Case No: A3/2009/1242
Neutral Citation Number: [2010] EWCA Civ 486
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION 
COMMERCIAL COURT
Flaux J
[2009] EWHC 901 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/05/2010
Before:
LORD JUSTICE MUMMERY
LORD JUSTICE TOULSON
and
LORD JUSTICE RIMER
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Between:

	(1) PARABOLA INVESTMENTS LIMITED

(2) ARIA INVESTMENTS LIMITED
(FORMERLY TANGENT INVESTMENTS LIMITED)	Claimant

Claimant/
Respondent	
	- and -		
	(1) BROWALLIA CAL LIMITED 
(FORMERLY UNION CAL LIMITED)
(2) MF GLOBAL UK LIMITED
(FORMERLY MAN FINANCIAL LIMITED)

(3) MATTHEW BOMFORD
	Defendant

Defendants/Appellants	

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Mr Ali Malek QC, Mr Jeffrey Chapman and Mr Adam Kramer (instructed by Legal First) for the Appellants
Mr Neil Kitchener QC and Mr Steven Elliott (instructed by Gordon Dadds) for the Respondents

Hearing dates: 10-12 March 2010
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Judgment
Lord Justice Toulson: 
Introduction
1.	This appeal raises a question of law about the recoverability of damages in deceit for loss suffered, after the discovery of the fraud, through loss of the availability of the funds of which the victim was defrauded. 
2.	The second defendant (Man) and third defendant (Mr Bomford) appeal against a judgment in favour of the second claimant (Tangent) delivered by Flaux J on 6 May 2009, [2009] EWHC 901 (Comm), [2009] 2 All ER (Comm) 589. The judgment followed a trial which took place over 17 days in March and April 2009.  
3.	At the beginning of the trial, liability and quantum were both in dispute.  On the tenth day, leading counsel who represented the appellants at the trial (but not on the appeal) admitted the allegations of fraud made against Mr Bomford.  The admission followed what the judge described as “a disastrous three days in the witness box for Mr Bomford, during which he was exposed not just as a fraudster throughout the relationship between Tangent and Man but also as a persistent and inveterate liar in almost everything he said”.  Inducement remained in issue at the trial, but there is no appeal against the judgment on liability.  
4.	The judge gave permission to appeal on the question whether Tangent could recover damages for loss of the profits which he found that it would otherwise have made, after the period of the fraud, from use of the funds of which it had been defrauded.  He refused permission to appeal on issues of quantification of Tangent’s loss of profits, both during and after the period of the fraud, and the appellants have renewed their application for permission to appeal on those issues.
The facts
5.	The facts are fully set out in Flaux J’s impressive judgment.  For present purposes they can be summarised more briefly.  Man is a well established financial institution, trading on the London Stock Exchange and other world markets.  Mr Bomford was employed at the relevant time by Man as a senior futures broker.  Tangent was a company set up by Mr Rajesh Gill for the purpose of trading in stocks, shares and derivatives.  The judge described him in the opening paragraph of his judgment as follows:
“Mr Gill who is still only in his mid 30s is regarded by those who have dealt with him as one of the most successful traders in certain types of stocks and shares and their derivative products on world markets. Over the period of more than ten years since he left university, other than in one period, Mr Gill has consistently made profits from his trading, whether in bull or bear markets, sometimes extraordinarily good profits despite the state of the world markets The exception was the period when he was trading primarily through the second defendant between July 2001 and February 2002, throughout which time he was the victim of the systematic fraud with which this case is concerned. At that time, Mr Gill was still in his late 20s but had already been very successful in his trading.”
6.	Tangent’s relationship with Man lasted from 1 July 2001 to 7 March 2002, although active trading ceased soon after 13 February 2002.  Except during that period of trading, the bulk of Mr Gill’s trading was in market makers, principally those listed on the FTSE 350 Index.  During the Man period the bulk of Mr Gill’s trading was in contracts for differences (CFDs), particularly through the Stock Exchange Electronic Trading Service (SETS). He had not traded in SETS before, but he was encouraged to do so by Mr Bomford.  Because of the volume and speed of the trades, substantial commissions for Man were generated, which would in turn mean that Mr Bomford would receive generous bonuses.  Mr Gill was induced to continue this course of trading by Mr Bomford’s repeated false assurances that the trading was profitable, whereas the judge found that “in truth it was disastrously loss making from an early stage”.  Mr Bomford also on several occasions lied to Mr Gill about how much was in his account.  On 26 October 2001 he gave Mr Gill a figure of approximately £9.27 million, when the true figure was about £2.8 million and had been declining rapidly for several months. No other Man employee was involved in the fraud.  Matters came to light on 13 February 2002.  On that day Mr Bomford was away from the office.  Another employee of Man informed Mr Gill that the open positions on his account were such that there would be a margin call and that the amount in the account was £817,000.  Mr Gill was at first unable to believe what he was being told, because by then he had been led by Mr Bomford to believe that he had over £10 million in his account, but the truth was out.
