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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Sarl & Anor v Laporte Materials (Barrow) Ltd [2000] EWCA Civ 161 (18 May 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/161.html
Cite as: [2001] QB 488, [2000] 3 All ER 493, [2000] EWCA Civ 161, [2000] 3 WLR 1760
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Case No: QBENF 1999/1634/A2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE BELL
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday 18 May 2000
LORD JUSTICE SIMON BROWN
LORD JUSTICE WARD
and
LORD JUSTICE SEDLEY
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CLEF AQUITAINE SARL & ANR |
Respondents | |
- and - |
||
LAPORTE
MATERIALS (BARROW) LTD |
Appellants |
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr E. Bannister QC & Mr J. Holmes (instructed by Atha & Co of Middlesbrough, Cleveland TS1 2PX, solicitors) for the Appellants
Mr M. Crane QC & Mr D. Fisher (instructed by Beechcroft Wansbroughs of London EC4A 1BN, solicitors) for the Respondents
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE SIMON BROWN:
On 11 December 1998, following a three week trial on liability, Bell J gave judgment for the claimants against the defendants for damages for fraudulent misrepresentation and breach of contract. The damages were later assessed and, after deducting the defendants' admitted counterclaim and allowing simple interest on both claim and counterclaim, the net amount found due to the claimants as at 11 December 1998 was £370, 384.
The defendants' appeal is confined to the judge's holding that they are liable to the claimants in damages for fraudulent misrepresentation. Their principal contention is that their deceit caused the claimants no loss. Failing this, however, they advance subsidiary arguments (a) that some or all of the claim is barred by the Limitation Act 1980, and (b) that only the first claimant has a cause of action against them. The claimants by cross-appeal contend that the judge should have awarded compound interest rather than simple interest on the damages.
Although the facts of the case are of considerable complexity - the reserved judgment extending to 115 pages - I propose to state them comparatively shortly: the detail tends mostly to obscure rather than illuminate the true issues arising on the appeal. As found by the judge (and none of these findings are challenged) they may be summarised as follows.
The claimants are French companies controlled by an English national, Mr Colin Gwyer, and wholly or mainly owned by Mr Gwyer and his wife. The first defendant (Sovereign) is an English company which, during the relevant period, sold and supplied chemical damp-proofing and other remedial products for use in the building industry. (The second defendant may be ignored for the purposes of this appeal.)
On 3 May 1979 the first claimants entered into two distributorship agreements with Sovereign effective for ten and twenty years respectively commencing on 1 January 1979 (the relevant agreement for present purposes being the twenty year agreement) whereby they undertook to purchase from Sovereign and market and distribute in France certain quotas of Sovereign products, annually increasing in value. I shall explain later how by novations the second claimants took over the agreements. As distributors, the claimants undertook a series of wide-ranging obligations including to use their best endeavours to promote the products and obtain orders in France, not to purchase or sell the product to any competing supplier, not to sell any of the products outside France, to provide a reasonable after-sales service in respect of the products sold, to use every effort to safeguard Sovereign's interests, to use their best endeavours to ensure that the products were used in the manner stipulated by technical manuals, to use their best endeavours to maintain sufficient stocks at convenient distribution points and provide adequate staff and sales representatives, to supply promotional leaflets and advertising materials, and to use best endeavours both to demonstrate the use of the products to the trade and obtain technical certification from the relevant standards institutions.
Clause 5 of the agreements dealt with prices and price increases. So far as material it provided:
"(1) Prices of the products purchased hereunder shall be as set out in the price list annexed hereto less such discounts and subject to such special rates as may from time to time be agreed by [the parties] provided that [Sovereign] shall be entitled to increase such prices by giving to [the claimants] at least one month's notice ... provided that such increase shall be limited to the amount by which [Sovereign] shall increase such prices appearing in its United Kingdom price list and charged to UK customers."
The "price list annexed" had previously been supplied to Mr Gwyer and discussed between him and Sovereign's managing director, Mr Charles Dent, at various pre-contractual meetings. It contained a minimum scale of prices and it was with regard to this that the fraudulent misrepresentation was made. In answer to enquiries made by Mr Gwyer, Mr Dent told him that Sovereign salesmen did not and could not sell to customers at prices below those indicated on the minimum scale. Thus he represented that the discounts negotiated by the claimants were discounts from the lowest unit prices available to Sovereign's trade customers. It was in reliance upon the truth of this representation, one which apparently secured for the claimants a price lower than that available to any of Sovereign's UK customers, that Mr Gwyer negotiated a price increase formula which restricted the amount of any increase to that which both (a) appeared in Sovereign's UK price list, and (b) was charged to Sovereign's UK customers.
As the judge found, Mr Dent's representations were false and he knew them to be false: at all material times Sovereign sold to its trade customers by reference to other price lists (bulk price lists) which offered prices lower than those on the list provided to Mr Gwyer. Certain customers, moreover, were given big discounts even from those lower prices. The bulk price lists were not published; they were for Sovereign's internal use only and Mr Gwyer remained in ignorance of their existence until 1996.
The breach of contract claim, it is convenient to note at this stage, arose in respect of the period 1991 - 1996 when, as appeared from sales data later revealed on discovery, Sovereign had charged no price increases to their UK customers. It followed that these increases could not properly be imposed on the claimants under clause 5(1) of the distributorship agreements and were accordingly recoverable as damages for breach of that clause.
The claimants assert, however, that they suffered substantially greater losses through having been induced by Mr Dent's deceit to enter into the agreements in the first place. Clause 5(1) provided for a price increase formula which fixed the prices payable throughout the whole of the agreements' twenty year term. The claimants claimed two heads of loss for the fraudulent misrepresentation:
(i) The loss of the opportunity to make profits by re-selling in France at lower prices, this head of claim being based upon the premise that Mr Gwyer, but for the high acquisition costs to which he was committed under his agreeements with Sovereign, would have reduced his prices in France by a margin sufficient to stimulate sales.
(ii) The difference between the prices to which the claimants were committed under the agreement and the prices which they would probably have been able to negotiate had the misrepresentation not been made.
The judge rejected the first head of claim (put at some £5 million to £7 million) on the basis that the claimants had proved neither (a) that they would have reduced their resale price, even had they been able to acquire the products more cheaply (they were charging their French customers a 300-400% mark up in any event), nor (b) that, even if they had done so, that they would thereby have increased their profits. He found for the claimants, however, on the second head and it is against that finding that the appeal is brought.
Damages for deceit
Mr Bannister QC for the defendants challenges the whole basis of this second head of claim. He argues that it is an attempt to obtain by another route damages for loss of a bargain which are not recoverable for the tort of deceit. Damages for deceit are only to compensate the person deceived for loss suffered. Here the claimants failed to prove any such loss - either from operating the distributorship agreements as a whole or as a result of the individual purchases of Sovereign's products made under them. They can prove no more than that they would have made a still greater profit had they entered into yet more favourable agreements, and that, submits Mr Bannister, is insufficient to sustain the claim.
