Aitsan Limited & Ors v Stuart Robert Duffy & Anor [2026] EWHC 1993 (Ch)
[2026] EWHC 1993 (Ch)Case No CH-2025-000289IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONBUSINESS AND PROPERTY COURTS OF ENGLAND AND WALESAPPEALS LIST (ChD)ON APPEAL FROM MASTER PESTERCase No BL-2020-001340Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 30/07/2026
Before
CHANCELLOR OF THE HIGH COURT
Between
AITSAN LIMITED and othersAppellants/(1) STUART ROBERT DUFFYRespondents/ Defendants(2) THE KEITH DAVIDSON PARTNERSHIPRespondentAmit Gupta (instructed by Penningtons Manches Coopers LLP) for AppellantsMartin Budworth (instructed by Dallas and Richardson Solicitors Ltd) for First Respondent for The Second Respondent did not appear and was not representedHearing Hearing dates: 21 July 2026Approved JudgmentThis judgment was handed down remotely at 10.00am on 30 July 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................THE CHANCELLOR OF THE HIGH COURT
Chancellor of the High Court :
[1]A buyer enters into a contract to buy a flat off plan from a developer. Under the contract they pay a deposit and further payments over time, amounting to 75% of the purchase price. (For the first appellant Aitsan Ltd the price was £52,000 and at this stage £39,000 had been paid.) At this stage a completion certificate is provided by the architect certifying that the flat is complete. In reliance on that certificate the final 25% completion payment is made (for Aitsan this was £13,000). The buyer obtains a 250 year lease on the flat. However the completion certificate is a fraud. The flats were not finished and were not ready for occupation. The buyer sues the architect for fraudulent misrepresentation. After a lot of time and various events, including insolvency proceedings relating to the developer and its successors in title, the buyer is able to sell the flat in its unfinished state for less than the purchase price but (in most cases) for more than the completion payment (in Aitsan’s case the flat sold for £32,000).[2]The judge (Master Pester) found that the architect was liable for fraudulent misrepresentation, rejected the architect’s submission that the buyers had suffered no loss and found, as the buyers contended, that that the completion payment was a direct loss caused by the architect’s fraud. But what was the correct way to measure that loss? The buyers argued that the fact they had sold the flats should be ignored, and so in Aitsan’s case the loss would be measured at £13,000. The architect argued that credit had to be given for sale proceeds, citing the House of Lords decision in Smith New Court v Citibank [1997] AC 254, which holds that when measuring loss caused when someone acquires property in reliance on a fraudulent misrepresentation, credit does need to be given for any benefit they received. Therefore, taking Aitsan as the example, the architect argued that the loss would be nothing at all, because £32,000 is larger than £13,000.[3]The judge accepted the architect’s submission and assessed the value of the loss for claimants like Aitsan as nil. For certain other claimants the sums work out slightly differently but the detail does not matter. The relevant claimants sought permission to appeal, essentially on two points. I would summarise the two points in this way. The first was that it was wrong to take the sale proceeds into account. I refused permission to appeal on that point, given the clear authority of Smith New Court. The second point was that if the sale proceeds were to be taken into account, then it was wrong not to also take into account the earlier payments before the completion payment, because they contributed to the value realised by the sale. I gave permission on that point.[4]In money terms the question is simple enough. For Aitsan the relevant figures (above) are £39,000 pre-completion, the £13,000 completion payment after the completion statement, and £32,000 sale proceeds. Given those figures: i) Is the loss nil because £32,000 is larger than £13,000? ii) Is the loss £20,000 because the sale proceeds also comprised value derived from the pre-completion payments? The total sums paid were £39,000 + £13,000 = £52,000. Subtracting the sale price gives £20,000 (£52,000-£32,000=£20,000). or iii) Is the loss £5,000 because the fair way to take into account the fact that the sale proceeds also comprised value derived from the pre-completion payments is to apportion that value in the same ratio as the ratio of the completion payment to the total sums paid? The completion payment is a quarter of the total paid (£13,000 / £52,000 = ¼). Applying that to the sale price gives £8,000 as the share attributable to the completion payment (¼ of £32,000 is £8,000). Thus £8,000 would be taken off the £13,000, giving £5,000.[5]On this appeal counsel for the appellants contended that(i) was wrong and that the answer was either(ii) or (iii). Counsel for the respondent supported the judge’s approach (i), argued that neither (ii) nor(iii) were correct in principle or authority nor were they open to the claimants given the way the matter had been pleaded. Moreover point (iii), the apportionment approach, had not even been raised before the judge.[6]I sympathise with the submission about what was and was not pleaded. However examining the pleadings shows that by the time of the assessment hearing, very little had been pleaded by either party which ought to have been. Critically, the Schedule of Loss provided what needed to be advanced by each side and in my judgment the points are open to the appellants. It is also true that the apportionment submission had not been made to the judge, however (c.f. Singh v Dass [2019] EWCA Civ 360), I will allow the point to be taken on appeal.