Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd

Damages for deceit may compensate a claimant for losing the opportunity to enter a more favourable transaction. There is no absolute requirement that the transaction induced by the fraud must itself have been loss-making. Where the evidence permits a reliable comparison, the court may reconstruct the transaction which would probably have occurred without the fraud and award the resulting financial difference.

This remains a tortious measure. It restores the claimant's negative interest and does not award the benefit promised by the false representation. A profitable resale or profitable performance of the induced transaction does not necessarily extinguish the loss caused when the claimant was dishonestly induced to pay an inflated price.

The claimants were French companies which distributed the defendant's building products under long-term agreements. Before the agreements were made, the defendant fraudulently represented that its United Kingdom customers could not purchase below stated minimum prices. The claimants consequently agreed to prices higher than those they would probably have negotiated had the truth been disclosed.

Bell J awarded damages for fraudulent misrepresentation by comparing the prices paid with the lower prices which the claimants would probably have negotiated. The defendant appealed, contending that the profitable agreements caused no recoverable loss, that the claim was time-barred, and that successor companies acquired no cause of action. The claimants cross-appealed against the award of simple rather than compound interest.

1. Appeal and cross-appeal dismissed unanimously. Simon Brown LJ delivered the leading judgment. Ward LJ agreed with the result through an alternative valuation analysis, and Sedley LJ agreed with Simon Brown LJ's legal reasoning.

2. Per Simon Brown LJ, damages for deceit protect the claimant's negative interest by compensating all actual loss flowing directly from the fraudulent alteration of position. There is no absolute rule requiring proof that the induced transaction was itself loss-making. A claimant may prove that, without the fraud, it would have entered a different and more favourable transaction, whether with the defendant or a third party. The loss may be measured by comparing that transaction with the transaction actually made.

3. The reconstruction must represent a probable counterfactual, not irrelevant speculation. On the judge's unchallenged findings, truthful negotiations would probably have produced the same distributorship agreements at substantially lower prices. The difference was recoverable even though the distributorship remained profitable. The award did not confer the contractual benefit of the false representation, which would have produced a still more favourable measure.

4. Ward LJ reached the same result by treating the hypothetical negotiation as a means of establishing the products' value where the defendant's virtual monopoly left no available market. Later resale profits did not eliminate the loss sustained when the inflated price was paid. Sedley LJ considered that the judge could reasonably measure the overcharge where fraud had collapsed value into the monopoly price.

5. Section 32 of the Limitation Act 1980 postponed limitation until the fraud was or could with reasonable diligence have been discovered. Reasonable diligence did not impose a rule that businesspeople must distrust counterparties and investigate apparently honest dealings. The suggested enquiries would have been exceptional measures.

6. The continuing misrepresentation also operated upon the successor companies when the agreements were novated. The defendant knew that the bargain and the unretracted representation were being passed on, yet stood by and permitted the novations without correcting the fraud.

7. The court left unresolved whether equity could award compound interest on damages for fraud in the absence of a fiduciary duty. The trial judge was taken to have assumed jurisdiction but exercised his discretion to award simple interest. There was no sufficient basis to interfere.

1. Court of Appeal: The defendant's appeal against liability in deceit and the claimants' cross-appeal concerning compound interest were dismissed with costs.

2. High Court: Bell J gave judgment for the claimants for fraudulent misrepresentation and breach of contract. He awarded damages calculated by reference to the lower prices which would probably have been negotiated without the fraud, together with simple interest.