I should first indicate briefly the factual route by which the judge determined that, but for Mr Dent's misrepresentation, the claimants would have been better off. The material part of his judgment reads as follows:
"None of the witnesses gave direct evidence as to what the position of [the claimants] would have been if the fraudulent misrepresentation had not been made. But I feel able to judge it on balance of probabilities. I have no doubt that Mr Gwyer wanted his company ... to become the exclusive distributor of [Sovereign's] products in France. I have no doubt that he wanted to buy those products at prices which meant that [Sovereign's] customers in the UK could not buy its products in the UK and take them to France to undersell [the claimants]. ... In my judgment it is distinctly more probable than not that, if Mr Dent had not made the false misrepresentations which he did, the ... discussion about [Sovereign's] prices would have revealed the existence of prices to large customers, as in the bulk price lists, and probably the bulk price lists themselves. In my judgment Mr Gwyer would have wished to negotiate a discount from the prices in the bulk price list ... There was no reason why Mr Dent should not have agreed such a discount. The bulk price list ... provided for an agreed saleman's commission of 10% payable on the prices in the list. What [Sovereign] sold to [the claimants] would not carry salesman's commission ... Moreover, [Sovereign] were selling to some customers at prices well below those on the bulk price list, although salesman's commission was generally much less on such sales. Although some such sales appear to have been at prices as much as 25% below bulk price list, no doubt due to particular market pressures, I do not believe that Mr Gwyer would have negotiated a commission or discount as great as that as part of a long term, exclusive distribution agreement. I judge that he would have achieved a discount on bulk price lists prices of somewhere between the May 1978 salesman's commission of 10% and the discount of 25% ... which he achieved on the minimum standard rate price list prices. I can do no better than take the mid-way point of 17.5% as the discount which Mr Gwyer would probably have achieved on the bulk price list prices and agreed as the pricing mechanism in the 1979 agreements which would have followed, if the false and fraudulent misrepresentations, the deceit, had not taken place. ... The agreements would have had a price clause with the same provisos as clause 5(1) of the actual agreements, relating to price increases only, but related to prices appearing in [Sovereign's] bulk price lists."
In short, the judge concluded on the balance of probabilities that, but for Mr Dent's deceit, the claimants could and would have entered into the same distribution agreements but on more favourable terms as to price, and that their loss was therefore the difference between the lower prices which in those circumstances they would have paid and the prices actually paid.
Although Mr Bannister disputes the sufficiency both of the claimants' pleadings and of the evidence as a whole to support such a conclusion, in my judgment there is nothing in these points and I content myself with saying so. I therefore turn directly to examine the judge's conclusions upon the legal argument arising, the recoverability of damages on this basis for the tort of deceit. Having been referred to a number of authorities, most notably Smith New Court Securities Ltd v Citibank NA [1997] AC 254, East v Maurer [1991] 1 WLR 461 and Downs v Chappell [1997] 1 WLR 426, the judge said this:
"Having considered those authorities, I cannot accept Mr Bannister's argument that it is not legitimate to reconstruct the deal which Mr Gwyer and his companies would have made with [Sovereign] if the fraudulent misrepresentations had not been made in order to compare it with the deal they in fact made and thereby to calculate the plaintiffs' recoverable loss in this case. It seems to me that that is the exercise which the Court of Appeal approved in East v Maurer and which Lord Steyn approved in Smith New Court. .... The result may be the same as a loss of bargain claim, but, as Mr Crane argued, that does not mean that it is a loss of bargain claim. It is the best way of judging the loss, if any, which was caused directly to the plaintiffs by being induced by the deceit to enter the agreements which they did ... It establishes the loss, if any, which the plaintiffs have suffered with a view to putting them in the position they would have been in if no representations had been made.
In my judgment this leads to the conclusion that the plaintiffs have established a direct loss, recoverable as damages, in the sum of the difference between (a) what they would have paid had the price of [Sovereign's] product purchased by them between 1979 and 1996 been the lowest bulk price list price, subject to increases but not decreases appearing in those lists and charged to UK customers, less a discount of 17.5%, and (b) what they actually paid in accordance with the agreements.
I do not accept Mr Bannister's argument that the product bought had no value save what the plaintiffs paid for it. In my view its actual value to the plaintiff was what they would have paid for it, bulk list price less 17.5%, had they not been induced to pay more by the misrepresentations. Mr Dent said that customers who were aware of the market pressures paid below bulk list prices, which was tantamount to saying that the prices which they paid, below bulk list, were the market value to large customers like [the claimants].
The plaintiffs are entitled to recover by way of damages the full price paid by them (or rather, since the claim for over-charging has been formulated as a separate claim for breach of contract, the full price as fixed by the agreements), but they must give credit for the benefit they have received as a result of the transaction, and in my judgment that benefit is the real value to them of [Sovereign's] product which they bought, namely bulk list price less 17.5%."
Mr Bannister criticises the judge's reasoning throughout that section of the judgment. It is, he submits, contrary to principle to seek to reconstruct the deal which would have been reached but for the deceit. In reality the claimants suffered no loss as a result of this transaction. The judge found no over-value of the products in any ordinary sense. The court should not, he submits, however gross the fraud, try to secure for the claimants some uncovenanted benefit. In contract the party making the representation is bound by it: he is selling his promise and it is enforceable against him. In tort, however, whether the claim be for negligent misrepresentation or for deceit, no claim arises unless actual loss results. Here none did. The judge expressly found that the level of prices charged caused them no loss of profits in their business in France. This whole case, the appellants argue, is an attempt to create for the claimants a contractual claim to which they were never entitled.
These to my mind are powerful arguments and I do not pretend to have found the point an easy one.
In Smith New Court Lord Browne-Wilkinson, summarising the principles applicable in assessing damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property, stated the first three as follows:
"(1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction ... "
Lord Steyn said that the decision of the Court of Appeal in Doyle v Olby (Ironmongers) Limited [1969] 2 QB 158 justified the following propositions:
"(1) The plaintiff in an action for deceit is not entitled to be compensated in accordance with the contractual measure of damage, i.e. the benefit of the bargain measure. He is not entitled to be protected in respect of his positive interest in the bargain. (2) The plaintiff in an action for deceit is, however, entitled to be compensated in respect of his negative interest. The aim is to put the plaintiff into the position he would have been in if no false representation had been made. (3) The practical difference between the two measures was lucidly explained in a contempory case note on Doyle v Olby (Ironmongers) Ltd: G.H. Treitel, Damages for Deceit (1969) 32 M.L.R. 556, 558-559. The author said:
`If the plaintiff's bargain would have been a bad one, even on the assumption that the representation was true, he will do best under the tortious measure. If, on the assumption that the representation was true, his bargain would have been a good one, he will do best under the first contractural measure (under which he may recover something even if the actual value of what he has recovered is greater than the price).'
(5) ... the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer. That includes heads of consequential loss. (6) Significantly in the present context the rule in the previous paragraph is not tied to any process of valuation at the date of the transaction. It is squarely based on the overriding compensatory principle, widened in view of the fraud to cover all direct consequences. The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement."