[7]The feature which distinguishes this case from any other reported case which counsel has been able to identify is that the misrepresentation did not precede the contract and so did not induce the claimants to enter into the contract as a whole (unlike, for example, Smith New Court itself or Glossop Cartons and Print Ltd v Contact (Print & Packaging) Ltd [2021] EWCA Civ 639). In this case the misrepresentation took place part way through, and the question is how to apply the well established principles in a case like this. In my judgment the answers are clear. It would be unreal not to take the sale proceeds into account, the only question is how. To ignore the sale proceeds when they were obtained by selling the property acquired as a result of the completion payment cannot be correct. However it would be equally unrealistic, when taking the sale proceeds into account, to apply them as a full credit against the completion payment, wiping it out, and thereby ignoring the fact that sale proceeds’ value derives at least in part from the pre-completion payments. Then again, simply to include the full pre-completion payments as a credit reaches another wrong conclusion because, as the facts of Aitsan’s case show, it would measure of the loss of a completion payment of £13,000 as amounting to a larger sum (£20,000). While there may be other ways of reaching a just result in similar cases, in this case the apportionment approach best reflects the justice of this case, reflecting the fact that the value of the sale proceeds is also derived in part from the pre-completion payments. I would allow the appeal, substituting the conclusion that the full amount of the sale proceeds is to be set against the completion payment with a credit apportioned in this way.
The detail
[8]The appellants are a collection of individuals and companies who invested in an off-plan acquisition of units in a development of student flats in Newcastle-under-Lyme in July 2017. The developer was Sky Building Ltd. The first defendant Mr Duffy is a former architect. The second defendant was his company but it is in liquidation and played no part in this appeal.[9]Under the contract a deposit was due when it was entered into, further payments were due over time. A final completion payment to bring the sum paid up to the purchase price would not be due unless and until a completion certificate was provided certifying that the flat was complete. Taking Aitsan as the example, when it entered into the contract it paid the deposit and, over time, two further two further sums of money (coming to £39,000). A completion statement was provided signed by Mr Duffy. Aitsan paid the completion payment of £13,000 and acquired the lease on the property. However as I have said, the completion statement was fraudulent. The flats were far from complete and there was no possibility of beneficial occupation.[10]In 2020 the claimants brought a claim for fraudulent misrepresentation which was heard and dealt with by Master Pester. The Amended Particulars of Claim served in 2020 claimed the completion payments as, in each case, the loss caused by the fraud. In a judgment dated 25 March 2021 the judge gave summary judgment on liability, finding Mr Duffy liable for the tort of deceit and ordering damages to be paid. HHJ Keyser KC dismissed the appeal on liability but allowed the appeal on quantum and directed that damages be assessed. After that the defendants filed a Defence relating to quantum only and the claimants served a Reply.[11]The damages assessment came before Master Pester on 18 March 2025, but before turning to that it is worth summarising briefly some other events which had taken place before that.[12]In 2018 the developer had sold the building to another company Sky Apartments, and by 2021 both the developer and Sky Apartments were in administration. The investors claimed in the administration but in 2022 HHJ Halliwell held that investors who still had a UN1 (registered on exchange of contracts but released on completion) could recover but investors who had acquired leases which had been registered (whose UN1’s had been released) were not entitled to claim ([2022] EWHC 763 (Ch)). In a further separate matter, following threatened legal action for professional negligence by some of the investors against their former solicitors Blunts, a settlement was reached with Blunts whereby some of the claimants received payments.[13]By 2023 the building was owned by a company called Integritas Property Group Ltd. After that, but prior to the damages assessment before Master Pester, all the claimants who held registered leases sold their leases to Integritas. Taking Aitsan as the example, it had sold its lease for £32,000.[14]For the assessment the parties had exchanged witness statements but neither side wished to cross-examine the other’s witnesses. A Schedule of Loss was produced which set out and summarised the claimants’ position and the defendants’ response to it. Leaving aside irrelevant details the Schedule presented the key numbers for each claimant. For present purposes the most important figures were the total sum paid before the completion statement, the completion payment and what were called the “recoveries/mitigation”. These recoveries/mitigation figures were of up to three types: any recovery from Blunts; any recovery in the administration; and the proceedings of selling the lease. The Schedule also reflected each side’s case showing the amount claimed by each claimant as well as any amount accepted by the defendants.