The heads of loss
7.	It was agreed at the trial that the difference between the size of Tangent’s fund for investment at the beginning and at the end of the Man period was £3,222,000.  On the premise that Tangent established liability, the appellants did not dispute that it would be entitled to recover that sum with interest.  Tangent, however, claimed to have suffered considerably greater loss than would be satisfied by an award of interest, first, from its lost opportunity to have traded with the fund as it would otherwise have done during the Man period (referred to during the appeal as stage 1), and secondly, from its lost opportunities for trading during the period from the termination of its relationship with Man until the trial (stage 2) resulting from the depletion of its trading fund.
8.	As to those claims, the judge made the following broad findings:
“183	In the present case, had it not been for the fraud perpetrated on it in the Man period by Mr Bomford, Tangent would have had a fund of £4.25 million at the end of June 2001 with which to trade CFDs, instead of which it had only the depleted fund of £521,644 in March 2002. On a balance of probabilities, I am satisfied that had the fraud not occurred, Tangent through Mr Gill would have gone on conducting its business of trading primarily in market makers throughout the Man period and thereafter and that business trading would have been profitable overall. To the extent that some individual trades conducted would have been loss-making, that is no reason to conclude that the trading overall is too speculative for loss of profits to be recoverable. The fact that losses would have been suffered on individual trades is catered for in the average percentage trading profit figures, on the basis of which the claim is presented, to which I turn in the next section of the judgment.
184	I am also quite satisfied that, since Tangent has yet to recoup that fund of £4.25 million which it should have had (and which was effectively stolen from it), notwithstanding the successful trading conducted with much smaller resources, Tangent has continued to suffer from the adverse effects of the fraud. In a very real sense, Tangent has been “locked in” to a much depleted trading business, a disadvantageous situation, as a consequence of the fraud throughout the period since June 2001. The fact that it cannot (because of the nature of the business which has been damaged) identify a specific alternative transaction, is neither here nor there and should not affect the recoverability of damages for loss of profits.”
The judge’s assessment of quantum
9.	In addition to the evidence of Mr Gill, whom the judge described as “an essentially truthful witness”, and Mr Bomford, whose evidence was worthless, both sides called expert witnesses on investment brokerage and trading, namely Mr Jeffrey Plowman for Tangent and Mr Philip Jones for the appellants, and forensic chartered accountants, namely Mr Humphrey Creed for Tangent and Mr Gervase McGregor for the appellants.
10.	As to stage 1, the judge accepted Tangent’s estimate that during the Man period it would have made profits at a rate of 50% per annum (reduced pro rata to allow for the fact that the Man period was only eight months). This approximated to Mr Gill’s average profit percentage over the six years prior to the Man period, omitting the year of the dot com boom in which Mr Gill made a profit of over 1,000%.  It also approximated to Mr Gill’s rate of profit over several years after the Man period.  For part of the pre-Man period Mr Gill had been a client of Mr Plowman, who described him as the best trader that he had ever come across in 40 years of broking experience.  He considered that 50% per annum was a conservative estimate of the level of profits that he would have expected Mr Gill to make during stage 1 and that there was nothing in the market conditions during that period which would have led him to conclude otherwise.  No rival estimate was put forward by Mr Jones.  The appellants’ case was that the matter was altogether too speculative for the judge to be able to make any reasonable estimate of the profit which Tangent would have made during the relevant period.
11.	The judge concluded at para 188:
“I agree that the figure of 50% is appropriately conservative as an annual percentage of profit which could have been earned to 31 March 2002. It is pitched at a level which takes sufficient account of the inherent risks in any trading, such as that certain trades would probably have been loss-making.”
As a result the judge awarded approximately £1.6 million for lost profits during stage 1.
12.	As to stage 2, Tangent’s claim was that it would have made profits on what should have been its trading fund, but for Mr Bomford’s fraud, in the same ratio as the trading profits which it made on its depleted fund, subject to two qualifications.  The first was that Mr Gill gave evidence that he would have applied any funds in excess of £5 million on other investments in India.  Tangent called expert evidence from an Indian valuer and Indian chartered accountant about the value of those potential investments, but the judge formed the view that the claim for loss of profits on those investments was too speculative to be recoverable. In the face of the judge’s indication of his view, Mr Kitchener QC for Tangent did not ultimately pursue that part of its claim. Secondly, there were two years in respect of which Tangent for particular reasons did not contend that it would have made the same level of profit on a larger trading fund as it made on its smaller trading fund.
13.	Mr Plowman’s evidence was that he considered it “reasonable to suppose that if Mr Gill had a larger trading fund he would have made additional profits in proportion to the increase in the size of the capital he traded”.  In cross-examination Mr Plowman agreed that placing more money on a market maker might move the market in a different way than investing a smaller amount, and that one could not necessarily tell what the effect of the difference would be, because it would be a different transaction, but he said that he did not see why overall Mr Gill should not have achieved the same profit ratio investing with a larger amount of money over a wider variety of stocks, and that arguably he could have used the greater opportunities of a larger fund to achieve a higher profit ratio.
