There is no “one size fits all” when it comes to ways to argue and seek the Court’s assistance in fraud claims. This is largely due to the fact that the umbrella term “fraud” covers a wide variety of possible causes of action and different remedies available depending upon the nature of the claim itself. This broad menu of both causes of action and remedies allows the courts to be flexible in terms of the way that fraud is dealt with.
Indeed, where there is a pleading of fraud there is often a greater scope for recoverable damages and the courts may take a more expansive approach to loss. Two recent cases provide clarity on common remedies in fraud, namely damages for fraudulent misrepresentation and an account of profits.
In respect of an account of profits, the underlying principle is that: “…an account of profits operates against each defendant separately, requiring him or it to disgorge such profits as are shown to have been derived by that defendant from the relevant infringements.”
Civil fraud covers a wide variety of claims in common law and in equity. It is this broad scope in relation to the type of claim that leads to a wide range of potential remedies. The most common types of fraud claim are:
This article focuses on two of the most common remedies, namely damages and an account of profit. Of course, there are a number of other remedies available including equitable compensation, declaratory relief, rescission, injunctive relief (e.g. a freezing order, asset preservation order or search order). For further information regarding freezing injunctions and other interim remedies please visit our website at Freezing Injunctions.
The principal judicial remedy in English law is damages. There are various rules governing the recovery and assessment of damages and the various types of loss (both monetary and non-monetary, however, the starting point is that the function of damages is compensation i.e. damages are assessed according to the claimant’s loss. For example, in a claim for fraudulent misrepresentation, the measure of damages is the actual loss flowing from the claimant’s reliance on the false statement (less any gains made by the claimant). This seeks to put the claimant into the position they would have been had the false representation not been made (rather than into the position they would have been had the representation been true). Such damages are not limited by the ordinary rules of remoteness, and therefore claimants may be able to recover losses that would otherwise be considered too remote, such as interest on a loan obtained to fund the misrepresented transaction. In exceptional cases, exemplary or punitive damages may be considered appropriate with the aim to punish and deter outrageous conduct.
Glossop Cartons and Print Ltd and others v Contact (Print & Packaging) Ltd and others  EWCA Civ 639 (7 May 2021)
In the above Court of Appeal decision, the court was required to determine whether the judge at first instance had made an error in his application of principals relating to consequential loss to the calculation of direct loss as a result of fraudulent misrepresentation.
In this case the appellants had been induced to purchase business assets and a lease of property from the respondents. The court at first instance held that two fraudulent misrepresentations had been made regarding the electricity supply to the premises and flooding issues. In the judgment it was noted that damages “…should not operate to insulate the claimants from potential commercial risks which they had appreciated and had factored into their calculation of the purchase price because to do so would over-compensate the claimants for the consequences of the defendants’ fraud.” Therefore, when ascertaining the market value of the assets in his decision on quantum, the judge sought to establish what the appellants had subjectively factored into their calculation of the purchase price before deducting any expenses that had not been factored in. This is known as the “deduction method”.
The Court of Appeal allowed the appellants appeal and held that the judge had mistakenly applied principals relating to consequential loss when determining the amount of the direct loss. The direct loss was simply the difference between the price paid and the market value at the date of the transaction. The deduction method was criticised on the basis that it was too complicated and required the court to consider what the appellants had subjectively factored into their calculations. The Court of Appeal advocated a more “broad brush” approach; any commercial judgments by the purchase are irrelevant to the calculation of direct loss.
An account of profits is a discretionary remedy which in some cases, for example in a claim for breach of fiduciary duty, can be elected as an alternative to damages. Essentially, the defendant must account to the claimant any profits he has made as a result of their wrongdoing i.e. as a result of the breach of fiduciary duty. The justification for this gains-based remedy is the fiduciary’s breach of either the “no-conflict rule” (where a conflict or significant possibility of such exists between a fiduciary’s duty and their personal interest) or the “no-profit rule” (where a fiduciary uses his position or knowledge or opportunity from his position to make a profit). In order to benefit from this remedy, the claimant need not establish that it has suffered any loss, however the profit must be sufficiently linked to the breach.
Lifestyle Equities CV and another v Ahmed and another  EWCA Civ 675
The above case concerned trade-mark infringements (for which an account of profits is often the preferred remedy), however the decision is far reaching in its application. Indeed, it was submitted that principles applied to an account of profits in fiduciary or dishonest assistance cases did not necessarily apply to account of profits in intellectual property cases. The court disagreed.
In this case, two directors (accessories) were held jointly and severally liable with two of the companies (principals) involved in the trade-mark infringement of which they were directors. On appeal they argued inter alia that no account of profits should have been ordered against them personally on the basis that there was no unconscionable or improper conduct or finding of bad faith against them.
It was held that an account of profits is not limited to cases of unconscionability, and the acts which rendered the defendants liable were themselves improper conduct. It was also unnecessary to establish bad faith for an account of profits to be awarded. Therefore, an account of profits was appropriate in the circumstances.
The claimant appealed against the ruling that the order for an account of profits made against the directors (accessories) should be limited to profits made by them personally, rather than the profits made by the company (principal). The appeal failed. The underlying principle is that: “…an account of profits operates against each defendant separately, requiring him or it to disgorge such profits as are shown to have been derived by that defendant from the relevant infringements.” Birss LJ concluded that this was the “right result” which “accords with the equity of the situation”.
The original order included an account to the claimant for a loan made by the principal company to one of the directors as it was considered that the loan had been caused, enabled or facilitated by the profits derived by the principal from the infringement. An appeal against this was allowed on the basis that the obligation to repay the loan meant that it could not be considered as profit. The directors were also ordered to account for 10% of their salaries. They appealed this ruling on the basis that salary could not be treated as profit. Birss LJ stated at para.83 that: “…there is no reason in principle why some portion of their salaries might not be attributable as profits they themselves earned as a result of their activity for which they are liable to the claimants.”
 Hotel Cipriani v Cipriani Grosvenor Street  EWHC 628 (Ch) per Briggs J para 7
The recent judgments discussed in this article provide welcome guidance regarding these common remedies and have far reaching application. Birss LJ’s comments regarding an account of profits remind us that it is an equitable remedy, and its application is within the court’s discretion. Equally, the ruling in Glossop Cartons warns against over-complicating the calculation of direct loss.
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