The High Court recently awarded substantial damages for fraudulent misrepresentation in relation to the sale of a dental practice. In Dhaliwal v Hussain and another the court found that the defendants had fraudulently misrepresented details of the practice’s turnover during pre-contract enquires.
Misrepresentation arises where someone makes an untrue statement of fact which induces another person to enter into a contract them. The misrepresentation is fraudulent when the party making the representation did so knowingly, without belief in its truth. The claimant must therefore prove there was an absence of honest belief in the truth of the statement on the part of the defendant. The claimant must also have acted in reliance on the representation and suffered loss as a result.
Fraudulent misrepresentation claim
In Dhaliwal the claimant purchased a dental practice from the defendants for £625,000. The price was apportioned as to £245,000 for the premises, £80,000 for fixtures, equipment and stock, and £300,000 for goodwill.
The claimant alleged that in replies to pre-contract enquiries, statements were made by the defendants to the effect that the practice had ceased to carry out NHS work, and so the practice’s turnover of £404,000 was derived entirely from private patients. The claimant sought damages for fraudulent misrepresentation when it was later found that in fact the turnover figure included income from residual NHS work. Income derived from private patients was therefore only £229,000. By the time the sale had completed, the practice was no longer in a position to carry out NHS work. The turnover was limited to that derived from private work, and therefore much lower than anticipated. The claimant subsequently sold the goodwill, stock and equipment of the practice for £200,000, whilst retaining the premises and granting the buyer a 20 year lease.
The court found that the defendants had fraudulently misrepresented the turnover and accepted the claimant’s evidence that she would not have entered into the sale contract had she known the truth. The claimant was entitled to damages representing the difference between the price paid for the practice and its true value at the date of sale. The judge awarded damages of £140,000, representing the difference between the goodwill element of the purchase price and the true value of goodwill at the date of sale.
In addition, the claimant sought to recover the following consequential losses:
- Costs incurred in connection with the purchase of the practice;
- Costs incurred in connection with the subsequent resale of the practice;
- Trading losses incurred between the purchase and resale; and
- Loan repayments due following the resale.
The judge awarded sums claimed under the first three heads, but declined to award damages in respect of the loan repayments, because the claimant was receiving rental income following the resale. The claimant received a total damages award of £234,644, made up of the primary sum of £140,000 and the £94,643 for consequential loss.
The case is an example of the court awarding damages for consequential loss without the claimant having to demonstrate that the loss suffered was foreseeable. The court also made it clear, however, that where a claimant takes steps to reduce the losses, as in this case, any benefits gained will be taken into account when calculating loss.
Catherine Mathews is Head of the Dispute Resolution Team in Exeter. Catherine specialises in commercial and contract litigation and has experience of many different forms of alternative dispute resolution, including mediation. She is listed as a leader in her field in Chambers 2018. If you would like advice on a fraudulent misrepresentation claim or any other dispute, please contact Catherine on 01392 210700 or firstname.lastname@example.org.