Court Of Appeal Rejects Novel Argument That Fraud Victims Should Give Credit For The "Time Value" Of Cash Received As Part Of A Fraudulent Transaction

• Jurisdiction: European Union
• Law Firm: Herbert Smith Freehills
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Criminal Law, Debt Capital Markets, Financial Services, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Author: Rupert Lewis, Ceri Morgan, Nihar Lovell and Claire Nicholas
• Published date: 23 February 2022

In the context of a claim brought by the victim of a fraud against the perpetrator, seeking damages for consequential loss of investment opportunity in relation to certain fraudulent transactions, the Court of Appeal has dismissed an appeal by the fraudster on the basis that the victim was obliged to give credit not only for the cash they received as part of the fraudulent transactions, but also for the "time value" of that money in the period between the transaction and the trial: Tuke v Hood [2022] EWCA Civ 23.

This decision will be noteworthy for financial institutions for the Court of Appeal's analysis as to the correct calculation of damages in deceit claims, particularly in the context of mis-selling disputes, shareholder claims and the increasing number of fraud claims emerging from the COVID-19 pandemic. The Court of Appeal found that where the measure of damages is reflected by comparing the value of what was sold with the value of what was received, the innocent party must simply give credit for the money (or money's worth) they received under the transaction itself, in order to reflect the position as it would have been if the deceit had not occurred.

The Court of Appeal referred to the classic modern statement of the applicable principles when assessing damages for deceit in Smith New Court Ltd v Scrimgeour Vickers [1997] AC 254. Smith New Court confirmed that the time at which credit is to be given for the benefits received by the innocent party is normally the date of the fraudulently induced transaction (although this is not an inflexible rule and a different date may be adopted if taking the date of the transaction would under-compensate the victim). The Court of Appeal noted that Smith New Court did not say anything about the innocent party having to give credit for benefits received against claims for consequential losses.

The suggestion in the present case that, unless the victim gave credit for the time value of the money received, they would be overcompensated, was a novel one. The Court of Appeal found it to be fundamentally misconceived and contrary to principle. In the court's view, a claimant would not be fully compensated if they were required to give any credit for the time value of the money received.

We consider the decision in more detail below.

Background

Between 2009 and 2012, the claimant, Mr Tuke purchased a number of classic cars as investments either from or through a specialist classic car dealership, JD Classics Ltd (...