Care Tree Invest 2 Ltd v Alexander Edward Alan Bell

In a fraudulent misrepresentation claim, damages are assessed by determining the claimant’s actual loss, rather than by abstract appeals to fairness or the avoidance of a windfall. Subsequent events may be considered when they assist in establishing the value of the subject matter at the relevant valuation date. The court may assess value on the basis that a prudent hypothetical buyer, informed of the undisclosed facts, would undertake further investigation before agreeing a price. Where an undisclosed regulatory failure substantially affects one asset, the court must assess separately any resulting effect on other assets and should avoid exaggerating a risk that did not materialise.

The claimant purchased the issued share capital of two companies operating residential care homes from the defendant. Before completion, the Care Quality Commission had inspected one home, issued a notice under section 31 of the Health and Social Care Act 2008, imposed conditions, and identified serious regulatory failings. Those matters were not disclosed. The defendant accepted liability for fraudulent misrepresentation and breach of warranty.

The trial concerned quantum. The claimant contended that the affected home was worth only its bricks-and-mortar value and that the regulatory problems reduced the value of the remaining portfolio. The defendant advanced a lower assessment based on temporary loss of revenue and increased costs.

1. Damages. The claim was assessed on the basis applicable to fraudulent misrepresentation. The relevant question was the difference between the consideration paid and the actual market value of the shares, with the usual rules of remoteness not applying to fraud.
2. Valuation date and subsequent events. The appropriate valuation exercise concerned the position in July 2021, when the fraud was discovered and the transaction was made. Subsequent events could be considered insofar as they assisted in establishing value at that date. It was also permissible to assume that a prudent buyer, informed of the regulatory matters, would carry out a further detailed inspection before negotiating the price. Otherwise, recent undisclosed matters could prevent a realistic assessment in a no-transaction case. Derry v Peek [1889] LR 14 App Cases 337 was cited in support.
3. Elmwood House. The evidence established that a care home rated Inadequate, and subject to the section 31 restrictions, was not marketable as a going concern. Its July 2021 value was therefore limited to its bricks-and-mortar value, assessed at £1,665,666.
4. Other homes. The regulatory problems created an additional risk in relation to the other homes because they were under common management. However, there had been no actual problems in those homes and no additional CQC inspections. The appropriate deduction for that risk was £750,000, rather than the larger deduction advanced by the claimant.
5. Order. Damages were assessed at £8,602,423. The pleaded indemnities claim was not argued and was not understood to add anything, although it could be addressed subsequently if necessary.

First-instance trial on quantum. No prior or appellate decision is stated in the judgment.