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CHAPTER 2

THE WEAPONS OF LAW

2.8.2The Measure of Damages as a result of a successful Action based on the Common Law liability under Fraudulent Misrepresentation
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You will recall, from Section 2.3.2, that at Common Law a fraudulent misrepresentation not only renders the contract voidable, and therefore allows the representee to obtain rescission of the contract, but also gives rise to an action for damages in respect of the deceit.28


Damages in deceit are designed to compensate the person who is deceived by the misrepresentation, and are assessed in accordance with the tortious measure; that is, in the context of a pre-contract fraudulent misrepresentation, the amount by which the claimant is worse off as a result of entering into the contract in reliance on the misrepresentation.28A


Damages in tort are delimited by the test of remoteness.

Remoteness
of damage means the extent of the consequences of a particular act that can be recovered as damages.


The test for remoteness of damage for fraudulent misrepresentation has always been that any loss flowing directly from the misrepresentation can be recovered, whether foreseeable or not.
29



In Doyle v Olby (Ironmongers) (U.K. 1969), the Court of Appeal held that 'the defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement ..... it does not lie in the mouth of the fraudulent person to say that [the damage] could not reasonably have been forseen'.29A



A wider liability is imposed upon an intentional wrongdoer than upon a negligent or innocent one in order to deter fraud, and because 'moral considerations militate in favour of requiring the fraudster to bear the risk of misfortunes directly caused by his fraud'
(Lord Steyn).30



Note! In the context of ‘any loss flowing directly from the misrepresentation’, the issue of the ‘loss / costs’ associated with ‘the deliberate acquiring of information’ to enable the discovery of misrepresentation31 may be very significant indeed. For example: the cost of your free time associated with acquiring the knowledge and developing the expertise necessary to analyse and correlate the complicated financial and legal issues involved; the loss to your partner (if your partner is also a party to the contract) of your free time, and the associated stress involved to you both; the costs associated with direct searches for information etc. ————— ‘any loss flowing directly from the misrepresentation’.



Note!
In the matter of the measure of damages for any loss flowing directly from a fraudulent misrepresentation, Lord Steyn, in giving judgement for the Court of Appeal in Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd. (U.K., 2000), said: '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 the fraudulent statement.'31A



The burden of proving fraud is on the person who alleges that fraud has been committed, and fraud is generally difficult to prove. But, as we shall see below, damages, equivalent to those flowing from an Action based on ‘fraudulent misrepresentation’, are also available by taking an Action based on ‘statutory misrepresentation’ and, most importantly, the burden of proof is reversed.



28 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 310. 

28A Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 322.

29
Wheeler and Shaw, Contract Law, (1st ed.), p. 284.

29A Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 364.


30 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 322, citing Lord Steyn in Smith New Court Securities Ltd. v Citibank N.A. (U.K. 1997). 

31
Wheeler and Shaw, Contract Law, (1st ed.), p. 308, citing Kronman, ‘Mistake, Disclosure, Information and the Law of Contracts’.

31A Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 365.

 

 

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