GI Globinvestment Ltd & Ors v Faleschini & Ors

Factual and Procedural Background

The Claimants allege they were victims of a significant financial investment fraud involving substantial investments made by Company A and an individual Claimant in the Skew Base Fund (Second Defendant). Company A and the individual Claimant engaged Company B, an English financial advisory firm authorised by the Financial Conduct Authority, which was owned and operated by a key individual Defendant and had a company secretary Defendant. The Claimants assert that they were told Company B was an independent and conflict-free adviser, leading them to invest large sums in the Skew Base Fund based on this advice.

Contrary to these representations, it emerged that the Skew Base Fund was not independent from Company B; the fund was created and operated with involvement from Company B and its owner. The Claimants bring claims in deceit and conspiracy, with a trial scheduled for October. Certain Defendants, including the company secretary and affiliated entities owned by the owner Defendant, applied for strike out or reverse summary judgment, which the court rejected, holding that the claims against them are not fanciful and warrant a full trial.

The case involves complex corporate structures, including multiple companies incorporated under Luxembourg and Swiss law, and various service agreements, some alleged to be sham agreements. Investments were made between 2017 and 2019, with significant losses incurred following market turbulence in March 2020.

Procedurally, the claim was issued in December 2020, with full service completed by September 2021. The affiliated Defendants were joined in January 2022. The court has addressed jurisdictional challenges and directed extensive disclosure, with a seven-week trial listed to commence in October 2024.

Legal Issues Presented

1. Whether there is a realistic and non-fanciful case in deceit and conspiracy against the company secretary Defendant and the affiliated corporate Defendants.
2. Whether late-joining Defendants can be held liable for conspiracy despite joining after the initial investment decisions were made.
3. The nature and scope of the alleged conspiracy, including whether ongoing concealment and non-disclosure extended liability beyond the initial investment decisions.
4. The applicability of continuing representations in the context of fraudulent misrepresentation claims.
5. The extent to which the company secretary Defendant had knowledge of the alleged fraudulent scheme and made actionable false representations.
6. The appropriate legal test for conspiracy liability regarding active and passive participation, and attribution of knowledge and intent among related Defendants.
7. Whether negligent misrepresentation claims against the company secretary Defendant should be maintained or struck out.
8. The availability of damages for conspiracy beyond secret profits, including full compensation for losses suffered due to deprivation of independent investment advice.

Arguments of the Parties

Affiliated Corporate Defendants' Arguments

• They argue there is no realistic case against them as they were late joiners to the alleged conspiracy and could not have formed part of the combination or intended to cause the alleged damage.
• They contend there was no temporal overlap between their ownership and the Claimants' investments, thus excluding liability.
• They submit that liability for conspiracy does not extend to losses suffered before a defendant joined the conspiracy.
• They assert that their role was marginal, limited to servicing functions, and that they had no involvement with the Claimants.
• They deny that the alleged agreements and payments to them were sham or undisclosed in a manner relevant to liability.
• They emphasize that passive or marginal participation should not suffice for liability.

Company Secretary Defendant's Arguments

• He denies knowledge that the representations made were false at the time they were made, claiming no involvement in the creation of the fund at that time.
• He argues the independence representations were not representations of existing fact or were not false when made.
• He submits that continuing representations ended upon contract formation, citing case law to argue that the misrepresentation was spent.
• He contends that the conspiracy claim against him depends on the deceit claim and should fail if deceit is not established.
• He seeks to be considered separately from other Defendants, arguing that association alone should not implicate him.
• He moves to strike out claims for negligent misrepresentation, which the Claimants have abandoned.
• He challenges the claims brought by individual Claimants who did not directly receive representations from him or invest in the fund.

Claimants' Arguments

• The Claimants argue that the affiliated corporate Defendants were integral to the fraudulent scheme, acting as vehicles for extracting proceeds for the ultimate benefit of the owner Defendant.
• They contend that conspiracy liability extends to late joiners who knowingly participate in ongoing unlawful conduct, including the extraction of secret payments.
• The Claimants maintain that the conspiracy was continuing, with concealment persisting until the collapse of the investments, and that loss includes inability to redeem investments due to nondisclosure.
• They assert that the company secretary Defendant made false and continuing representations about independence, knowing them to be false or recklessly indifferent.
• They submit that representations as to future intent can constitute actionable representations of existing fact.
• The Claimants rely on evidence suggesting the company secretary Defendant was closely involved in the fund’s establishment and operation, including before formal directorship.
• They argue that continuing representations extended beyond contract formation and were relied upon throughout the investment period.
• They contend that the company secretary Defendant’s knowledge and intent can be inferred from his senior roles and close association with the owner Defendant.
• They acknowledge withdrawing the negligent misrepresentation claim against the company secretary Defendant.
• They assert that individual Claimants who did not invest in the fund still have viable claims based on other loss-making investments advised by Company B under the false independence premise.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of the conspiracy and deceit claims against the affiliated corporate Defendants and the company secretary Defendant. It acknowledged that late joiners to a conspiracy can be liable if they knowingly participate in an ongoing unlawful scheme, rejecting arguments that the absence of temporal overlap with initial investments precludes liability. The court accepted that the alleged conspiracy extended beyond the initial investment decisions to ongoing concealment and extraction of payments, which the affiliated Defendants participated in.

Regarding the company secretary Defendant, the court found it arguable that representations made about independence were representations of existing fact or present intent, which could be false when made or become false over time. It held that continuing representations persisted beyond contract formation and that the Defendant had a duty to correct false representations once aware of their falsity. The court found sufficient evidence to support an arguable case that the Defendant knew of the true connections between the entities and the lack of independence, given his senior roles and involvement in the fund’s establishment and operation.

The court rejected the company secretary Defendant’s attempt to isolate his position from the broader scheme, noting the interrelationship between Defendants. It also dismissed the strike out of negligent misrepresentation claims, as the Claimants had abandoned this claim. The court considered the individual Claimants’ positions and found that claims by those who did not invest in the fund were not without merit, given overlapping claims and reliance on the false independence premise.

On the issue of loss, the court accepted that damages for conspiracy are not confined to secret profits but may encompass full compensation for losses caused by deprivation of independent advice. It emphasized that factual questions about the extent of participation and knowledge, including active versus passive involvement, were matters for trial and not suitable for strike out.

Holding and Implications

The court DISMISSED the strike out applications brought by the company secretary Defendant and the affiliated corporate Defendants, except for the claim of negligent misrepresentation against the company secretary Defendant, which was abandoned by the Claimants and accordingly struck out.

The decision means that the deceit and conspiracy claims against these Defendants have sufficient merit to proceed to trial. The court recognized the complexity of the corporate structures and the continuing nature of the alleged fraudulent scheme, allowing the Claimants to pursue full damages for losses sustained. No new legal precedent was established; rather, the court applied established principles on conspiracy, misrepresentation, and continuing representations to the facts presented. The trial will determine the extent of each Defendant’s knowledge, participation, and liability.