Eco3 Capital Ltd & Ors v Ludsin Overseas Ltd

The tort of deceit has four ingredients: a false representation; knowledge of falsity or recklessness; an intention that the claimant act on it; and reliance causing loss. Intention to deceive is not a separate fifth ingredient. It is a compendious expression for the required fraudulent state of mind and intention to induce reliance.

A commercial intermediary may act as an agent where the principals engage it to obtain investment, direct what material information is withheld, and knowingly participate in the concealment. A party cannot rely at the end of trial on a deemed admission of a document’s authenticity under the Civil Procedure Rules where it allowed the relevant issue to be fully explored in evidence.

Ludsin Overseas Ltd invested £2 million in a property-development project after representations by Eco3 Capital Ltd and Dr Shadrin that the site would be acquired by the investment vehicle for £12.5 million. The project in fact used a two-tier structure. An intermediary company bought the site for £9.3 million and immediately sold it to the investment vehicle for £12.25 million, generating an undisclosed differential for the promoters.

The Chancery Division held all five defendants liable in deceit and awarded Ludsin £1.4 million after credit for a settlement with its former solicitors. The defendants appealed, challenging the ingredients of deceit, the pleading, a diary note, agency, causation and the assessment of credit.

1. Appeals dismissed. The trial judge was entitled to find that all five defendants had dishonestly procured Ludsin’s investment and were jointly and severally liable in deceit for £1.4 million.
2. The court held that deceit requires: a false representation; the maker’s knowledge of falsity or recklessness; an intention that the claimant act in reliance on it; and reliance causing loss. Properly understood, Derry v Peek (1889) 14 App Cas 337, Nocton v Lord Ashburton [1914] AC 932 and Armstrong v Strain [1952] 1 KB 232 did not add a free-standing requirement of an intention to deceive. The judge’s findings established all four ingredients.
3. The particulars of claim, read fairly, alleged that the site was represented as being sold directly to the investment vehicle for £12.5 million, when it was first sold to an intermediary for £9.3 million and then resold at a substantial undisclosed profit. That was the case found at trial and it was a serious misrepresentation.
4. Civil Procedure Rules rule 32.19 did not require the judge to accept the diary note as accurate. Authenticity did not resolve whether a contemporaneous note was truthful. Moreover, the defendants did not object when its date and accuracy were challenged; after the evidence had been fully explored, it was too late to seek to exclude that challenge by relying on a deemed admission.
5. Eco and Dr Shadrin acted as agents for the other defendants when soliciting Ludsin’s investment. The promoters had asked them to find investors, authorised selective disclosure, knew that the two-tier structure and differential were being concealed, and paid Eco substantial commission. The fact that commercial intermediaries can sometimes act as principals did not displace the agency finding on these facts.
6. Ludsin was under no contractual obligation to provide further funding in 2009. Its refusal neither broke causation nor amounted to a failure to mitigate. The judge was also entitled to credit only £600,000 of the settlement with Forsters against this claim.

• Court of Appeal (Civil Division): dismissed the defendants’ appeals: [2013] EWCA Civ 413.
• High Court of Justice, Chancery Division: Ms Vivien Rose QC, sitting as a Deputy High Court Judge, held the defendants jointly and severally liable in deceit and awarded Ludsin £1.4 million.