Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996]

Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3 is an English contract law case concerning misrepresentation and the damages available for deceit.

An employee of Scrimgeour, Mr Roberts, deceitfully informed Smith New Court that there were competing bids for shares in Ferranti IS Inc. Relying on this fraudulent information, Smith purchased £23.1 million worth of shares. Subsequently, Ferranti disclosed that it had fallen victim to a massive fraud, causing a significant decline in share prices. Smith incurred a loss of £11,353,220 when selling the shares for £11,788,204. In response, Smith initiated legal action for deceit.

The Court of Appeal awarded damages of £1,196,010, representing the difference between the amount paid and the market value at the date of purchase. ON further appeal, Lord Browne-Wilkinson, in delivering the judgment for the House of Lords, asserted that Smith New Court was entitled to the entire loss of £11.3 million. He outlined seven principles:
  1. The defendant must make reparation for all damage directly resulting from the transaction.
  2. Foreseeability is irrelevant.
  3. The full price paid can be recovered, minus any benefits received from the transaction.
  4. The general rule is that benefits include the market price at the date of acquisition, but flexibility is allowed to ensure full compensation.
  5. The general rule does not apply when misrepresentation continues after acquisition, compelling the claimant to retain the asset, or when the claimant is locked into holding the property due to fraud.
  6. Consequential loss is recoverable.
  7. Mitigation is subject to the discovery of fraud.

Lord Steyn raised the question of whether there is justification for differentiating liability for civil wrongs based on the degree of intention behind the wrongdoing. He acknowledged the interconnection of law and morality, suggesting that imposing broader liability on intentional wrongdoers aligns with moral considerations, making them responsible for misfortunes directly caused by their fraud.

In essence, the judgment established the principle that, in cases of deceit, the defrauded party is entitled to recover the entire loss directly resulting from the transaction, irrespective of foreseeability, subject to considerations of benefits received and mitigation after the discovery of fraud.
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