Appeal Division on deceit, unlawful distribution, breach of fiduciary duty & limitation

Isle of Man Appeal Division reviews deceit / fraudulent misrepresentation, unlawful distribution of profits, fraudulent breach of fiduciary duty & limitation

The Isle of Man Appeal Division has recently ruled on:

• the tort of deceit / fraudulent misrepresentation;
• unlawful distribution of profits;
• fraudulent breach of fiduciary duty; and
• limitation

in Humbles & others v Wickers & others (2DS 2025/17) (01.06.26).

Background

This long-running claim by investors related to a failed investment in the development of property overlooking Regent’s Park, central London.

The property had been purchased in July 2007, for £131.2m (and £3m planning top up fee), by one Isle of Man company, Falmouth Developments Ltd (‘FDL’), in turn owned by another, Falmouth Ltd (‘Falmouth’), in turn owned by another, Oakmayne Properties (Regeneration) Ltd (‘OPR’).

Three investors started personal claims in September 2017 against three directors of the companies, pleading: deceit / fraudulent misrepresentation; misrepresentation; breach of duty; breach of fiduciary duty; and fraudulent breach of fiduciary duty. These personal claims sought damages for, amongst other things, alleged fraudulent misrepresentations, orally and in an investment brochure.

The investors also sought to enforce claims against the directors assigned to them by FDL. These assigned claims pleaded negligence; breach of fiduciary duty; breach of trust; and that the breaches were fraudulent or, if not, that there was concealment, so as to prevent limitation expiring.

A key issue was a success fee of £3,763,735 paid by the directors of FDL to OPR on the day of completion.

The investors alleged that the success fee should have been disclosed in the brochure, but was not; that the brochure was misleading; and that they had been induced to invest by a series of allegedly fraudulent misrepresentations. They also claimed, as assignees, the amount of the success fee, as an unlawful distribution of profits.

In a 57-page judgment, Judge of Appeal Cross KC, Acting Deemster Sir Nigel Teare KC and Acting Deemster Rosen KC overturned a 196-page decision at first instance from June 2025, which had imposed liability of around £7.8 million on the directors, plus interest and costs, following a 6-week trial.

This update focuses on the Appeal Division’s review of several key areas.

Tort of deceit / fraudulent misrepresentation

The Appeal Division referred, at § 86, to the constituent elements of deceit, as summarised by Zacaroli J in Farol Holdings Ltd & others v Clydesdale Bank PLC & others [2024] EWHC 593 (Ch) at §§ [207]–[223] (§§ [207]-[2018] being summarised below):

“207. First, it is necessary to establish that a representation – that is a statement of fact on which the representee is intended and entitled to rely – has been made…

208. The question whether a representation has been made and, if so, in what terms, is determined objectively… 

211. Second, the representation must be false.

212. Third, the representation must be made either knowing it to be untrue, or recklessly not caring whether it was true or not…

214. Of particular importance in a case of implied fraudulent representations, is the need to show that the representor understood that the relevant representation was being made, in the sense in which it is alleged to have been understood and relied on by the claimant…

215. Fourth, the representor must intend the representee to rely on the statement in the sense in which it was false.

216. Fifth, the representee must in fact have been induced to take action – for example entering into a contract – in reliance on the representation…

217. The relevant question in this respect is whether the claimant would have entered into the contract if the representation had not been made at all, not whether it would have done so if it had been told the true position…

218. The identification of the appropriate counterfactual if the statement had not been made, however, is a question of fact…”

At § 87, the Appeal Division noted that subsequent passages of Farol Holdings had been overtaken by Credit Suisse Life (Bermuda) Ltd v Ivanishvili & others [2025] UKPC 53:

“… reliance or inducement is an essential element of a claim for deceit (or other claim for damages for misrepresentation). There are two aspects to the requirement. The first is that the representation must have deceived the claimant by causing C to hold a false belief (“reliance in belief”). The second is that C must because of holding that false belief have acted so as to suffer loss (“reliance in action”). Both aspects of reliance require the representation to operate on the mind of C. But neither logically requires C to be consciously aware of the representation at the time when C acts on it. Nor is there any good reason to insist on such an additional requirement”.

At § 89, the Appeal Division cited as correct § [223] of Farol Holdings:

“… It is essential to keep in mind that in every case it is necessary to show, as a matter of fact, that the claimant’s decision to take the action (or refrain from taking action) which caused it loss must have been caused by the representation made by the defendant. The evidence required to satisfy that requirement will differ greatly depending on where on the spectrum the case lies (from “it goes without saying”, at one end, to a complex representation said to be implied from conduct and statements, at the other)”.

Conclusion on the investors’ personal claims

At § 205, the Appeal Division found for the directors, for the following (summary) reasons:

“… (i) the Directors’ Statement[*] was not an actionable representation, and/or (ii) the Directors’ Statement of their belief that the information in the Brochure was in accordance with the facts was true, and the finding that the Directors had no belief that the Brochure did not omit anything likely to affect the import of such information was untrue, must be set aside and/or (iii) there is no finding that the Investors read and relied upon the Directors’ Statement, alternatively, if there is such a finding it must be set aside.”

[* “However, to the best of their knowledge and belief, the Directors of the Company (who have taken all reasonable care to ensure that such is the case), believe the information contained in this document is in accordance with the facts and does not omit anything which is likely to affect the import of such information”]

In the context of the investors’ assigned claims, this update goes on to consider: unlawful distribution of profits; fraudulent breach of fiduciary duty; and limitation.

