4 Eng Ltd v Harper & Anor

Damages for deceit may include the lost chance to acquire and profit from an identified alternative business. The claimant must prove on the balance of probabilities that it could and would have pursued the opportunity. Where success also depended on third parties, it need prove only a real and substantial chance of their favourable action. That chance is valued as part of quantum.

Recoverable consequential loss may include both income profits during the expected ownership and a distinct capital profit on disposal. This is not double recovery where each represents a separate benefit lost through the fraud. Foreseeability is irrelevant, but the loss must have been directly caused by the deceit. Commercial contingencies affecting the alternative business must be separately discounted.

The claimant bought the entire share capital of an engineering company from the defendants for £1.2 million. The defendants had concealed a systematic bribery and false-invoicing scheme involving its principal customer. Summary judgment was entered against them in deceit, with damages to be assessed.

The claimant sought the price and acquisition costs, liabilities for its directors’ remuneration, the cost of investigating the fraud, and damages for losing the opportunity to acquire another engineering company, Tarvail Limited. The principal legal issues were whether deceit damages could compensate a lost chance, whether both income and capital profits from the alternative business were recoverable, the correct assessment date, and the standard for proving conduct by the claimant and relevant third parties.

1. Damages awarded, with the principal lost-chance amount to be calculated. The claimant recovered £550,000 paid for the fraudulent acquisition, £72,371.50 acquisition costs and £624,888 for liabilities reasonably incurred in investigating the concealed fraud. The investigation was necessary, fell outside the directors’ ordinary employment, and was reasonably charged, subject to reductions for inadequately proved hourly rates.

2. The governing compensatory principle required the claimant to be placed, so far as money could do so, in the position it would have occupied absent the wrong. In deceit, foreseeability does not limit recovery. The loss must instead flow directly from the fraudulent inducement: Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 and Smith New Court Securities Ltd v Citibank NA [1997] AC 254 applied.

3. A lost chance is recoverable in deceit where the chance was itself directly lost through the fraud. The availability of chance-based damages in negligence presented no principled reason to exclude them from deceit. East v Maurer [1991] 1 WLR 461 established that profits from an alternative business may constitute consequential loss.

4. The claimant could recover both the income profits it lost during the presumed ownership of Tarvail and the separate capital appreciation which would have been realised on sale. These were cumulative benefits, not alternative capital and income measures of one loss. Cullinane v British “Rema” Manufacturing Co Ltd [1954] 1 QB 292 was therefore inapplicable.

5. Under Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, the claimant had to establish on the balance of probabilities that it could and would have acquired Tarvail. It did so. Because completion also depended on third parties, the claimant needed to show a real and substantial, rather than speculative, prospect of their agreement. The chance that the vendors would have sold was assessed at 80 per cent.

6. The loss remained assessable through trial because the claimant recovered nothing when the fraudulently acquired company entered administration and remained unable to make an alternative acquisition. Income and capital values were discounted by 20 per cent for commercial contingencies affecting Tarvail under changed ownership. Further adjustments were required to prevent double recovery and to address taxation, including a gross-up subject to the claimant’s proposed undertaking concerning any ruling by HMRC.

Summary judgment had previously been entered against both defendants on the claim in deceit, with damages to be assessed. This judgment determined the assessment of damages. No appellate history is stated.