Doyle v Olby (Ironmongers) Ltd

Damages for deceit compensate all actual loss flowing directly from the fraudulent inducement. Their object is to restore the claimant, so far as money can, to the financial position occupied before entering the transaction. The contractual measure, which assumes performance of a promise, does not apply.

Recovery is not confined to loss reasonably contemplated or foreseeable by the fraudster. It may include consequential expenditure and trading losses, subject to credit for benefits received. Loss caused by the claimant’s own unreasonable conduct, or which reasonable steps would have avoided, is excluded.

Doyle v Olby (Ironmongers) Ltd concerned the fraudulent sale of an ironmongery business. The purchaser relied on accounts and representations about its profitability, staffing and over-the-counter trade. Swanwick J found that the defendants had committed fraud and conspiracy, but awarded only £1,500. That sum represented the estimated cost of employing a traveller or the reduction in the value of the goodwill.

The defendants abandoned their appeal against the findings of fraud and conspiracy. The purchaser appealed against the damages award. The Court of Appeal had to determine the proper measure of damages for deceit, whether the erroneous measure advanced by the purchaser’s trial counsel could be corrected on appeal, and whether the available evidence permitted the court to assess damages without a new trial.

1. The appeal was allowed unanimously. The Court of Appeal substituted damages of £5,500 for the trial award of £1,500 and awarded the plaintiff all his costs.

2. Lord Denning MR, with Winn and Sachs LJJ agreeing, held that the judge had used the wrong measure. The cost of making the representation true, or the reduction in the represented value of the goodwill, treated the representation as a contractual promise. Deceit instead requires compensation for all actual damage flowing directly from the fraudulent inducement. Its object is to place the claimant financially, so far as possible, in the position occupied before entering the transaction.

3. The distinction drawn in McConnel v Wright [1903] 1 Ch 546 between contract and fraud was accepted, but its formulation of a prima facie ceiling based on money passing from the claimant’s pocket was too rigid because it overlooked consequential loss. The Court applied Lord Atkin’s direct-loss formulation in Clark v Urquhart [1930] A.C. 28, although Winn LJ identified that passage as obiter. Unlike contractual damages, deceit damages are not limited to losses reasonably within the parties’ contemplation. A fraudster cannot resist liability for directly caused loss merely because it was unforeseeable.

4. Benefits obtained from the transaction must be credited. Loss is also excluded where it is too remote because the claimant acted without reasonable prudence or common sense, became the author of the misfortune, or failed to take reasonable steps to reduce the loss. The plaintiff had acted reasonably in trying to continue and eventually sell the business, so no deduction for failure to mitigate was appropriate.

5. Lord Denning MR and Sachs LJ held that counsel’s erroneous closing submission did not prevent correction on appeal. The defendants had suffered no evidential prejudice because the evidence had been received on the footing that damages were at large. Winn LJ found sufficient material for a broad, jury-style assessment. After crediting the proceeds and other benefits received and adding the consequential financial losses incurred while operating the business, the appropriate award was £5,500.

6. Winn LJ observed that worry, strain, anxiety and unhappiness might be compensable in an appropriate deceit case. The point was left open, and no damages under those heads were awarded.

1. Court of Appeal: In Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2, the court unanimously allowed the plaintiff’s appeal and substituted damages of £5,500 for £1,500. The defendants abandoned their appeal against the findings of fraud and conspiracy.
2. High Court: Swanwick J found the defendants liable for fraud and conspiracy on 24 July 1967. He awarded £1,500 after adopting the plaintiff’s counsel’s alternative calculations based on the cost of making the representation good and the reduction in the value of the goodwill.