[15]The actual figures in the schedule involved some further detail, including interest and some other costs and expenses, which can be ignored for present purposes.[16]The claimants contended that what they had lost in each case was the completion payment, since that payment had been induced by fraud. The claimants denied that any of the recoveries/mitigation figures should be set against that (neither Blunts, the administration nor the sale proceeds).[17]In a careful judgment the judge set out the background and, on the law, identified the well known passages in Smith New Court (see below) as a statement of the applicable law. Glossop was also cited for the proposition that the court should not speculate about what the claimants would otherwise have done, which the judge took on board. As the judge said (at [29]) that does not mean one can entirely avoid comparing the position as it turned out with what would have been the position had the representation had never been made because the aim of awarding damages for deceit is to put the innocent party in the position they would have been in if no dishonest representation had been made to them.[18]The first point taken by the defendants was that the claimants suffered no loss at all because if Mr Duffy had not made the fraudulent statements, the claimants would not have made the completion payments and the developer could and would have rescinded the sale agreements, the payments already made would have been forfeit and the developer would have been free to resell to a third party. Therefore the claimants were better off as a result of the fraudulent certificates. The judge rejected that at [31]-[32]. If no fraudulent misrepresentation had been made, the long stop date in the sale agreement would have come and gone without completion and the claimants would have been able to rescind the sale agreement and reclaim any previous payments. Therefore the submission that no loss had been suffered was rejected. As the judge put it: “ … As a result of the Defendants’ deceit, the Claimants were locked into a property purchase in a development which languished for many years in an unfinished state. The completion payments represent an expenditure of money by the Claimants which is properly characterised as a direct loss occurring as a result of the Defendants’ deceit.” [32][19]The second point was the defendants’ submission that the claimants should give credit for the sums received from Blunts. This was dealt with and rejected at [34]-[36].[20]The third point was whether credit should be given for recoveries in administration of Sky Apartments for those claimants with UN1s, none of whom are appellants on this appeal. The judge decided no such credit should be given at [37]-[38]. As a result these claimants (who necessarily had no lease to sell) were able, essentially, to recover their completion payments in full.[21]The fourth point was whether credit should be given for the proceeds of the sale of the leases. The claimants in that position submitted that no credit should be given, relying in part on a comparison with the claimants who had recovered in the administration, but the judge rejected that. His conclusion was: “…The Claimants’ loss is the amount of the completion payments, but without the completion payments, the Claimant would never have obtained the lease. It follows that the Claimants do have to give credit for sums obtained following the sale of the leases. The Claimants were only able to obtain their respective leases because of the fraudulent certificates. Had the leases been valueless (which appeared to be the position when the summary judgment application was heard in 2021), there was nothing for which the Claimants had to give credit for. The position however is now different.” [40][22]The judge drew a comparison which reinforced that view. The 39th claimant, whose payments were the same as Aitsan’s, had sold his lease for £100,000, in other words for a profit overall. As the judge noted, the claimants’ submission would mean the 39th claimant could keep his sale proceeds and still claim for the amount of the completion payment, which would not be right.[23]On the question of giving credit for the pre-completion payments, the judge noted that although this point was in the Schedule, it was not pleaded. The judge then rejected the credit because, as he put it, “that would be to calculate damages on the basis the representations made by Mr Duffy were true. That is not the correct way to calculate tortious damages.”[24]The conclusion therefore was that the pre-completion payments were not to be taken in account while credit had to be given for the sale proceeds, with the result that for most claimants who sold their leases, the proceeds exceed the completion payments and those claimants have no claim against Mr Duffy [44].[25]The judge recognised the fact that this result mean that claimants who obtained a lease are worse off than those who never did (because these latter had the protection of a UN1 and so proved in the administration) but while that appeared anomalous, it was a consequence of the decision in the administration.[26]The claimants sought permission to appeal from the judge on the two essential points I have summarised already above. Both were refused and as I have said already, I also refused permission on the first point about taking the sale proceeds into account. On the second point about taking into account the pre-completion payments, one reason this was refused by the judge was because it was not pleaded.
