High Court finds in favour of lenders in context of fraud claim in relation to misrepresentations made on behalf of a borrower

The High Court has found in favour of four lenders in their claim against a guarantor and director of a borrower for fraudulent conduct in relation to a loan facility: Njord Partners Sma-Seal LP & Ors v Astir Maritime Ltd & Ors [2024] EWHC 1682 (Comm).

This decision will be of interest to financial institutions looking to pursue fraudulent misrepresentation claims against company directors or guarantors. It reaffirms that, as per the established principle in Lifestyle Equities CV v Ahmed [2024] UKSC 17 (see our blog post), a person may be jointly liable as an accessory to a tort as a result of assisting another to commit that tort, provided that the assistance is more than trivial and is given pursuant to a "common design" between the parties. The accessory must have had knowledge of the essential facts that made the act unlawful (though not necessarily knowledge that it was unlawful). The decision is also a reminder that a company director will not have personal primary liability for the tort of deceit solely on the basis that they failed to correct a statement made by someone else on behalf of a company, which they knew to be false. That reflects the general principle that silence in itself will not give rise to liability for deceit unless there is some legal duty to speak.

In the present case, the guarantor and director were related. The guarantor was the father of the director, and both were part of the borrower's family business. The lenders alleged that the guarantor and director of the borrower had made false representations about: (i) the guarantor's net worth (the Asset Representations); (ii) the reasons for the delays in making repayments; (iii) the status of certain transactions and whether there was any continuing event of default in the confirmed approved borrower statements (the ABS Representations). The lenders argued that these false representations had been made with the intention of deceiving them. The guarantor and the director denied these allegations. In particular, the director argued that he had no part in making the Asset Representations and in any event did not know them to be untrue. As for the ABS Representations, he argued that his signature was appended electronically to the statements without his knowledge or authority, and that he did not know what was said in the statements was untrue. 

The court found that the guarantor and director were liable for deceit and unlawful means conspiracy in respect of the misrepresentations. In particular, in relation to the Asset Representations, the court said that the director was not personally primarily liable for deceit as there is no general principle that a company director who fails to correct a statement which he knows to be false made by someone else on behalf of his company thereby (and without more) becomes personally liable in the tort of deceit. Nonetheless, the court said that the elements for accessory liability for the Asset Representations had been established. It was certainly true that the guarantor was very much the decision-maker for the entire business and that nothing important happened without his approval. But that did not mean that the director did not know, at least in general terms, what was going on in the business or took no role in it. The assistance the director provided in the preparation of the net worth statement was “more than trivial”, and pursuant to a common design with the guarantor. The director also knew enough about the family's assets to be aware that the statement included assets that were not owned in guarantor's name, and were materially inflated.

On the ABS Representations, the court found that the director knew (at least in general terms) that the approved borrower statements were important documents, containing statements that would be of importance to the lenders in deciding whether to permit the drawdowns. Accordingly, even if the court was to believe that he did not read the approved borrower statements, then, in any event he was entirely reckless about the veracity of their contents, having made no attempt to verify the truth of the statements. He therefore did not have an honestly held belief in their truth. 

For more information please see our Civil Fraud and Asset Tracing Notes blog post.