Hussain v Mukhtar

A claim in deceit requires proof of a false representation of fact, knowledge of or recklessness as to its falsity, an intention that the claimant should rely on it, reliance and loss. Promises about future benefits do not found deceit, although they may be contractual. A claim under section 2(1) of the Misrepresentation Act 1967 is a distinct cause of action and should be pleaded expressly. For limitation purposes, the claimant must show both when the fraud was discovered and that it could not, with reasonable diligence and a desire to investigate, have been discovered earlier. The objective standard is not adjusted for naivety or inexperience. Damages for deceit are assessed on the tortious basis and do not provide the contractual loss of bargain.

The claimant invested substantial sums in Cabot Car Hire Ltd, a family-owned chauffeuring business founded by the defendant. He alleged that the defendant had fraudulently misrepresented the company’s financial position and prospects in order to induce the investment. The company later entered administration, and its business and assets were transferred to successor companies in which the claimant received interests.

The claim was issued on 11 December 2014. The defendant denied making the representations and relied on limitation. The principal issues were whether the representations were made, whether they were fraudulent representations of fact, whether section 32 of the Limitation Act 1980 postponed limitation, and whether the claimant had established recoverable loss.

1. The claim was dismissed. The claimant failed to prove that the defendant made the alleged representations. The evidence instead indicated that any representations encouraging the investment were made by other directors, without the defendant present.
2. Even if the representations had been made, they would not have established deceit. Promises concerning a future salary, dividends or provision of a car were promises about the future rather than representations of present fact. In relation to statements of opinion or fact, the claimant would have needed to prove that the opinion was not honestly held or that the fact was not honestly believed to be true.
3. A claim under section 2(1) of the Misrepresentation Act 1967 is materially different from deceit. It has different ingredients, reverses the burden concerning reasonable grounds for belief, depends on a contract with the representor, and may attract different limitation consequences. A claimant advancing it as an alternative should plead it expressly. The issue was moot on the facts.
4. The claim was also time barred. Under sections 2 and 32(1) of the Limitation Act 1980, the claimant had to establish both that discovery occurred within the relevant period and that the fraud could not with reasonable diligence have been discovered earlier. Applying the objective standard in Paragon Finance v Thakerar and Law Society v Sephton & Co., the claimant could have investigated the company’s financial difficulties and its restructuring before 12 December 2008. His personal naivety and inexperience did not alter that standard.
5. The court declined to determine the precise quantum of loss. Damages in deceit are assessed on a tortious basis: ordinarily the purchase price less the actual value received, together with consequential loss where established, rather than contractual loss of bargain. In any event, no loss flowed from fraud by the defendant.