Banwaitt v Dewji

Fraudulent misrepresentations inducing investment entitle the representee to rescission, subject to the ordinary rules governing affirmation and lapse of time. Where the representee remains unaware of the material truth, delay will not necessarily amount to affirmation. A relationship may also give rise to a duty of disclosure where one party orchestrates the venture, invites the other to participate, and knows that the other is wholly reliant on him. A claimant who paid money under such misrepresentations may recover the sums paid as damages where the investment has no demonstrated value.

The claimant invested US$1.75 million in a Cambodian land venture promoted by the defendant, making payments in June and July 2008. He alleged that the defendant had misrepresented the participation and funding of other investors, the existence of a committed hotel purchaser and deposit, the back-to-back nature of the transaction, the urgency of payment, and the planning position of the land.

The claimant brought claims principally in fraudulent misrepresentation, seeking rescission and repayment, with alternative claims in negligent misrepresentation, contract, trust and duty of care. The central issues were whether the representations were false and operative, whether a duty of disclosure arose, whether rescission had been lost by affirmation or delay, and what loss was recoverable.

1. Fraudulent misrepresentation. The defendant intentionally gave a false picture of the investment opportunity. He misrepresented the extent of investor commitments, the existence of a committed hotel purchaser and 20% deposit, the back-to-back nature of the transaction, the urgency of payment, the planning position, and the amount still required. The representations were material and induced both the June and July payments. Had the claimant known the truth, he would not have invested.
2. Duty of disclosure. The relationship gave rise to a duty of disclosure. The defendant orchestrated the venture, invited the claimant to join it, persuaded him to invest, and knew that the claimant was wholly reliant on him. That duty was broken throughout the transaction. The court considered the discussion of such a duty in Ross River Ltd v Cambridge City Football Club Ltd [2008] 1 All E R 1004.
3. Rescission. The claimant had not affirmed the agreements. In material respects he did not discover the truth until trial, including the true position concerning other investors, payments, the supposed deposit and the absence of a back-to-back transaction. His claim for rescission therefore succeeded, with repayment of the sums paid.
4. Damages and other claims. Alternatively, the claimant had suffered loss equal to the sums paid. There was no evidence that any rights in the land or shares in the investment vehicle had value. The alternative claims did not require determination in light of the findings on fraudulent misrepresentation and rescission.