A little later in his speech, Lord Steyn considered Hobhouse LJ's judgment in Downs v Chappell and observed:
"... it is not necessary in an action for deceit for the judge, after he has ascertained the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred."
Finally, Lord Steyn said this:
"... the date of transaction rule is simply a second order rule applicable only where the valuation method is employed. If that method is inapposite, the court is entitled simply to assess the loss directly flowing from the transaction without any reference to the date of transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it. .... There is in truth only one legal measure of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendant."
The difficulty in the present case, as it seems to me, is in deciding whether "all the damage (actual loss) directly flowing from the transaction" (Lord Browne-Wilkinson's first principle and Lord Steyn's fifth proposition can encompass, in a case like the present where the actual transaction entered into has been profitable rather than loss-making, the loss occasioned through the party deceived having entered into that particular transaction rather than a different transaction which would have been yet more profitable. In submitting that it cannot, Mr Bannister not surprisingly places considerable reliance on Lord Steyn's statement that "it is not necessary ..., after ... ascertain[ing] the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred." Indeed this very statement, he submits, usefully contrasts "the loss directly flowing from ... the transaction" with any idea of comparing one profitable transaction with another in order to find a "loss" in this way. To do that, he submits, is also to offend against Lord Steyn's first three propositions: it is to protect the claimants in respect of their positive interest rather than compensate them in respect of their negative interest, in this bargain; to create for them a contractual measure of damages. It comes to this: unless and until the claimants can show (which they cannot) that these distributorship agreements caused them loss, they have no claim in tort. It is not sufficient for their purpose to show only that other distributorship agreements would have given them greater profit.
It is helpful at this point to consider East v Maurer, the authority principally relied upon by the judge below in carrying out the exercise he did. In East v Maurer the plaintiffs bought a hairdressing salon from the defendant who falsely represented that he would not be working at another of his salons in the area. His fraud was discovered when the plaintiffs were unable to make their salon profitable and found business falling away. They were unable to sell the salon for three years. They were held entitled to recover damages consisting of the difference between its purchase and sale price, the expenses of buying and selling it, the cost of improvements to try to make it profitable, trading losses during the three year period, general damages for disappointment and inconvenience, and, most importantly for present purposes, damages representing the loss of profit the plaintiffs could reasonably have anticipated had they bought not the salon they were induced to buy by the defendant's deceit but rather a different hairdressing business bought for a similar sum.
Beldam LJ at page 467 said this:
"... I consider that on the facts found by the judge in the present case, the plaintiffs did establish that they had suffered a loss due to the defendant's misrepresentation which arose from their inability to earn the profits in the business which they hoped to buy in the Bournemouth area. I would therefore reject the submission of [counsel for the defendant] that loss of profits is not a recoverable head of damage in cases of this kind."
Having then criticised the trial judge for "bas[ing] his award on an assessment of the profits which the business actually bought by the plaintiffs might have made if the statements made by the first defendant had amounted to a warranty that customers would continue to patronise the salon in Exeter Road", Beldam LJ continued:
"It seems to me that he should have begun by considering the kind of profit which the second plaintiff might have made if the representation which induced her to buy the business ... had not been made, and that involved considering the kind of profits which she might have expected to make in another hairdressing business bought for a similar sum."
Mustill LJ at page 468 agreed and added:
"... the best course in a case of this kind is to begin by comparing the position of the plaintiff as it would have been if the act complained of had not taken place with the position of the plaintiff as it actually became. This establishes the actual loss which the plaintiff has suffered and often helps to avoid the pitfalls of double counting, omissions and impermissible awards of both a capital and an income element in respect of the same loss ...
In the present case the act complained of is the making of the fraudulent representation, coupled with the reliance placed upon it by the plaintiffs in concluding the bargain. If this had not happened the plaintiffs would, on the judge's findings, have ... bought a new business in Bournemouth albeit not the one in Exeter Road. ...
It is objected that the loss of profits is not properly recoverable because it is appropriate not to a claim in fraud but to a claim based on a contractual warranty of profits, for in such a case the loss of profits does not stem from the making of the contract but from the fact that the profit made was not what was anticipated. I should have thought this argument sound if the judge had included an item for loss of the Exeter Road profits; but he has not done so. The loss of profits award relates to the hypothetical profitable business in which the plaintiffs would have engaged but for buying the Exeter Road business, and the profits of the latter are treated by the judge solely as some evidence of what the profits of the other business might have been."
As the judge below observed, East v Maurer was approved by Lord Steyn in Smith New Court at page 282:
"East v Maurer if of some significance since it throws light on a point which arose in argument. Counsel for Citibank argued that in the case of a fraudulently induced sale of a business, loss of profits is only recoverable on the basis of the contractual measure and never on the basis of the tort measure applicable to fraud. This is an over-simplification. The plaintiff is not entitled to demand that the defendant must pay to him the profits of the business as represented. On the other hand, East v Maurer shows that an award based on the hypothetical profitable business in which the plaintiff would have engaged but for deceit is permissible: it is classic consequential loss."
Mr Bannister submits that East v Maurer was a very different case from the present and that the point established there and approved in Smith New Court cannot avail the claimants here. It is one thing to say that, in quantifying the undoubted losses resulting from the plaintiffs' tortiously induced purchase of the salon in Exeter Road, they could properly include as consequential loss the profits they might reasonably have expected to make in another business which they would, but for the defendant's fraud, have purchased; quite another to say that, even had Exeter Road proved profitable, they could have claimed in tort on the basis that, but for the fraud, it would have been more profitable still.
The novelty of the present case lies in the claimants having suffered no loss from the transaction save only from having entered into that transaction rather than a still more profitable one. That distinguishes this case from all the others we were shown. Is it, however, a distinction fatal to the claimants' success?
Mr Crane QC submits not. His starting point is Lord Steyn's sixth proposition in Smith New Court with regard to "the overriding compensatory principle":
"The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement."
The claimants' argument is quite straightforward. Before Mr Dent's fraudulent statement, the claimants were anxious to become Sovereign's exclusive distributors in France and were negotiating agreements, and in particular prices and a price increase formula, to that end. In reliance on the fraudulent statement they became locked into these long term agreements and a commitment to pay prices and price increases larger than would otherwise have been the case. The judge below did no more and no less than compensate them for having thereby worsened their position. This accorded with the overriding principle.
In my judgment this argument is correct. The judge did not, be it noted, make the mistake of awarding damages by reference to the contractual measure. Indeed it is not altogether clear what that measure would have been. It would have depended on whether the warranty was that Sovereign's UK customers paid what Mr Dent said they paid, or that the claimants would always be charged 25% less than UK customers paid. If it had been the former, there was no evidence to suggest that the claimants suffered loss by its breach, in particular no evidence that Sovereign's UK customers were able (as Mr Gwyer had feared) to undersell the claimants in France. Had it been the latter, however, then instead of taking 17½% off bulk price list prices, the judge would have had to take 25% off (the sometimes heavily discounted) bulk price list prices. As it was, of course, the judge concluded that, had Mr Dent, in response to Mr Gwyer's questioning, told the truth (or at least not lied) about what his UK customers were paying, the claimants would have got a substantially better deal than they did, but not as good a deal as the defendants dishonestly pretended they were getting.
