Summary

Damages for loss of the chance to purchase an alternative company, if caused by a defendant's fraudulent misrepresentation and a claimant's reliance on it, were recoverable in an action for deceit, and the foreseeability of such a head of loss was irrelevant.

Facts

The court was required to assess damages due to the claimant company (E) following summary judgment on a claim in deceit against the defendants (H). H had sold the share capital in a company (X) to E after making untrue representations as to X's financial position. H were subsequently convicted of conspiracy to corrupt and defraud. E issued a claim against H in deceit, and applied for summary judgment. The judge found E's claim established. The losses for which E claimed damages arose under five heads: (i) the purchase price paid to H for X; (ii) costs and expenses of the acquisition; (iii) liabilities incurred after acquisition in respect of salaries, pensions and national insurance contributions; (iv) liability for the cost of investigation into the fraud; (v) loss of opportunity to purchase and profit from another company (T). E contended, amongst other things, that if it had not been induced to buy X it would have purchased shares in T and that it had thereby been deprived of very substantial income and capital profits. H submitted that E's attempt to recover under that head involved an impermissible attempt to rely on both damages for loss directly caused to E and damages for loss of a chance. H further argued that E's claim for loss of capital profits of an alternative business was too remote and not recoverable and that damages were not ordinarily recoverable for both a capital and an income element for the same loss.

Held

E had undoubtedly suffered loss in relation to the purchase price paid for X and was entitled to recover in that respect. (2) On the evidence, E had established the amount and payment of costs and expenses arising out of the acquisition and was entitled to recover them as damages. (3) H accepted that it was liable in respect of the lost salaries, provided that E made no recovery in respect of the lost opportunity to purchase T. E accepted that if it succeeded in respect of its claim concerning T, the loss in respect of salaries, pensions and national insurance contributions was not recoverable. (4) The uncovering of the extent and detailed facts of H's fraudulent and corrupt activity had been a complex and time-consuming task undertaken by E's managers. The court decided upon the appropriate hourly rate upon which E was to be compensated in that respect. That award was to compensate for the cost of the investigation and was not an award of damages for disruption to the business through loss of management time of the type recognised in Aerospace Publishing Ltd v Thames Water Utilities Ltd (2007) EWCA Civ 3, (2007) Bus LR 726. In such cases, a claimant had to prove significant disruption to its business, but if it did so, the court would generally infer that revenue would otherwise have been generated at least equal to the cost of employing the diverted staff for the relevant time, Aerospace considered. (5) In principle, damages for the loss of an alternative purchase, if caused by a defendant's fraudulent misrepresentation and a claimant's reliance on it, were recoverable in an action for deceit, East v Maurer (1991) 1 WLR 461 CA (Civ Div) applied. A combination of claims for loss directly caused to a claimant and damages for loss of a chance involved no error of principle. If the loss of a chance was damage directly caused by a defendant's deceit it was as much within the scope of damages for deceit as payments or liabilities in fact made or incurred by the claimant or as damages for the loss of profits in a hypothetical alternative business established on the balance of probabilities as in East. The foreseeability of a head of loss was irrelevant in the award of damages for deceit, Smith New Court Securities Ltd v Citibank NA (1997) AC 254 HL applied. A loss was too remote only if it was not in the eyes of the law directly caused by the defendant's deceit. Further, E's claim for loss in relation to T was not for a loss of capital in acquiring T. It was the reverse: it was for the loss of opportunity to make a capital profit as a result of the acquisition of T which would have been in addition to the income profits which E would have derived from T during the period of its ownership. The inability to acquire T which had resulted from H's deceit deprived E of both those income profits and a capital profit realisable by it on a sale. They were cumulative, not alternative, losses, Cullinane v British "Rema" Manufacturing Co Ltd [1954] 1 QB 292 distinguished. On the evidence, E had established on the balance of probabilities that it would have been willing and able to purchase T, and there was an 80 per cent chance that T's owners would have sold their shares to E. A discount of 20 per cent should be made to T's profits for contingencies which might have led to their reduction. E was therefore entitled to substantial damages for loss of a chance, representing loss of income and loss of capital profit on the investment, but the head of loss concerning salaries would be disallowed in order to prevent double recovery.

Damages assessed