This appeal
[27]As I have also said already the issue is whether and if so how, the pre-completion payments should be taken into account. The first question to resolve is about the pleadings and whether the arguments are open to the appellants at all. On appeal counsel for the respondent submitted that the judge was correct that the point had not been pleaded and so the appeal should be dismissed on this ground.[28]However the reality is the pleadings are in no fit state to support that approach. The Particulars of Claim, Defence and Reply have not been touched since 2023, before the leases were sold (Reply para 6(4)). The pleadings do not reflect the positions in the Schedule of Loss. Counsel for the respondent referred to paragraph 7 of the Defence, which does make the point that there may be sales in progress. However the assertion made there is that “the true measure of loss if any is the difference in value between what [the claimants] have acquired as a result of having chosen to complete the Contract and the value of what they had contracted to receive.” That approach takes into account both the sale proceeds and the value of what the claimants contracted to receive, i.e. not only the completion payment but the pre-completion payment. It is not the case advanced by the defendant before the judge, any more than the claimants’ submissions at trial were reflected in the pleadings, as the judge recognised.[29]The issue to which this ground of appeal relates was decided on its merits below despite the pleadings and in my judgment it is open to the appellants on appeal.[30]However that is not the end of the matter because, as counsel for the appellants candidly accepted, the apportionment argument was not advanced below. The starting point is that an appellate court will be cautious about allowing a new point to be raised on appeal that was not raised before (the principles are set out in Singh v Dass). I will permit this new point to be taken into account because it would not necessitate new evidence nor, if it had been run below, would it have meant the trial was conducted differently. Moreover in this case the respondent has had adequate time to deal with it and has not acted to his detriment on the basis of the earlier omission to raise it. It can also be taken into account in relation to costs.[31]Therefore the apportionment point is open to the appellants on this appeal.[32]The idea that the full amount of the pre-completion payments ought to be a credit in the calculation is, in my judgment, clearly wrong. The loss the claimants pleaded, which is the one the judge found in their favour, was the loss of the completion payment (the £13,000 for Aitsan). Indeed that completion payment plainly was the loss caused by the fraud. To end up with a measurement of the value of that loss at a larger sum (the £20,000 for Aitsan) would make no sense. The fraud did not induce the claimant to lose more than the completion payment. (This is not a question of consequential losses.)[33]The judge’s reason for rejecting the submission that full value be given for the pre-completion payments was that this would be on the basis that the representations made by Mr Duffy were true, which was not the tortious measure of damages. He was right that the answer produced would be the same as damages calculated that way but I believe the true reason the result is wrong is a simpler one, above, that, all other things being equal, the loss cannot be larger than the sum lost. Just because a result comes to the same number as a result calculated on the different basis, does not mean that the two approaches are necessarily the same in law. Another way of looking at why giving full value for the pre-completion payments would be wrong is that it in effect treats the pre-completion payments as being induced by the fraud. That would still produce £20,000 for Aitsan, but it does not assume the fraudulent statement was true.[34]In relation to the apportionment submission, since it was not made below, the judge obviously could not have dealt with it and cannot be criticised for not doing that.[35]The appellants submitted that the legal basis for taking an approach based on apportionment was to be found in Smith New Court itself. Lord Browne-Wilkinson’s summary of the principles is as follows: “(1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the- property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either(a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or(b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property. (6) In addition, the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud.” [at p266H-p267-D, emphasis added]
[at p266H-p267-D, emphasis added]
