Leonardo Private Equity Fund Ltd v Loscalzo

Fraudulent misrepresentation requires a false representation made knowingly, without an honest belief in its truth, or recklessly, with the intention that the claimant should rely on it. Where a duty to disclose exists, fraudulent conduct may involve non-disclosure or deliberate concealment. A claimant cannot avoid the requirement to prove fraud by showing only that the defendant’s account was optimistic, careless or unauthorised. Serious allegations must be established on the balance of probabilities, with the seriousness of the allegation taken into account when assessing the evidence.

The claimant investment fund alleged that its consultant fraudulently misrepresented the terms of proposed bids for Italian sports businesses and, without authority, committed the claimant to the investment. It claimed recovery of sums paid and an indemnity for further liabilities.

The defendant denied fraudulent misrepresentation and contended that the claimant knew the true terms, had ratified the transactions, and had suffered no loss. The central issue was whether the defendant had dishonestly misrepresented the claimant’s financial obligations under the third bid, including an alleged maximum commitment of €2.5 million and the existence of co-investors.

1. Claim dismissed. Judgment was entered for the defendant.
2. Fraudulent misrepresentation requires a false representation made by a defendant who knows it to be untrue, lacks an honest belief in its truth, or is reckless as to its truth, intending that the claimant should rely on it. The claimant must prove the absence of an honest belief. Where a duty to disclose exists, the relevant conduct may include non-disclosure and conduct intended to conceal facts. It is no defence that the claimant might have discovered the truth by reasonable care.
3. The court applied the civil standard of proof, while taking account of the seriousness of the allegations. The seriousness of an allegation such as forgery is a factor requiring careful assessment of the evidence.
4. The claimant failed to establish the alleged representations. The court rejected the contention that the defendant had represented that the claimant’s maximum commitment was €2.5 million. The evidence showed that those responsible for the claimant had previously been prepared to underwrite substantially more than that sum.
5. The court also rejected the allegation that the defendant fraudulently represented that other investors had committed themselves to the third bid. The defendant had referred to potential investors and genuinely believed that further investors would be forthcoming. The evidence did not show that he represented that named investors, apart from Previm, had made binding commitments.
6. The court found that the claimant’s losses arose from poor communication, fragmented information, inadequate procedures, misunderstandings and the defendant’s conduct in signing documents without authority. Those matters did not establish the alleged fraudulent misrepresentations. The issues of knowledge, ratification and quantum therefore did not require determination.