County Leasing Asset Management Ltd & Anor v Michael Green Plant Ltd & Ors

Damages for misrepresentation are assessed by asking what would have happened without the agreement. Where the claimant’s payments arose directly from an agreement it would not otherwise have made, the loss does not depend on proving a third party’s hypothetical decision. If third-party conduct affects only the benefit or asset to be brought into account, the court should make an informed best assessment of the counterfactual by weighing plausible alternatives. It should not apply a separate percentage reduction under the realistic-chance approach. A trial judge may reach a fair valuation on limited or conflicting evidence, including honest non-expert evidence. Any benefit from using the relevant asset must still be credited to avoid over-compensation.

Finance companies appealed an order for damages made by Her Honour Judge Hampton in the Northampton County Court. The judge found that misrepresentations about the expertise, interests and fees of an intermediary had induced arrangements under which assets of Michael Green Plant Limited were sold and then leased to its successor company, MGP2.

MGP1 entered administration and liquidation. MGP2 continued paying rent until 2007, then stopped. The judge assessed damages by finding that, without the misrepresentations, MGP1 would have entered liquidation and MGP2 would have acquired the equipment from the liquidator for £55,000. The damages were the rentals paid less that acquisition cost. The appellants challenged the counterfactual, the evidential basis for the £55,000 valuation, and the failure to apply a percentage reduction for the chance that the liquidator would not have sold the equipment. The central issue was the proper method of assessing loss and avoiding over-compensation.

1. Appeal dismissed. Elias LJ gave the leading reasoning. Stanley Burnton LJ agreed in substance, and Ward LJ agreed.
2. The transactions were, in substance, one connected arrangement. It was therefore correct to assume that, absent the misrepresentations, MGP1 would not have entered the equipment arrangements. MGP1 would then have gone into liquidation with the equipment available to the liquidator. The finding that MGP2 would have acquired it was a permissible counterfactual.
3. The proper measure of damages was established by asking what would have happened if the agreement had not been entered into. MGP2’s rental payments were the loss caused by entering the agreements. The hypothetical acquisition cost was deducted because the counterfactual acquisition would also have secured the equipment and its use.
4. The realistic-chance analysis in Allied Maples Group v Simmons and Simmons was distinguished. MGP2 did not need to rely on the liquidator’s conduct to establish its initial loss. The issue was what benefit or asset should be brought into account. The judge had to make an informed assessment by weighing competing hypotheses, such as renting elsewhere or purchasing from the liquidator. A mechanical percentage adjustment was inappropriate. The approach was supported by the best-estimate reasoning in Wardle v Agricole Corporate and Investment Agricole Bank [2011] EWCA Civ 545.
5. The £55,000 valuation was open to the judge on the limited and conflicting evidence. She was entitled to accept Mr Hawkes’s evidence, take account of the lower prices often obtained in liquidation sales, and reject the appellants’ alternative valuations. The judge’s assessment was not plainly wrong.
6. MGP2 could not recover the full rentals without credit for its use of the equipment. Even if the equipment had not been purchased from the liquidator, some allowance for use was required. Burnton LJ expressed a reservation that depreciation, rather than the whole capital price, might have been the appropriate deduction, but that issue was not a basis for allowing the appeal.

1. Court of Appeal (Civil Division): on 2 February 2012, dismissed the appeal from the damages order.
2. Northampton County Court: Her Honour Judge Hampton found that the respondents had been induced by misrepresentations and awarded MGP2 damages calculated by reference to the rentals paid less the hypothetical equipment acquisition cost.