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The Court of Appeal has upheld an award of £1 million in damages to two investors who were misled into investing in a company by false representations made by a director. The decision serves as a clear warning to company directors and businesses that misleading statements made to prospective investors can give rise to significant personal liability.
Background to the Case
The investors invested a total of £1 million in a biotechnology company between December 2012 and November 2014.
In an email dated 5 December 2012, the company director stated that a mutual acquaintance - who was well known to both the director and the investors - had been appointed as a director of the company. This statement was incorrect.
The company later entered administration in April 2016, rendering the investors’ shares worthless.
High Court Findings
The investors brought a claim against the director for fraudulent misrepresentation. The High Court found that:
- the representation that the acquaintance had been appointed as a director was false;
- the director knew the statement was untrue when he made it;
- the representation was intended to induce the investors to invest; and
- the investors did in fact rely on it when making their investment.
The Court concluded that the investors had lost the entirety of their investment as a direct result of the misrepresentation. Damages of £1 million were awarded, together with interest and costs.
Limitation Defence Rejected
The director argued that the investors’ claim was time-barred under the Limitation Act 1980. The High Court rejected this defence, finding that the investors had no reason to doubt the truth of the director’s statements or to investigate the position until September 2015, which was within the six-year limitation period.
Court of Appeal Decision
The director appealed, arguing that:
- the High Court had applied the wrong approach to limitation;
- the investors should have checked Companies House to verify the acquaintance’s status; and
- the investors had not truly relied on the representation, as they were only seeking the acquaintance’s influence rather than a formal board appointment.
The Court of Appeal rejected each of these arguments. It held that:
- the High Court had correctly placed the burden on the investors to establish why time had not run;
- the question of whether the investors could reasonably have investigated the position depended on whether they had any reason to do so; and
- the representation clearly related to the acquaintance being a de jure director, not merely an informal or de facto participant.
The appeal was dismissed in full.
Why This Decision Matters
The judgment reinforces that:
- directors can be personally liable for fraudulent misrepresentation;
- investors are entitled to rely on factual statements made to them;
- courts will look closely at whether investors had any reason to doubt representations at the time they were made; and
- limitation defences will fail where the claimant could not reasonably have discovered the truth earlier.
🔹 Key Questions & Answers: Investor Misrepresentation Claims 🔹
What is fraudulent misrepresentation?
It occurs where a false statement is made knowingly (or recklessly) with the intention that another party relies on it, causing loss.
Can company directors be personally liable?
Yes. Directors may be personally liable where they make fraudulent representations, even if acting in their capacity as a director.
Do investors have to verify everything they are told?
Not necessarily. Investors are generally entitled to rely on clear factual statements unless there is a reason to doubt them.
Does a Companies House search defeat a claim?
No. The court will consider whether the investor had any reason to carry out such a search at the time.
What losses can be recovered?
In cases of fraudulent misrepresentation, investors may recover the full amount of their losses flowing from reliance on the false statement.
Contact Us
Disputes arising from failed investments can be complex and financially significant.
If you require advice on investor disputes, director liability or misrepresentation claims, contact Willett & Co Solicitors. Our team provides strategic, commercially focused advice to help investors and businesses protect their interests and resolve disputes effectively.