Eco3 Capital Ltd and Others v Ludsin Overseas Ltd (Respondent/Claimant)
|England & Wales
|Lord Justice Jackson,Lord Justice McFarlane,Lady Justice Arden
|23 April 2013
| EWCA Civ 413
|Court of Appeal (Civil Division)
|Case Nos: A3/2012/1981, A3/2012/2055
|23 April 2013
 EWCA Civ 413
Lady Justice Arden
Lord Justice Jackson
Lord Justice Mcfarlane
Case Nos: A3/2012/1981, A3/2012/2055
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION
MS VIVIEN ROSE (sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Malcolm Bishop QC and Ms Sarah O'Kane (instructed by W Legal) for the First and Second Appellants
Mr Romie Tager QC and Mr Mark WarwickQC (instructed by Jeffrey Green Russell Solicitors) for the Third, Fourth and Fifth Appellants.
Mr Mark Cunningham QC and Mr Gregory Banner (instructed by Wallace LLP) for the Respondent
Hearing dates: 5th & 6th March 2013
This judgment is in ten parts, namely:
Part 1. Introduction,
Part 2. The facts,
Part 3. The present proceedings,
Part 4. The appeal to the Court of Appeal,
Part 5. Did the judge correctly identify the ingredients of the tort of deceit?
Part 6. The pleading points,
Part 7. The diary note,
Part 8. Agency,
Part 9. The other grounds of appeal,
Part 10. Conclusion.
This is an appeal by two companies and three directors of those companies against a judgment holding that they are liable to pay £1.4 million as damages for the tort of deceit. The deceit consisted of inducing the claimant to invest £2 million in a project by misrepresenting crucial features of the project.
The principal issues in the appeal are (i) whether the trial judge correctly identified and addressed all the ingredients of the tort of deceit; (ii) whether the claimant's claim was properly pleaded; (iii) whether the judge was correct to find that the first and second defendants had made fraudulent misrepresentations and (iv) whether the judge was correct to find that in doing so the first and second defendants were acting as agents for the third, fourth and fifth defendants.
The claimant in this action is Ludsin Overseas Limited, to which I shall refer as "Ludsin". Mr Pavel Lisitsin ("Mr Lisitsin") owns and controls Ludsin. Mr Lisitsin is a Russian and a former oil trader, who came to live in England in 199He became a British citizen in 2001.
Eco 3 Capital Limited, to which I shall refer as "Eco", is the first defendant. Eco is described as an independent venture capital investment firm. Doctor Alexander Shadrin ("Doctor Shadrin") is the principal shareholder and also a director of Eco. Doctor Shadrin is the second defendant.
Wharf Investments Ltd, to which I shall refer as "Wharf", is the third defendant. Mr Douglas Maggs ("Mr Maggs") is the fourth defendant. Mr Maggs is a property developer and a director of Wharf. He uses that company as one of the vehicles through which he does business. Mr Maggs and Mr David Mellor ("Mr Mellor"), the former cabinet minister, each own 50% of the shares of Wharf.
The Honourable Charles Yule Balfour ("Mr Balfour") is fifth defendant. Mr Balfour is an investment banker, who at the material time was working for Fleming Family and Partners as international director. Mr Balfour was also a director of Eco. He was not a director of Wharf during the crucial period with which this court is principally concerned, but he became a director in April 2006.
Forsters LLP ("Forsters") are a firm of solicitors practising in London W1. Forsters were sixth defendant in the action until they reached a settlement with the claimant in February 2011.
In this judgment I shall refer to Hicks Persimmon Ltd, the property development company, as "Hicks Persimmon". I shall refer to Investec Bank (UK) Limited as "Investec". I shall refer to Abbey National Treasury Services as "ANTS". I shall refer to the Financial Services Authority as "FSA". I shall use the abbreviation "SPV" for special purpose vehicle.
One provision of the Civil Procedure Rules ("CPR") is relevant to this appeal. That is rule 32.19, which provides as follows:
"(1) A party shall be deemed to admit the authenticity of a document disclosed to him under Part 31 (disclosure and inspection of documents) unless he serves notice that he wishes the document to be proved at trial.
(2) A notice to prove a document must be served –
(a) by the latest date for serving witness statements; or
(b) within 7 days of disclosure of the document,
whichever is later."
