Sabine v Ferrari

A claimant induced by fraudulent misrepresentations to enter a commercial agreement may rescind the agreement and recover loss measured by restoring her to the position she would have occupied had she not entered it. Reliance is not defeated merely because information could have been discovered through reasonable due diligence. Recoverable loss must represent actual loss caused by entering the transaction, rather than an unearned benefit or a claim belonging to a company. Compensation for time spent on the failed venture requires evidence of the time devoted and its reasonable value.

The claimant entered into an agreement with the defendant concerning a proposed United Kingdom distributorship for beauty equipment and products. She paid £150,000 for an alleged half-share in the venture and made further payments for working capital and other expenses.

She alleged that the defendant had falsely represented the profitability and value of the distributorship, his ability to provide the relevant business and assets, and the financial contribution he would make. The defendant denied making the representations or said that they were true. The central issues were whether the representations were made, whether they were fraudulent and relied upon, whether the agreement should be rescinded, and what loss was recoverable.

1. Misrepresentations. The court accepted the claimant’s and her accountant’s evidence about the April 2008 meeting. The defendant had represented that the distributorship could support annual drawings of £60,000 for each participant and that the assets he would contribute were worth £300,000. Those representations were false. The accounts supplied by the defendant had been deliberately created to give a false impression of turnover and profitability.
2. The representations were material and induced the claimant to enter the agreement. They were fraudulent. The fact that the claimant could have inspected filed company accounts did not defeat reliance or provide a defence to the defendant’s dishonesty.
3. Loss. The parties accepted that damages were to place the claimant, so far as money could, in the position she would have occupied had she not entered the agreement. The claimant recovered her proven contributions and expenses totalling £199,058. A £6,000 payment made by the company was not her loss and had to be pursued, if at all, by the company. Unpaid licence fees represented a failure to make a gain and were also a claim against the company, not loss caused by the defendant’s misrepresentations.
4. Compensation for the claimant’s time could in principle be recoverable, but the claim failed because there was no evidence of the time devoted or an appropriate valuation of that time. It was impermissible to value her time by reference to the defendant’s false profit representation or a spurious services agreement.
5. The agreement was rescinded. Judgment was entered for the claimant in the sum of £199,058, with interest to be addressed after submissions.