Abu Dhabi Investment Company & Ors v H Clarkson & Company Ltd & Ors

A representation made to induce a transaction is ordinarily continuing until acted upon. If the maker later learns that it was false, or that circumstances have materially changed, elementary honesty requires timely correction. Deliberate failure to correct may constitute deceit where the maker appreciates both the change and its significance and consciously withholds it to secure the transaction.

Reliance is not excluded merely because the claimant undertook due diligence or received independent professional advice, particularly where the advisers relied on the representor’s information. A claimant may recover its own loss, but separate corporate vehicles cannot recover losses suffered by them. Liability in negligence requires a personal assumption of responsibility.

ADIC and two special-purpose subsidiaries invested in a proposed Abu Dhabi container shipping joint venture with Norasia. The claimants alleged that Norasia, Mr Steiger and Mr Menzel had dishonestly misstated the vessels’ earning capacity, service speed, operational performance and technical condition, and had failed to correct those statements before completion.

The claims followed a lengthy commercial trial. Claims against Clarkson and KfW were settled during the trial. The principal issues were whether the representations were fraudulent, whether later information generated a duty to correct them, whether ADIC relied on them despite due diligence, the extent of recoverable loss, and whether the subsidiary claimants had independent causes of action.

1. Deceit and continuing representations. The representations that the vessels had operated successfully at 25 knots and had consistently earned a time-charter equivalent of US$15,000 per day were false and material. The defendants knew this, or made later statements recklessly, without real belief in their truth. A representation concerning an existing state of affairs is ordinarily continuing until acted upon. Once the representor knows that it is false, the duty to correct arises immediately. By December 1999 the defendants knew that the APX results contradicted the earlier representations, yet deliberately withheld that information to avoid jeopardising the transaction.
2. Joint enterprise and individual liability. Mr Steiger and Mr Menzel acted as participants in a joint enterprise intended to mislead ADIC. Their individual representations also independently established liability. ADIC’s due diligence and reliance on Clarkson, Lucas and Brockmann did not displace reliance on the defendants’ statements, since the professional advice was materially based on information supplied by Norasia.
3. Loss and corporate personality. ADIC was induced to risk US$6 million and recovered that loss in principle. Its further exposure under the Paribas financing resulted from the separate letter of comfort and was not caused by the defendants’ deceit. ASH and ASMIC were separate legal entities and had no independent claim in deceit or negligence. The claims of the subsidiaries were dismissed.
4. Negligence. The alternative negligence claim against Mr Menzel would have failed because he did not assume personal responsibility to ADIC. Mr Steiger, and ADX Shipping Limited, would have been liable in negligence if that issue had required determination.
5. Disposition. Judgment was ordered for ADIC against Mr Steiger, Mr Menzel and ADX Shipping Limited, subject to the effect of settlements and further determination of consequential damages. The claims of ASH and ASMIC were dismissed.

First-instance judgment of the High Court (Commercial Court). The judgment records settlements with Clarkson and KfW during the trial, but no appellate history.