Unlawful distribution of profits

At § 236, the Appeal Division summarised principles on unlawful distribution from Progress Property Co. Ltd v Moorgarth Group Ltd [2010] UKSC 55:

“(i) The law on unlawful distribution is a common law rule. A distribution of a company’s assets to a shareholder, except in accordance with specific statutory procedures, such as a winding up of the company, is a return of capital, which is unlawful and ultra vires the company. Whether a transaction infringes the common law rule is a matter of substance, not form. The label attached to the transaction by the parties is not decisive (see [§§] [15] – [16] of the judgment of Lord Walker).

(ii) Where a payment is made pursuant to an agreement, the court will consider whether the agreement was a pretence, an attempt to disguise the true character of the agreement, a mere dressing up in an endeavour to clothe the agreement with a legal character which it would not otherwise have possessed (see [§] [22] of the judgment of Lord Walker).

(iii) The essential issue is one of characterisation. The court’s task is to inquire into the true purpose and substance of the impugned transaction. That calls for an investigation of all the relevant facts, which sometimes include the state of mind of the human beings who are orchestrating the corporate activity (see [§§] [24] and [27] of the judgment of Lord Walker).

(iv) Directors are liable only if it is established that in effecting the unlawful distribution they were in breach of their fiduciary duties. Whether or not they were so in breach will involve consideration not only of whether or not the Directors knew at the time that what they were doing was unlawful, but also of their state of knowledge at that time of the material facts (see [§] [32] of the judgment of Lord Walker).”

The Appeal Division concluded (at § 250):

“In determining whether a payment is an unlawful distribution it is necessary to do so on the basis of the correct factual context and to take account of all relevant matters. There are, as we have explained, compelling reasons for concluding that the Deemster did not do so. The Deemster’s errors are demonstrable and sufficiently material to undermine his conclusion. That being so, we do not consider… it safe to allow the Deemster’s conclusion… that the Success Fee was an unlawful distribution to stand. His conclusion was, we consider, rationally insupportable and must be set aside.”

Fraudulent breach of fiduciary duty

At § 255, the Appeal Division cited Millet LJ in Armitage v Nurse [1998] Ch 241:

“Breaches of trust are of many different kinds. A breach of trust may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers; it may consist of a failure to carry out a positive obligation of the trustees or merely of a want of skill and care on their part in the management of the trust property; it may be injurious to the interests of the beneficiaries or be actually to their benefit. By consciously acting beyond their powers… the trustees may deliberately commit a breach of trust; but if they do so in good faith and in the honest belief that they are acting in the interest of the beneficiaries their conduct is not fraudulent. So a deliberate breach of trust is not necessarily fraudulent… I accept the formulation put forward… which (as I have slightly modified it) is that it “connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not.”

It is the duty of a trustee to manage the trust property and deal with it in the interests of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions. A trustee who acts with the intention of benefiting persons who are not the objects of the trust is not the less dishonest because he does not intend to benefit himself”.

The Appeal Division concluded (at § 265):

“… the Deemster’s finding [that payment of the success fee was a fraudulent breach of the directors’ fiduciary duty] was reached without considering the material evidence given by the Directors when that allegation was put to them on Day 28 of the trial. The fact that no mention was made of that evidence in circumstances where complaint had been made that the relevant allegation had not been put to them is a compelling reason… for concluding that the Directors’ evidence on this matter had not been considered by the Deemster. That failure was an error of law and was procedurally unfair to the Directors. It is a demonstrable error and one sufficiently material to undermine the Deemster’s finding. His decision was in those circumstances rationally insupportable.”

Limitation

Interestingly, PTA for the directors’ ground of appeal relating to limitation had been refused, but was granted when renewed orally. This ground of appeal also succeeded.

The claim had been filed in September 2017. Section 30(1) Limitation Act 1980 provides:

“(1) … when in the case of any action for which a period of limitation is prescribed by this Act, either —
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake… or could with reasonable diligence have discovered it…”.

It had been held, at first instance, that payment of the success fee had been concealed from the investors until February 2014 and could not have been discovered earlier by due diligence.

The Appeal Division disagreed, noting that: (i) the relevant person, for the purposes of concealment, was FDL, not the investors; (ii) what had to be deliberately concealed was a “fact relevant to the plaintiff’s right of action” (s 30(1)(b)) – ie. a fact without which the cause of action would be incomplete (Potter v Canada Square [2023] UKSC 41) (§ 277); (iii) “There being no finding that a fact relevant to FDL’s claim had been concealed from FDL… it follows that the Investors are unable to show, the burden being on them, that the six-year limitation period ran from September 2011 or later. On that basis FDL’s claim against the Directors was time-barred” (§ 273); (iv) “it is necessary for the Investors to identify the fact, or facts, without which the cause of action would be incomplete and which were deliberately concealed from the B Directors [of FDL]. That has not been done.” (§ 277); and (v) the assigned claims were, therefore, time-barred.

Note for practitioners: Humbles sets out key principles applicable in the Isle of Man in the areas of deceit / fraudulent misrepresentation, unlawful distribution of profits, fraudulent breach of fiduciary duty and concealment in relation to limitation.

[Update 17.08.26] The Appeal Division has refused PTA to the JCPC and has refused to direct a retrial. See also Coren Law, Appeal Division considers test for directing re-trial (20.08.26).

Disclaimer: professional advice should be sought before applying any information in a given case.

For advice on litigation relating to Isle of Man company law, contract law or civil fraud, contact Coren Law.

See also Coren Law’s Isle of Man civil procedure portal: Click On | Coren Law.