As for Lord Steyn's statement that it is unnecessary "to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred", this has to be understood in the context of Hobhouse LJ's "qualification" in Downs v Chappell which Lord Steyn was criticising. What Hobhouse LJ had done, by way of a "check" on the conventional measure, was "to compare the loss consequent upon entering the transaction with what would have been the position had the represented or supposed state of affairs actually existed." To reject that exercise (a different exercise, be it noted, from that undertaken by the judge in the present case) was not to reject the possibility that the ascertainment of loss in the first place might itself require a "hypothetical reconstruction of what the parties would have agreed had the deceit not occurred." If, as was held in East v Maurer (a holding expressly approved by Lord Steyn), consequential loss can be established and awarded by reference to "the hypothetical profitable business in which the plaintiff would have engaged but for [the] deceit", why should that loss, to be recoverable, have to be parasitic on some other, more direct, loss, and why should the alternative "hypothetical profitable business" have to be a business (or, as here, contract) notionally acquired from some third party?
True it is that in Downs v Chappell Hobhouse LJ, in a part of the judgment not criticised in Smith New Court, said at page 433:
"It was wrong both factually and legally for the judge to create the hypothesis that the second defendants could and would have given the plaintiffs accurate figures so as to give them an accurate basis upon which to decide whether to make a contract with Mr Chappell."
But that was in the context of establishing liability, not quantifying damage. True it is too that later in his judgment at page 441, having referred to East v Maurer, Hobhouse LJ said this:
"In general, it is irrelevant to enquire what the representee would have done if some different representation had been made to him or what other transactions he might have entered into if he had not entered onto the transaction in question. Such matters are irrelevant speculations ..."
That, however, was expressed to be "in general" and, as I conclude, there will be particular cases, of which this is one, where to give effect to the overriding compensatory rule it will be both possible on the facts, and appropriate in law, to hypothesise. Not every hypothesis involves irrelevant speculation.
I have, in short, reached the conclusion that there is no absolute rule requiring the person deceived to prove that the actual transaction into which he was induced to enter was itself loss-making. (Indeed that concept itself is an uncertain one: is a business which survives only by dint of the proprietor limiting himself to subsistence wages loss-making or profitable?) It will sometimes be possible, as it was here, to prove instead that a different and more favourable transaction (either with the defendant or with some third party) would have been entered into but for the fraud, and to measure and recover the claimants' loss on that basis.
It is, I should just add, on that basis rather than on the basis that the claimants are entitled to be compensated as if they had been induced to make each and every purchase above "market value", that I would uphold this award. It is, of course, true that the normal measure of damages for a fraudulently induced purchase of shares or other property or services is the price paid less their actual value. I have, however, some difficulty in ascribing to these products any particular value such as would enable this claim to be disposed of according to so enticingly conventional an approach. After all, as already stated, these products were retailed in France at a 300-400% mark-up (although mark-up, of course, is very different from profit); why then should actual value be equated with the prices the claimants could reasonably have hoped to negotiate under their unique distributorship agreements?
That, however, matters not. Once it is recognised that the claimants need not prove each purchase, any more than the agreements as a whole, to be loss-making, it becomes unnecessary to force the case into the straightjacket of value/price comparison. Lord Browne-Wilkinson's third principle in terms relates to the purchase of property, not to long-term agreements like these.
I turn next to the other two grounds of appeal which I can deal with altogether more briefly.
The Limitation Act 1980
The claimant's cause of action arose in 1979 and, therefore, subject to s.32 of the 1980 Act, it would have become statute barred in 1985. The fraud was only discovered, however, in 1996, when the writ was issued.
S.32 so far as material provides:
"(1) ... where 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 ...
the period of limitation shall not begin to run until the plaintiff has discovered the fraud ... or could with reasonable diligence have discovered it."
Mr Bannister submits that with reasonable diligence the claimants could have discovered this fraud before 1990 (i.e. more than six years before the issue of the writ). He relies in particular on Mr Gwyer's acknowledgment in evidence that he could have asked Sovereign's UK customers what prices they were paying or perhaps found that out from someone he knew at Palace Chemicals (a rival concern to Sovereign formed by certain of their ex-employees).
As to the correct approach to s.32, Mr Bannister relies upon Millett LJ's judgment in Paragon Finance v DB Thakerar & Co [1999] 1 AllER 400, 418:
"The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is upon them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. In this context the length of the applicable period of limitation is irrelevant. In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a busines of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency. I respectfully agree."
In that case, however, the plaintiffs were aware that they had suffered a loss which could be the result of fraud and, instead of making enquiries, had waited while they took other proceedings. Here, by contrast, Mr Gwyer had no suspicion whatever that he was being defrauded. On the contrary, the parties' relationship proceeded on trust. On 30 August 1984 Mr Dent wrote to Mr Gwyer speaking of "not only the good business which we do together but the excellent way in which it is done. It is most rare to conduct business with someone where honesty and truth are never doubted and it is even more rare for me to admit it." When, moreover, in November 1991 Mr Gwyer did enquire of Mr Dent's successor, Mr Dodds, whether he was getting the best prices, Mr Dodds lied, reassuring Mr Gwyer that he was.
As Mr Bannister came to recognise, his argument could only succeed if the principle to be applied is: never trust anyone in business; always make enquiries. I utterly reject any such principle. Such an attitude in my judgment involves "exceptional measures", not "reasonable diligence".
The Second Claimants
To understand the appellant's argument that the second claimants never acquired a cause of action against them with the result that any entitlement to damages for misrepresentation ended in 1987 when the first claimant ceased to operate the agreements, it is necessary to set out certain further facts.
In 1987 the distribution agreements were novated to Assechements Sovereign (AS), another of Mr Gwyer's companies. The novation agreement was made by Mr Dent on behalf of Sovereign, and Mr Gwyer acting on behalf of both the first claimants and AS, being the controlling mind and shareholder of each.
In 1994 AS, along with its rights and liabilities, was assimilated by the second claimants, another of Mr Gwyer's companies, under a process of "merger" recognised under French law. Again there was a tripartite novation agreement, this time substituting the second claimants for AS as the party to the distribution agreements. Sovereign were acting by Mr Dodds, Mr Dent's successor; AS and the second claimants by Mr Gwyer, again as their controlling mind and shareholder.
Sovereign's initial deceit continued to operate on Mr Gwyer's mind throughout the whole period, indeed up to 1996 when it was discovered. That is hardly surprising. Not only had Sovereign done nothing to retract it; instead, in June 1991 Mr Dodds began sending Mr Gwyer (he being Sovereign's largest customer by far) "personalised price lists" so as to conceal the fact that the prices being charged to his companies were higher than those being charged to the UK customers; and in November 1991, when Mr Gwyer enquired of Mr Dodds whether he was getting the best prices, Mr Dodds falsely reassured him that he was.
