Damages for Fraudulent Misrepresentation

11th December 2017
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Fraud and Misrepresentation

Today our fraudulent misrepresentation solicitors discuss what damages and compensation may be available to victims.

Fraud is the most serious type of misrepresentation and the hardest for claimants to prove. Once fraudulent misrepresentation is established, how will the successful party’s damages be calculated by a court? The key points for claimants to bear in mind are set out below.

Damages for fraud

Smith New Court Securities v Scrimgeour Vickers (Asset Management) Ltd was a case where a claimant was found to have purchased shares in a company after being induced by a fraudulent statement. The House of Lords set out a number of principles of calculating damages for fraud:

  1. The defendant must make reparations for damage flowing directly from the fraudulent transaction.
  2. The damages do not have to be forseeable, but must have been directly caused by the transaction.
  3. The claimant is entitled to the full price paid in the transaction that was induced by fraud, but must give credit to any benefits received as a result of the transaction.
  4. The claimant is entitled to consequential losses flowing from the transaction.
  5. The claimant must take steps to mitigate the loss once he has discovered the fraud.

For those looking to quantify their fraud claims it is worth looking at a couple of these principles in a little more detail.

Damages directly caused

In approaching damages for fraudulent misrepresentation courts will look to award defrauded claimants full compensation for the wrongs they have suffered. Put another way, courts will look to put claimants back in the position they were in had the fraudulent representation never been made. This, in financial terms, would return the losses caused but not provide compensation above and beyond that.

For example, if a claimant was induced by fraud to buy property worth considerably less than promised, the damages directly caused would be the difference between the real market value and the amount paid.

Unforeseeable losses

Losses above and beyond those directly caused by the fraud can also be claimed, even where the loss could not have been foreseen by the defendant, so long as the loss is directly caused by the fraudulent misrepresentation. This is especially useful in cases where a claimant has been induced by fraud to enter into a contract that is less valuable than the price paid; not only will the difference between what is paid and the actual value be recoverable as damages, but the claimant will be entitled to compensation for expenditure wasted in reliance on the contract and for other opportunities passed up.

Mitigation and benefit

It is to be remembered that a claimant must take into account the value of any benefit received from the transaction that was induced by fraud when assessing damages. So for example any income earned as a result of a contract induced by fraud must be credited against a claimant’s overall losses.

In addition, on discovering a fraud, a claimant must take steps to mitigate the damages caused and cannot claim for losses that could reasonably have been avoided.

You should seek legal advice if you think you have a fraud claim. Contact our London fraud and misrepresentation solicitors for a confidential discussion today.

Litigation & Dispute Resolution