Wilson v Dodd & Ors

A corporate investment does not become a partnership merely because the investor regards the other participant as a business partner. Partnership requires a binding agreement to carry on business in common with a view to profit, assessed from the agreement and conduct.

For fraudulent misrepresentation, a false statement must be intended to induce the representee and must operate as a real and substantial cause of the transaction. Where words are ambiguous, liability depends on the meaning reasonably understood and whether the representor intended or was willing that they be understood in the false sense.

A shareholder or beneficial investor cannot recover reflective loss where the company has the relevant cause of action, absent the narrow exception recognised where the wrongdoer’s conduct directly disabled the company from suing.

Mr Wilson invested US$250,000 through Canterbury Investments Limited in an arrangement involving Michael Dodd’s company, Narbonne Investments Limited, and the Thermolase business. He claimed that the arrangement created a partnership and that the business later operated through companies controlled by Mr Dodd formed part of that partnership.

He alternatively claimed damages for fraudulent misrepresentation, alleging that Mr Dodd and Mr Richman represented that Mr Richman had invested US$500,000. He also sought to introduce a late breach of trust claim concerning the alleged transfer of the Thermolase business.

The central issues were the legal nature of the investment, the meaning and falsity of the representation in Mr Dodd’s letter of 21 May 1998, inducement, reflective loss and whether the proposed trust claim should be permitted.

1. Partnership. The agreement reached in May 1998 was a corporate investment in Narbonne’s interest in the Thermolase business. The documents and conduct did not establish an agreement to carry on business in common, nor did they impose direct liability for business debts or losses. The fixed return alleged by Mr Wilson was also inconsistent with sharing profits and losses. No partnership was created.
2. Misrepresentation by Mr Dodd. The words in the 21 May 1998 letter represented that Mr Richman had acquired a 20% interest in Narbonne for US$500,000, or was at least legally committed to that investment. The representation was false because Mr Richman had neither acquired the interest nor made or become liable to make the payment.
3. The difference between a completed investment and a future intention to invest was material. Mr Dodd intended, or was willing, that Mr Wilson should understand the statement as meaning that Mr Richman had invested or was committed to invest. Mr Wilson relied on it, and it was one of the real and substantial causes of his investment. The claim against Mr Dodd therefore succeeded.
4. The evidence did not establish that Mr Richman’s own representation went beyond an agreement or intention to invest. Its falsity and fraudulent quality were not proved. The claim against Mr Richman failed.
5. Damages. The appropriate measure was the position Mr Wilson would have occupied had the representation not been made. In principle this involved the US$250,000 investment and interest, subject to credit for the monthly payments received. Quantum was to be determined subsequently.
6. Breach of trust and amendment. The proposed breach of trust claim introduced new factual allegations, had no realistic prospect of success and was sought too late and without adequate pleading. Permission to amend was refused. In any event, the alleged loss was reflective of loss suffered by Thermolase UK or other companies. The Giles v Rhind exception was not established because there was no evidence that Mr Dodd’s conduct disabled the company or liquidator from suing.

First-instance judgment. No prior appellate decision is stated in the judgment.