Parallel Media LLC v Chamberlain & Anor

A claim based on fraudulent misrepresentation requires proof that a representation was made to the claimant, as well as falsity, the requisite state of mind, reliance and loss. Information formulated by the claimant and merely verified by the defendant may amount to warranties, rather than representations.

Future projections and estimates do not ordinarily constitute statements of existing fact. Contractual warranties must be identified by construction of the agreement, and incorporation of a document does not necessarily incorporate every statement within it. Damages for breach of warranty are assessed by reference to the position which would have existed if the warranty had been true. Unpleaded or legally unavailable losses cannot support substantial damages.

Parallel Media LLC acquired shares in Parallel Pictures Ltd from William and Marilyn Chamberlain and advanced a loan to the company. It later claimed repayment and substantial damages, alleging fraudulent and negligent misrepresentations concerning film projects, financing, assets, liabilities and the company’s financial position.

In the alternative, Media alleged breaches of warranties in the share sale agreement, breaches of contractual conditions, implied terms and obligations in William Chamberlain’s service agreement. The central issues were whether representations had been made, what warranties the contractual documents contained, whether the alleged breaches were proved, and what loss was recoverable.

1. Misrepresentation. The court accepted the four ingredients of deceit identified in ECO3 Capital Ltd v Ludsin Overseas Ltd [2013] EWCA Civ 413: a false representation, knowledge or recklessness, an intention to induce reliance, and reliance causing loss. Media failed at the first stage. On its own evidence, Mr Markovich prepared Exhibit A and Mr Chamberlain merely verified it. That amounted to warranties, not representations.
2. Construction and warranties. The court accepted the approach in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. Proper construction of the share sale agreement did not make every statement in Exhibit A a warranty. The reference to incorporation operated only so far as the particular warranties in clause 4 referred to Exhibit A. There was no warranty that the films would be made, delivered, generate revenue, or achieve projected profits. Nor was there a warranty that the film library was worth £100,000 or that the stated budget for a film equalled actual expenditure.
3. Implied terms and service agreement. Applying Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, the alleged duties to manage the company with reasonable care and skill and to produce the films were not implied into the share sale agreement. Media was not a party to the service agreement and could not enforce Mr Chamberlain’s obligations under it.
4. Loss and pleading. The court applied the distinction between damages for misrepresentation, breach of warranty and breach of contract stated in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 and referred to in Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573. Under CPR 16.4(1)(a), the claimant had to plead both the loss and the facts supporting its assessment. Media’s alleged loss of its whole investment was not the measure of warranty damages on the pleaded case. The proved breach of clause 4.2 therefore attracted nominal damages only.
5. There was judgment for Media against the defendants jointly and severally in the sum of £2.