Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2 (31 January 1969)

A buyer was induced to purchase a business by fraudulent misrepresentation. He suffered greater losses than anticipated. The court held that in cases of fraud, the plaintiff is entitled to recover all direct losses, even if unforeseeable, not just the contract-based measure.

Facts

Mr Doyle, the plaintiff, purchased an ironmonger’s business from the defendants, Olby (Ironmongers) Ltd, for £4,500, plus £5,000 for the stock. He was induced to make the purchase by a fraudulent misrepresentation from the company’s director that the business’s trade was ‘all over the counter’. In fact, a substantial portion of the trade came from a travelling salesman, who was not part of the business assets acquired. After the purchase, the business turnover was far lower than represented, and Mr Doyle incurred significant financial losses. He eventually managed to sell the business assets for a fraction of his initial investment. The trial judge awarded him £1,500 in damages, calculated on a contractual basis (the difference between the value of the business as it was and its value had the representation been true). The plaintiff appealed against the quantum of damages.

Issues

The central legal issue for the Court of Appeal was to determine the correct principle for assessing damages in an action for the tort of deceit (fraudulent misrepresentation). The court had to decide whether the measure of damages should be:

1. The contractual measure, which aims to put the plaintiff in the position they would have been in had the representation been true.
2. The tortious measure, which aims to put the plaintiff back in the position they were in before the tort was committed.

A key sub-issue was whether the damages recoverable for deceit were limited by a test of foreseeability.

Judgment

The Court of Appeal unanimously allowed the appeal, holding that the correct measure of damages for deceit is the tortious measure. The plaintiff is entitled to recover for all the actual damage directly flowing from the fraudulent inducement, regardless of whether that damage was foreseeable by the defendant. The contractual measure applied by the trial judge was incorrect. The court, therefore, set aside the original award and recalculated the plaintiff’s damages, increasing the sum to £5,500.

Lord Denning M.R.

Lord Denning drew a sharp distinction between the measure of damages for breach of contract and for the tort of deceit. He stated:

“On principle the distinction is this: in contract, the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far as money can do it.”

He explicitly rejected the application of the foreseeability test from negligence (as in The Wagon Mound) to cases of fraud, holding that in deceit, the defendant is “bound to make reparation for all the actual damages directly flowing from the fraudulent inducement.”

Lord Justice Winn

Lord Justice Winn agreed, finding that the trial judge had erred in principle by applying a contractual measure of damages. He conducted a detailed reassessment of the plaintiff’s actual losses, which included not only the capital loss on the business but also trading losses and other expenses directly incurred as a result of having been fraudulently induced into the transaction, less any benefits received.

Lord Justice Sachs

Lord Justice Sachs delivered a detailed concurring judgment, reinforcing the principle that the law treats a cheat differently from someone who acts honestly. He confirmed that the plaintiff is entitled to recover for all direct losses caused by the deceit, irrespective of foreseeability.

“…the defendant is guilty of a fraudulent misrepresentation. He is liable in damages for all the direct loss caused by the deceit, whether that loss was foreseeable or not.”

He further clarified the scope of recoverable damages, stating it is “the entire loss suffered by the plaintiff in consequence of his having been induced to enter into the transaction,” subject to the plaintiff’s duty to take reasonable steps to mitigate that loss.

Implications

Doyle v Olby is a landmark decision that firmly establishes the principles for assessing damages in the tort of deceit. Its primary importance lies in confirming that the tortious, not contractual, measure of damages applies. The most significant consequence of the ruling is its rejection of the foreseeability test for remoteness of damage in fraud cases. By making a fraudster liable for all direct consequences of their inducement, whether foreseeable or not, the Court of Appeal created a more extensive and punitive measure of damages for deceit than for negligence or breach of contract. This reflects the law’s policy of deterring fraudulent conduct and providing full compensation to its victims.

Verdict: Appeal allowed. The damages awarded by the trial judge were increased from £1,500 to £5,500.

Source: Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2 (31 January 1969)