After these introductory remarks, I must now turn to the facts.
Mr Maggs became aware of a development site in Berkshire, which was not on the market but which might be available for purchase. This site is known as Sandford Farm. The site comprises about 114 acres (46 hectares) and is situated to the East of the Woodley interchange of the A329M. The site lies within the jurisdiction of Wokingham District Council for planning purposes. The planning permission granted for the site as at June 2005 was consent for 200,000 square feet of buildings in use class C2 (institutional, training and education), hotel and leisure centre. The site was owned by Hicks Persimmon.
The site had various problems associated with it. In particular, a family called the Coffs held a ransom strip and there were various other restrictions on the title. The site had originally been used as a gravel pit. When the excavation of the gravel was finished, it had been used as a landfill site. It therefore suffered from some contamination. Hicks Persimmon had made an unsuccessful planning application and had then lost their appeal against that refusal.
Mr Maggs devised a scheme to buy the site from Hicks Persimmon, improve the planning permission and then re-sell the site to developers. This scheme would require substantial capital. With a view to raising such capital Mr Maggs' colleague, Mr Mellor, approached Mr Balfour, who was a long-standing friend.
Mr Balfour expressed interest in the project. Accordingly Mr Mellor introduced Mr Maggs and Mr Balfour to one another.
During June and July 2005 Mr Maggs, Wharf and Mr Balfour spent time working on the details of the scheme. With a view to raising capital for the project Mr Balfour contacted Doctor Shadrin and told him about the site. Both Mr Balfour and Doctor Shadrin were directors of Eco, so this approach made obvious sense.
Doctor Shadrin had a strong connection with Mr Lisitsin, since both men were actively involved in the governance of the Russian Orthodox Church in Chiswick. Doctor Shadrin took the opportunity to discuss the Sandford Farm project with Mr Lisitsin on two occasions when they were together at the church. The second occasion was on 12 th July 2005. Doctor Shadrin told Mr Lisitsin that the deal was being promoted by Wharf, a company that Doctor Shadrin said he knew and respected. Doctor Shadrin told Mr Lisitsin that the increase in value of his investment was likely to be substantial. Doctor Shadrin also told him that some very important English people were associated with or involved in the deal.
Mr Lisitsin was attracted to the deal, because it appeared to be a short term arrangement with low risk and high reward.
On 18 th July 2005 Doctor Shadrin attended a meeting at the offices of Forsters in Mayfair. At this meeting Mr Balfour introduced Doctor Shadrin to Mr Maggs. The purpose of the meeting was to discuss raising money for the Sandford Farm project. Mr Maggs described the site and explained that he could overcome the problems attaching to it, thus substantially increasing the value.
Doctor Shadrin was much impressed by what he heard. He was also impressed by the fact that Forsters, a highly respectable London firm of solicitors, were acting for Wharf on the project.
Mr Maggs and Mr Balfour resolved to structure the acquisition of the Sandford Farm site as follows. A company controlled by Mr Maggs, Mr Balfour and Wharf would purchase the site from Hicks Persimmon for a sum in the region of £9.5 million. That company would clear any restrictions on the site which had not been cleared before the first sale. That company would then sell the property on to a second company controlled by Mr Maggs, Mr Balfour and Wharf for £12.25 million. In the course of the appeal these two transactions were referred to respectively as "deal one" and "deal two". I shall use those descriptions.
Thus a profit of nearly £3 million would be generated between deal one and deal two. This profit was going to be shared out in such manner as Mr Maggs and Mr Balfour decided. Following deal two an improved planning permission would be obtained. The site would then be sold on to developers at a further substantial profit. This latter profit would be shared out amongst all the investors in the project. In other words Mr Maggs and Mr Balfour planned that investors in the project would not receive any share in the first guaranteed tranche of profit. They would only share in the second tranche of profit in the event that the project was a success.
In the course of the trial the judge called the profit generated between deal one and deal two "the differential". She described the overall structure of the deals as the "two-tier structure". I shall use the same terms.
Mr Maggs and Mr Balfour explained the two-tier structure to Doctor Shadrin at the outset. Indeed Doctor Shadrin had a direct interest in the two-tier structure because part of the differential was going to be paid to Eco as commission for bringing in other investors. It was originally planned that Eco's...
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