Phil Sheard & Bexley Beaumont successfully settle six-figure trade finance fraud claim

Phil Sheard and his team at Bexley Beaumont have successfully settled a six-figure claim for a trade finance client that had been brought personally against the sole director of the borrower in a scenario akin to that in Contex Drouzhba Limited v Wiseman and Another [2007] EWCA Civ 1201. In that case, the Court of Appeal found that an agreement signed by a director on behalf of a company contained an implied representation that the company had the capacity to meet its obligations and the director was personally liable for deceit since he knew that representation was untrue. The representation had been made in writing and signed by the director as "the party to be charged" so that the Statute of Frauds Amendment Act 1828 s.6 provided no defence.

The trade finance company had provided a trade finance facility to the borrower for a number of years without any problems. In the late summer of 2022 the trade finance company was notified that the director had appointed insolvency practitioners in order to liquidate the borrower. Importantly, the statement of affairs confirmed that the sole director of the borrower had closed the doors to the business in April 2022 and had first instructed the liquidators in June 2022. This was at odds with the trade finance facility as a substantial six-figure sum had been drawn down after both of those dates.

High Court Proceedings were issued against the director for deceit/fraudulent misrepresentation and which the director defended. The trade finance company’s case was that:

• The director signed terms that included a term that each time the director certified a payment to a supplier he was making declarations regarding the borrower’s solvency and ability to make payment; and
• At the point of electronically certifying each payment obligation the director was confirming that the repayment date would be met; and
• That was sufficient to satisfy the requirement for the fraudulent misrepresentation to be in writing so that no defence could be mounted pursuant section 6 of the Statute of Frauds Amendment Act, 1928.

At a settlement meeting the director was put on notice that:

• The trade finance company was aware that a new company with a similar name had been incorporated in late 2021 and of which the director’s wife was sole director and shareholder;
• Significant funds in respect of share capital had been invested in the new company after the director had instructed an insolvency practitioner;
• Evidence had been obtained that showed a supplier’s invoice had been edited by the director after being received and before being supplied to the trade finance company for funding; and
• Investigations were ongoing in respect of where and to whom the various suppliers had delivered the goods and that it was anticipated that the new company and the director’s wife would be added to the current proceedings.

A six-figure settlement sum was agreed in order to end the current proceedings and avoid the need to add the new company and the director’s wife to the proceedings.

This is an illustration of the difficulties all types of lenders are currently facing as a consequence of the economic downturn.