4VVV Ltd & Ors v Nicholas Spence & Ors

Dishonest investment marketing may found liability in deceit, unlawful means conspiracy and breach of the statutory regime governing collective investment schemes. Representations are construed objectively in context; fixed contractual returns may still form part of a collective investment scheme where investors participate in income or sums paid from pooled or centrally managed assets. Common-law compound interest requires pleading and proof of the relevant loss. In valuing deceit damages, defendants receive no credit for delusive value created by their own fraud, and no speculative hope value where completion depends on continued dishonest sales. Unauthorised scheme agreements are unenforceable at the investor’s election unless enforcement or retention is just and equitable.

The claim was brought by 435 investors in holiday and student accommodation projects promoted by the Alpha Group. The first phase of the trial determined common issues and the claims of ten Lead Claimants. The claims alleged deceit, unlawful means conspiracy, rescission, and relief under the Financial Services and Markets Act 2000 for unauthorised collective investment schemes.

The central issues were whether the marketing statements were actionable and dishonest, whether the investment structures were collective investment schemes, the consequences of unauthorised activity, the recoverable losses and valuation methodology, and whether any settlement or other matter barred relief.

1. Outcome. The Lead Claimants established claims in deceit and unlawful means conspiracy against the relevant Alpha Defendants. Relief included damages, rescission in specified cases, and declarations and recovery under the Financial Services and Markets Act 2000.
2. Deceit. Representations were assessed objectively in their factual and commercial context. The court found that the Substance, Asset-Backed, Modified Track Record, Buy-Back and related representations were made, materially false and, at the relevant dates, dishonestly authorised by Mr Spence and Mr Kewley. A director may be personally liable where he directs, procures or authorises a company’s dishonest statement. Reliance was established, including through the evidential presumption applicable to material dishonest representations.
3. Loss. Deceit damages covered losses directly flowing from the transactions and proved consequential losses. Compound interest could not be inferred generally: the relevant loss had to be pleaded and proved. The properties were valued without giving credit for ineffective or illusory guaranteed-return obligations, and without speculative hope value dependent on further dishonest sales. Actual payments under the underleases were credited.
4. Rescission. Counter-restitution could be made by returning the properties and repaying monetary benefits. Mere lapse of time did not amount to affirmation without knowledge of the right to rescind. The alleged duty to mitigate did not require litigation against third-party companies.
5. Collective investment schemes. The arrangements fell within s.235 because investors participated in income or sums paid from centrally managed and pooled assets, without day-to-day control. The relevant companies breached the general prohibition and promotional restrictions. Under ss.26 and 28, the agreements were unenforceable at the investors’ election, enforcement was not just and equitable, and the investors had to return the properties when recovering their payments.
6. Conspiracy and settlement. The deceit and statutory contraventions were unlawful means causing the investors’ losses. The settlement releases were confined to the developments identified in the agreement; issuing shares alone did not make an investor a party without the stipulated vote or accession.