Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd

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

Facts

An employee of Scrimgeour, Mr Roberts, fraudulently told Smith New Court that there were close rival bids for buying shares in Ferranti IS Inc. Smith bought ÃÂ£23.1m worth of shares. Ferranti then revealed it was a victim of a massive fraud (the Ã¢ÂÂGuerinÃ¢ÂÂ fraud, an American businessman had sold them a worthless company) and the share price fell considerably. Smith sold the shares for ÃÂ£11,788,204, a loss of ÃÂ£11,353,220. Smith then brought an action for deceit.

Judgment

Court of Appeal

The Court of Appeal awarded ÃÂ£1,196,010 in damages to reflect the difference between what was paid and the market value at the date of purchase.

House of Lords

Lord Browne-Wilkinson held that Smith New Court was entitled to the full loss of ÃÂ£11.3m. He laid down seven principles as follows:

(1) the defendant must make reparation from all damage coming directly from the transaction

(2) foreseeability is irrelevant

(3) the full price paid can be recovered, minus any benefits he received resulting from the transaction

(4) a general rule is that benefits include market price as at the date of acquisition, but this is not to be inflexible to prevent full compensation

(5) that general rule does normally not apply when misrepresentation continues to operate after acquisition, inducing the claimant to retain the asset, or the claimant is locked into holding the property by reason of the fraud

(6) consequential loss is recoverable...

(7) ...subject to mitigation once fraud is discovered.

Lord Steyn asked,

Lords Keith, Slynn and Mustill concurred.

Notes