## Facts

- Smith New Court Securities Ltd purchased shares in Ferranti International plc at an inflated price based on false information provided by Mr. Roberts, an employee of Scrimgeour Vickers (Asset Management) Ltd.
- Mr. Roberts acted dishonestly to increase the share price.
- Smith New Court was unaware that the shares were actually worth less than the price paid.
- Additional, unrelated frauds within Ferranti later became public knowledge, causing a further sharp decline in the value of the shares.
- Smith New Court subsequently sold the shares at a significant loss.

## Issues

1. Whether Smith New Court could recover all losses incurred from purchasing shares based on fraudulent misrepresentation.
2. Whether damages should include losses from subsequent, unrelated events affecting share price, or be limited to the difference between the purchase price and the value at the time of acquisition.
3. What is the correct approach to calculating damages for fraudulent misrepresentation as opposed to negligence.

## Decision

- The House of Lords held Scrimgeour Vickers liable for all the losses suffered by Smith New Court as a direct result of the fraudulent misrepresentation.
- The court determined that damages in fraud cases are not limited by foreseeability or subsequent unrelated factors, but extend to all losses directly caused by the fraud.
- The “direct result” test applies, requiring fraudsters to compensate for both predictable and unpredictable consequences arising directly from their deceitful conduct.
- The House of Lords rejected limiting damages to the difference between the purchase price and the true value at the time of purchase.

## Legal Principles

- In cases of fraudulent misrepresentation, the claimant may recover all losses directly resulting from the fraud, including indirect or unexpected losses, provided causation is established.
- The measure of damages for fraud is broader than for negligence, reflecting the stricter approach when dishonesty is involved.
- The “direct result” rule applies, displacing the standard “foreseeable harm” restriction present in negligence claims.
- Defendants who engage in fraud cannot avoid liability for losses that follow directly from their illegal actions, even if further events contribute to the claimant’s loss.
- Subsequent case law has affirmed the application of this principle in calculating damages for fraud.

## Conclusion

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd established that those found liable for fraudulent misrepresentation must compensate for all losses directly caused by their fraud, regardless of whether such losses were foreseeable, thereby affirming a strict and comprehensive approach to assessing damages in cases of intentional deceit.


Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254