Smith New Court Securities Ltd v Citibank NA – Case Summary

Smith New Court Securities Ltd v Citibank NA

House of Lords

Citations: [1997] AC 254; [1996] 3 WLR 1051; [1996] 4 All ER 769; [1997] 1 BCLC 350.


The defendant was a broker. One of their defendant’s employees made false representations to the claimant. These representations made it appear as if the shares were worth more than they were. The claimant bought shares in the company at almost twice their real value. The share price later dropped dramatically and the claimant sold their shares at a loss.

The claimant sued the defendant for damages in deceit. At first instance, the judge award the claimant damages equivalent to the difference between price paid and the true value of the shares. This was despite the fact that the judge also found that if the misrepresentations had not been made, the claimant would have still made a bid of only a few pennies less than what they paid per share.

On appeal, the Court of Appeal held that the correct measure of damages was the difference between what the claimant paid and what they would have paid had the misrepresentation not been made. The claimant appealed.

  1. What is the correct measure of damages for deceit?

The House of Lords held for the claimant. Requiring the claimant to give credit for the price they would have paid had the representations not been made would not properly compensate them for their loss. This is because the claimant was not able to sell the shares on the day it bought them for that price. Accordingly, the correct measure of damages was the difference between the price paid and the amount the claimant actually sold the shares for.

This Case is Authority For…

Where the defendant induces a contract by fraudulent misrepresentation, the claimant is entitled to compensation reflecting all losses directly caused by them entering the transaction. This included unforeseeable consequential loss.

The claimant is under a duty to mitigate their losses once they discover the fraud and their damages will be reduced by any benefit they obtained. Normally, this includes the market value of the property at the date of acquisition. However, this rule is not strict and be flexible where the defendant has been fraudulent and it would result in the claimant not being fairly compensated.

In particular, the market value rule can be departed from if the misrepresentation continued to operate, inducing the claimant to keep the asset, or locking the claimant into the property.