Khakshouri v Jimenez & Anor

A fraudulent misrepresentation is actionable where the claimant proves the representation, its falsity, the defendant’s knowledge or recklessness, an intention to induce reliance, actual reliance and resulting loss. A statement of present intention may constitute a representation of fact, but a future prediction or promise is actionable in deceit only where the relevant state of mind is dishonestly represented. Damages are compensatory and cover loss directly flowing from the deceit, including profits lost from an alternative investment. The usual date of assessment is flexible. Where the claimant remains locked out of the alternative investment, damages may be assessed when that investment matures. The burden of proving failure to mitigate rests on the defendant.

The claimant lent £1.8 million to the Club after discussions with the first defendant. He alleged that the first defendant represented that he and the second defendant controlled the Club and would not sell it without a linked property development deal. The claimant also alleged that, when repayment was later deferred, the first defendant falsely represented that the property deal remained available.

The court had to determine whether the representations were made fraudulently, whether the second defendant was vicariously liable for the first defendant’s conduct, and how the claimant’s loss should be assessed. The claim included loss of a 30 per cent interest in a profitable alternative development.

1. First Claim. The first defendant made, knowingly and deliberately, the representations that he and the second defendant were majority shareholders and controllers of the Club, and that the Club would not be sold without a Land Deal. The representations induced the claimant to make the Loan. The first defendant was liable in deceit.
2. The Side Letter materially corroborated the claimant’s account. It stated that the defendants were majority shareholders and linked the Loan to the proposed property development. The documentary evidence and commercial probabilities supported the claimant’s evidence.
3. A statement concerning future conduct may be actionable where it represents a present intention. The representation here was not merely an undertaking to use reasonable or best endeavours. It was an assurance that the Club would not be sold without a Land Deal. Since the first defendant did not hold that intention, the representation was false when made.
4. The second defendant had actual authority to the first defendant to negotiate the Land Deal and to make the representations used to induce the Loan. The first defendant was acting in the second defendant’s place. The second defendant was therefore vicariously liable. The attempted reliance on the Rose Trust was not pleaded and was unsupported by the evidence.
5. Damages. The claimant was entitled to compensation for the loss directly flowing from the deceit. The usual date of assessment was not inflexible. The claimant was locked out of the alternative development and could not reasonably buy back his interest. The appropriate assessment date was the maturity of that development in 2017. The defendants failed to establish any failure to mitigate.
6. Second Claim. The first defendant knowingly perpetuated the false impression that the Land Deal remained available in order to induce the claimant to defer repayment. The first defendant was liable for the resulting foreign-exchange loss, subject to credit for additional interest. The evidence did not establish the second defendant’s liability on this claim.
7. Judgment was therefore entered for the claimant against both defendants on the First Claim, and against the first defendant alone on the Second Claim. The parties were to agree the damages and consequential order, with unresolved issues reserved for determination.

First-instance decision. No earlier appellate decision is stated in the judgment.