Downs v Chappell

JurisdictionEngland & Wales
JudgeHOBHOUSE LJ,ROCH LJ,BUTLER-SLOSS LJ
Judgment Date03 April 1996
Judgment citation (vLex)[1996] EWCA Civ J0403-6
CourtCourt of Appeal (Civil Division)
Docket NumberQBENF 94/0907/C
Date03 April 1996
(1) Michael Robert Downs
(2) Jane Rena Downs
Plaintiffs/Appellants
and
(1) Kevin Paul Chappell
(2) Stephenson Smart (a firm)
Defendants/Respondents

[1996] EWCA Civ J0403-6

Before:

Lord Justice Butler-Sloss

Lord Justice Roch

Lord Justice Hobhouse

QBENF 94/0907/C

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

KING'S LYNN DISTRICT REGISTRY

(MR. ROBERT OWEN QC)

Royal Courts of Justice

Strand

London WC2

MR ROBERT DENMAN (Instructed by Messrs Dawbarns, King's Lynn, Norfolk, PE30 1RD) appeared on behalf of the Appellants

MR. MICHAEL HARRINGTON (Instructed by Messrs Hawkins, 19 Tuesday Market Place, King's Lynn, Norfolk, PE30 1JW) appeared on behalf of the 1st Respondent

MR. MURRAY SHANKS (Instructed by Messrs Mills & Reeve, 3–7 Redwell Street, Norwich, Norfolk) appeared on behalf of the 2nd Respondent

HOBHOUSE LJ
1

In this action the Plaintiffs Mr and Mrs Downs sue the Defendants for damages. Against the First Defendant Kevin Chappell they claim damages in the tort of deceit. Against the Second Defendants Stephenson Smart, who are a firm of accountants, they claim damages in the tort of negligence. At the trial before Robert Owen QC sitting as a Deputy Judge of the Queen's Bench Division, the Judge found in favour of the Plaintiffs on liability against each of the Defendants but held that the Plaintiffs had failed to prove that they had suffered any loss as a result of the Defendants' torts. He therefore gave judgment for the Defendants. The Plaintiffs have appealed to this Court. And the sole remaining issue between the Plaintiffs and the Defendants is one of causation. The Defendants accept the Judge's findings on liability.

2

In the Spring of 1988 Mr Downs was fifty-six years old and his wife a little older. They had a newsagents shop in Yeovil which they had begun to find very demanding, principally because of the long hours it was necessary for them to work. They decided to sell and look for an alternative business to see them through to their retirement. They successfully negotiated a sale of their newsagent shop at a price that would yield net proceeds of about £68,000. They followed up a number of possibly suitable small retail businesses which were for sale. In Daltons Weekly they saw an advertisement for a bookshop in Kings Lynn. They sent off for the particulars. On 23rd April 1988 they received particulars from the agents which read:

" K P Chappell

Bookseller

3/5 St James Street, Kings Lynn, Norfolk

An established bookshop, situated in this delightful west Norfolk market town, specialising in the sale of new books, prints and maps also holding a lucrative agency for ordnance survey sheets. The business has been in the present hands for the past five years, and we are advised that the turn-over in the last financial year was nearly £81, 000 (ex VAT), producing a gross profit of just under £22,000. With the business is the owners private accommodation comprising hall, lounge, kitchen/diner, two double-bedrooms and bathroom, all having the advantage of gas-fired central heating.

A very lucrative business producing a good income together with a comfortable home and a first class freehold investment personally inspected and highly recommended."

3

The premises were described in more detail. As regards the business, it further stated:

"Trading Hours: Monday to Saturday 9am to 6pm

Trading Figures: Certified accounts for the year ended 30th September 1986 show a turnover of £80, 788 (ex VAT), giving a gross profit of £21,924. These accounts may be reconstituted to show a true net profit of around £15,000. Interim figures supplied by the vendor ended 30th September 1987, show an increase in the turnover to £94,098.

