The role of a Financial Director – a life in the spotlight
In the case of Arthur James Watts v John Harris Watts (2014) the High Court has recently awarded damages for deceit and breach of trust to a claimant beneficiary who was the victim of a fraudulent misrepresentation made by a trustee.
The claimant was the sole beneficiary of a trust. The defendant was (effectively) the sole trustee of the trust; he was also an accountant, a professional investor and the brother of the claimant. The trust was invested in UK stocks and shares.
The defendant persuaded the claimant to agree to dissolve the trust (worth approximately £2.2 million) on the basis that:
The claimant did receive an income from the defendant for the first 4 years after the dissolution of the trust (on which no UK tax was paid), but, in breach of trust and in breach of contract, the defendant then used the funds for his personal use.
The claimant alleged that he was induced to enter into the agreement by the defendant’s fraudulent misrepresentations that (1) the defendant would manage the investments on behalf of the claimant from which he would pay the agreed annual amounts to the claimant by way of income and (2) the agreement legitimately avoided UK tax when, in fact, the defendant had no intention of paying those monies to the claimant and he knew what he proposed was unlawful tax evasion.
The court held that:
An action for fraudulent misrepresentation is founded in the tort of deceit. The tort of deceit contains 4 ingredients:
No fraud will be found if the person making the representation honestly believes his statement to be true; therefore, a claimant must prove the absence of an honest belief to succeed in action for fraudulent misrepresentation.
The remedy for fraudulent misrepresentation is that the claimant has the right to rescind the agreement and/or claim damages to put the claimant back into the position he was in before the misrepresentation was made.
Bringing a claim for fraudulent misrepresentation can be difficult, particularly where the alleged misrepresentation(s) is oral, in which case, the success of the claim will hinge on the credibility of the oral testimonies of the claimant and the defendant. If you have entered, or are going to enter, into an oral, not written, agreement always make sure that the important terms of that agreement are put in writing; a contemporaneous exchange of emails which supports your oral testimony will hold a lot of weight in a court of law.
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