In the light of these facts the judge below concluded:
"There was, in 1987, acquiescence by [Sovereign] in the same fraudulent misrepresentations which had acted on the mind of [the first claimants] through Mr Gwyer, acting on the mind of AS through Mr Gwyer thereby availing itself, with regard to AS of the misrepresentations which it had made in 1978. The means and the end were the same. It was not a case of mere non-disclosure or tacit acquiescence in another's self-deception."
He reached a similar conclusion in respect of the 1994 novation and, indeed, both sides agree that the two transactions are for present purposes indistinguishable. In short, he held that Sovereign were liable for their 1978 deceit equally to AS, and in turn to the second claimants, as to the first claimants.
The two authorities in point are Pilmore v Hood (1838) 5 Bing. N.C. 97 and Gross v Hillman Limited [1970] Ch. 445, both of which were cited to the judge below and, as he concluded, consistent with his conclusion. It is Mr Bannister's submission, however, that the judge was wrong to take this view and it is accordingly necessary to examine those cases.
In Pilmore v Hood the representee contracted with the fraudulent representor for the purchase of a public house but before completion passed on the contract to the plaintiff with the representor's consent. It was averred that the representor had notice that the representee had communicated the representation to the plaintiff prior to completion and took no steps to retract it. In those circumstances the plaintiff was held to have a cause of action notwithstanding that the representation had not been made to him and that the vendor had not authorised its transmission to him.
Gross v Hillman distinguished Pilmore v Hood on the facts. The position there was that the plaintiff agreed to buy a shop from Grace Rymer (a property dealing company whose managing director was Colonel Sinclair) which Grace Rymer had itself just been induced to purchase from the defendants as a result of a (postulated) fraudulent misrepresentation made to Colonel Sinclair by the defendant's alter ego, one James. Cross LJ said this:
"... if the plaintiff, acting on Colonel Sinclair's recommendation, had herself contracted with James to buy the property, it may very well be that she could have rescinded the sale after conveyance if the misrepresentations made to Grace Rymer were fraudulent. But Grace Rymer itself agreed to buy the property, and that, as I see it, makes a very great difference. Assuming that the plaintiff was within the class of persons to whom the representations were originally made [on the basis that the defendants knew that Grace Rymer were looking for a property to sell on to the plaintiff], she fell out of the class when Grace Rymer agreed to buy the property. The original representations were spent, and Grace Rymer thereafter dealt with her as owners in equity of the property who were prepared to let her take it over for a commission. She could no doubt have relied on the misrepresentations if James or some agent of his had repeated them to her or some agent of hers. Again, if James had known that Colonel Sinclair was handing on his bargain to the plaintiff and was repeating to her the misrepresentations which he (James) had made to him and he stood by and allowed her to complete the purchase from him without disillusioning her, she might well have been able to rescind. It would have been such a case as Pilmore v Hood. ..."
As I understand Mr Bannister's submission, it is that Sovereign's deceit was spent when the first claimants initially entered into the distribution agreements (just as James' deceit was held spent when Grace Rymer had agreed to buy the property in Gross v Hillman). For my part, however, I prefer Mr Crane's submission based on the latter part of Cross LJ's judgment. It seems to me plain on the judge's findings here that Mr Dent (and later Mr Dodds) knew that Mr Gwyer (qua the first claimants) "was handing on his bargain to the plaintiff [in this instance Mr Gwyer qua successively AS and the second claimants] and was [notionally] repeating to [them] the misrepresentations which [Sovereign] had made to him and he stood by and allowed [them] to complete the [novations] without disillusioning [them]."
I recognise, of course, the distinctions between the two cases consisting of (a) Mr Gwyer's involvement effectively as the alter ego of all three successive parties to the distribution agreements, and (b) the ongoing nature of the damages claim so that all three claimants suffered loss by reason of the deceit. To my mind, however, these are distinctions without a difference. The first, if anything, makes this a yet stronger case than Pilmore v Hood; the second is the consequence of calculating the damages in the manner I have already endorsed.
The cross-appeal: compound interest
Mr Crane submits that the judge should have awarded compound interest, rather than merely simple interest, on the misrepresentation damages. Otherwise, he argues, the defendants would have benefited from their own fraud by using the monies obtained (in effect, excess payments made by the claimants under the distribution agreements) for their own trade purposes, alternatively by saving interest on borrowings which would have been compounded at monthly or quarterly rates.
Mr Bannister argues principally that the court has no jurisdiction to award compound interest on damages for fraud. The law, he submits, is accurately stated in the Supreme court Practice (Vol. 1, 1999) at page 59:
"Under its equitable jurisdiction the court had, and still has, power to award interest as ancillary relief in respect of equitable remedies such as specific performance, rescission or the taking of an account. Under this jurisdiction, interest may be ordered to be paid where money has been obtained and retained by fraud (Johnson v R [1904] AC 817), or where money has been withheld or misapplied by an executor, trustee or anyone else in a fiduciary position and, in such case, the court has an inherent power to order the payment of interest at whatever rate is equitable in the circumstances and may direct that such interest be compounded at appropriate intervals (Wallersteiner v Moir (No. 2)
[1975] QB 373, CA).
The jurisdiction of the court to award compound interest (other than where it could be claimed by contract or usage) could not be extended and the power of the court to make such an award was confined to the equitable jurisdiction to award compound interest against a trustee or other person owing fiduciary duties who was personally accountable and had made use of the plaintiff's monies (Westdeutsche Landesbank Girozentrale v Islington LB Council [1996] 2 AllER 961)."
Mr Crane submits that the Supreme Court Practice is misleading insofar as it suggests that "where money has been obtained and retained by fraud," only simple interest and not compound interest may be ordered, compound interest being confined to cases of trustees or others owing fiduciary duties. He relies on passages in the speeches in two House of Lords authorities, President of India v La Pintada Compania Navigacion S.A. [1985] AC 106, and Westdeutsche [1996] AC 669 (the rates swap case).
In President of India at page 116 Lord Brandon considered the law as to the award of interest in four separate areas, the third being equity:
"Thirdly, the area of equity. The Chancery courts, again differing from the common law courts, had regularly awarded simple interest as ancillary relief in respect of equitable remedies, such as specific performance, rescission and the taking of an account. Chancery courts had further regularly awarded interest, including not only simple interest but also compound interest, when they thought that justice so demanded, that is to say in cases where money had been obtained and retained by fraud, or where it had been withheld or misapplied by a trustee or anyone else in a fiduciary position. ... Courts of Chancery only in two special classes of case, awarded compound, as distinct from simple, interest."
In Westdeutsche, Lord Browne-Wilkinson, under the heading Compound interest in equity, at pages 700-702, said this:
"It is common ground that in the absence of agreement or custom the court has no jurisdiction to award compound interest ... It is also common ground that in certain limited circumstances courts of equity can award compound interest. ... the local authority contends that compound interest can only be ordered on a claim against a trustee or other person owing fiduciary duties who in breach of such duty has used trust monies in his own trade. ... the bank contends that compound interest can be awarded in equity whenever the defendant is liable to disgorge a benefit received whether or not he is a trustee or a fiduciary ... In the absence of fraud courts of equity have never awarded compound interest except against a trustee or other person owing fiduciary duties who is accountable for profits made from his position. Equity awarded simple interest at a time when courts of law had no right under common law or statute to award any interest. The award of compound interest was restricted to cases where the award was in lieu of an account of profits improperly made by the trustee. We were not referred to any case where compound interest had been awarded in the absence of fiduciary accountability for a profit."