Staff: currently two part-time assistants are employed, although we feel a husband and wife partnership could adequately cope with the business and save this expense."

4

The price was said to be £120,000 for the freehold property, to include goodwill, trade fixtures and fittings; the stock in trade to be purchased separately at valuation (approx £20,000).

5

The Judge found:

"In the course of his evidence Mr Downs said, and I accept, that at that stage they were interested in a number of other businesses, that the figures recited above did not compare favourably with other businesses, and that in consequence they did not take the matter further." (p.2)

6

About ten days later, in early May, the Downs were sent by the agents a second version of these particulars in which the figures had been changed. The relevant passage now read:

"We are advised that the turnover in their last financial year was £109, 698 (ex VAT), producing a gross profit of just under £33,500."

"The certified accounts for the year ended 30th September 1986 shows a turnover of £80, 788 (ex VAT), giving a gross profit of £21,924. These accounts may be reconstituted to show a true net profit of around £15,000. Interim figures supplied by the vendor for the year ended 30th September 1987 show an increase in the turnover to £109,698, giving a gross profit £33,376 (30.4%). The reconstituted net profit would be approx £22,000."

7

As the Judge found, these new figures were a much more attractive proposition for Mr and Mrs Downs and on 16th May they made the journey to Kings Lynn where they visited the shop and met the owner Mr Chappell. The outcome of the meeting was that the Downs offered, subject to contract, to buy the business and premises for £120,000 plus stock at valuation and Mr Chappell (subject to contract) accepted that offer. The Plaintiffs however asked Mr Chappell about the turn-over and profit figures of the business, particularly those stated in the second version of the particulars. They asked to see the accounts. All that Mr Chappell was in a position to give them was a copy of the one page 'Trading and Profit and Loss Account for the Year ended 30th September 1986' and a very basic rough schedule setting out some figures for the year ended 30th September 1987. The figures in the schedule included figures which corresponded to those given in the second version of the particulars but in no way provided any verification of them. The Plaintiffs asked for independent verification of the figures. They were not prepared to proceed without this and indeed the Building Society from whom they were seeking a mortgage would require verification as well.

8

Mr Chappell therefore requested his accountants, the Second Defendants to send to the Plaintiffs a letter of verification. In fact there was already such a letter in existence because an earlier prospective purchaser, Mr Booty, had asked for one in February. So Mr Chappell knew what he was asking his accountants to provide. On 24th May the Second Defendants sent the letter to the Plaintiffs. It read:

"Dear Mr and Mrs Downs,

K P Chappell—Bookseller

We refer to your request to our above-named client for some information with regard to his trading and profit and loss account figures for the year ended 30th September 1987. Without carrying out an audit we have ascertained that the takings for the year are approximately £110,000. It is normal to expect our client to achieve a gross profit percentage in the region of 31% which would result in a profit of £34,000. A rough resumay [sic] of the purchases for the year would seem to substantiate this fact.

Our client's overheads for the year are approximately £15,000—that includes bank interest of just under £3,000 which would not be appropriate to you because of your separate finance arrangements. This figure for overheads also includes a charge for depreciation of approximately £250.

As can be seen from these figures our client is left with approximate net profit for the period of £19,000.

We hope this information proves sufficient for your requirements but should you require any further information do not hesitate to contact Mr Dodds of this office.

Yours faithfully,"

9

This letter was sent with the knowledge and authority of Mr Chappell. Mr Chappell knew that the figures in it were false. The turnover had not been approximately £110,000; the normal gross profit percentage was not in the region of 31%; the profit was not £34,000. The explanations given by the Defendants at the trial were rejected by the Judge. He was not prepared to treat Mr Chappell as a truthful witness. The Judge likewise did not accept Mr Dodds's attempt to justify the letter. The Second Defendants were recklessly negligent. They had not ascertained that the takings for the year were approximately £110,000, or any sum. They had no basis for the statement that it was normal to expect Mr Chappell to achieve a gross profit percentage in the region of 31%. The Second Defendants should have said, as was the truth: "We are unable to verify the figures which Mr Chappell has given you". If they were unhappy about doing that, they should simply have declined Mr Chappell's request that they send the "Booty" letter to the Plaintiffs. In fact, the Second Defendants did not complete any accounts for Mr Chappell's business for the year ended 30th September 1987 until September 1989, some 16 months later.

