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Smith New Court v Scrimgeour Vickers

[1997] AC 254

Case summary last updated at 02/01/2020 15:17 by the Oxbridge Notes in-house law team.

Judgement for the case Smith New Court v Scrimgeour Vickers

D fraudulently induced P to buy shares which lost value (1) when the fraud was discovered; (2) when a larger existing fraud was discovered; (3) when, due to feasibility, they could not sell the property straight away and as a result they kept shares whose value was falling. They ultimately sold the property and HL awarded damages for the amount paid minus the amount sold. The “existing flaws” of the property and the fact that P was “locked in” to the property (they could not feasibly sell straight away) would not be taken into account in reducing the loss compensable by D. HL held that D had to compensate for all the damages flowing directly from the transaction and “reasonable foreseeability” was irrelevant. In general P could recover the price he paid minus benefits e.g. market value of property acquired. Benefits sometimes do not have to be discounted where the parties are locked into the property or the fraud has continued so as to induce their retention of the property. Impossible to state all circumstances where they don’t have to be discounted. Consequential losses are compensable but there is a duty to mitigate on P. Because here P was locked into the property, the compensation was the difference between the amount paid by P and the amount they recovered through the sale, NOT the value of the shares as soon as the fraud was discovered. 
 
Lord Browne-Wilkinson: He supports conclusion of Doyle. “As a general rule, the benefits received by P [to be reduced form the assessment of compensation] include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered.” This includes cases where, for example, the fraud continues after contract formation or the party is locked in to the property. 
 
Lord Steyn: Justification for Doyle rule that makes negligent misrepresentation claims subject to a remoteness test but not deceit claims is that deceit (which is committed intentionally) is worse that negligence (which can be committed by carelessness) and it is therefore better to make the intentional wrongdoer subject to wider liability, partly as a matter of making liability fit the wrongdoing, partly as a deterrent. 

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