14.	Mr Jones gave no evidence on the subject.  Mr McGregor challenged the proposition that Mr Gill’s share trading profit percentages during stage 2 could be extrapolated and applied to a hypothetical larger pool of funds.  
15.	Mr Kitchener submitted that Mr McGregor’s evidence on this was inadmissible since he was not a broking expert.  The judge said at para 170:
“It is perhaps somewhat extreme to say that his evidence was inadmissible. I would prefer to say that it was of no real weight and of little assistance to the court.”  
By contrast, the judge “found Mr Plowman a careful and impressive expert witness” (para 13).
16.	As with stage 1, the appellants did not contend for an alternative loss of profit calculation.  They submitted that the entire claim was too speculative to allow any reasonable assessment.  
17.	The judge found at para 172:
“On the basis of Mr Plowman’s evidence and the other evidence as to Mr Gill’s success at trading other than in the Man period, it seems to me that, on a balance of probabilities, with a larger fund available, Mr Gill would have traded just as successfully as he did in the years after the Man period with a depleted fund and would have made profits with at least the same percentage of profits annually as he in fact made.”
and at para 192:
“Thus, as I see it, these projections for loss of profits are being put forward on a cautious and conservative basis. I accept Mr Kitchener’s submission that they represent a minimum amount that, on a balance of probabilities, Mr Gill would have earned with greater trading capital than he in fact had because of the fraud.”
18.	The projected figures ended at 31 March 2008.  For the period from that date until judgment Tangent claimed simple interest.  The judge’s assessment of lost profits during stage 2 until 31 March 2008 came to approximately £12.15 million, to which was added interest for the period until trial of approximately £340,000, producing a total loss of profit figure for stage 2 of approximately £12.5 million.  If the judge had rejected the claim for lost profits during stage 2 and had instead awarded simple interest during that period at base plus 3.25%, the figure would have been approximately £2.6 million, i.e. less by approximately £9.9 million.
19.	Taking all the heads of claim, the judge’s total award including interest amounted to approximately £19.3 million.  If he had approached the lost profit claims as the appellants contend that he should, and had awarded simple interest at base plus 3.25% on the amount by which Tangent’s trading fund was depleted during the Man period, the total figure would have been approximately £5.1 million.
The judge’s assessment of quantum: grounds of challenge
20.	Mr Malek QC attacked the judge’s award of lost profits during stage 1 on the ground that the case that a specific amount of profits would have been earned at that stage was unproven, and accordingly only interest should have been awarded.  He submitted that Mr Gill gave insufficient explanation of how he would have traded during that period and that Mr Plowman’s evidence supporting the claim was unreasoned.  He submitted that the 50% figure was plucked out of the air, was unjustified, and was on its face a phenomenal rate of return for real world stock market trading.  In the absence of an explicit rationale, the award could not stand.
21.	Mr Malek’s attack on the judge’s award of damages for lost profits at stage 2 was similar.  He submitted that Mr Gill gave no adequate explanation of how he would have invested a larger trading fund at that stage.  The fact that Tangent claimed a lower profit percentage in two years than the actual profit achieved with a smaller fund involved a recognition that for those years (particularly the year ended 31 March 2008, in which Tangent’s actual net rate of profit was 877%) its actual profit ratio could not be regarded as a reliable indicator of the profit which it would have made on a larger fund. This demonstrated the arbitrary nature of choosing to extrapolate from actual profit figures on the depleted fund in the other years.  Mr Malek also took specific examples from particular years to illustrate what he submitted was the improbability that Tangent would have made the claimed profit on a hypothetical larger fund.  He submitted that Mr Plowman’s evidence contained a “vacuum of reasoning” to support his general conclusion that it was “reasonable to suppose” that the hypothetical profits at stage 2 could be scaled up from Mr Gill’s actual profits on a lower fund.  He also submitted that in any event Mr Plowman’s conclusion that this was “reasonable to suppose” fell significantly short of expressing an opinion that Tangent was likely to have achieved the claimed level of profits on a balance of probability.
The judge’s assessment of quantum: discussion and conclusion
22.	There is a central flaw in the appellants’ submissions.  Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial).  Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant’s wrongful conduct, as distinct from things which have happened.  In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.  
23.	The claimant has first to establish an actionable head of loss. This may in some circumstances consist of the loss of a chance, for example, Chaplin v Hicks [1911] 2 KB 786 and Allied Maples Group Limited v Simmons and Simmons [1995] 1 WLR 1602, but we are not concerned with that situation in the present case, because the judge found that, but for Mr Bomford’s fraud, on a balance of probability Tangent would have traded profitably at stage 1, and would have traded more profitably with a larger fund at stage 2. The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account. (See Davis v Taylor [1974] AC 207, 212 (Lord Reid) and Gregg v Scott [2005] 2 AC 176, para 17 (Lord Nicholls) and paras 67-69 (Lord Hoffmann)).
