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

A claimant may recover for deceit where a fraudulent representation is made to another person, provided the defendant actually intended it to be communicated to and acted on by that claimant. The claimant need not have been individually identified when the representation was made. It is enough that the claimant belonged to a class of persons whom the defendant contemplated and intended to deceive.

Where the defendant knows that an investment will be implemented through special-purpose vehicles and intends the representation to induce the controllers of those vehicles to make that investment, those vehicles may rely on the representation. Due diligence does not, without more, displace factual reliance on continuing fraudulent representations.

ADIC was induced to participate in a container-vessel joint venture by fraudulent representations made by Norasia, Mr Steiger and Mr Menzel concerning the vessels’ speed and earning capacity. ADIC implemented its investment through special-purpose vehicles, ASH and ASMIC. ASMIC borrowed substantially from Paribas and used the funds to subscribe for shares in the joint-venture company.

Tomlinson J held that the representations were fraudulent and continuing. He awarded ADIC recovery of its direct $6 million advance, but held that ASH and ASMIC had no claim in deceit because the defendants had not intended the representations to reach and induce those companies: [2007] EWHC 1267 (Comm).

ASH and ASMIC appealed. The central issue was whether the defendants had the requisite intention to deceive the special-purpose vehicles which carried out the investment.

The appeals of ASH and ASMIC were allowed unanimously. May LJ gave the judgment, with whom Hallett LJ and Lawrence Collins LJ agreed. The respondents’ very late application for permission to cross-appeal against the findings of fraud was dismissed.

1. The judge had correctly stated the general law of indirect deceit. A false representation need not be made directly to the claimant. It is sufficient if it is made to a third party with the actual intention that it be passed to, acted on and relied upon by the claimant. The defendant need not know the claimant’s precise identity, provided that the claimant is within a contemplated class of persons intended to be deceived.

2. The judge’s application of that law to ASH and ASMIC was wrong. By the Memorandum of Agreement, and in light of the earlier communications, the defendants knew that ADIC would implement the investment through a special-purpose vehicle funded substantially by a Paribas bridging loan. The exact commercial reason for that structure was immaterial.

3. On those facts, the defendants plainly intended their dishonest and continuing representations to be communicated to the controlling minds of the relevant parts of that structure and to induce them to make the proposed investment. It was unnecessary to show an intention to pass the representations to every person whom ADIC might choose to interest in the venture. Nor did the later incorporation of ASH and ASMIC prevent their recovery.

4. The court therefore held the Norasia defendants liable to ASMIC, in particular, for the full amount of its lost investment. In refusing the cross-appeal application, the court also confirmed that undertaking due diligence does not necessarily mean that a representee ceases to rely on representations, especially where further representations are made during the enquiries.

• Court of Appeal (Civil Division): Allowed ASH’s and ASMIC’s appeals and reversed the denial of their deceit claims: [2008] EWCA Civ 699.
• Commercial Court: Found fraudulent, continuing misrepresentations and awarded ADIC recovery of its direct advance, but dismissed ASH’s and ASMIC’s deceit claims: [2007] EWHC 1267 (Comm).