CONTRACT LECTURES
TRANSCRIPT LECTURE 7
MISREPRESENTATION PART 2 Total time = 59 mins 30 seconds
CLAIRE STRICKLAND
Track/slide 19
04.08
Damages for Fraudulent misrep
Damages here are based on the Tort action of Deceit such that the defendant must pay for:
all the ‘losses that flow directly from the contract’ even if the loss was not foreseeable.
This was established in the case of Doyle v Olby (Ironmongers) Ltd 1969.
This rule has been confirmed in later cases and the leading case now is
Smith New Court Securities Ltd v Citibank NA 1997.
In this case Lord Browne Wilkinson stated the rule as follows under 6 broad principles:
(a)
(b)
(c)
(d)
(e)
(f)
the defendant is liable for all losses flowing directly from the
transaction
such damage need not be foreseeable
it must however have been directly caused by the transaction
the plaintiff was entitled to consequential losses flowing directly
from the transaction
the plaintiff could recover the full price paid minus any benefits received by them
as a result of the transaction
the plaintiff had to take reasonable steps to mitigate his loss once
the fraudulent misrepresentation was discovered
We can see that the main difference between damages for fraudulent misrepresentation and
breach of contract is that for the former there is no need for the loss to have been
foreseeable.
Note however, that the plaintiff still has to try to mitigate his loss.
With regards to ‘loss of profits’ in East v Maurer 1991 it was held by the Court of Appeal
that it was possible to recover damages for loss of profit for fraudulent misrepresentation
using the Doyle v Olby notion of ‘losses that flow directly from the transaction’. However,
there is a slight problem here because damages for loss of profit sit more readily with the idea
of recovering ‘expectation loss’ following breach of a contractual term. It seems strange then
that one could recover profit for a statement regarded as a misrepresentation – by definition
the statement has not been regarded as a term of the contract. To get round this the Court of
Appeal said that the level of damages for loss of profit for fraudulent misrepresentation
should be based not on the expectation loss basis but on a ‘hypothetical’ basis of lost profit.
In addition, damages will only be recoverable where the claimant was actually making a net
loss – if the claimant is making some profit, though not as high as expected then he will not
be able to recover damages for loss of profit.