24.	The appellants’ submission, for example, that “the case that a specific amount of profits would have been earned in stage 1 was unproven” is therefore misdirected.  It is true that by the nature of things the judge could not find as a fact that the amount of lost profits at stage 1 was more likely than not to have been the specific figure which he awarded, but that is not to the point.  The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable.  An appellate court will therefore be slow to interfere with the judge’s assessment. As Lord Wright said in Davis v Powell Duffryn Associated Collieries Limited [1942] AC 601, 616-617:
“An appellate court is always reluctant to interfere with a finding of a trial judge on any question of fact, but it is particularly reluctant to interfere with a finding on damages which differs from an ordinary finding of fact in that it is generally much more a matter of speculation and estimate.  No doubt, this statement is truer in respect of some cases than of others…It is difficult to lay down any precise rule which will cover all cases, but…the court, before it interferes with an award of damages, should be satisfied that the judge has acted on a wrong principle of law, or has misapprehended the facts, or has for these or other reasons made a wholly erroneous estimate of the damage suffered.”
25.	The appellants’ broking expert, Mr Jones, regarded Mr Gill in his report as little more than a gambler, whose trading in market makers was always a 50/50 bet and whose success before and after the Man period was essentially a matter of luck.  In his oral evidence he resiled to some extent from that position, and the judge preferred Mr Plowman’s opinion that Mr Gill’s success was not a pure matter of luck but was due to his astuteness.  The judge was entitled to reach that conclusion. No method of assessment could be perfect, but the method of measurement accepted by the judge as a basis for estimating the lost profits was rational and supported by the opinion of an expert who impressed him. I am not persuaded that it was manifestly excessive.  I would therefore refuse permission to appeal against the judge’s quantification of Tangent’s lost profits.
Recoverability of damages for loss of investment opportunity after discovery of the fraud: the judge’s reasons
26.	On the basis that the judge was not wrong to assess the lost profits as he did, the appellants accept (for reasons explained below) that the lost profits during stage 1 were recoverable as a matter of law; but they dispute the recoverability as a matter of law of the lost profits during stage 2, and on this point they were given permission to appeal by the judge.
27.	The judge explained his reasons for holding that loss of profits after discovery of the fraud were recoverable at paras 125-137 and 167-184 of the judgment. They are set out with admirable clarity but I summarise them briefly.  He began with the principle set out in Livingstone v Rawyards Coal Co (1880) LR 5 App Cas 25, 39 that the object of compensatory damages is to put the injured party, as nearly as possible, in the position that he would have been in if he had not sustained the wrong for which he was being compensated.  He cited Smith New Court Securities v Citybank NA [1997] AC 254 for the principles applicable in assessing damages for fraud.  Relying particularly on the authority of the Court of Appeal decision in East v Maurer [1991] I WLR 461, approved by the House of Lords in Smith New Court, he held that damages for loss of profits from an alternative investment were in principle capable of being recovered in an action for deceit.  
28.	The judge rejected the appellants’ argument that the cases which have recognised recoverability of loss of profits in deceit were all cases of “specific alternative transactions which were necessarily profitable”.  As to this submission he said:
“147.	In my judgment, there is no such restrictive principle as that for which Mr Brindle contends. Rather each case depends upon its own facts. Obviously there will be cases where, on the evidence, it is not possible for the claimant to show on a balance of probabilities that any alternative transaction or business would have been profitable. The decision of the Court of Appeal in Davis v Churchward (1993) unreported was such a case. However, where, on a balance of probabilities, the court concludes that some profits would have been made from an alternative transaction or transactions, which the claimant would have entered but for the fraud, then the court can and should award damages for such loss of profits, if necessary discounting the amount recovered to reflect the element of risk (as appears to have happened in East v Maurer). There is simply no added requirement before such damages are recoverable that the alternative transactions(s) be shown to be “necessarily profitable.  ”
148.	Furthermore, the suggestion that, before any damages for loss of profits are recoverable in deceit, the claimant must have identified a specific alternative transaction into which he would have entered had it not been for the fraudulent misrepresentation(s), is also contrary to the decision of the majority of the Court of Appeal in Esso Petroleum Limited v Mardon [1976] 1 QB 801.”
29.	The judge also rejected the appellants’ argument that no such loss could be recovered in respect of the period after the end of the fraud on the ground that this would amount to a claim for “profits on profits”, a head of loss recognised by English law only by an award of interest.  He said at para 177:
“A number of the cases recognise that where the adverse effects of a fraudulent misrepresentation continue after the fraud has been discovered, then in principle the claimant can recover as damages the losses he suffers as a consequence of those adverse effects for so long as they remain operative, whether loss of profits or additional expenses or other losses.”
He instanced New Smith Court, Esso v Mardon and the judgment of David Richards J in 4 Eng Limited v Harper [2009] Ch 91.  He also cited Lord Nicholls’ speech in Sempra Metals Limited v Inland Revenue Commissioners [2007] UKHL 34, [2008] 1 AC 561 as authority that loss of the use of money can sound in damages.
Recoverability of damages for loss of investment opportunity after discovery of the fraud: the parties’ submissions
30.	The appellants’ submissions may be summarised as follows:
1.	Tangent’s loss should have been assessed at the date of Mr Gill’s discovery of the depletion of its trading fund (13 February 2002) or, at latest, at the date of the termination of Tangent’s relationship with Man (7 March 2002).