Then, having referred to Burdick v Garrick (1870) LR 5 Ch. App. 233, Wallersteiner v Moir (No. 2), and President of India, Lord Browne-Wilkinson concluded:
"These authorities establish that in the absence of fraud equity only awards compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him. It is unnecessary to decide whether in such a case compound interest can only be made where the defendant has used trust monies in his own trade or (as I tend to think) extends to all cases where a fiduciary has improperly profited from his trust."
True it is that Lord Browne-Wilkinson there twice referred to courts of equity awarding compound interest, "in the absence of fraud", only against those in a fiduciary position (thereby implying that compound interest could also be awarded in cases of fraud); and that he cited with evident approval Lord Brandon's dictum in President of India to the effect that one of the two special classes of case in which Chancery courts awarded compound interest was "where money had been obtained and retained by fraud". As, however, Lord Browne-Wilkinson stated, "we were not referred to any case where compound interest had been awarded in the absence of fiduciary accountability for a profit", and neither Westdeutsche nor President of India were themselves cases of fraud. Johnson v R (the Privy Council case cited in the above passage from the Supreme Court Practice), was such a case but the only interest under consideration was simple interest, not compound interest. The Board in fact allowed the appeal there against interest since "the Crown seems intentionally and deliberately to have put aside all questions of fraud." Lord Macnaughten stated, however:
"In order to guard against any possible misapprehension of their Lordships' views, they desire to state that, in their opinion, there is no doubt whatever that money obtained by fraud and retained by fraud can be recovered with interest, whether the proceedings be taken in a court of equity or in a court of law ..."
I remain, I confess, puzzled as to what the true position is. Is there or is there not jurisdiction in equity to award compound interest on damages (strictly compensation) in cases where the defendant owes no fiduciary duty but has acted fraudulently? One day, no doubt, it will be necessary to decide that question. But not, as I think, in this case. Since the judge below gave no reasons for refusing the application for compound interest, we can confidently infer that he assumed there was jurisdiction to award it, but chose not to do so. It is not customary to explain the exercise of such a discretion. If, however, the judge considers himself without jurisdiction to accede to an application, he can be expected to say so and to say why. The judge was clearly entitled to exercise his (assumed) discretion to award simple interest only. There is therefore no sufficient basis to disturb the result.
It follows from all this that I for my part would dismiss both the appeal and the cross-appeal.
LORD JUSTICE WARD:
I have had the benefit of reading my Lords' judgments in draft. I gratefully adopt the recitation of facts and law set out in Simon Brown L.J.'s judgment. Like him, I have found the main question difficult to answer. Like Sedley L.J. I have no difficulty in finding that there has to be some damage flowing from the deceit. If the prices at which Mr Dent was prepared to sell his products in 1978 and the prices to which Mr Dodds was referring in 1991 were truly the lowest prices at which they were prepared to do business and thus "a good deal", then if they had been honest and had said that they could go no lower, then the negotiation might have collapsed, or Mr Gwyer might have capitulated or the deal might have been struck at a lower price. What is obvious is that the defendants lied because they wished to avoid being forced to cut their margins. They cheated to protect and gain that extra margin. The inference is irresistible that if the lies had not been told, a lower price would have been paid. To award nominal damages for that fraud would make a laughing stock of the law. If common sense and justice are the test, then the claimant must prevail. I have no hesitation in agreeing with the result my Lords have reached but, having wrestled with the arguments, I feel obliged to explain how I arrive there.
The Deceit.
One must begin with the misrepresentation. The judge found that:-
"At meetings before the Agreements were made, Mr Dent acting for SCI represented to Mr Gwyer who was at that time acting for Clef, that SCI did not sell any products at prices which were less than the minimum rates which appeared in its national or standard price list, and that the prices charged to Clef for any product would be less than the lowest price charged to any U.K. customer for the same product. Those representations were false and they were known by Mr Dent to be false. They were fraudulent misrepresentations."
Although there were provisions in the contract relating to prices, these particular representations were never elevated into the force of contractual warranties.
The Measure of Damages.
I take this from paragraph 1962 in McGregor on Damages, 16th Edition:
"Thus the correct measure of damages in the tort of deceit is an award which serves to put the plaintiff into the position he would have been in if the representation had not been made to him, and not, as with breach of condition or warranty in contract, into the position he would have been in if the representation had been true. In other words, if the plaintiff has been induced by the deceit to conclude a contract he is not entitled, as he is in contract, to recover in deceit for the loss of his bargain."
In McConnell v Wright [1903] 1 Ch 546, 554, Lord Collins M.R. characterised the action in this way:
"... it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket ..."
One can paraphrase that by saying that the measure of damages is the sum lost by being tricked. In Clark v Urquhart [1930] A.C. 28, 67, Lord Atkin said:
"I find it difficult to suppose that there is any difference in the measure of damages in an action of deceit depending on the nature of the transaction into which the plaintiff is fraudulently induced to enter. Whether he buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership, or in any other way alters his position to his detriment, in principle, the measure of damages should be the same and whether estimated by a jury or a judge I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement."
In the High Court of Australia Dixon J. said in Toteff v Antonas (1952) 87 C.L.R. 647, 650/1:-
"In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant. When what he has been induced to do is to make a purchase from the defendant and part with his money to him in payment of the price, then, if the transaction stands and is not disaffirmed or rescinded, what is recoverable is "the difference between the real value of the property, and the sum which the plaintiff was induced to give for it", per Abbot L.C.J. Pearson v Wheeler (1825) Ry. & Mood. 303, 304. As Sir James Hannen P. in Peek v Derry (1887) 37 ChD 541, 594 pointed out, the question is how much worse off is the plaintiff than if he had not entered into the transaction. If he had not done so he would have had the money in his pocket. To ascertain his loss you must deduct from the amount he paid the real value of the thing he got."
Doyle v Olby (Ironmongers) Ltd. [1969] 2 QB 158 somewhat relaxed the apparent inflexibility of the earlier Victorian decisions which bound the court to look at the matter at the date of the transaction.
East v Maurer [1991] 1 WLR 461 is explained by Simon Brown L.J. It was a case concerned not with direct loss but with consequential loss arising from the deceitful misrepresentation by the successful hairdresser that he would not be working at his other salon in the area on a regular basis. It was submitted on the defendant's behalf that the claim for damages was a disguised claim based on a contractual warranty of profits to be achieved in the business which had been purchased. Mustill L.J. rejected the argument saying at p. 468:-
"I should have thought this argument sound if the judge had included an item for the loss of the Exeter Road profits; but he has not done so. The loss of profits awarded relates to the hypothetical profitable business in which the plaintiffs would have engaged but for buying the Exeter Road business, and the profits of the latter are treated by the judge solely as some evidence of what the profits of the other business might have been. In my judgment there is no error of principle here."
