Barley v Muir

A claim in deceit requires a clearly identified representation that was false, dishonestly made, intended to be relied on and in fact relied on. The court assesses the meaning of words and conduct objectively, in their context and having regard to the parties’ characteristics. An honestly held but inaccurate statement does not establish fraud. Statements of opinion may amount to deceit only where the opinion was not honestly held or conveyed an implicit false representation of fact. A claimant must show that the difference between the representation and the truth was likely to induce the transaction. A shareholder cannot ordinarily recover personally for an unlawful payment made by the company or for loss suffered by the company.

Mrs Barley invested £1.25 million in Oxford Healthcare Solutions Ltd in two tranches. She alleged that Mr Muir, a director and family friend, had fraudulently represented that the company had commenced revenue-generating trading, had an operative joint venture with Lloyds and had valuable future profit streams. She also claimed repayment of money paid by the company to Mr Muir, damages for breach of warranties in a Shareholders’ Agreement, and damages for breach of obligations concerning directors, accounts and information.

The central issues were whether Mr Muir made the alleged representations dishonestly, whether they induced either investment, whether the payment to him was recoverable by Mrs Barley, and whether the contractual claims were established.

1. Deceit. The applicable requirements were a representation, falsity, dishonesty, an intention that the representation be relied on, and actual reliance. Fraud had to be distinctly alleged and proved, although the standard remained the civil standard. The relevant representations had to be identified with precision.
2. The email of 21 September 2011 represented that OHS and Lloyds had commenced actual trading in July 2011 and that OHS had an accrued right to £382,000 profit. Those representations were false, but Mr Muir honestly believed them to be true. The financial projections were projections, not representations that the stated future profits would necessarily be achieved. No representation was made that OHS had entered an operative joint venture agreement with Lloyds.
3. The alleged implied representation that OHS was an active company engaged in revenue-generating or valuable business was untenable. The communications conveyed only that OHS was pursuing business opportunities which might develop into valuable commercial relationships. They did not imply that revenue had been generated or that the opportunities had acquired value.
4. There was no sufficient inducement. The investors knew that the Lloyds and Quest ventures had failed, received further information about the business, and essentially decided to take a commercial risk. The deceit claim therefore failed, including in respect of the second investment.
5. Payment to Mr Muir. The investment money was paid to OHS’s solicitors for the purchase of shares. The shares were issued, so there was no failure of purpose. Any claim arising from an unlawful payment by OHS would belong to OHS or its liquidators, not Mrs Barley. In any event, the payment to Mr Muir represented a lawful repayment of a loan, salary arrears and expenses.
6. Contractual claims. Written notice was a condition of the repetition of the warranties on exercise of the option. The original warranties were not renewed continuously. In any event, the pleaded loss was not recoverable on the correct contractual measure, and no breach was established. The obligations concerning non-executive directors, accounts and information did not impose personal contractual liability on Mr Muir. The action was dismissed.