Fraudulent misrepresentation and conspiracy case looks at elements of deceit

A recent fraudulent misrepresentation and unlawful means conspiracy case has looked at the elements needed to prove a claim.

A hearing in the case of GI Globinvestment Ltd & ors v Federico Faleschini & ors [2024] examined whether the claimants’ case against some of the defendants had a realistic prospect of success or whether it should be struck out.

The facts

The claimants are father and son businessmen, Matteo Cordero di Montezemolo (MDM) and Luca Codero di Montezemolo (LDM) and their family investment company, GI Globinvestment Ltd (GIG).

They invested substantial sums of money in the Skew Base Fund, the second defendant. The claimants allege that they invested on the advice of the first defendant, XY UK. The seventh defendant, Mr Migani, owned XY UK, and the eighth defendant, Mr Faleschini was the company secretary.

The claimants state that XY UK, Mr Migani and Mr Faleschini told them that XY UK was independent and that there was no conflict of interest in the advice it would provide. They say that on the basis of this assurance and on XY UK’s advice, they invested in the Skew Base Fund. 

In fact, XY UK was not independent at the material times. XY UK and Mr Migani were involved with the creation of the Skew Base Fund and its operation. 

Mr Migani also owned the sixth defendant, Twinkle Capital SA (Twinkle), which was set up to create and run the Skew Base Fund. Mr Faleschini is the sole director of Twinkle and received substantial sums deriving from investments in the fund. His wife was Twinkle’s administration, finance and control manager and one of the three directors of the Skew Base Fund’s general partner, Skew Base SARL, the third defendant. 

The claim

The investments made by the claimants suffered substantial losses and they ultimately lost around €50 million when the relevant sections of the Skew Base Fund were liquidated.

The claimants state that had they known the true facts, the losses would not have occurred as they would either have taken independent advice before investing and not gone ahead with the investments or, if they had found out the true position after the initial investment, they would have withdrawn their funds before the collapse.

They claimed the full amount on the basis of both fraudulent misrepresentation and unlawful means conspiracy. 

They allege that the conspiracy arose because the defendants acted together in agreement or common understanding with the intention of falsely stating that the Skew Base Fund was independent of XY UK.

The unlawful means used include deceit, breach of fiduciary duty, and dishonest assistance.

The fraud was the payment of substantial sums taken from the Skew Base Fund investments to corporate vehicles owned by Mr Migani.

A hearing took place to determine whether the case against two of the defendants should be struck out. This includes the case against Mr Faleschini, who claims he did not have the relevant knowledge required to prove a case against him.

Deceit

The court noted that for a claim of deceit to succeed, the following are required, as set out in Ludsin Overseas Ltd v Eco3 Capital Ltd [2013]:

• The defendant made a false representation to the claimant
• The defendant knows that the representation is false
• The defendant intends that the claimant should act in reliance on the representation
• The claimant acts in reliance on the representation and as a consequence, suffers a loss

These four elements comprise the mental element that is the ‘intention to deceive’.

It was also noted that once a representation has been made, it is likely to have a continuing effect until the transaction is completed or abandoned.

The judge found that it was realistically arguable that Mr Faleschini’s representations about XY UK could be actionable.

There also appeared to be evidence that Mr Faleschini may have known that the representations were false. It is only necessary to establish that a class of people were intended to be misled and not that it was intended to mislead a particular individual, in this case, the claimants.

The judge stated, ‘Given the points made thus far, it is clearly realistic that Mr Faleschini knew that investors in Skew Base Fund might be misled.’ There was sufficient evidence that Mr Faleschini was aware of the key matters, namely the provision of advice and lack of independence, meaning that the case should proceed to trial. 

Continuing representations

The claimants allege that:

• The representations that were made were continuing representations
• If not already false, the representations were false by the time they were acted upon by the claimants
• Mr Faleschini was aware that they had become false and did not retract them when he became aware of their falsity

The judge found that there was no reason why the representations made should not have continued to influence the claimants throughout the relationship, in particular when taking investment advice from XY UK. This meant that they were continuing representations.

Conspiracy

The court also found that it was arguable that Mr Faleschini was part of a conspiracy with the intention of creating and maintaining the façade that the Skew Base Fund was independent of XY UK. 

Summary

In bringing a case for deceit and fraudulent misrepresentation, the judge quoted Clerk and Lindsell paragraph 17-12, ‘a representation of present intention … is a sufficient representation of an existing fact to form the foundation of an action for deceit. … a statement as to the future will often indeed imply a statement as to present intention … a promisor generally represents by implication that he has at the moment of making the promise the intention of fulfilling it’. 

Representations that have been made will continue to have an effect on the mind of an individual unless they are withdrawn, meaning they are continuing representations, even if not repeatedly stated.

Someone can be held to be involved in a conspiracy if they join in at any stage, provided they know of and actively support the unlawful purpose.

Finally, it was noted that a successful applicant in a conspiracy case is entitled to receive damages that put them in the position they would have been in, had the conspiracy not taken place. 

The trial against all the defendants is set to go ahead at a future date.

For more information on misrepresentation, please also see our blogs on:

• Misrepresentation and the 11 facts you need to know
• What are the different types of misrepresentation?
• Negligent Misrepresentation vs. Fraud: Understanding the Key Differences
• Benefits of bringing a private prosecution if you are a victim of Fraud
• Directors’ personal liability for misrepresentation

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