Case law update: Court of Appeal judgment in Mather v Rattan

Background

The case concerned an investment totalling £1 million (made in three tranches between December 2012 and November 2014) by Mr and Mrs Mathers ("the Mathers") in biotech company Yagna Limited ("Yagna"), which purported to be engaged in the development of cosmetic products, biodegradable food packaging and skin cancer treatment. Yagna entered administration in April 2016, and the Mathers lost the whole of their investment.

The Mathers subsequently brought a claim against Mr Rattan, the majority shareholder and director of Yagna, in August 2021, alleging fraudulent misrepresentation. The Mathers argued that Mr Rattan had induced them into making the investment by representing that Mr Basran, a friend of the Mathers who had a substantial reputation in business, companies and investments, was to be (or had been) appointed as a director of Yagna.

Mr Rattan denied the allegations, arguing that an email relied on by the Mathers in respect of the representations (dated December 2012) must have been sent by Mr Basran himself using Mr Rattan’s laptop. Mr Rattan also argued that regardless of who sent the email, whether Mr Basran had formally been appointed as a director of Yagna was not material because he acted as though he was a director. 

First instance decision

His Honour Judge Hodge KC ruled in favour of the Mathers at first instance, finding that (i) the December email relied on by the Mathers was composed by Mr Rattan, (ii) Mr Rattan made a clear representation which he knew to be untrue and (iii) Mr Rattan intended for the Mathers to rely upon the representation in the December email.

Having represented to the Mathers that he had allowed Mr Basran to become a director, the onus lay on Mr Rattan to correct that misstatement, and it was not open to Mr Rattan to argue that the Mathers would have suffered the same loss had the representation been true.

In respect of limitation, the judge held that (i) there was nothing putting the Mathers on inquiry as to the true position until September 2015 (less than six years before the claim was commenced) and that (ii) the Mathers could not reasonably have discovered that the representations had been made fraudulently until less than six years before the claim was commenced. 

Grounds of appeal

Mr Rattan was granted permission to appeal on three grounds.

Firstly, that the judge had wrongly placed the burden of raising a limitation defence on Mr Rattan, when the burden of satisfying the test in section 32 of the Limitation Act 1980 lay with the Mathers. Secondly, that the judge was wrong to find that the Mathers relied upon the misrepresentation that Mr Basran was a director of Yagna (and that because the intention of the Mathers was that Mr Basran would protect their investment, they would have regarded his status as a de facto director as sufficient). And thirdly, that the judge failed to address the issue of whether the misrepresentation caused the Mathers' loss when assessing damages.

Court of Appeal judgment 

The Court of Appeal dismissed the appeal on all three grounds.

In respect of limitation, the Court of Appeal held that the judge at first instance correctly applied the approach set out by previous authority (Gresport Finance v Battaglia and OT Computers Ltd v Infineon Technologies ) when concluding that the Mathers had no reason to search Companies House to verify that Mr Basran had become a director (because there was nothing to put them on inquiry until they became concerned).

In respect of reliance upon the misrepresentation, the Court of Appeal held that the evidence did not support a conclusion that the Mathers would have been satisfied with anything less than a formal appointment of Mr Basran to the board. Whether Mr Basran was a de factor director was also not common ground between the parties.

In relation to the third ground, the Court of Appeal did not accept Mr Rattan's argument that the Mathers would have still invested had the December email not misrepresented Mr Basran as a de jure director, such that their loss was caused by the failure of Yagna (and not the misrepresentation). Affirming the position in Smith New Court Securities v Citibank, the Court of Appeal confirmed that a claimant who relies upon a fraudulent misrepresentation is entitled to recover the financial loss flowing directly from changing his position under such inducement.

Conclusion

The Court of Appeal's judgment affirms and clarifies the application of existing authority regarding limitation, reliance, and causation in deceit claims. 

---

If you would like to discuss the issues raised in this article in more detail, please do get in touch with Ben Hay or Gena Ritchie.

For further information please get in touch with a member of the Fraud team.