Glossop Cartons and Print Ltd & Ors v Contact (Print & Packaging) Ltd & Ors

Damages for deceit ordinarily compensate the purchaser for the difference between the price paid and the objective market value of the property acquired. The purchaser’s subjective commercial judgments, assumptions and miscalculations do not determine that value. A purchaser induced by fraud may therefore recover the loss on a bad bargain even where it knew, or ought to have known, of defects in the property.

Consequential loss must flow directly from entry into the transaction and remains subject to mitigation. It need not be causally connected with the particular fraudulent representation. The court should not reconstruct the bargain that would have been made had the representation been absent or true.

The claimants entered into three simultaneous agreements to acquire business assets and premises from the defendants. The business was heavily loss-making. The judge found that fraudulent representations concerning Unit 3’s electricity supply and vulnerability to flooding had induced all three agreements.

The judge awarded limited damages and rejected most of the claimed loss. When valuing the acquired business assets, he sought to identify expenses and risks which the claimants had subjectively factored into the purchase price. The claimants appealed, contending that their direct loss was the difference between the price paid and the assets’ objective market value. The defendants cross-appealed against contractual and consequential awards.

The central questions were whether the judge had used the correct measure of loss, whether the claimants could challenge that approach on appeal, and what relief should follow.

1. The claimants’ appeal was allowed and the defendants’ cross-appeal was dismissed. The judge’s deduction method was wrong in principle. Direct loss for deceit ordinarily comprises the price paid less the objective market value of the assets acquired. An inquiry into the risks, expenses or assumptions which the purchaser subjectively factored into the price is irrelevant: [1997] AC 254 and [2016] EWCA Civ 778 applied.

2. A purchaser induced by fraud may recover the loss on a bad bargain even if it knew, or ought to have known, of defects before contracting. Its commercial judgments and misjudgments do not determine the benefits received from the transaction. Those benefits must be valued objectively. The court should not reconstruct what the parties would have agreed without the deceit or cross-check the result against the asset’s value had the representation been true.

3. The judge had also confused direct and consequential loss. Once the fraudulent representation induced entry into the transaction, direct loss did not require a separate causal connection between the representation and each defect affecting market value. Consequential loss had to flow directly from entry into the transaction, be caused by that transaction, and remain unaffected by any failure to mitigate.

4. The claimants could advance the correct measure on appeal although they had promoted the erroneous methodology below. The judge had committed an error of law, the claimants had always sought price less market value, and the defendants had a proper opportunity to address valuation. Correct damages could be awarded without injustice: [1969] 2 QB 158 applied.

5. The contractual award for defects in Unit 3 did not duplicate an award in deceit, so election did not arise. Nor was the defendants’ claimed £50,000 benefit in Unit 3 deductible from the separate deceit award concerning the business assets.

6. Clear words would have been required for the asset purchase agreement to prevent recovery in deceit of the Independent Barrister’s costs. The relevant costs clause contained no express exclusion, and such an exclusion could not properly be implied.

7. A retrial would have been disproportionate. The goodwill acquired with the heavily loss-making business had no real value. Glossop was awarded £300,000 for direct loss, in addition to the judge’s other financial awards. Birss and Warby LJJ agreed with the Master of the Rolls.

• Court of Appeal (Civil Division): Allowed the claimants’ appeal, dismissed the defendants’ cross-appeal, and awarded Glossop £300,000 for direct loss in addition to the existing awards.

• High Court, Business and Property Courts in Manchester, Business List (ChD): HHJ Hodge QC found that two fraudulent misrepresentations had induced the transactions, but assessed direct loss using an erroneous deduction method. No neutral citation is stated in the judgment.