In an action by a shareholder in a limited company against a director for damages for misrepresentation in the prospectus, the time at which the damage is ordered to be assessed, is the date of the allotment to the plaintiff; accordingly, where the plaintiff has applied for and obtained shares on the faith of a false representation in the prospectus that the company had already acquired a valuable property, the fact that the property is acquired shortly afterwards before affords no answer to the plaintiff’s claim for damages, unless it be shown that at the date of allotment, the risk that the property would not be acquired was unsubstantial.
in assessing the damages, prima facie the price paid for the shares is taken to be the exact equivalent of the value of the shares having the advantages represented in the prospectus.
The principle on which the damages order to be assessed considered.
Where the open market of property purchased at the transaction date was a false market, in the sense that the price was inflated because of a misrepresentation made to the market generally by the defendant, the market value is not decisive: in such circumstances the ‘true’ value as at the transaction date has to be ascertained but with the benefit of hindsight.
Lord Collins MR said: ‘It is not an action for breach of contract, and, therefore, no damages in respect of prospective gains which the person contracting was entitled by his contract to expect to come in, but it is an action of tort – it is an action for a wrong done whereby the plaintiff was tricked out of certain money in his pocket, and, therefore, prima facie, the highest limit of his damages is the whole extent of his loss, and that loss is measured by the money which was in his pocket and is now in the pocket of the company.’
Lord Collins MR
 1 Ch 546,  UKLawRpCh 11
England and Wales
Cited – Derry v Peek HL 1-Jul-1889
The House heard an action for damages for deceit or fraudulent misrepresentation.
Held: The court set out the requirements for fraud, saying that fraud is proved when it is shown that a false representation has been made knowingly or without . .
Cited – Peek v Derry CA 1887
The court considered an action for damages for deceit: ‘As I understand the law, it is not necessary that the mis-statement should be the motive, in the sense of the only motive, the only inducement of a party who has acted to his prejudice so to . .
Cited – Waddell v Blockey 1879
The damages for an item bought as a consequence of a misrepresentation or other tort are to be calculated as at the date of sale. . .
Cited – Twycross v Grant CA 2-Jun-1877
The plaintiff had bought shares in a company promoted by the defendant. The prospectus was fraudulent having failed to mention certain contracts which made the shares valueless.
Held: The shares being worthless, the plaintiff was entitled to . .
Cited – Smith New Court Securities Ltd v Scrimgeour Vickers HL 21-Nov-1996
The defendant had made misrepresentations, inducing the claimant to enter into share transactions which he would not otherwise have entered into, and which lost money.
Held: A deceitful wrongdoer is properly liable for all actual damage . .
Doubted – Clark v Urquhart HL 1930
The House considered the measurement of damages where property had been purchased as the result of a misrepresentation. Lord Atkin said: ‘I find it difficult to suppose that there is any difference in the measure of damages in an action of deceit . .
Too Rigid – Doyle v Olby (Ironmongers) Ltd CA 31-Jan-1969
The plaintiff had been induced by the fraudulent misrepresentation of the defendant to buy an ironmonger’s business for 4,500 pounds plus stock at a valuation of 5,000 pounds. Shortly after the purchase, he discovered the fraud and started the . .
Lists of cited by and citing cases may be incomplete.
Updated: 29 August 2021; Ref: scu.191174