Legal Updates

Representation as to chances of an investment will usually not be obligating as it is a representation as to the future

November 20, 2017

Investors lost their money in investing in commercial real estate in Latvia and sued, among others, the managers of the entrepreneurial company, inter alia, due to misrepresentations made in presentations and mismanagement of investments.

The Court rejected the claim against a manager of the entrepreneurial company and held that in order to raise a contention of damage due to misrepresentation it is necessary to prove that the misrepresentation is what caused the investor to enter the investment. In this case, the investor would probably have entered the investment even without the representations. Moreover, a representation as to the future is not binding unless a contractual obligation has been given to it, and the person who made the representation did not intend to fulfill it in the first place. Thus, the non-realization of a representation regarding the future will not constitute a misrepresentation unless at the time of giving the representation there was no intent to uphold it. Finally, in order to establish a cause of action for negligence, one must show a causal link between the alleged acts and the damage. Here the damage was caused by the economic crisis of 2008 and therefore it was necessary to show that even if the economic collapse had not been caused, the damage would still have happened and that the damage would not have been "absorbed" by the later damage caused by the economic crisis of 2008.