East v Maurer [1991] 1 WLR 461
Facts
D ran two hairdressing salons in neighbouring areas. C purchased one of the salons. During negotiations, D falsely represented that he personally would not be working at his other salon. C failed to make a profit and discovered that D was working full time at his salon. C was unable to sell the salon for three years. At trial, C was awarded damages of £33,328 including £15,000 for loss of profits during the period in which C owned the business. D appealed against the award for loss of profits.
Legal Issue
Whether deceit damages could include profits the purchasers would probably have earned from an alternative business, rather than profits promised for the business they bought.
Held
The Court of Appeal accepted that damages for deceit could include profits the purchasers would have earned from an alternative business had they not been induced to buy the salon. The correct comparison was their position without the fraud, not the profits this salon would have produced if the representation had been true. The court therefore rejected a purely contractual expectation measure. It nevertheless considered the trial judge’s particular assessment too high and reduced the award under the lost-profit head. The appeal was allowed to that extent. The judgment illustrates both the breadth of recoverable consequences of fraud and the continuing need to quantify the actual loss caused by the dishonest inducement.
⭐ Legal Principle
Damages for deceit may include profits lost from a reasonable alternative business opportunity forgone because of the fraud. The measure restores the claimant’s position without the fraudulent transaction; it does not award the represented transaction’s promised performance as contractual expectation loss.
Significance
East v Maurer distinguishes the loss caused by entering a transaction from the benefit promised by the dishonest representation. Lost profits can form part of deceit damages, but the relevant comparison is a genuine alternative business opportunity. The claimant does not receive the represented business’s expected performance as though the representation were a contractual warranty. Read alongside Doyle v Olby and Smith New Court when addressing the causal scope of fraud damages. The measure and proof of the particular loss remain separate questions.
Common exam questions about this case
Why were some lost profits recoverable?
The fraud induced the buyers to commit their resources to this salon instead of a different business. Profits they would reasonably have earned from a suitable alternative could therefore form part of their loss. The award compensated the consequences of entering the transaction, rather than enforcing the seller’s representation as a contractual promise.
Was the measure the profit the salon would have made if the statement were true?
No. That would resemble contractual expectation damages. The deceit measure compared the buyers’ actual position with the position they would have occupied without the fraud, including a reasonable alternative investment. The Court of Appeal reduced the particular profit award while accepting that the category of loss was legally recoverable.
What evidence is useful when quantifying the alternative profits?
The court must assess what the claimant would probably have done and earned without the fraudulent inducement. Business earnings, the claimant’s work and a realistic alternative investment may be relevant. Mathematical precision is not always possible, but the claim still needs a reasoned causal basis rather than an assumption that every hoped-for profit is recoverable.