Case details
Summary
In deceit, inducement is established where a fraudulent misrepresentation materially influences the claimant’s conduct. It need not cause a change of strategy or be the sole reason for the claimant’s actions. Continuing to trade, or refraining from stopping loss-making transactions, may suffice.
Damages comprise all loss directly flowing from the fraud. They may include profits which the claimant would probably have made on alternative trading, even where no specific alternative transaction is identified and the trading involved risk. Where the fraud continues to affect the claimant’s business, consequential loss may remain recoverable up to trial.
Factual background
The claim arose from fraudulent trading representations made by Mr Bomford while employed by Man. He admitted falsely reporting daily and weekly profitability, account balances and other trading information. Man accepted vicarious liability for his fraud.
Tangent claimed damages for depletion of its trading fund and for profits it would have made from alternative trading during the fraudulent period and afterwards. The principal issues were inducement, recoverable heads of loss and the proper measure of damages. Alternative claims concerned estoppel, an account, fiduciary obligations and exemplary damages.
Held
- Inducement. Tangent was induced by the misrepresentations. The applicable inquiry was whether the representations were intended to be relied upon and played a real and substantial part in the claimant’s conduct. A misrepresentation may induce action by causing the claimant to continue a course already begun or to refrain from stopping it. It was unnecessary to prove that the claimant changed its trading strategy after a particular representation. The continuing false impression that trading was profitable caused Tangent to continue loss-making SETS trading which it would otherwise have stopped.
- The claimant’s conduct had to be assessed in the context of the prolonged and comprehensive fraud. Continued trading despite warnings did not disprove inducement because the warnings were accompanied by the continuing misrepresentation that overall trading remained profitable. Contributory negligence was no defence to deceit.
- Damages during the fraud. The governing principle was compensation for all loss directly flowing from the fraud. Loss of profits from hypothetical alternative transactions was recoverable where, on the balance of probabilities, the claimant would have entered them and they would probably have produced profits. No requirement existed that the alternative transaction be specifically identified or necessarily profitable. The risks inherent in trading could be reflected by a discount or conservative percentage.
- Damages after the fraud. Tangent remained affected by the fraud because its trading fund had been substantially depleted and had not been restored. Loss of profits could therefore continue to be recoverable until trial. There was no separate legal bar based on the description of the claim as profits on profits. Reinvestment of profits and application of the same conservative trading percentages were supported by the evidence.
- The parties were directed to agree the detailed calculation of damages and interest. The claim for exemplary damages was refused. The alternative estoppel claim was unavailable after pursuing deceit to judgment, and the court declined to follow the reasoning relied on from Re Exchange Securities & Commodities Ltd. The court also preferred the reasoning in JP Morgan Chase Bank v Springwell Navigation on execution-only relationships, although it was unnecessary finally to decide the fiduciary issue.
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