The High Court granted partial summary judgement on a range of claims brought by crowdfunding investors against the promoters of a failed property development scheme promoted by Mr. Abraham (Avi) Dodi of Ordan UK Ltd. (ORD) and Ms. Nicole Sue Bremner of RTR Property Developments Ltd., allowing the core claims regarding misrepresentation of capital contributions and buy-back agreements to proceed to trial.
Facts:
The case concerns a failed London residential property development, which was originally promoted as an investment opportunity to retail investors via crowdfunding. The scheme involved purchasing a long lease of the property, which was held on bare trust by the third defendant, ORD, for a single-purpose vehicle company, 36C Harrington Gardens Ltd., on 16 December 2016.
To raise capital, the defendants produced Investment Prospectuses (“IPs”) aimed at potential investors and set up a shareholders’ agreement (SA) to govern the project. The key contractual document was an SA dated 10 February 2017 between the company and the two other named defendants. The SA contained, inter alia, provisions about how the scheme was to be implemented and a capital table in its Fourth Schedule headed “Capital Investment in the company”, listing the investors at £732,000, ORD at £1,000,000, and RTR at £1,000,000, for a total of £2,732,000. The investors joined the scheme by signing Deeds of Adherence (DAs) and acquired equity in the company at £500 per share.
The company subsequently went into administration and then voluntary liquidation, paying the creditors a small quantum with no return to shareholders.
The claimants brought seven core claims, including damages for misrepresentation and breach of contract regarding the £1m investments by ORD and RTR, a claim related to a £500,000 withdrawal from the company shortly after their investment, claims for rescission, a claim for a promised 24% return, and claims under alleged “buy-back” agreements for their investments. The defendants relied on contractual exclusion clauses and the Limitation Act 1980 as defences.
Decision:
This ruling grants partial summary judgement against the claimants on most of their claims, but allows the core claims related to alleged misrepresentation and breach of contract concerning the investment of the defendants’ companies, as well as the buy-back agreement claims, to proceed to trial. The High Court found there was a realistic chance that the claimants could prove that the Fourth Schedule of the SA £1m from ORD and £1m from RTR amounted to a representation that £2million was at risk (an investment), when in reality, a substantial part was a loan (albeit one that was guaranteed). This discrepancy was found to be sufficiently arguable.
The High Court found no contractual provision that prevented the defendants from making the £500,000 withdrawal, even though it was suspicious, occurring as it did shortly after the investors had provided capital. Similarly, the claim based on the IP, promising a 24% return, was dismissed as the prospectus’ wording was merely an example of a possible return, and not a contractual promise. The claim for an account of rent was dismissed because the rental income was legally vested in the company and is now vested in the liquidator. The claimants have no legal right to this money.
The claim for rescission of the SA was dismissed because the remedy requires the parties to be restored to their pre-contractual positions (restitutio ad integrum), which is impossible as the Company is in liquidation and shares were issued and cannot be undone.
Implications:
The implications of this judgement, while rooted in a dispute between shareholders and promoters, primarily concern the limits of contractual remedies against companies and their directors; the enforceability of investment documents; and the effect of liquidation on shareholder claims. The case underlines that, once a company is in administration or liquidation, claims relating to misapplication of its assets or suspect withdrawals (e.g. preferences or misfeasance) generally vest in the company and its office holders, not in individual shareholders, who cannot re‑characterise corporate causes of action as personal investor claims. It also illustrates a cautious approach to treating promotional materials as contractual terms and to enforcing “no‑reliance” clauses at a summary stage.
