Smith New Court Securities v Scrimgeour Vickers [1996] 3 WLR 1051

Citibank loaned £23M to Parent Industries Incorporated (PII). PII secured the loan on shares they held in Ferranti International Signal (FIS) valued at £28M. PII then defaulted on the loan. In July 1989 Citibank sold the shares in FIS to the claimant (Smith New Court Securities) for £23M (82p per share) through a broker, the defendant (Scrimgeour Vickers). Mr Roberts was a senior employee of citibank and a director of the defendant company arranged the sale. He told the claimant that there had been two other bids on the shares when in fact no other bids had been made. The market value of the shares was stated as 78-82p per share, however, a massive fraud had been perpetrated on FIS which meant the market value was fictitious. This came to light in Sept 1989. Smith subsequently sold the shares in small parcels between Nov 1989 and April 1990 for prices between 30-49p per share making a loss of 11.3M.


Lord Browne Wilkinson gave the following guidance in assessing damages for fraudulant misrep:

1. The defendant is bound to make reparation for all the damage directly flowing from the transaction;

2. Although such damage need not have been foreseeable, it must have been directly caused by the transaction;

3. In assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction;

4. As a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered;

5. Although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property.

6. In addition, the plaintiff is entitled to recover consequential losses caused by the transaction;

7. The plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud.

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