2.	There is a crucial difference in principle between the damages recoverable for torts involving infringement of the claimant’s property rights and the damages recoverable for deceit or negligent misstatement.  Infringement of property rights may continue to have a direct effect until trial.  Fraudulent (or negligent) misstatement involves a claimant acting to his detriment under the inducement of a false belief.  That influence ceases once the truth becomes known.  There may be circumstances where the claimant has been induced to change his legal position in a way that cannot be immediately undone on discovering the truth; and there may be cases where the claimant has lost, once and for all, an opportunity which he would otherwise have taken of entering into some particular form of alternative transaction which would have continued beyond the date that he discovered the truth.  Those are exceptional circumstances in which direct loss may properly be said to continue after the discovery of the truth, but this case does not fall into such a category.
3.	In this case to allow a claim for damages for loss of profits suffered after the discovery of the fraud would amount in substance to allowing a claim for damages for delay in the payment of damages.  To allow such a claim would also be to permit the award of profits on profits, to which there would logically be no end.  Moreover, it would potentially apply to every claimant who has suffered monetary loss through deceit or negligent misstatement.  The only way that the law allows compensation for loss of use, during stage 2, of the trading fund lost during stage 1 is by way of an award of interest.
4.	To permit Tangent to recover damages for lost profits during stage 2 would create an unjust asymmetry in the law of damages and would encourage speculative claims.  The asymmetry would arise because the claimant would have the option of settling for statutory interest on its primary loss (which would require no proof of how the claimant would have used the money) or of seeking damages based on its hypothetical use of the lost fund.  This would put every claimant in a position where he would have nothing to lose and all to gain by advancing a case as to how he would otherwise have used the money.  This is not only likely to encourage speculative claims but it is wrong in principle.  Logically, the claimant’s hypothetical use of the money should be regarded in principle either as too remote a factor, or not as too remote a factor, to be taken into account in the overall assessment of damages.  It would be unprincipled to take it into account as increasing the assessment of the claimant’s overall loss if his use of the money would have been profitable, but not as reducing the overall loss if it would have been unprofitable.
31.	Tangent submitted that the judge reached the right result for the right reasons.
Recoverability of damages for loss of investment opportunity after discovery of the fraud: consideration
32.	The issues about the proper date for the assessment of damages and the nature of the damages recoverable are interlinked.  In Smith New Court the House of Lords considered both the principles governing the damages recoverable in an action in deceit and the date of assessment.  The case concerned the acquisition of shares in a well known defence contractor, Ferranti, which the claimants bought in July 1989, in reliance on fraudulent representations made by a representative of the defendant, at a price of 82¼p per share. On the open market they would at that time have fetched 78p per share. The claimants bought the shares as a market-making risk with a view to holding them on their books for a comparatively long period. In September 1989 the board of Ferranti discovered that it had been the victim of a major fraud by a former director, and in November it published revised audited accounts showing the effect of the fraud. The shares slumped. Between November 1989 and April 1990 the claimants sold their shares in small parcels at prices between 49p and 30p per share.  The Court of Appeal held that damages were to be assessed at the date of the acquisition of the shares by reference to the difference between the price paid and the price which the shares would then have attracted on the open market.  The House of Lords held that the claimants were entitled to recover the difference between the amount which they paid to purchase the shares and the amount for which they were resold. Because of the nature of the case, the judgments contained a number of statements about deceit inducing the acquisition of property, but the underlying principles are wider than that.
33.	Starting with the fundamental principle stated in Livingstone v Rawyards Coal Co, the House of Lords rejected the Court of Appeal’s ruling that as a matter of law the market price at the transaction date should be taken for the purpose of measuring the claimants’ loss, unless that price had been falsified by the defendant’s misrepresentation.  In the view of the House of Lords, this was an over rigid approach and would not have achieved the fundamental compensatory principle, which was to put the claimants in the same position as if no false representation had been made to them.  Lord Browne-Wilkinson cited with approval the statement of Bingham LJ in County Personnel (Employment Agency) Limited v Alan R Pulver & Co [1987] 1 WLR 916, 925-926:
“While the general rule undoubtedly is that damages for tort or breach of contract are assessed at the date of the breach…this rule also should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule.”
34.	Lord Browne-Wilkinson noted (at 265) that a defendant’s fraud may have an effect continuing after the transaction is completed, and he referred (at 266) to instances where “the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by the fraud is to lock the plaintiff into continuing to hold the asset acquired.”  I take those instances to be illustrative rather than exclusive (as Mr Malek seeks to regard them).  In similar vein Lord Steyn said (at 284):
“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 defendants.”
35.	The House of Lords regarded the loss suffered by the claimants on the resale of the shares as directly caused by the defendant’s fraud, even though the substantial collapse of Ferranti’s share value was due to the discovery of a fraud within Ferranti which was itself unrelated to the defendant’s fraudulent misrepresentation, because the claimants could not have disposed of the shares on the purchase date otherwise than at a loss and, as Lord Browne-Wilkinson put it at 268, “Smith were in a special sense locked into the shares having bought them for a purpose and at a price which precluded them from sensibly disposing of them”.  It was not suggested that the claimants acted unreasonably in retaining the shares for the time that they did or in realising them in the manner in which they did.
