Group Seven Ltd & Anor v Allied Investment Corporation Ltd & Ors

Under Maltese law, liability for damage caused through fault under article 1031 is distinct from rescission for dolus under article 981. A claimant’s failure to exercise the diligence of a reasonable man is not, without more, a defence to the damages claim. A fraudster cannot ordinarily reduce liability by relying on the victim’s gullibility where the fraud was designed to exploit it. A contribution claim must be pursued on the legal basis adopted at trial; even on the alternative English approach, no contribution was justified on these facts.

Allseas entered into a €100 million loan transaction after being induced by fraudulent representations. The High Court awarded damages against Mr Sultana and dismissed his contribution claims against the third parties.

Mr Sultana appealed, arguing that Allseas’ lack of reasonable diligence defeated or reduced its damages claim under Maltese law, and that the third parties should contribute under Maltese law or section 2(1) of the Civil Liability (Contribution) Act 1978. The central issues were the relationship between fraud-based rescission and damages, the effect of contributory negligence, and the applicable law and basis for contribution.

1. Disposition. The Court of Appeal, in the leading judgment of Vos LJ, with which Kitchin LJ and Tomlinson LJ agreed, dismissed the appeal on all grounds.
2. Damages under Maltese law. Article 1031 of the Maltese Civil Code imposes liability for damage caused through fault, including dolus and culpa. Article 981 concerns rescission and nullity for fraud. The requirements governing rescission are not automatically imported into a damages claim. The judge was therefore entitled to accept that failure by the claimant to exercise the diligence of a reasonable man was no defence to the claim under article 1031.
3. The appellate court was entitled to assess the expert evidence from the reports and transcripts because there was no material issue of demeanour and no suggestion that the experts had failed to assist the court. A retrial was unnecessary merely because the judge’s reasons had been exiguous. The judge’s alternative conclusion that a reasonable person in Allseas’ position could have been overborne by the long-running fraud was not unsustainable, although the point was academic.
4. Contributory negligence. Article 1051 gives the court a discretion to reduce damages where the injured party’s imprudence or negligence contributed to the damage. The evidence supported the judge’s conclusion that a Maltese court would be extremely unlikely to reduce damages payable by a person guilty of dolus, and that any reduction would in any event be minimal. The fraudsters had deliberately identified and cultivated gullible victims. It was therefore unattractive to allow the fraudster to rely on that gullibility to reduce liability.
5. Contribution. The argument that section 2(1) of the Civil Liability (Contribution) Act 1978 should apply was not open on appeal. The trial had proceeded throughout on the agreed basis that Maltese law governed the contribution claims. Parties may agree the basis on which a case is tried even if the pleadings do not reflect it. In any event, the just and equitable assessment under section 2(1) would have produced the same result: no contribution was appropriate because the fraudsters had targeted the third parties for their gullibility. The Court did not need to resolve the alternative Rome II choice-of-law arguments.

1. Court of Appeal (Civil Division) — The appeal was dismissed on all grounds: [2015] EWCA Civ 631.
2. High Court of Justice, Chancery Division — Mr Justice Smith awarded damages against Mr Sultana and dismissed the Part 20 contribution claims.