Vald. Nielsen Holding A/S Newwatch Ltd v Baldorino & Ors

A person commits deceit by knowingly, recklessly or without honest belief making a materially false representation intending it to be acted upon, where it induces the transaction and causes loss. A deliberately false forecast may represent both the maker’s genuine expectation and the existence of facts reasonably supporting it.

A defrauded seller’s loss ordinarily starts with the asset’s true value at the transaction date, less the consideration received. The court may discount that value to reflect the realistic prospect of achieving it. Directors owe fiduciary duties to shareholders only where special circumstances establish an undertaking to act for them or a relationship replicating a recognised fiduciary relationship.

The majority shareholder in a telecommunications company sold its 60% holding to a management buyout vehicle backed by a private equity investor. The defendants were members of the company’s executive management. Before the sale, management supplied the sellers with financial forecasts substantially below the forecasts and detailed information supplied to its advisers and the investor market.

The first claimant, as assignee of the seller, alleged deceit and unlawful means conspiracy. The second claimant, which had rolled over its investment, alleged breach of fiduciary duty. The defendants disputed the representations, dishonesty, inducement, causation, loss and the validity of the assignment.

The central issues were whether the management had deliberately misrepresented the company’s expected performance and equality of information, whether those representations caused a sale at an undervalue, whether the assignment was valid, and whether fiduciary duties were owed directly to the shareholders.

1. Disposition. The first claimant’s claims in deceit and unlawful means conspiracy succeeded. Damages were assessed at £6,518,652. The claims for breach of fiduciary duty failed and were dismissed.
2. The emails of 20 April and 3 June 2009 represented that the lower forecasts supplied to the sellers were management’s genuine and current forecasts, were reasonably supported, and, where stated, had also been supplied to and used by the buyout investor. The later email also represented that the factual data available to the management’s advisers and investor did not differ from that in the data room. Those representations were false. Management’s genuine forecasts and supporting information were materially more favourable.
3. The defendants knew that the statements were false and intended them to influence the seller’s decision. Although only one defendant sent the emails, the other defendants had agreed to and manifestly adopted the representations. All three were consequently liable in deceit. Their combination to make the fraudulent representations also satisfied the requirements of unlawful means conspiracy.
4. The representations induced the sale and caused loss. The seller had specifically requested material information and relied on the answers in evaluating the offer. It was no defence that further inquiry could have exposed the falsity. Without the fraud, the true figures would probably have produced materially better offers and the seller would not have sold on the terms accepted.
5. The normal starting point for damages was the true value of the shares in July 2009, less the consideration received. A later 2014 valuation was inappropriate because the bank would have required a sale within weeks or months, rather than years. Fair value was £15,684,600. A 25% discount appropriately reflected the uncertainty of achieving full value in the available circumstances.
6. The Danish-law assignment was valid because an intention to deceive the appointed supervisor was not proved. The alternative English-law illegality defence would also have failed under Patel v Mirza [2016] UKSC 42: denying enforcement would have been disproportionate.
7. Directors do not owe fiduciary duties to shareholders merely because of their office, superior information or involvement in a share transaction. The facts disclosed no special relationship involving an undertaking to act for the shareholders or an entrustment of their affairs. No fiduciary duty was therefore owed.

This was a first-instance trial. In earlier proceedings in the same litigation, Sir Richard Field struck out parts of the claims in 2016 but declined to strike out the claim in deceit. No neutral citation for that decision is stated in the judgment.