[36]The appellants’ argument was that the apportionment falls within Lord Browne-Wilkinson’s statement that the general rule should not be applied inflexibly. The general rule referred to is to value the property acquired by its market value at the date of acquisition. I do not believe that Lord Browne-Wilkinson had in mind the factual circumstances which are present in this case. However what his words reflect is that the exercise is not a purely mechanical one, rather it also involves the exercise of judgment in all the circumstances. That is why the general rule referred to is not to be inflexibly applied (see (4)) and why the circumstances in which the general rule should not apply cannot be comprehensively stated (see (5)).[37]The fact that in this case without the completion payment there would have been no completion, and without completion there would be no sale proceeds is true, but is not a fair way of looking at the circumstances as a whole. It treats the fraud has having induced the contract for a price equal to the completion payment, but that is not what happened.[38]In this case it is not hard to see, as a matter of judgment, that neither £20,000, nor £13,000 nor nil truly reflect the value of what Aitsan’s loss of its completion payment amounted to. I have explained why £20,000 is wrong above. That approach in effect treats the £39,000 pre-completion payment as a loss caused by the fraud, when it was not. Before the judge the claimant’s actually called those pre-completion payments “pre-fraud losses”, which was a contradiction in terms. The full completion payment of £13,000 is wrong because the claimants were able to sell their leases and in Aitsan’s case, received £32,000. However an overall value for the loss of nil is also wrong, because that attributes all of the value in the sale proceeds received as corresponding to the completion payment of £13,000, when a significant part of it derives from pre-completion payment.[39]There may be other ways of exercising the necessary judgment apart from apportioning the value recovered in the same ratio as the ratio of the completion payment to the overall price, but none has been suggested. Taking that approach(i) the completion payment of £13,000 is a quarter of the total paid (£52,000),(ii) applying that ratio to the sale proceeds gives £8,000 as the share of the value of the proceeds (being a quarter of £32,000), and so(iii) a fair value for the lost completion payment which has been caused, taking into account the sale proceeds, is £5,000. It is neither the contractual measure of loss nor does to treat the pre-completion payments as induced by fraud. It accords with the justice of the circumstances as a whole.[40]On appeal the respondent submitted that the appellant’s case took no account of the relevant counterfactual, which was that the fraudulent representation was not made. In that case (accepting for this purposes the judge’s rejection below of the argument that the developer would have rescinded the sale agreements) the claimants would have had a right to recover their payments. Moreover, submitted the respondent, we also now know what would have happened after that. The developer would have become insolvent and the claimants would have been in a different position in that insolvency from the one they were in. In the administration which happened they did not recover because they had acquired leases. In the counterfactual they would have recovered because they would have had the protection of UN1s. On this basis they would have recovered about half of their pre-completion payments. Therefore, it was submitted, the claimants lost nothing as a result of the fraud and a valuation of nil is right and fair.[41]I reject that submission because it is contrary to and precluded by the judge’s findings at [30]- [32]. In order to work out what the claimants had lost the judge correctly focussed on what would have happened if no fraudulent misrepresentation had taken place. He reached the conclusion that what had been lost was the completion payment. Having reached that conclusion, that was the end of the relevance of what might have happened if no fraud had been committed.[42]The respondent also characterised the appellants’ case based on apportionment as dangerous and contrary to principle. It fell into the trap of assuming that since the defendant had been found to be a fraudster, he ought to be punished somehow and that was the only reason why a conclusion that the claimants suffered no loss was thought to be wrong. The submission is entirely right that this is an exercise in measuring damages for loss suffered. It is not punishment. The exercise is and is only concerned with arriving at the right sum to compensate the claimants for loss they have suffered. However as I have explained above, that is exactly what the approach above seeks to do.[43]I will allow the appeal. I will hear the parties on the consequences in terms of figures, and in relation to costs here and below.