The Court of Appeal has upheld a ruling of the Employment Appeal Tribunal (EAT) that a man who...
When seeking investment, businesses should ensure that any information a prospective investor might rely on when deciding to invest is accurate. Recently, the Court of Appeal dismissed a company director's appeal against an award of damages to two investors after he had misrepresented to them that a mutual acquaintance had been appointed as a director.
The investors had invested a total of £1 million in a biotech company between December 2012 and November 2014. In an email sent on 5 December 2012, the director had incorrectly stated that a friend of the investors, who was also known to him, had been appointed as a director of the company. The company went into administration in April 2016, rendering the investors' shares worthless.
After the investors brought a claim for fraudulent misrepresentation against the director, the High Court found that they had invested in reliance on the representations in the email. Those representations had been intended to induce the investors to invest and the director had known them to be untrue. The Court concluded that the investors had lost the whole of their investment as a direct result of their reliance on the director's misrepresentations. The Court rejected the director's limitation defence, finding that the investors had had no reason to doubt what he had told them or take any steps to investigate the true position until September 2015, which was less than six years before they had brought their claim. The investors were awarded £1 million in damages, plus interest and costs.
Ruling on the director's appeal against that judgment, the Court of Appeal rejected his contention that the High Court had failed to appreciate that the burden was on the investors to show that the primary limitation defence under Section 2 of the Limitation Act 1980 did not apply because Section 32 of the Act served to prevent time from running. It was clear from the High Court's judgment that it had had well in mind that it was for the investors to answer his plea that the primary limitation period had expired. He also argued that the investors' evidence had wrongly focused on when they had first become concerned about their investment, rather than whether they could not, with reasonable diligence, have made a search at Companies House which would have revealed that their friend was not a director. In the Court of Appeal's view, however, the High Court had been right to approach the question of whether they could reasonably have inquired into the friend's formal status as being part and parcel of the question of whether they had any reason to do so because they were concerned about their investment.
The director also contended that the High Court had been wrong to find that the investors had relied on his representation that the friend had been appointed as a director. They had been looking for him to have 'an influence and a say in the company', and the High Court should have found that this was satisfied by their knowledge that he was a de facto director. Rejecting this argument, the Court of Appeal observed that the statement about having an influence and a say had been made in the context of the friend being on the board – i.e. a de jure director. There had also been no finding that the friend had been acting as a de facto director when the investors had made their investment.
The director's argument that if the email had not misrepresented that the friend was a de jure director, the investors would likely still have invested and so the misrepresentation was not the cause of their loss, was also rejected.
