Pharmapac UK Ltd v Elev8 Global Ltd & Anor

Fraudulent misrepresentation requires proof that a false representation was made knowingly, without belief in its truth, or recklessly as to whether it was true or false. Gross carelessness may support an inference of dishonesty, but it does not establish fraud where the representor held an honest belief in the representation. Reliance is established where the misrepresentation materially influences the representee’s decision, even if the transaction was initially proposed by the representee. A finding that goods were counterfeit does not, without more, establish that the representor fraudulently misrepresented their authenticity.

The Claimant contracted with the First Defendant for the supply of 400,000 3M 8833 face masks during the Covid-19 pandemic. The masks were counterfeit and the First Defendant was liable for the contractual loss. The Claimant also alleged that the Second Defendant, the First Defendant’s sole director and shareholder, had fraudulently represented that the company could supply genuine masks and had relevant prior NHS and factory connections.

The court had to determine whether the representations were false, whether they induced the contracts, and whether the Second Defendant made them fraudulently. The First Defendant’s contractual liability had already been established by summary judgment; the trial addressed damages against it and the Second Defendant’s personal liability.

1. First Defendant. The masks supplied were counterfeit. The First Defendant was liable for the price paid and warehousing costs. The warehousing claim was reduced by 20% to reflect the additional masks supplied without further payment, producing liability of £21,141.12 for warehousing.
2. Fraudulent misrepresentation. The burden lay on the Claimant to prove the representations, their falsity, fraudulent making with an intention that they be relied upon, reliance, and resulting loss. Applying Derry v Peek (1889) 14 App. Cas. 337, fraud required a representation made knowingly, without belief in its truth, or recklessly, without caring whether it was true or false.
3. Reliance. The Claimant relied on the representations when entering both contracts. It was immaterial that the Claimant had initiated the transaction or first proposed a larger order. The representations materially influenced the relevant decision-maker and induced the contracts.
4. Second Defendant. The court found that the masks were counterfeit and that the Second Defendant’s verification steps were wholly inadequate and grossly careless. However, gross carelessness was insufficient to establish fraud where the court was not satisfied that he lacked an honest belief in the masks’ genuineness or was reckless as to their truth. His conduct after the masks were challenged was consistent with a genuine, although mistaken, belief.
5. The claim against the Second Defendant was therefore dismissed. Judgment was entered against the First Defendant for the contractual sums and the reduced warehousing costs.

This was a first-instance trial judgment. The court recorded that summary judgment had previously been given against the First Defendant on liability, with damages to be assessed at this trial.