not party to any joint ventures and that the business was accurately represented.
- She asserted that the Defendant breached contractual obligations regarding corporate governance and disclosure, which would have affected her decision to make the second investment.
Defendant's Arguments
- The Defendant denied any liability, asserting he honestly believed the statements made to the Plaintiff's husband.
- He maintained that the payment to himself was a lawful repayment of a loan, salary arrears, and expenses.
- He submitted that the warranties were given only as at the date of the Shareholders' Agreement and were not repeated upon the exercise of the option for the second investment, with no proper notice given.
- He argued that any breach claims relating to corporate governance provisions could not be made against him personally and that any alleged breaches did not cause the Plaintiff to act differently.
- The Defendant contended that the Plaintiff and her husband were cautious investors who took a commercial risk rather than being induced by misrepresentations.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| AIC Ltd v. ITS Testing Services (UK) Ltd ('The Kriti Palm') [2006] EWCA Civ 1601 | Elements of deceit: representation, falsity, dishonesty, intention to induce reliance. | Used to outline the requirements to establish fraudulent misrepresentation, including the need for dishonesty and reliance. |
| Paragon Finance plc v. DB Thakerar & Co [1999] 1 All ER 400 | Fraud must be distinctly alleged and proved. | Confirmed the need for clear identification and proof of dishonest representation. |
| Re B [2009] 1 AC 11 | Standard of proof in civil fraud cases is the civil standard with particular caution. | Applied the civil standard of proof with careful scrutiny of evidence. |
| Barings plc (in liquidation) v. Coopers & Lybrand [2002] EWHC 461 (Ch) | Implied representation by professionals having greater knowledge. | Supported the principle that a professional's statement implies reasonable grounds for the statement. |
| Raiffeisen Zentralbank Osterreich v. Royal Bank of Scotland plc [2010] EWHC 1392 (Comm) | Objective assessment of representations considering the representee's characteristics and context. | Guided the court in assessing the nature and impact of the representations made. |
| Derry v. Peek (1889) 14 App Cas 337 | Definition of fraud: knowingly false, without belief in truth, or recklessness. | Applied the classic test for dishonesty in fraudulent misrepresentation claims. |
| Angus v. Clifford [1891] 2 Ch 449 | Recklessness defined as wilful disregard of truth. | Clarified the meaning of recklessness in fraud context. |
| Goose v. Sandford [2001] Lloyd's Rep PN 189 | Fraudulent intent can arise from ambiguous statements deliberately used to deceive. | Referenced in relation to intent to deceive through representations. |
| Ross River v. Cambridge City Football Club [2007] EWHC 2115 (Ch) | Inducement need not be sole cause; sufficient if it is one of the inducing causes. | Applied to assess whether misrepresentation materially influenced the Plaintiff's decision. |
| MWB Business Exchange Centres Ltd. v. Rock Advertising Ltd. [2016] EWCA Civ 553 | Parties can vary contract terms orally despite written variation clauses. | Considered in relation to alleged informal variation of Shareholders' Agreement provisions. |
Court's Reasoning and Analysis
The court carefully examined the evidence, particularly the credibility of the Defendant and the Plaintiff's husband. Despite the Defendant's admitted deceit in misleading Company A's Finance Director and accountant about payments to himself and another individual, the court was not persuaded that the Defendant was dishonest in his dealings with the Plaintiff's husband. The Defendant was found to have had an honest belief in the truth of his statements.
The court analysed the key representations made in the Defendant's email of 21 September 2011 concerning Company A's commencement of trading, joint ventures, and financial projections. It found that the representation that Company A had commenced trading was false, but the Defendant honestly believed it to be true, as did third-party advisers involved in due diligence. The representation that Company A had a joint venture agreement with a third party was not made by the Defendant, and the Plaintiff's husband did not believe such an agreement existed. The financial figures were projections, which the Defendant honestly believed had a reasonable basis.
Regarding inducement, the court was not satisfied that the identified misrepresentations materially influenced the Plaintiff's decision to invest. The Plaintiff and her husband were cautious investors who essentially took a commercial risk. Subsequent meetings and information provided to the Plaintiff's husband, including involvement of reputable advisers, diminished the impact of the alleged misrepresentations.
The court rejected the claim that the Defendant's payment to himself immediately after the first investment was wrongful, finding it to be a lawful repayment of a loan, salary arrears, and expenses. Any remedy for an unlawful payment would lie with Company A or its liquidators, not the Plaintiff.
The court considered the Shareholders' Agreement warranties and concluded that they were given only as at the date of the agreement and were not repeated upon exercise of the option for the second investment due to lack of proper notice. Consequently, claims based on breach of warranties failed. The court also found no breach of warranties at the agreement date.
Claims concerning breaches of other Shareholders' Agreement provisions, such as appointment of non-executive directors and provision of accounts, failed because no such breach could be attributed to the Defendant individually, and the Plaintiff would not have acted differently even if the provisions had been complied with.
Overall, the court found no basis to establish fraudulent misrepresentation or breach of contract entitling the Plaintiff to damages or repayment.
Holding and Implications
The court DISMISSED the Plaintiff's claims in their entirety.
The direct effect is that the Plaintiff's investments are lost and no compensation or repayment is awarded. No new legal precedent was established, and the decision primarily resolves the factual and evidential disputes in this particular case regarding alleged fraudulent misrepresentation and contractual breaches.
Alert