Ali & Ors v Abbeyfield VE Ltd

Fraudulent misrepresentation requires a false representation, knowledge of falsity or recklessness, an intention that it be relied on, actual reliance and resulting loss. A representation need only play a real and substantial part in inducing the transaction. Dishonesty is assessed subjectively, although the reasonableness of the alleged belief may assist in deciding whether it was genuinely held.

Statements of opinion may be actionable where the maker does not hold the opinion or implicitly represents that there are reasonable grounds for it. A contractual clause which purports to exclude liability for non-fraudulent pre-contractual representations engages section 3(1) of the Misrepresentation Act 1967 and must satisfy the statutory reasonableness requirement.

The claimants entered into joint venture agreements with Abbeyfield VE Ltd to establish and operate Vision Express stores. They alleged that VE’s business development manager made fraudulent or negligent representations concerning store locations, eye-test rates, conversion rates, average store performance, repayment periods and previous failed stores.

The stores performed substantially below the represented levels. The claimants terminated the arrangements and claimed damages. VE denied liability and counterclaimed for outstanding overdrafts and loans under personal guarantees. The principal issues were whether the representations were made, false and fraudulent, whether they induced the agreements, whether contractual provisions excluded liability, and the resulting loss.

1. Misrepresentation. The claimants established all the alleged representations. They were materially false. The representations concerning opinion also implied that VE had reasonable grounds for the opinions expressed.
2. Fraud. VE, through its business development manager, either knew that the representations were false or was reckless as to their truth. The evidence showed that reliable supporting performance data was unavailable or contradicted the figures given, and that some forecasts had been constructed to produce desired financial outcomes.
3. Reliance. The claimants relied on the representations. A fraudulent representation is presumed to have been intended to be relied upon, and VE did not rebut that presumption. Each representation played a real and substantial part in inducing entry into the joint ventures. Reliance did not require the claimants to suspend their own judgment entirely.
4. Negligent misrepresentation. It was unnecessary to determine the secondary claim under section 2(1) of the Misrepresentation Act 1967. If necessary, the court would have found that VE lacked reasonable grounds for believing the representations to be true.
5. Contractual exclusion. The conclusion on fraud meant that clause 15.13 of the joint venture agreements could not exclude liability. The judge nevertheless held, on the alternative issue, that the clause purported to exclude liability for representations actually made, rather than establish that no representations had been made. It therefore fell within section 3(1) of the Misrepresentation Act 1967. VE had not shown that the clause was reasonable, having regard to the parties’ unequal bargaining positions, the claimants’ lack of legal advice and the impracticability of the contractual mechanism.
6. Outcome. The claims succeeded and damages were awarded on the stated bases, with exact calculations left to the parties. The counterclaims were dismissed.