Clef Aquitaine Sarl v Laporte Materials (Barrow) Ltd
Court of Appeal
Citations: [2001] QB 488; [2000] 3 WLR 1760; [2000] 3 All ER 493; [2000] CLY 1452.
Facts
The first claimant company entered into two distributorship contracts with the defendant. Under the contracts, the first claimant would buy, market and sell the defendant’s products in France. The distributorship contracts were later novated in favour of the second claimant company, after the first was assimilated into it by merger.
The claimants later challenged the validity of the contracts. They argued that the first claimant agreed to the distributorship agreements in reliance on fraudulent representations. The defendant had told the first claimant that discounts to the price list were based on the lowest unit prices available. This was untrue: they routinely used other price lists with customers with even bigger discounts. Despite this, the claimants did profit from the contracts.
When the claimants discovered the truth, they sued the defendant for deceit. At trial, the judge held that if the defendant had not made the fraudulent misrepresentation, the claimants would have still made the contracts. However, they would have negotiated more favourable price terms. The judge therefore awarded damages based on the difference between the existing contracts and the hypothetical contracts with more favourable price terms.
The defendant appealed the damages award. They argued that damages in deceit were only available where the claimant makes a loss on the transaction. Additionally, they argued that the second claimant’s claim had to fail since the fraudulent representation was not made to them.
Issue(s)
- Are damages in deceit only available for loss-making transactions?
- Did the second claimant have a valid cause of action in deceit?
Decision
The Court of Appeal held in favour of the claimant. The judge’s damages award and judgment in favour of the second claimant was upheld. Damages for deceit were available in profitable contracts. The defendant’s representation had been continuing across the whole period of the contract and the defendant took further action to prevent both claimants from discovering the truth. They were therefore equally liable to both claimants.
This Case is Authority For…
Damages in deceit are available where the claimant is able to show that they would have made a more favourable deal with the defendant or a third-party but for the fraud.
Brown LJ (with whom Sedley LJ agreed) argued that this is because the claimant’s position has been worsened by the deceit. The claimant was therefore entitled to be put in the position he would be in had he been told the truth. Ward LJ saw it differently: the claimant is due the ‘difference between the price paid and the value of the goods at the date of the transaction’.
Pre-contractual representations may ‘continue’. If they do, the defendant is under a continuing duty to correct any false statement. If they do not, they will become liable to those who become a party to the contract at a later date.
Other
Brown LJ noted that proving the terms of a hypothetical contract may be difficult or impossible in many cases. However, that did not prevent the claimant from succeeding in this case, as there was reliable proof as to what price terms they would have negotiated if they had known the truth.
