Damages for fraudulent misrepresentation: court gives new guidance in Aitsan v Duffy

The High Court’s decision in Aitsan Limited & Ors v Stuart Robert Duffy & Anor [2026] EWHC 1993 (Ch) represents a significant development in the law relating to the assessment of damages for fraudulent misrepresentation.

This appeal, heard by the Chancellor of the High Court, addresses an issue not previously considered in reported authority: how do you measure damages where a fraudulent representation induces a claimant to make further payments during an ongoing transaction, but does not induce entry into the transaction itself?

The successful appeal was brought by investors who had been the victims of a fraud in this case. The group of 43 claimants were represented by Penningtons Manches Cooper’s group actions team. The case also highlights the growing importance of sophisticated claimant representation in large-scale investor and group claims involving complex loss calculations.

Background

The claim arose from the sale of off-plan student accommodation units in Newcastle-under-Lyme. Investors agreed to purchase long leasehold interests in flats under contracts requiring staged payments. Typically, purchasers paid 75% of the purchase price before completion, with the remaining 25% becoming payable only after the issue of an architect’s completion certificate, confirming that the units were ready for occupation.

The certificates in this case, signed by the architect Stuart Duffy, the defendant in this action, were later found to be fraudulent. The flats were far from complete and not fit for occupation. Relying on the certificates, however, the investors made the final completion payments and acquired their leasehold interests.

Liability for fraudulent misrepresentation had already been established and was not subject to appeal. The dispute on appeal concerned solely the correct measure of loss.

The damages problem

The distinguishing issue in this case was that fraudulent representations did not induce the claimants to enter into the original purchase contracts. Those agreements had already been concluded and substantial payments already made. Instead, the fraud in this case induced only the final further completion payments, which would not otherwise have been made, but which concluded the transaction.

By the time damages were assessed, many claimants had sold their leasehold interests, albeit typically only for a fraction of what they had paid to purchase the units in the first place (on the basis that the units were never completed, and by this time the building had been left unfinished and dormant for several years). The question was therefore how those sale figures should be treated when calculating damages.

The first instance decision

At first instance, Master Pester held that the completion payments represented losses directly caused by the fraud. However, applying the principles established in Smith New Court Securities Ltd v Citibank NA [1997] AC 254, he concluded that credit had to be given for the full value received through the subsequent sale of the leases.

Because in many cases the amount the claimants had received on sale exceeded the completion payment, the judge concluded that for those claimants their recoverable loss was effectively nil. In other instances, where this approach still resulted in an overall loss, the claimants’ damages were dramatically reduced.

The appeal and the apportionment approach

The claimants appealed. At appeal, a number of different alternative approaches were advanced by both parties as to how losses should be calculated, as had also been the case at first instance.

Ultimately, the Chancellor accepted that the sale proceeds could not simply be ignored when calculating damages, but also concluded that the lower court’s approach failed to recognise that the value realised on sale was attributable both to the completion payment and to the substantial sums already invested before the fraud occurred.

The court therefore adopted an apportionment approach. Where the completion payment represented, as in most cases, one quarter of the total investment, it was held that in those cases only one quarter of the sale proceeds should be treated as a benefit attributable to the fraud-induced payment. The claimants’ damages were therefore reduced by only that relative sum, making the calculation of loss proportionate to the fraudulent part of the transaction.

The court concluded this was the fair approach in these circumstances. While it would not be fair to totally disregard the sale proceeds (because ‘the loss cannot be larger than the sum lost’), it would also not be fair to attribute the entire value of the lease to the completion payment only as a ‘fair way of looking at the circumstances as a whole’.

Why is this important?

The judgment is important because it refines the application of Smith New Court in circumstances where fraud induces only part of a wider transaction. The Chancellor emphasised that damages assessments should not be undertaken mechanically and that the court retains flexibility to achieve fair compensation reflecting economic reality in all the circumstances of the case.

Where value recovered by a claimant is attributable partly to pre-fraud investments and partly to fraud-induced payments, an apportionment exercise may be required to avoid overcompensation or undercompensation. The court made it clear that this was neither the contractual measure of loss, nor treating the pre-completion payments as induced by fraud. Instead, it was an approach which ‘accords with the justice of the circumstances as a whole’.

This approach is likely to be followed in future fraud claims involving staged investments, or any other contractual arrangements with a staged payment structure of this type, where misrepresentations occur after parties have already committed substantial funds to the transaction.

Significance for group litigation

The claims, more widely, involved multiple investors, insolvency proceedings, professional negligence settlements, and differing recovery routes, all of which complicated the assessment of loss, albeit many of these issues were resolved at first instance or before.

Such disputes increasingly require coordinated claimant strategies and sophisticated damages analysis. The judgment is therefore of particular interest to practitioners involved in investor actions and other forms of group litigation.

Aitsan v Duffy is likely to become an important authority on the assessment of damages in deceit claims. While the court noted that apportionment may not be the only possible methodology in future cases, the decision establishes a clear principle that benefits realised from a transaction should be analysed in a way that reflects the true source of their value.

For litigants and advisers, the judgment provides valuable new guidance on quantifying losses where fraud directly affects only part of a wider course of dealing.