Sears & Anor v Minco Plc & Ors

A misrepresentation must be assessed according to the meaning reasonably conveyed to the representee. An honestly held mistake does not become fraud merely because the representor failed to check the underlying document. Recklessness in deceit requires indifference to truth, not merely carelessness. For damages, a material representation must have played a real and substantial part in the transaction; it need not be the sole inducement, but the claimant must show that the transaction would not have occurred without it. A contractual non-reliance provision may operate as a contractual estoppel where, properly construed, it defines the basis of the transaction rather than excluding liability.

The claimants sought damages from a mining company and two directors for fraudulent misrepresentation, deceit, negligent misstatement and breaches of the Misrepresentation Act 1967. The alleged representation was that the company’s interest in a joint venture could not be diluted below 10 per cent.

The representation was made or repeated through a broker’s research material and at a meeting with the company’s chief executive. The true joint venture terms provided for dilution below 5 per cent, followed by conversion from a participating interest to a 15 per cent net profits interest. The trial concerned liability only, including falsity, fraud, duty of care, inducement and the effect of non-reliance clauses in two share placements.

1. Fraud and deceit. The claim in fraud failed. The chief executive honestly believed that the joint venture provided for conversion at 10 per cent to a 10 per cent carried interest. His mistake was not fraud, and the evidence did not establish conscious dishonesty or indifference to truth. Recklessness may evidence dishonesty, but gross carelessness is not its substitute. The finance director likewise had no reason to suspect that the information was inaccurate.
2. Negligent misstatement. The representation was false or misleading because it misstated the dilution threshold, failed to explain the change from a participating interest, and failed to identify the nature and extent of the replacement net profits interest. At the identified face-to-face meeting, the company assumed a duty to take reasonable care in providing information to an identified investor. The duty extended to decisions concerning the purchase and retention of market-acquired shares, but was qualified for shares acquired under the placing terms.
3. Inducement. For damages, materiality created a factual inference of influence, particularly in a fraud case, but the claimant still had to show that the representation played a real and substantial part in the decision. The defendants rebutted that inference. The claimant would have purchased and retained the shares without the representation.
4. Share placements. The non-reliance provisions in the subscription agreements were, on construction, basis clauses rather than exclusion clauses. The claimants were therefore contractually estopped from asserting reliance on the representation. Alternatively, the provisions were reasonable under the Unfair Contract Terms Act 1977, having regard to the parties’ relative positions, available alternatives, the claimant’s experience and the placing’s take-it-or-leave-it terms.
5. The claims were dismissed in their entirety.