36.	As to the scope of the losses which may in principle be recovered in an action in deceit, the House of Lords approved the decision of the Court of Appeal in Doyle v Olby Ltd  [1969] 2 QB 158 that the claimant is entitled to recover all loss directly caused by the transaction and all consequential loss, provided it is not too remote,  and that loss is not to be treated as too remote merely because it was not in the contemplation of the representor. Lord Steyn (with whom Lord Keith and Lord Slynn agreed) gave an example particularly relevant to the present case at 282, approving the decision of the  Court of Appeal in East v Maurer:
“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.”
37.	In East v Maurer [1991] 1 WLR 461 the claimants were induced to buy a hairdressing salon from the defendants by false representations.  After trading unsuccessfully and then discovering that they had been the victims of fraud, the claimants had difficulty in selling the business and eventually did so at a substantial loss.  They claimed not only their capital loss, but also loss of profits during the period that they owned the business.  The Court of Appeal held that, while they were not entitled to loss of the profits which they might reasonably have expected to make if the defendants’ representations had been true (since the action was for deceit and not for breach of a contractual warranty), they were entitled to an award of loss of profits relating to the hypothetical business in which they would have engaged but for the fraud of the defendants. 
38.	In the light of that authority and its approval by the House of Lords, Mr Malek rightly accepted that loss based on the hypothetical use which the claimant would have made of the funds of which he was defrauded is capable of being recoverable as damages in deceit (ie it is not necessarily too remote), and that Tangent’s loss of profit from alternative investment of the fund during stage 1 was not too remote. But he submitted that the judge was wrong to apply East v Maurer to stage 2. The issue in short is whether the discovery of the fraud provided a cut off point.
39.	Tangent’s case on the point is simple.  On the judge’s findings, Mr Bomford’s fraud had a continuing effect on Tangent after the truth had come out.  The depletion of its trading fund was a fait accompli, from which it could not extract itself and which had a continuing direct effect on its ability to trade profitably.  In the judge’s language, it was “locked in” to a disadvantageous situation as a consequence of the fraud perpetrated during the Man the period.
40.	Mr Malek submitted that “the simplicity of Tangent’s approach should not be mistaken for correctness” and that it would lead to “a wide-ranging and alarming alteration to the law”.  
41.	I reject the appellants’ argument that the claim for loss of use during stage 2 of the funds lost during stage 1 was in substance a claim for damages for delay in payment of damages.  The same point was considered by the High Court of Australia in Hungerfords v Walker (1989) 171 CLR 125.  The question in the case, identified at the beginning of the judgment of Mason CJ and Wilson J, was whether at common law damages for breach of contract or negligence can include damages (assessed in that case by reference to appropriate interest rates) for loss of use of money lost as a direct consequence of the defendant’s breach of contract or negligence.  
42.	The claimants carried on a business selling, hiring and servicing television sets and other electronic goods.  The defendants were their accountants. As a result of the defendants’ negligence, the claimants paid too much income tax for a number of years.  By the time that this came to light, their claim for repayment of the over paid tax in the earlier years was statute barred.  The claimants sued the defendants for the amounts not recoverable and claimed interest or damages for loss of use of the money.  The judge held that the claimants were not entitled to interest under the relevant statutory scheme, but that they were entitled to damages at common law for loss of use of the over paid tax up to the date of trial, which he calculated on the basis that most of it would have been used in the business. He measured the loss by reference to an annual interest rate of 10%.  The Full Court of the Supreme Court of South Australia increased the interest rate used as a measure for assessing damages because the business had itself been paying interest on loans at a higher rate.  The High Court (Dawson J dissenting) dismissed the defendants’ appeal.
43.	Mason CJ and Wilson J said that the loss of the use of the money paid away could not be classified simply as due to the late payment of damages (144-145).  Brennan and Deane JJ concurring said (at 152):
“There is, in our view, a critical distinction between an order that interest be paid upon an award of damages and an actual award of damages which represents compensation for a wrongfully caused loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired.   On the one hand, there is no common law power to make an order for the payment of interest to compensate for the delay in obtaining payment of what the court assesses to be the appropriate measure of damages for a wrongful act…On the other hand, there is no acceptable reason why the ordinary principles governing the recovery of common law damages should not, in an appropriate case, apply to entitle the plaintiff to an actual award of damages as compensation for a wrongfully and foreseeably caused loss of the use of  money…
In the present case, the breach of the duty of care which the appellants owed to the respondents caused over payments of tax by the respondents.  The direct and foreseeable effect of those over payments was that specific sums of money (i.e. the amounts of the over payments), which would otherwise been available to avoid, repay or off-set the costs of some of the significant borrowings of the respondents’ business, were unavailable to the respondents from the time of the respective over payments.  The injury sustained by the respondents by reason of the loss of the use of the amounts of the over payments was as foreseeably caused by the breach of the appellants’ duty of care as would have been the case if the appellants had wrongfully deprived the respondents of the use of their money by locking it in a fool proof safe and withholding the key.”