Mr Bannister Q.C. relies heavily on the observation in the judgment of Hobhouse L.J. in Downs v Chappell [1997] 1 WLR 426, 441:
"In general, it is irrelevant to enquire what the representee would have done if some different representation had been made to him or what other transactions he might have entered into if he had not entered onto the transaction in question. Such matters are irrelevant speculations ..."
The law is now settled by Smith New Court Securities Ltd. v Citibank N.A. [1997] AC 254. It is in my view necessary to explain the facts of that case. Smith New Court were fraudulently induced to purchase Ferranti shares by Citibank at 82¼p. as a market-making risk, i.e. with a view to holding them on its books over a comparatively long period to be sold on at a later date. Unbeknown to all at that time the shares were already blighted by a fraud perpetrated on Ferranti by one Guerin: they were, as Lord Browne-Wilkinson said, "already pregnant with disaster."
Both the trial judge, Chadwick J., and the Court of Appeal proceeded on the basis that the measure of damages is, in general, the difference between the contract price and the true open market value of the property purchased, valued as at the date of the contract of purchase. The difference between the trial judge and the Court of Appeal lay in the fact that Chadwick J. held that there was a latent defect (i.e. the Guerin fraud) in the Ferranti shares and that, even though the false market was not due to the fraud of Citibank, he had to find the "true" value of the Ferranti shares, using hindsight. He accordingly valued the Ferranti shares at what would have been their open market value had the market known of the Guerin fraud at the transaction date. The Court of Appeal on the other hand took the view that it was only legitimate, in the case of quoted shares, to depart from the market price as at the transaction date where the price was falsified by the defendant's representation. In all other cases the market value had to be taken to be the quoted price. So, just as Mustill L.J. had looked at the profits of a hypothetical business, here Chadwick J. looked at the hypothetical value of the shares.
After analysing the authorities Lord Browne-Wilkinson said this at p. 266/7:
"In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property: (1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered ..."
The third and fourth propositions are most useful for the resolution of the case before us. There is also an important passage in Lord Mustill's speech at p. 269:-
"True, the assessment of damages often involves so many unquantifiable contingencies and unverifiable assumptions that in many cases realism demands a rough and ready approach to the facts. True also that in a case of fraud there are good reasons for departing in some respect from the ordinary rule ..."
Lord Steyn's sixth proposition stated at p. 282 was:
"It (the rule that the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer) is squarely based on the overriding compensatory principle, widened in view of the fraud to cover all direct consequences. The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement."
The Main Submissions of Mr Bannister Q.C.
First he submits that the judge was not justified in finding as he did because the claim was not pleaded on the basis he found and there was no direct evidence as to the hypothetical position upon which he depended. In fact the basis of the pleading in paragraph 18.2 is that more was paid for the product than the claimants would have paid had the representations not been made. I confess I have not found any express pleading that the measure of damages is the difference between the price paid and the actual value of the goods but that is implicit in paragraph 18.2 and I would in any event not permit a pleading point to allow a defendant to get away with blatant fraud. As for the paucity of direct evidence I would robustly apply Lord Mustill's endorsement of a rough and ready approach. I have also gained some help from the judgment of Devlin J. in Biggin & Co. Ltd. v Permanite Ltd., Berry Wiggins & Co. Ltd. (Third Parties) [1951] 1 K.B. 422, which I found useful insofar as it concerned the measure of damages for the sale of defective goods where there was no available market to establish their value. Devlin J. said at p. 437/8:
"The last point of principle to be considered concerns the assessment of the notional value of the unsound Permasec. As between the third parties and the defendants, there is very little to go on. The material was specially compounded for the job, it was passed on by the defendants to the plaintiffs and was never given a fair commercial trial. It is, therefore, very difficult to say what it would have been worth in the defendant's hands if they had known of its inherent defects. Mr Diplock has submitted that unless the defendants can offer some reasonably precise evidence of the value of the unsound material, they cannot discharge the burden of proving any substantial damage and so must fail to recover anything more than nominal damages. He submits that there is no such evidence in this case ...
It seems to me that one can very rarely arrive at an accurate figure of unsound value. Where the breach is non-delivery, there is often a market price which can be quoted, or evidence can be given of the price at which at the relevant date similar goods were changing hands, but there is rarely any market price for damaged goods, since their value depends on the extent of the damage. If the actual damaged goods are sold with all their faults, good evidence can be obtained of the difference in value, but such a sale is not always possible, and a claim for substantial damages cannot be limited to goods which have been sold. ... I think that in such a situation the court is bound to do the best that it can. ... It is only that where precise evidence is obtainable, the court naturally expects to have it. Where it is not, the court must do the best it can. In Chaplin v Hicks [1911] 2 KB 786, Vaughan Williams L.J. said:-
"... Sometimes, however, there is no market for the particular class of goods; but no one has ever suggested that, because there is no market, there are no damages. In such a case the jury must do the best they can and it may be that the amount of their verdict will really be a matter of guesswork. But the fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract ..."
... Having regard to the very high price which was paid for what was supposed to be sound material, I am satisfied it would have commanded a respectable price even if sold with its known defects. There were doubtless cases where it was used without any damage, as is shown by the evidence for the defence. The difference in price between its purchase as a sound material by someone who believed in it in October 1946 and its purchase for distillery use was about 50%. I do not take this as more than a very rough guide, but it accords with my view of the sort of discount which the contractors would have demanded and which would have had to be conceded had the true facts been known. I think they might well have paid about half its sound value."
It seems to me that Bell J. proceeded along very similar lines. We must see to what extent, if any, Devlin J.'s approach in a breach of contract case can properly be adopted or adapted to damages for deceit.
Mr Bannister's second submission is that there is no authority to support an award of damages based on the difference between the value of the actual deal and the hypothetical deal that was never in fact made. In effect he is submitting that if it is wrong to measure damages in deceit by the contractual basis of the loss of the bargain, it is equally wrong to assess the damages on the basis of the loss of the bargain they might have struck with the defendants. I shall return to this point for it is the one that has troubled both Simon Brown L.J. and me.
