Parabola Investments Ltd & Ors v Browallia Cal Ltd & Ors

In deceit, damages may include profits lost through the claimant’s alternative use of money fraudulently depleted. Discovery of the fraud does not itself create a legal cut-off. The question is whether the fraud’s consequences continued directly to deprive the claimant of the use of the money.

The claimant must prove an actionable head of loss on the balance of probabilities. The court then quantifies hypothetical loss by making the best reasonable evaluation of the relevant chances, excluding only remote speculation. Causation, remoteness and mitigation remain effective limits on recovery.

Parabola Investments Ltd and related claimants alleged that a senior futures broker employed by Man Financial had fraudulently induced Tangent Investments to conduct loss-making trading while concealing the depletion of its trading fund.

Flaux J gave judgment for Tangent in the Commercial Court, awarding damages which included profits lost during the fraud and profits lost after the fraud was discovered because Tangent continued to trade with a depleted fund: [2009] EWHC 901 (Comm).

The appellants challenged the recoverability in deceit of post-discovery loss of investment opportunity. They also sought permission to challenge the judge’s quantification of lost profits.

1. Appeal dismissed. Toulson LJ, with whom Rimer and Mummery LJJ agreed, held that discovery of the fraud did not terminate Tangent’s claim for consequential loss. The governing compensatory principle was to put the victim, so far as money could do so, in the position it would have occupied absent the fraud.

2. Damages for deceit extend to financial loss flowing directly from the claimant’s alteration of position and to consequential loss which is not too remote. A loss of profits from the profitable alternative business or investments which the claimant would have undertaken but for the fraud is capable of recovery. The court applied the approach in Smith New Court Securities v Citybank NA [1997] AC 254 and East v Maurer [1991] 1 WLR 461.

3. The fraud had left Tangent with a substantially depleted trading fund. That continuing deprivation directly impaired its ability to trade profitably after the truth emerged. It was therefore not merely a claim for interest or damages for delayed payment of damages. Loss of use of money wrongfully caused by the defendant may itself be compensable damage, as illustrated by Hungerfords v Walker (1989) 171 CLR 125.

4. A claimant must establish the existence of an actionable loss on the balance of probabilities. But where its amount depends on hypothetical events, the court makes the best reasonable assessment of the chances, unless they are no more than remote speculation. The judge’s method of estimating Tangent’s lost trading profits was rationally supported by the evidence and was not manifestly excessive. Permission to challenge that quantification was therefore refused.

5. Causation, remoteness and mitigation limit recovery. On the facts, the proposed Indian investments were too uncertain, whereas Tangent’s established trading record made its loss of trading opportunity recoverable. The court noted, without deciding the point, that the reasonably available cost of replenishing a depleted fund might be an appropriate measure in another case.

• Court of Appeal (Civil Division) Dismissed the appellants’ challenge to the recoverability of post-discovery loss of investment opportunity and refused permission to appeal on quantification: [2010] EWCA Civ 486.
• High Court, Queen’s Bench Division, Commercial Court Flaux J gave judgment for Tangent, awarding damages for fraud including lost trading profits: [2009] EWHC 901 (Comm).