10

The figures given by Mr Chappell to the Plaintiffs and, purportedly, verified by the Second Defendants satisfied the Plaintiffs. The figures showed a business with a very healthy, and growing, turnover with a substantial gross profit margin which would cover their financing costs and leave them with enough to live on. The Plaintiffs decided to go ahead. They told Mr Chappell that the information was exactly what was required and that it had been passed on to their mortgage broker. They completed on the sale of their Yeovil...

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127 cases
  • Richard Edwards (Claimant/Appellant) v Jahit Ahmet Ashik
    • United Kingdom
    • Chancery Division
    • 24 July 2014
    ...far as to show that the misrepresentation played no part at all. 24 Mr Warwick QC also relies on the decision of the Court of Appeal in Downs v Chappell [1997] 1 WLR 426, another case of fraudulent misrepresentation. There, the plaintiffs bought a bookshop on the faith of inaccurate turnove......
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    ...Society informed us that it wished to resile from its concession. Relying on the recent and still unreported decision of this Court in Downs v Chappell delivered on 3rd. April 1996, the Society submitted that it was entitled to recover the whole of its net loss on the transaction by way of ......
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    ...reliance of representation 325 The representee, Sky, must show that the representation induced it to act to its detriment: see Downs v Chappell [1997] 1 WLR 426 at 433 per Hobhouse LJ. The representation need not be the sole cause of the claimant acting as he did, provided that it substanti......
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    ...done if you had been told the truth? — is not the relevant (or possibly even a permitted) question”. One of the cases which he cited, Downs v Chappell [1997] 1 WLR 426, was a case in which the trial judge had found that the claimants (prospective purchasers of a bookshop) would not have co......
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3 books & journal articles
  • AN ACCOUNT OF ACCOUNTS
    • Singapore
    • Singapore Academy of Law Journal No. 2016, December 2016
    • 1 December 2016
    ...2015) at para 7–040; Hayward v Zurich Insurance plc[2016] UKSC 48 at [34]. 156Hayward v Zurich Insurance plc[2016] UKSC 48 at [36]. 157[1997] 1 WLR 426. 158[2015] 3 WLR 2070. 159Hayward v Zurich Insurance plc[2016] UKSC 48 at [37]–[38], citing Downs v Chappell[1997] 1 WLR 426 at 433D–433E a......
  • SUBSTITUTIVE DAMAGES AND MITIGATION IN CONTRACT LAW
    • Singapore
    • Singapore Academy of Law Journal No. 2016, December 2016
    • 1 December 2016
    ...‘Breach Date Rule’: Mitigation, Difference in Value and Date of Assessment”(2014) 130 LQR 259 at 273–275. 101 See, eg, Downs v Chappell[1997] 1 WLR 426: the owner of a bookshop was not obliged to mitigate losses when misrepresentation as to a book store business were unknown, but once the m......
  • Negligent Valuations and a Drop in the Property Market: the Limits of the Expectation Loss Principle
    • United Kingdom
    • Wiley The Modern Law Review No. 61-1, January 1998
    • 1 January 1998
    ...for fraudulent misrepresentation by a vendor concerning theprospects of a business (East vMaurer [1991] 1 WLR 1; Downs vChappell [1996] 3 All ER 344);and what losses are recoverable for fraudulent misrepresentation by a vendor of shares (Smith NewCourt Securities Ltd vScrimgeour Vickers (As......

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