Ludsin Overseas Ltd v ECO3 Capital Ltd & Ors (2012)


A company which had lost £2 million by investing in a scheme involving the purchase of a plot of land succeeded in its claim for fraudulent misrepresentation against several defendants who had been involved in the promotion or operation of the scheme.


The claimant company (L) brought a claim against the defendants for fraudulent misrepresentation.

L was an investment vehicle set up by a Russian businessman in order to invest in a scheme to purchase a plot of land. The intention was to increase the value of the land by obtaining additional planning permissions from the local authority and then to sell the land on to developers. L was introduced to the scheme by the second defendant (S), who was the director of the first defendant company (E). The scheme had been devised by the third, fourth and fifth defendants (W, M and B). L invested £2 million in the scheme, with the remainder of the money coming from a bank loan and other investors. The site was the subject of two separate purchases which took place simultaneously. A company representing W, M and B bought the site from the seller (H) for £9.3 million. It then sold the site to another company (SF) for £12.25 million. The money representing the difference between the two sums was paid out to several individuals and companies, including E, M and B, and the joint owner of W. SF issued loan notes and shares to the investors. The scheme did not go to plan, and SF was ultimately wound up. The receiver sold the site to a company owned and controlled by M. L's shares in SF became worthless.

L alleged that there was a fraudulent misrepresentation by E and S as to the true nature of the deal that L was being asked to invest in. L submitted that W, M and B were liable for the fraudulent misrepresentation because it was made by E and S as agents for the three of them. The two principal misrepresentations that L alleged had been made were that the seller of the land to SF was H, and that the price at which H was selling the land to SF was about £12.5 million.


(1) S made a representation to L both orally and in writing that the site was being sold to SF in a straightforward sale by the owner for the sum of about £12.5 million. There was no disclosure of the two-tier structure of the deal, or the existence of the substantial price differential in the two transactions. The representation was made by S with the intention that L would rely on it by investing in the project (see paras 62-90 of judgment). (2) The representation was untrue, and S knew it to be untrue. The differential was not needed to add £2.9 million of value to the site, nor was it distributed among the recipients to be used for that purpose. It was not fair to say that the total price for the land was £12.5 million, or that the two-tier structure of the deal was immaterial so far as investors in SF were concerned (paras 91-112). (3) E and S were liable to L for fraudulent misrepresentation. L would not have invested £2 million in SF if it had known that the site was not being bought by SF from H for £12.25 million, but was in fact being bought by a company representing W, M and B for £9.3 million, using L's money, and then sold on to SF for £12.25 million. The loss suffered by L by its reliance on the misrepresentation was the value of the £2 million investment lost, subject to setting off £600,000 already received in respect of that loss (paras 113-119). (4) It could not seriously be disputed that E and S were acting as agents for W, M and B in soliciting the investment from L. E was paid a commission of £125,000 out of the £2.9 million price differential. W, M and B knew and intended that the funds brought into the deal by E would be from independent investors. W, M and B were fully aware of and complicit in the fact that S had not disclosed the two-tier structure of the deal to L. Accordingly, they were jointly and severally liable with E and S in deceit (paras 120-232).