Serge Belle (formerly known as Serguei Beloussov) & Anor v Ratna Singh & Anor

The claimants brought a first‑instance commercial action for damages for breach of warranties and fraudulent misrepresentation arising from their investments in Integrated Health Partners Ltd (IHPL). The court considered the Founders' Questionnaires (questions 22, 30 and 31), warranties in Schedule 5 of the Subscription Agreement (in particular clause 2.3 and clause 11.2), and a number of extra‑contractual representations made during due diligence and negotiations.

Key legal principles and grounds:

• The tort of fraudulent misrepresentation requires a false representation of fact made knowingly or recklessly, intended to be relied on and in fact relied on; intention to induce is presumed where fraud is proved.
• Contractual warranties (Schedule 5, clause 2.3 and clause 11.2) may support contractual claims for breach; where breach is fraudulent the limitation clauses which would otherwise restrict remedies do not protect a representor for fraud.
• Construction of the Founders' Questionnaire: question 30 is a broad but objectively‑assessed enquiry about facts and circumstances relating to the founder and their business career; question 31 concerns matters that could reasonably be expected to impair suitability to be a director of a publicly quoted company.

The judge found that (i) the relationship between the founders and certain existing investors had broken down and was acrimonious; (ii) some existing investors would only invest further on conditional terms (a down round or change/removal of the CEO); (iii) company funds had been used to pay for personal expenses and benefits; and (iv) the founders' son occupied a company‑rented New York flat. The defendants' answers of 'no' to questions 30 and 31 were therefore false, and those answers (and certain additional representations) were made fraudulently or recklessly in order to obtain the round‑3 investment. The warranty in clause 11.2 was breached but not fraudulently. Damages were awarded to the claimants in the sums found by the court.

This was a first instance trial in the Commercial Court concerning investments by the claimants (Round 3 investors) into IHPL, a start‑up selling the CAR.O.L fitness bike. The claimants asserted breaches of warranties in the Subscription Agreement and fraudulent misrepresentations made in: (a) the Founders' Questionnaires completed by the founders; (b) negotiation and due diligence communications about whether existing (Round 1 and 2) investors would participate in Round 3; and (c) Schedule 5 to the Subscription Agreement. Relief sought was damages for direct and consequential losses arising from purchases totaling US$2.5 million.

Background and parties:

• Claimants: Mr Bell and Mr Zubarev (professional investors).
• Defendants: Ms Singh (founder and CEO until Nov 2020) and Dr Bernath (non‑executive director and PwC partner).

Procedural posture: Trial in the High Court (Commercial Court); no appellate history stated in the judgment.

Issues framed:

• Whether the defendants made false representations (in questionnaires and other communications) and whether those representations were fraudulent (made knowingly or recklessly).
• Whether question 30 and 31 of the Founders' Questionnaire obliged disclosure of the breakdown with existing investors, the conditions on which existing investors would invest (down round/CEO replacement), and misuse of company funds.
• Whether the claimants relied on the representations and were induced to invest; causation of loss; measure of damages including direct loss (difference between warranted/as‑paid value and actual value) and consequential loss (later dilution/rights issue effects).

Court’s reasoning in brief:

• Construction: the questionnaire questions were not vague; question 30 required objectively reasonable disclosure of facts about the founder and their business career and question 31 required disclosure of matters that could be expected to impair suitability to be a director of a publicly quoted company.
• Findings of fact: by late 2018 the relationship between founders and certain existing investors had substantially broken down; some existing investors made clear they would only invest further on conditional terms (a down round or replacement/role change for the CEO); the defendants authorised and permitted company funds to be used for personal expenditures (various items and transactions were itemised and treated as company expenses); the founders’ son occupied the company‑rented New York apartment.
• Falsity and fraud: the defendants’ answers of 'no' to questions 30 and 31 and certain contemporaneous representations were false and were given knowing them to be false or recklessly, with the defendants motivated to secure Round 3 funding without disclosing matters that would deter the claimants or give them negotiating leverage.
• Reliance and inducement: the claimants (and their agents) relied on the representations and there was no adequate rebuttal of the presumption of inducement.
• Quantum: valuation evidence supported a discount from the As‑Paid value. The trial judge accepted the claimants’ valuation expert’s approach and awarded direct and consequential losses for each claimant, using a 55% discount at the lower end of the expert’s range.

Outcome: judgment for the claimants in the sums stated by the judge (see operative part of judgment). The court declined to apply contractual limitation clauses to fraud and treated the breach of clause 11.2 as non‑fraudulent.

The claims succeed. The court found that the defendants made false and, in relation to the Founders’ Questionnaire answers (questions 30 and 31) and certain additional representations, fraudulent misrepresentations and were in fraudulent breach of the Schedule 5 warranty at clause 2.3. The warranty in clause 11.2 was breached but not fraudulently. The claimants were induced to invest and suffered loss. The judge awarded damages for direct and consequential loss, assessing quantum by reference to expert valuation evidence and applying a discount (55% at the lower end of the proposed range) to the as‑paid valuation. The court ordered judgment for the claimants in the sums set out in the reasons (Mr Bell: US$632,001; Mr Zubarev: US$948,000).