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

Factual and Procedural Background

This judgment follows the resumed trial of a Part 7 claim concerning damages recoverable by the claimants against the defendants for fraudulent misrepresentation. The resumed hearing focused on quantifying damages and addressed whether a fraudulent seller is liable for losses arising from the innocent purchaser's commercial misjudgements unrelated to the fraud but resulting from entering the transaction. The judgment is a continuation of a reserved judgment delivered after an eight-day trial in Manchester. Counsel for the parties appeared at both the original and resumed trials, with substitutions due to medical reasons. The court initially deferred expert evidence consideration until findings on liability and causation were made, dealing first with principles and the approach to damages.

Legal Issues Presented

1. What is the correct measure and quantification of damages in a claim for fraudulent misrepresentation?
2. Is a fraudulent seller liable for losses sustained due to the innocent purchaser's commercial misjudgements unrelated to the fraud but resulting from entering the transaction?
3. What losses directly flow from the fraudulent transaction and are recoverable?
4. How should mitigation and appreciation of risks factor into the assessment of damages?

Arguments of the Parties

Appellant's Arguments

• The key question is the actual value of the business at the valuation date; all problems affecting the business, whether latent or not, reduce that value unless fully appreciated and factored into the purchase price.
• Losses unrelated to the misrepresentations but resulting from the transaction are recoverable if not anticipated or factored in.
• Failure to mitigate does not bar recovery but requires recalculation of loss as if mitigation occurred; burden lies on defendants to prove mitigation steps and effect.
• The claimants can recover for an overpayment caused by their own commercial misjudgement or over-optimism, as the difference between price paid and actual value.
• Losses directly flowing from the transaction are recoverable even if unconnected with the fraudulent misrepresentations.
• Costs incurred in obtaining an independent barrister's determination are consequential losses recoverable despite contractual provisions allocating costs.

Appellee's Arguments

• Unknown or unanticipated defects should be distinguished from inherent features or external problems; damages must flow directly from the transaction.
• Losses arising from commercial decisions or external factors unrelated to the fraud are not recoverable.
• Claims for costs related to mitigation or additional works must be reasonable and causally linked to the fraud.
• Some claimed losses are speculative or based on subjective intentions not reflected in market value.
• The contractual allocation of costs for the independent barrister precludes recovery of those costs as damages for deceit.

Table of Precedents Cited

Court's Reasoning and Analysis

The court reaffirmed the principle from Smith New Court Securities Ltd v Scrimgeour Vickers that a defendant inducing a fraudulent transaction must make full reparation for all damage directly flowing from that transaction, subject to reasonable mitigation by the claimant and excluding losses fully appreciated and factored into the purchase price. The court rejected the claimant's argument that losses arising from the claimant's own commercial misjudgements or over-optimism, unrelated to the fraud but resulting from entering the transaction, are recoverable. It found no causal link between certain losses, such as additional storage costs, and the fraudulent misrepresentations. The court carefully analyzed expert evidence, finding expert costings overstated and not reflective of the claimant's actual intentions or plans, undermining the experts' assessments of loss. The court distinguished between losses that would have been factored into the price and those directly caused by the fraud, limiting recoverability accordingly. It also addressed contractual indemnities and costs, concluding that some claims, such as the independent barrister's fees, are recoverable as consequential losses. The court emphasized that damages should compensate for overpayment caused by fraud but not for bad commercial decisions made by the claimant.

Holding and Implications

The court's final decision is to ALLOW RECOVERY ONLY FOR LOSSES DIRECTLY FLOWING FROM THE FRAUDULENT TRANSACTION, EXCLUDING LOSSES ARISING FROM THE CLAIMANT'S COMMERCIAL MISJUDGEMENTS OR OVER-OPTIMISM.

This ruling limits the scope of damages in fraudulent misrepresentation claims by excluding losses that are the product of the claimant's own commercial errors unrelated to the fraud, even if they result from entering the transaction. The decision reinforces the principles of causation, mitigation, and the need to consider what risks were appreciated and factored into the purchase price. The judgment confirms that a fraudulent seller is not liable for all losses connected to the transaction but only those directly caused by the misrepresentation. No new legal precedent was set beyond applying established principles to the facts. The immediate effect is a quantified damages award reflecting these limitations and adjustments for mitigation and contractual considerations.