PARABOLA INVESTMENTS LTD V BROWALLIA CAL LTD

[2010] EWCA Civ 486, Court of Appeal, Lord Justice Mummery, Lord Justice Toulson and Lord Justice Rimer, 5 May 2010

Tort - Deceit - Measure of damages - Whether damages could be recovered for loss of use of funds by reason of fraud - Quantification of loss

The claimant companies were special purpose vehicles set up by their ultimate beneficial owner, G, for the purposes of trading in financial instruments. For a period of time the trading was entrusted to the three defendants, two stockbroking companies trading on the London Stock Exchange and B, a senior futures broker with the first defendant, who gave G false statements of his account, not disclosing the losses made. G's trading was represented by B to be progressing so that his assets were in the vicinity of £10 million, whereas in fact there had been losses so that when the fraud was discovered, there were in reality about £817,000. G and his claimant companies sued for damages. Fraud was admitted. The issues for determination were: (i) was the claimant induced by the misrepresentations made; (ii) what identifiable heads of loss had been suffered as a consequence of the fraud; and (iii) what measure of damages was recoverable as a direct result of the fraud. Flaux J [2009] EWHC 901 (Comm) held that there had been inducement and that damages were recoverable. The case for G and the claimants having been induced by the numerous fraudulent misrepresentations made by B, was an overwhelming one. Nevertheless, this was not an appropriate case for exemplary damages. The claimant was entitled to recover all its losses flowing directly from the fraud consisting not only of the depletion of its trading fund and loss of profits it would otherwise have made on that fund in the period of the fraud, but also of the loss of profits suffered up until the trial as a result of having had only a smaller fund with which to trade. The present appeal to the Court of Appeal was on the question of whether the claimant could recover damages for loss of the profits which would otherwise have been made but for the fraud. The Court of Appeal, dismissing the appeal, held that the claimant had established a recoverable head of loss, and the only issue was quantification - if the amount of loss was not provable, the court had to make a reasonable assessment.