44.	Mr Malek accepted, in my view rightly, that the decision of the High Court in Hungerfords represents the common law, but he distinguished it on the ground that in that case the money would have been available to meet a specific need, whereas in the present case it would have been used to make a succession of one-off unspecified trades.  I do not follow the distinction on the facts. Hungerfords would have used the money in effect as working capital, as would Tangent in the present case. The distinction which Mr Malek tried to draw between putting money into a business generally and using it for individual business transactions may be clear in some cases, but would be a false distinction in others (since many businesses consist of entering into successive trades and putting money in the business is likely to be indistinguishable from putting it in the trades), and I can see no good reason for trying to introduce it. Practicalities aside, the submission made by Mr Malek sought to narrow the effect of the High Court’s decision in a way which does not reflect the reasoning of the majority, and for which I can see no justification as a matter of principle or justice.
45.	Flaux J also cited the judgment of David Richards J in 4 Eng Limited v Harper as an instructive precedent.  The claimants were induced by false representations to buy the share capital in a company which provided engineering services.  Far from being profitable, the company had been systematically bribing employees of its principal customer to make payments to it on inflated or bogus invoices, and it was potentially liable to the customer for a large amount. In due course the defendants were sent to prison for fraud and the company went into liquidation.  The judge found that but for the defendants’ fraud the claimants would have been able and willing to make an offer for the purchase of a different company, and that there was a high likelihood that they would have succeeded in doing so.  He awarded damages which included an assessment of the claimants’ loss of likely income and capital profits from the alternative acquisition at the date of trial.  One of the arguments advanced by the defendants was that the date for assessment of the loss should not have been later than the date on which the company went into administration, because by then the claimants were freed from the consequences of the defendants’ deceit.  The judge said, at 55, that he could follow that submission if on that date the claimants had recovered substantial funds which they could then invest in an alternative acquisition.  However, because the company was insolvent and the claimants recovered nothing, they were no more then able to make an alternative acquisition than they had been before it went into administration.  The consequences of the defendants’ deceit did not stop but continued until trial.  In those circumstances, the choice of the date when the company went into administration would be arbitrary and unconnected with the claimants’ loss. 
46.	The decision is a straightforward application of the principles set out in Smith New Court.   The appellants did not challenge it but sought to distinguish it. They suggested in their skeleton argument that David Richards J considered the claimants to be locked into the company which they had acquired, since it was insolvent and the claimants recovered nothing, but that does not advance matters. It is another way of stating the point stated more simply by the judge that the consequences of the defendants’ deceit did not stop on the company going into administration but continued until trial. 
47.	Mr Malek also made the point, which he developed in oral argument, that in that case the claimants had a particular alternative investment opportunity which arose during the period of the fraud and the effects of which continued after the discovery of the fraud.  So also in the present case Tangent would have had an alternative opportunity of using its trading fund during stage 1, the hypothetical value of which the judge assessed before reaching his award for the loss suffered at stage 1. The effect of the fraud continued after stage 1 because Tangent no longer had the amount by which the fund had been depleted, just as 4 Eng’s loss continued after the company went into administration and then liquidation, because it no longer had the money which it had invested in the company or anything in return for it (the shares being worthless).  So I am unpersuaded by the grounds on which Mr Malek sought to distinguish the decisions in Hungerfords and 4 Eng.
48.	The argument that there is a critical difference between the recoverability of damages for loss of use of property resulting from tortious interference with property rights and loss of use of money resulting from deceit may have some historical support, but cannot be justified.
49.	Mr Malek submitted that the judge fell into error in describing Tangent’s lost fund as having been “effectively stolen from it” (at 184).  Brennan and Deane JJ used a similar analogy in the passage cited from Hungerfords, when they likened the injury sustained by the claimants to that which they would have suffered “if the appellants had wrongfully deprived the respondents of the use of their money by locking it in a fool proof safe and withholding the key” (a direct interference with the claimants’ property rights).  It would indeed be anomalous if the court were to draw a distinction between loss of use of money stolen by the defendant and loss of use of money caused to be paid away by the fraud of the defendant.
50.	It is true that in former times judges took a hostile view toward claims for damages for loss of use of money.  In Page v Newman (1829) 9 B & C 378 the claimant sued the defendant for repayment of a debt and interest.  Lord Tenterden CJ held that the court had no power at common law to award interest in the absence of a contractual agreement to pay interest.  The decision was followed with reluctance by the House of Lords in London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429, where it was held that at common law the court had no power to award interest by way of damages for breach of contract in failing to make repayment of a debt on time.
51.	Over the years the effect of this unsatisfactory judgment was whittled down in various ways, but it survived in an attenuated form until the ghost of Lord Tenterden was laid to rest in Sempra Metals Limited v Inland Revenue Commissioners.  In that case the House of Lords examined the law of contract and the law of restitution in considering a question whether the claimant was entitled to interest on repayment of overpaid tax.
