Maria Helena Groen & Ors v Martin Charles Heath

A person who makes or adopts a fraudulent representation to induce investment may be personally liable in deceit, even when acting as a company director or through an intermediary. Liability for adopting a third party’s representation depends on the defendant’s level of involvement and is fact-specific. A representation may remain operative until the transaction is completed, and the representor must correct it if later events make it false. A claimant’s ability to investigate the truth is no defence. Fraud requires knowledge of falsity, absence of belief in truth, or recklessness, together with inducement and loss.

The claimants invested in Seed Media Limited, a start-up founded and controlled by the defendant. They alleged that the defendant made, approved or adopted fraudulent representations about the company’s software, customers, financial prospects, investment history and disputes. The defendant denied fraud and challenged the adequacy of the pleadings. The claimants also sought permission to add a claim under the Misrepresentation Act 1967; the defendant sought to amend his Defence to rely on section 6 of the Statute of Frauds Amendment Act 1828.

The central issues were whether the alleged statements were representations, whether they were false and fraudulent, whether they induced the investments, and whether the defendant was personally liable for statements made or circulated by others.

1. Deceit. The court set out the elements of deceit: a representation of present fact or law; an intention that it be relied on; falsity; knowledge of falsity, absence of belief in truth or recklessness; and inducement causing detriment. The claimant need not prove that the representation was the sole cause of the transaction.
2. Personal and attributed liability. A director who makes a fraudulent representation in a representative capacity remains personally liable. A defendant may also be liable for a third party’s representation where he intended it to be passed on and it was passed on, or where he manifestly approved and adopted it. The level of involvement required is fact-specific. Active manifestation may be needed for a past representation, while passive assent to circulating a known fraudulent representation may suffice.
3. Continuing representations and investigation. A representation may continue until the transaction is completed. A failure to correct a statement which has become false may constitute deceit. A claimant’s opportunity to discover the truth does not defeat the claim; the correction must be fair and open.
4. Application. The defendant knowingly or recklessly misrepresented the provenance of case studies, the scalability and capability of the software, the identity and status of customers, Mr Evans’s investment terms, the defendant’s own investment, and the company’s cash-flow position. He also failed to disclose the collapse of the Coty trial and represented that there were no disputes. These matters materially induced the investments.
5. The claims in negligence failed because no assumption of personal responsibility was established. The pleadings were unsatisfactory but sufficiently clear for trial. Permission to amend the Particulars of Claim was refused as late and inadequately pleaded. Permission to amend the Defence under section 6 of the Statute of Frauds Amendment Act 1828 was refused because the investments were not loans or money advanced on credit.
6. Judgment was entered for Mr Lane for £100,003, Ms Groen for £200,012 and Mr Woods for £69,992. The £6,000 claim relating to the Angels Den fee was not established.