The Court of Appeal has allowed an appeal by a purchaser in the context of its claim for damages for fraudulent misrepresentation against the sellers of certain business assets that it had acquired. In doing so, the Court of Appeal held that damages for fraudulent misrepresentation should, as a general rule, be assessed by ascertaining the actual value of the assets bought at the relevant date and deducting that figure from the price paid: Glossop Cartons and Print Ltd and others v Contact (Print & Packaging) Ltd and others [2021] EWCA Civ 639.
The Court of Appeal found that the High Court was incorrect to apply the “deduction method” to calculate the market value of the business assets as at the transaction date. The approach adopted by the High Court involved deducting from the purchase price the cost of every flaw or defect that the claimant had not itself factored into its calculation of the price. The Court of Appeal said that, in a normal case for fraudulent misrepresentation, this method is wrong in principle, unduly complex and inappropriately requires the court to consider what subjectively the claimant factored into its calculation of the purchase price. These matters are irrelevant to the calculation of direct loss for fraudulent misrepresentation, which merely requires the court to ascertain the actual value of the assets bought at the relevant date and to deduct that figure from the price paid (as per Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254).
In Smith New Court Securities, the House of Lords emphasised that the general rule for the measure of damages in deceit claims should not be “mechanistically applied”. However, the Court of Appeal’s decision in the present case suggests that these general principles will be the norm and that there is a threshold question as to when an alternative measure of damages may be applied.
For more information see this post on our Banking Litigation Notes blog.
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