Home Information Cases Darius Khakshouri v (1) Anthony Jimenez (2) Kevin Cash (2017)

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Darius Khakshouri v (1) Anthony Jimenez (2) Kevin Cash (2017)

Summary

When calculating damages for deceit, the measure of damages was the loss flowing directly from the claimant's reliance on the deceitful statement. However, the court did not always have to take the date of reliance as the starting point. Rigidity was to be eschewed and, depending on the facts, it might be necessary to compute damages by reference to a later date.

Facts

The claimant, a property developer, sought damages in deceit from two of the directors of a London football club.

In 2013 the club had been in dire financial straits and its directors had resolved to sell it. However, it owned a stadium close to an area which had been earmarked for redevelopment. Because the directors wanted to use the stadium as a means of becoming involved in the redevelopment scheme, the defendants conceived of a plan to require any buyer to conclude a linked "land deal", enabling them to retain an interest in the stadium. By September 2013 no buyer had been found and cash was needed to stave off administration. The first defendant therefore persuaded the claimant to make a short-term loan to the club. The claimant was initially reluctant: his "spare" cash was invested in a Los Angeles development project. However, he was persuaded to dilute his interest in that project and to make the loan in return for an interest in the land deal. A side-letter setting out the terms of the loan was subsequently drawn up. In January 2014, the club was sold to a third party without any land deal. However, the claimant was not told until after he had agreed to defer the loan repayment.

The claimant submitted that he had been induced to make the loan on the basis of two misrepresentations made by the first defendant: that the defendants were the majority shareholders in, and controllers of, the club; and that they would ensure that the club was not sold without a land deal.

Held

Did the first defendant represent that he and the second defendant were majority shareholders? - Yes. He represented that they controlled the club by holding indirect majority shareholdings in the companies which owned its business and assets. The claimant's evidence in that respect was consistent with the documentary evidence and the commercial realities underlying the transaction. It was also corroborated by the side letter, which made it clear that the defendants were majority shareholders and that a share in the land deal was the consideration for the loan. It was entirely credible that the claimant would ask for guarantees about how the land deal was to be secured. The representation that they were majority shareholders was critical, that being the only permutation of legal ownership that would have induced him to make the loan (see paras 14-20, 76-89 of judgment).

Was that representation false? - Yes. Neither defendant held shares in the club, or in any company which directly or indirectly owned shares in it (paras 90-92).

Did the first defendant know that the representation was false? - Yes, he made the representation knowing it to be a deliberate lie. His suggestion that the side letter's description of the defendants as majority shareholders was a mistake was untenable. The side letter was an important document, drafted, reviewed and signed by experienced businessmen. They would not have made such a mistake (paras 93-98).

Did the first defendant intend the claimant to act in reliance on the representation? - Yes. Where a false representation was made deliberately, there was a strong presumption that the maker intended it to be relied upon, an Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501 followed. The first defendant made the representation because it was necessary to induce the claimant to make the loan. The claimant would not have done so had two men he trusted not represented that they could ensure that the land deal came about (paras 20, 99-100).

Did the first defendant represent that the club would not be sold without a land deal? - Yes. He had not merely represented that he would use reasonable endeavours to secure a land deal. He had expressed a firm and unequivocal intention to ensure that the club was not sold without such a deal. That was a falsehood, uttered deliberately to induce the claimant to make the loan, and the first defendant was therefore liable in deceit (paras 106-118).

Was the second defendant vicariously liable for the first defendant's conduct? - Yes. He had given the first defendant actual authority to negotiate with the claimant on his behalf. He had authorised him to do whatever he considered appropriate to secure the loan, and the misrepresentations fell squarely within that authority (paras 124-125).

As at what date were damages to be calculated? - The appropriate date for calculation was the completion date of the Los Angeles development in 2017, even though that came after the loan had been repaid in 2014. By removing his money from that development, the claimant had lost out on a significant return, and the general principle was that he should be put in the position in which he would have been had the deceitful statement not been made. The measure of damages was the loss flowing directly from his reliance on the deceit. Although damages were generally reckoned as at the time of reliance, that was not an appropriate starting point in the instant case. Rigidity and inflexibility were to be eschewed and, depending on the facts, it might be necessary to compute damages by reference to a later date, Smith New Court Securities Ltd v Citibank NA [1997] A.C. 254 followed, 4 Eng Ltd v Harper [2008] EWHC 915 (Ch) not followed. By the time the loan was repaid, the claimant had been locked out of the Los Angeles development and could not use the repayment to buy his way back in. He could not restore the status quo ante, and his losses flowing directly from the deceit continued; they did not crystallise until completion of the Los Angeles development (paras 135-166, 177-181).

Had the claimant failed to mitigate his loss? - No. When the loan was repaid there were no deals similar to the Los Angeles development to invest in. In any event, he was then short of cash and had used the money to discharge debts of his own (paras 182- 191).

Were the defendants liable in respect of the repayment deferral? -The first defendant was liable. In order to induce the claimant to vary the terms of the loan, he had let him believe that a land deal was on the table, and he had done so knowing that there would be no such deal. However, there was insufficient evidence to find the second defendant liable, either as a principal or on the basis of vicarious liability (paras 197-211).

Judgment for claimant

QBD
Green J
Judgment date
20 December 2017
References
LTL 21/12/2017 : [2017] 12 WLUK 578