A claim for misrepresentation arises where a party makes an untrue statement to induce another party to enter into a contract, if the other party relies on the statement and suffers loss as a result. It is generally easier to succeed in actions for misrepresentation based on statements of fact, as opposed to statements of intention, because the courts have always been wary of imposing liability for statements about the future. But the courts can hold representors to account for false statements about their intentions if they constitute statements of fact that are false.
Khakshouri v Jimenez [2017] EWHC 3392 (QB) concerned a loan to Charlton Athletic Football Club at a time when it was in dire financial straits and was “for sale”. It had more or less exhausted its normal lines of credit and was on the brink of going into administration. Meanwhile, the defendants, who were directors of the club, persuaded an old friend, who was a property developer, to make a short-term loan to the club. His “spare” cash was invested in a Los Angeles development project, but he was persuaded to dilute his interest in that project in order to advance the club £1.8m.
He claimed that he was induced to do so by two fraudulent representations: first, that the directors with whom he was dealing were majority shareholders in and controlled the club, and, secondly, that in their capacity as such they would ensure that the club was not sold without a “land deal” as a result of which they would retain an interest in the club’s stadium following the sale. The parties hoped that a subsequent sale of the club’s premises and its relocation to a new stadium would enable them to become players in the future development of the Greenwich Peninsula in London’s Docklands (which, if it came off, might yield a profit of £800m).
In return for making the loan, the developer received a 30% interest in the prospective “land deal”, which, he hoped, would prove lucrative in years to come. But, in due course, the club was sold to a third party without a land deal – and, when this came out, the lender issued proceedings to recover the profits that he would have earned had he left his money in the Los Angeles project.
The judge upheld the lender’s claim. He contrasted a “present” intention (following which a representor can legitimately change his mind), or an intention to use “reasonable “or “best” endeavours (following which a representor could argue that he has used reasonable or best endeavours to achieve his intentions), with the firm and unequivocal statements made by the directors in order to induce the lender to make the loan. The directors had represented that they were majority shareholders in, and controlled, the club. But this was not the case. And they had also stated that they would “ensure” that the club would not be sold unless there was a “land deal”. Consequently, they could not argue that they had changed their minds or that they had done all that they could to implement their intentions – and were liable to the lender in deceit. As a result, the lender was entitled to be put in the position he would have been had the deceitful statements not been made.
Allyson Colby is a property law consultant
