Dadourian Group International Inc & Ors v Simms & Ors

Fraudulent misrepresentation by concealment may arise where a defendant’s conduct creates the false impression that an interested person is merely an intermediary. In deceit, the representation must be made knowingly, recklessly, or without belief in its truth, with an intention that it be acted upon and with actual inducement. A claimant need not prove that the representation was the sole or decisive inducement; it must have played a real and substantial part.

The corporate veil is lifted only in exceptional circumstances, where a company is used as a façade to conceal the facts and lifting the veil is necessary to provide a remedy for the wrong. It is not lifted merely because the company is controlled by the defendants or has committed a breach of contract.

The claim arose from an option agreement under which Charlton Corporation plc was to acquire hospital-bed manufacturing equipment from DGI and develop a manufacturing venture in Bangladesh. An arbitration between DGI and Charlton resulted in awards in DGI’s favour. Charlton had no assets, and DGI subsequently sued its directors and alleged controllers, claiming fraudulent misrepresentation, conspiracy, procurement of breach of contract and related relief.

The central issues were whether Jack and Helga Dadourian had concealed their true interest in Charlton by presenting Jack as a mere intermediary; whether the other defendants were jointly liable for that deception; whether the corporate veil should be lifted; and whether the defendants’ conduct in the arbitration constituted conspiracy.

1. Deceit. Jack’s communications conveyed the impression that he was merely an intermediary, although he and Helga had an indirect ownership interest and strategic control over Charlton. The representation was fraudulent and induced DGI to enter into the option agreement. Helga and Mr Simms were jointly liable with Jack because they participated in, adopted, or shared the common design to maintain that deception. The claim against all four defendants in respect of the intermediary representation therefore succeeded.
2. The other alleged representations, concerning shareholdings, creditworthiness, financial capacity and manufacturing experience, were not established as actionable pre-contract representations relied upon by DGI. The evidence was uncertain as to their timing, content and maker, and Haig had not heard them before the agreement was concluded.
3. For deceit, the relevant inquiry is whether the representation was made knowingly, without belief in its truth, or recklessly; whether it was intended to be acted upon; and whether it induced the claimant. A representation need not be the sole inducement. It is sufficient that it played a real and substantial part. The counterfactual question of what the claimant would have done if the representation had never been made is not invariably decisive.
4. Conspiracy. The defendants had agreed to conceal Jack and Helga’s involvement, but the evidence did not establish the necessary intention to injure DGI for conspiracy to injure, or the requisite intention to injure for unlawful-means conspiracy. The conspiracy claims were dismissed. The defendants’ claims and conduct in the arbitration were not shown to have been pursued without a bona fide belief in the arguability of their contractual case, despite serious misrepresentations and disclosure failures.
5. Corporate veil. Ownership and control alone were insufficient. Charlton was used to conceal Jack and Helga’s involvement, but DGI had an effective remedy in deceit. It was therefore neither necessary nor appropriate to lift the veil to impose Charlton’s contractual liabilities on Jack and Helga. The claims seeking to make them liable for the arbitral awards were dismissed.
6. DGI recovered, in principle, the legal and incidental costs directly resulting from the induced litigation and arbitration, but not the costs of its unsuccessful tactical application concerning the venue of the arbitration. The remaining claims of DGI, Alex and Haig were dismissed, subject to further submissions on the recoverable figures.