52.	Lord Nicholls began his examination of the law as follows (at 74):
“I start with the broad proposition of English law that as a general rule a claimant can recover damages for losses caused by a breach of contract or a tort which satisfy the usual remoteness test.  This broad common law principle is subject to an anomalous, that is, unprincipled, exception regarding one particular type of loss arising in respect of one particular type of claim.  The exception comprises claims for interest losses by way of damages for breach of a contract to pay a debt.  The general common law principle does not apply to such claims.  Damages are not recoverable in cases falling within this exception.”
53.	Having noted (at 51) that “legal rules which are not soundly based resemble proverbial bad pennies: they turn up again and again”, he proceeded to examine the way in which the law had developed and concluded (at 92) :
“The common law should sanction injustice no longer.  The House should recognise the remnant of the restrictive common law exception for what it is: the unprincipled remnant of an unprincipled rule.  The House should erase the remains of this blot on English common law jurisprudence.”
54.	Mr Malek submitted that the House of Lords was there concerned with the law of contract and restitution, and that Lord Nicholls’ observations are irrelevant in the present case.  Yes and no.  It is true that the House of Lords was concerned with the law of contract and restitution.  But it is vain not to recognise the wide general principle stated by Lord Nicholls at 74 and to suggest that it does not apply to a claim in tort for damages for loss of use of money which would satisfy the rules of causation, etc.  
55.	The argument that Flaux J’s judgment creates an unprincipled asymmetry in the law is not a correct analysis.  Tangent’s first head of loss was the amount of its direct loss on trades which it was induced to enter as a result of Mr Bomford’s fraud.  That head of loss is recoverable regardless of what Tangent would otherwise have done with its trading fund.  It would not matter, for example, if Mr Gill would otherwise have given the entire amount to charity.  He was entitled to use his money as he chose and to have the fund restored.  Interest on that loss would be discretionary, but ordinarily the court would not enquire how the claimant would have used the money.  (In the charitable example, an award of interest would enable the claimant to make the same gift grossed up so as to be equivalent to the gift which he would have made but for the fraud.)  If the claimant would not have made profitable alternative use of the money, there would be no head of consequential loss for which he would be entitled to compensation.  If, on the other hand, he would have made profitable alternative use of the money, then there would be a potential head of consequential loss for which (subject to remoteness, etc.) the claimant would be entitled to damages on the normal compensatory principle.  There is no asymmetry or injustice in this.
56.	As to the submission that Flaux J’s judgment, if upheld, will lead to an avalanche of speculative and unmeritorious claims, it is never an attractive argument that a meritorious claim should be denied because of the risk of unmeritorious claims following it.  The argument itself is also speculative.  We were given no information to suppose that the courts of Australia have been inundated with speculative and unmeritorious claims since the decision of the High Court in Hungerfords.  In Smith New Court Lord Steyn considered at 284-285 three limiting principles which, even in a case of deceit, serve to keep wrongdoers’ liability within practical and sensible limits – causation, remoteness and the duty to mitigate loss.  
57.	The present case provides a practical illustration of the operation of the remoteness principle.  The judge regarded the Indian investments which Mr Gill would have made as too uncertain and distant to give rise to a recoverable head of loss.  The distinctive feature of the case in relation to his trading on the London Stock Exchange was that he had a remarkable track record both before and after the Man period. Claimants who advance speculative and unmeritorious consequential loss claims face the risk of having to pay the costs of those claims as well as the risk of damaging their credibility more generally.  
58.	In relation to Mr Malek’s gloomy prognostication about astronomical claims for consequential loss stretching over many years, there may also be saving points which might be made by a defendant in an appropriate case, but were not made in this case.  Where a claim is made for loss of use of money on an alternative investment after the discovery of the fraud, a fair measurement of the loss might in some cases be the cost of replenishing the depleted fund, i.e. the cost of borrowing the necessary funds to make the investment, if that possibility was reasonably open to the claimant. (There would be a parallel between that and the measure claimed and allowed in Hungerfords.) However, the question whether that possibility was reasonably open to Tangent was never explored, and there was no argument at the trial or on the appeal that this would have been a better way of measuring damages for Tangent’s loss of investment opportunity at stage 2. The issue of law was whether damages for that loss of investment opportunity were recoverable at all.  
59.	Mr Malek was critical of the length of time that passed between Tangent learning of the fraud and obtaining judgment. However, it was not argued at the trial that this involved a failure by Tangent to take reasonable steps in mitigation of its loss and that a proportion of its consequential loss should be disallowed on that account. The appellants’ conduct of the litigation may not have made that a promising defence, but the point did not arise.
Conclusion
60.	The appellants have not shown any principled reason why the discovery of the fraud should be taken as a legal cut off point terminating Tangent’s claim for damages in respect of its loss of investment opportunity, resulting from the appellant’s fraud.  Applying the fundamental compensatory principle, the judge was right to hold for the reasons he did that Tangent was entitled in principle to recover damages in respect of such loss until the trial.  Accordingly, I would dismiss this appeal.
Lord Justice Rimer:
61.	I agree.
Lord Justice Mummery:
62.	I also agree.