His third submission is that the claimant cannot demonstrate any actual loss flowing directly from the deceit because, far from suffering any loss, the claimant was able to sell on the product at very considerable profit. The claimant failed to persuade the judge to award any damages for consequential loss i.e. for the further profits it might have made from increasing its turnover by reducing its prices which it would have been able to do had it been charged a fair price in the first place. Mr Bannister submits that the fact that it might have made more profit on its actual sales if it had been able to buy at a cheaper price is beside the point. Because it made some profit it made no actual loss. For a long while I struggled with that submission. What was troubling me was this. Suppose - and I hope the example does not become too fanciful - art dealer A offers to sell to another dealer B for £1m. a painting which A represents to B is a Manet. B is induced to believe it is a Manet but he believes that as such he can sell it for £2M. It turns out to be a good fake worth £1,000. The measure of damages in deceit is the difference between the price paid (£1m.) and its actual value (£1,000). If a contractual warranty had been given, then the measure of damages is (with a little artistic licence) the difference between the price paid (£1m.) and the value if it had been genuine (£2m.) If, however, it turned out not to be a Manet but, because B was not as knowledgeable as he thought he was, a Degas worth £1.5M., then, B might not have acquired what he thought he was acquiring but nonetheless he suffered no loss and was fully entitled to keep his gain of £.5m. If that were the process to apply to this case, then Mr Bannister's argument would have some force. I believe, however, that the fallacy in his approach is to take as the value of the product at the date of the transaction the sale price it achieved at a much later date. The fallacy was revealed to me by Jamal v Moolla Dawood, Sons & Co. [1916] 1 AC 175 where the claim was for the failure by a buyer to accept shares under a contract of sale for delivery on a specified date. Two months after that date the sellers began to re-sell the shares on a rising market. It was held that the profit thus accruing should not be deducted from the damages for non-acceptance, which were to be ascertained as at the date of the breach. Delivering the opinion of the Board, Lord Wrenbury said, at p. 180:-
"The seller's loss at the date of the breach was and remained the difference between contract price and market price at that date. When the buyer committed this breach the seller remained entitled to the shares, and became entitled to damages such as the law allows. The first of these two properties, namely, the shares, he kept for a time and subsequently sold them in a rising market. His pocket received benefit, but his loss at the date of the breach remained unaffected."
So too here. The claimant's profit and loss account would show the benefit but the loss of any sum out of which they had been cheated remains recoverable.
My Approach.
In so far as I differ from Simon Brown L.J. it is in the respect that I prefer to see whether there is any difference between the price paid and the value of the goods at the date of the transaction. This has always been the starting point as the judgment of Dixon J. in Toteff makes clear. Although Lord Browne-Wilkinson spoke of the need to give "credit for any benefits which he has received as a result of the transaction", his fourth principle explained that, as a general rule, the benefits received by him included the market value of the property acquired as at the date of acquisition. Although Bell J. did not start with that approach he ended up with it. His conclusion was:-
"I do not accept Mr Bannister's argument that the product bought had no value save what the plaintiffs paid for it. In my view its actual value to the plaintiffs was what they would have paid for it, Bulk Price List price less 17.5%, had they not been induced to pay more by the misrepresentation. Mr Dent said that the customers who were aware of the market pressures paid below Bulk List prices, which was tantamount to saying that the prices which they paid, below Bulk List, where the market value to large customers like Clef, AS and TS.
The plaintiffs are entitled to recover by way of damages the full price paid by them ... but they must give credit for the benefit they have received as a result of the transaction, and in my judgment that benefit is the real value to them of the SCI product which they bought, namely Bulk List price less 17.5%".
The real problem in the case is to establish what the value of the goods is when there is a virtual monopoly. There is in those circumstances no "available market" in which value can be easily established. I appreciate that I am using a term common in the law relating to sale of goods but the principles for establishing value in the absence of a market cannot be any different. They are the principles expounded by Devlin J. in the Permanite case. He was content to form a view of the sort of discount which the contractors would have demanded and which would have had to be conceded had the true facts been known. That is what Bell J. was doing. In East v Maurer this court assessed damages by reference to "the hypothetical profitable business in which the plaintiffs would have engaged but for buying the Exeter Road business". Moreover the court proceeded on very little substantial evidence, Beldam L.J. following Doyle v Olby (Ironmongers) Ltd. and observing:-
"This is not a question which can be considered on a mathematical basis. It has to be considered essentially, in the round, making what (Winn L.J.) described as a `jury assessment' ".
The actual result in Smith New Court was to restore the decision of the trial judge which was, with the benefit of hindsight, to ask the hypothetical question what the open market value would have been had the truth been known.
Conclusion.
I confess to have been worrying whether there is any meaningful difference between, on the one hand, being put in the position one would have been in had one not been told a lie and, on the other hand, being put in the position one would have been in had one been told the truth. I think the answer is to follow Lord Steyn's approach to its logical conclusion because if one is truly to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement, then just before the fraudulent statement was made the plaintiff was battling in what he believed to be honest negotiations to ascertain the defendant's bottom line and he was denied finding it because of the lies that were told to him. My other concern, reflecting Mr Bannister's argument, was why, if one cannot get damages for the loss of one's bargain, should one be allowed to get damages for the loss of the bargain one might have made. On reflection, I think the answer to this argument is that the loss of the bargain contemplated in breach of warranty cases is the bargain to be made with third parties when selling on the goods whereas the bargain one might have made if told the truth is the different bargain which might have been struck with the defendant. I am now satisfied that so long as the hypothetical questions are asked and answered as the means of establishing value in the absence of a market or of any other precise means of establishing that value, then the hypothetical approach, which is essentially what Bell J. was adopting, is well justified by the authorities. On this basis I would uphold Bell J.'s assessment of damages.
The Other Grounds of Appeal.
Having read my Lords' judgments, there is nothing I wish to add. In the result I too would dismiss the appeal and the cross-appeal.
LORD JUSTICE SEDLEY:
There are, as both Mr Bannister's argument and Ward LJ's reservations have underlined, theoretical problems surrounding Bell J's approach to the quantification of damage. Many of them arise from the jurisprudential distinctions between contract and tort. But it does not follow that the proper mode of ascertaining damage in certain cases of tort may not mimic reasoning more familiar in contract. The present case is an example.
I agree with the legal reasoning of Simon Brown LJ, which is sufficient to answer this appeal in the respondents' favour; but I would if necessary support it pragmatically. Mr Dent cheated Mr Gwyer: he got him to enter into long-term contractual arrangements at a price which was mendaciously inflated. It was, as it turned out, possible for the judge to gauge with reasonable accuracy by how much, on his own misrepresentation, he overcharged Mr Gwyer. Because of the misrepresentation there was no market, only a monopoly supplier. It followed that value was collapsed into price and no external measure of loss was available.
The choice presented by the appeal was therefore to award Mr Gwyer's companies the damages calculated by the judge or to let them go empty-handed having decided that they had been cheated by being overcharged. Only a lawyer could begin to understand a form of reasoning which led to the second of these results, and it is agreeable to be able to concur in different reasoning which produces a result corresponding far better with justice in this particular case.
As to the computation of interest I agree with Simon Brown LJ's reasoning and conclusion. Like him, I would dismiss both the appeal and the cross-appeal.
Order:
(1) Appeal dismissed with costs
(2) Cross-Appeal dismissed with costs
(3) Damages to be paid. The sum of £15,000 paid into court by the Respondents as security for the Appellant's costs of the action, together with all interests accrued thereon to be paid out forthwith to the Respondent's Solicitors.
(4) The balance of any accounting costs due to the respondents from the £30,000 on account to be paid to the respondent's solicitors within 28 days, to be held by the respondent's solicitors provided that within that time a petition has been for permission to appeal to House of Lords; and to be held thereafter so long as the petition remains outstanding and, If permission is granted, pending the outcome of the appeal.
(5) Minute of this order to be filed by counsel.
(Order doe s not form part of the approved judgment)