NGM Sustainable Developments Ltd v Wallis & Ors

The claimant alleged that it was induced by fraudulent misrepresentations to enter interim loan and security documentation on 15 January 2010 and sought rescission and damages in relation to certain security documents and an interim patent licence. The court reiterated the well‑established principle that actionable misrepresentations must be of existing fact, and that a representation of present intention must be shown to be dishonest at the time it was made. The court examined the role of the Side Letter, the on‑demand interim loan, the extensive security (debentures and guarantees) and the perpetual patent licence granted to the lender.

Applying the relevant authorities on representation, fraud and the standard of proof in fraud cases, the judge concluded there was no cogent contemporaneous evidence the defendants intended from the outset never to enter into genuine long‑term arrangements. The breakdown of negotiations was found to have resulted from a clash of personalities and hard bargaining rather than pre‑existing dishonesty. The claimant’s pleaded case was tightly confined and the court emphasised the necessity of sticking to pleaded allegations in fraud litigation.

The judge also addressed remedies: partial rescission of a multipart financial package was not appropriate, and even if liability were established the claimant’s insolvency and lack of realistic prospects meant loss‑of‑chance damages would be assessed at nil. The action was dismissed.

Background and parties. NGM (controlled by KM and EOS) and its newly incorporated subsidiary Filterbed sought to buy the Surbiton site for £1.65m. The defendants (acting through Lizzano and associated persons) provided an interim on‑demand loan of £165,000 (the deposit) on 15 January 2010 together with extensive security: debentures over Filterbed and NGM, guarantees from NGM and its directors and a perpetual, non‑exclusive patent licence to Lizzano. The Side Letter (marked subject to contract) set out high‑level intentions for further arrangements.

Nature of the claim and relief sought. NGM alleged fraudulent misrepresentation: that the defendants falsely represented on 15 January 2010 that they genuinely intended to enter long‑term funding and joint venture arrangements (in line with the Side Letter) but in truth never intended to do so. The claimant sought rescission of certain documents (NGM debenture, NGM guarantee, stock transfer form and patent licence), restitution of the patent and damages (on the loss‑of‑a‑chance basis).

Issues the court framed.

• Whether the alleged representations were representations of present fact of existing intention (and, if so, whether they were false and dishonest at the time they were made).
• Whether the evidence justified inferring a pre‑existing intention never to proceed with any long‑term arrangements (the pleaded fraud).
• Whether rescission and/or damages were available and, if so, what relief was appropriate given the interlinked set of documentation and the claimant’s insolvency position.

Reasoning and findings. The court analysed the contemporaneous documentation and witness evidence. It held that most of the statements relied on were promises or statements about future conduct, and that the Side Letter was a provisional, subject‑to‑contract record of intention rather than a binding contractual commitment. The judge found no contemporaneous documentary or compelling testimonial evidence of an intent by the defendants from October 2009 or in January 2010 to perpetrate a deception by entering the interim documents merely as a pretext to strip out NGM’s assets. Instead the documentary record and internal emails showed active attempts by the defendants to negotiate longer‑term arrangements, and to protect their investment by taking robust security in circumstances where NGM was insolvent or close to insolvent and had no alternative sources of funds.

The judge criticised attempts by claimants’ counsel to advance a different case at trial (for example that equity participation had been deliberately withheld until after exchange) that was not pleaded and emphasised the importance of putting the pleaded case to witnesses in fraud trials. On remedies the court concluded partial rescission of a package of interdependent documents was inappropriate and, in any event, NGM’s insolvency and lack of realistic prospects of obtaining alternative finance made the claimant’s chance of success negligible; loss‑of‑chance damages would therefore be nil.

Wider comments. The court noted the rarity and difficulty of proving present dishonest intention and stressed the need for cogent contemporaneous evidence in fraud cases.

The claim is dismissed. The court found insufficient evidence to infer that the defendants had a pre‑existing dishonest intention, emphasised that many of the asserted statements were future‑oriented or provisional (the Side Letter being subject to contract), and held partial rescission inappropriate given the interlinked financial documents and the claimant’s insolvency; even on a loss‑of‑chance basis damages would be nil.