“There are no doubt many honest and reputable second-hand car dealers plying their trade in this country. Unfortunately for Mr Tuke, Mr Hood was not among their number” – Andrews LJ
The recent case of Tuke v Hood was concerned with a victim of fraud who was deceived into selling a valuable and appreciating asset at an undervalue and was awarded damages for loss of investment opportunity. The Court of Appeal looked at whether that victim should give credit to the fraudster for the “time value” of the money received as part of the fraudulently induced transaction. Unsurprisingly, the Court of Appeal had little sympathy for the fraudster.
The facts
In the aftermath of the 2008 financial crisis, classic cars proved to be a wise investment. Mr Tuke, having sold his successful prosthetics business to Johnson & Johnson for £60 million, invested around £20 million in classic cars between 2009 and 2010. Mr Tuke made his purchases from JD Classics Limited, a major British dealership in the collector car market, run and solely owned by Mr Hood. The Commercial Court held Mr Hood liable in both deceit and dishonest assistance in respect of several transactions with Mr Tuke, spanning many years.
The appeal concerned one pivotal fraudulent transaction (the Transaction). In September 2010, Mr Tuke sought to sell some of his classic cars to raise money for a tax bill. He appointed JD Classics to negotiate and conclude the sale. Mr Hood facilitated a deal which involved selling four of Mr Tuke’s cars for £4 million while agreeing to purchase five Jaguar racing cars for £10 million. This involved Mr Tuke borrowing £8 million from a finance company.
Unfortunately, it transpired that Mr Hood had provided bogus valuations of the five Jaguars, thereby deceiving Mr Tuke into buying them for far more than their worth. The value of the five Jaguars provided insufficient collateral for the borrowing from the finance company and were very difficult to sell. The doomed transaction deprived Mr Tuke of cashflow and ultimately led him to sell the majority of his classic car collection through Mr Hood’s dealership on highly unfavourable terms. Meanwhile, the market in classic cars was booming and by 2015, by which time Mr Tuke had sold most of his collection, the market was twice the level that it was when Mr Tuke first made his investment in 2009.
Damages awarded to Mr Tuke
The Commercial Court awarded Mr Tuke:
- Base damages for the loss made on the sales at an undervalue. That is the difference between the consideration paid by Mr Tuke (including the market value of the cars part-exchanged) and what Mr Tuke actually received in cash and cars.
- Consequential loss of investment opportunity in respect of some of the cars which Mr Tuke had bought for investment purposes. This was on the basis that had it not been for Mr Hood’s fraud, Mr Tuke would have retained those investment cars and sold them when the market had peaked at the earliest time. Damages under this head were awarded at 75% of the value of the claim to provide for uncertainties, amounting to £6.8 million.
- Interest but only in respect of the non-investment cars on the basis that the claim for the loss of investment opportunity was a true alternative to a claim for interest.
JD Classics went into administration in September 2018 and the financial fallout led to a torrent of further litigation. Mr Hood is facing a £64 million claim by the administrators of JD Classics for financial irregularities, including the over inflation of the car dealership’s turnover and assets. Mr Hood was also made bankrupt before the trial of Mr Tuke’s claim.
Mr Hood’s appeal
Mr Hood submitted that, in calculating consequential loss, Mr Tuke should give him credit for the “time value” of the money Mr Tuke received as part of the Transaction. The “time value” of money is the concept that money in the present is worth more than the same sum of money to be received in the future, on the basis of its earnings potential in the interim.
The law on damages for deceit
Andrews LJ’s judgment summarised the law on damages for deceit: the aim is to put the claimant in the position in which he would have been if no dishonest representations had been made to him (see paragraph 29 of the judgment for the key principles). The Commercial Court found that but for Mr Hood’s fraudulent misrepresentations, the Transaction would not have happened, Mr Tuke would not have been saddled with an £8 million loan, and that loan would not have precipitated the further car sales and the lost investment opportunity.
The judgment
The Court of Appeal dismissed Mr Hood’s appeal, which it described as fundamentally misconceived and contrary to principle, for the key reasons set out below.
- Principle of Damages
To allow Mr Hood’s appeal would fail to put Mr Tuke in the position in which he would have been but for the fraud and would leave him under-compensated. Mr Tuke had already given credit for the cash received within the “base damages” calculation. Furthermore, the court noted that if the “time value” were computed on a similar basis to compound interest, it would wipe out 61% of Mr Tuke’s award for damages.
- Mr Tuke’s use of cash too far removed from Transaction
A claimant is only required to give credit for a benefit that results from and is intrinsic to a transaction, in the sense that it belongs naturally to it, rather than being collateral. What Mr Tuke did, or may have done with the cash he received after he received it, is irrelevant. In any event, Mr Tuke used most of the money to repay the liability to the finance company which was a direct consequence of Mr Hood’s fraud. Mr Tuke only needed to give credit for the money (or money’s worth) he received under the Transaction itself, which is the cash and the true value of the five Jaguars.
- Time value ≠ interest
The court rejected Mr Hood’s analogy of “time value” with awards of interest. Mr Tuke had not been awarded interest where he had recovered the loss of investment opportunity. Therefore there was no award of interest which might need to be counterbalanced by awarding time value.
- Policy considerations
To allow Mr Hood’s appeal would be to allow a dishonest defendant to benefit from the concealment of his fraud because the longer the fraud went undetected, the more the “time value” credit would reduce the recoverable damages. The court held that “even if all the other objections articulated above could be overcome, a deliberate wrongdoer is not to be rewarded for the fruits of his own deceit” (paragraph 58, judgment).
Commentary
Policy considerations trumped all in this case. Even if all the legal arguments measure up, it is always worth stepping back and considering any policy implications, particularly when defending fraud claims. Unfortunately for Mr Hood, he was not a sympathetic appellant – the court described him as a “mendacious witness” with a “particularly invidious argument” who had previously attempted to mislead the court by fabricating evidence.
There is considerable flexibility in assessing what benefits a claimant must give credit for when assessing damages flowing from deceit. Although the general rule is that credit ought to be given for the market value of the property acquired at the date of the transaction, there are circumstances in which that rule should not be applied, for example where:
- the misrepresentation has continued to operate after the date of the transaction so as to induce the claimant to retain the asset; or
- if the claimant is, by reason of the fraud, locked into the asset.
The time at which credit should be given is also flexible. Although the relevant time is normally the date of the fraudulent transaction, a different date could be used. The guiding principle is: would following the general rules on giving credit for any benefits under-compensate the victim in this case? This case underscores the complexities of defending fraud claims and the optics and policy considerations of any argument should be considered by practitioners at the outset.
