Fraudulent Misrepresentation – Assessing Damages

Glossop Cartons and Print Ltd and others v Contact (Print & Packaging) Ltd and others [2020] EWHC 1377 (Ch)

Background

Glossop Cartons was a printing business owned by Print Ltd (Claimants). Contact Ltd was also a printing business (Defendant).

The parties entered into an agreement for the Claimant to purchase the Defendant’s business and the leases of three commercial units.

Before the agreements were entered into, there were some concerns that one of the units was prone to flooding as a result of drainage issues and issues in respect of the supply of electricity. After the agreement was entered into, the Claimants discovered that there were still issues with flooding and the electricity supply that had not been resolved. The Claimants therefore claimed that the Defendant had fraudulently misrepresented that the issues had been resolved when they had not.

The Judge held that the Defendant’s actions did amount to a fraudulent misrepresentation. He however ordered that a further hearing would need to take place in order to quantify the damages to be paid to the Claimants.

What was decided?

The Judge held that in a claim for fraudulent misrepresentation, a claimant is not entitled to recover losses, which directly flow from the relevant transaction if those losses had been fully appreciated and factored into the purchase price.

For example, in this case the Claimant argued that the cost of external storage was an expense that would not have been incurred but for the fraudulent misrepresentation. However, in cross-examination that Claimant conceded that notwithstanding the flooding and problems with the electricity supply, they would have needed to incur the cost of the external storage in any event. It transpired that the Claimant had simply misjudged whether external storage would have been required when entering into the agreement.

This was therefore not a cost that was recoverable.

Comments

This case is a reminder that even in cases involving deceit the usual principles of causation, remoteness and mitigation still need to be considered when considering loss.

In this case, it was decided that the Claimant could not be compensated for commercial risks that they had already considered at the time when entering into the agreement. To allow compensation for this would result in them being overcompensated given that commercial risks are already factored into the purchase price.

To successfully claim losses for fraudulent misrepresentation, claimants will need to ensure that there is sufficient evidence to link the fraudulent misrepresentation to the loss.

The decision also makes it clear that claimants cannot be compensated for losses relating to factors known at the time of entering into an agreement.