Fraudulent misrepresentation before a business sale

Fraudulent misrepresentation before a business sale

What is the position if you buy a business only to find out that the seller mispresented the true facts?

In the case of Dhaliwal v Hussain & Anor [2017] EWHC 2655 (Ch), the claimant, Dr Dhaliwal, bought a dental practice from the defendants, Iklaq Hussain and Jaspal Singh Bachada for a total price of £625,000. This amount was made of up as follows, £245,000 for the freehold premises, £80,000 for fixtures, equipment and stock and £300,000 for goodwill. The court case focussed on the goodwill payment.

Dr Dhaliwal argued that during pre-contract enquiries, the defendant fraudulently represented that turnover of £400,000 was derived entirely from private patients. In fact (and unknown to Dr Dhaliwal) the practice had a large proportion of income from NHS work and the income from private clients was only £229,000.

The court accepted Dr Dhaliwal’s evidence that, if she had been aware of the true position, she would not have entered into the contract. As a result, she was entitled to damages representing the difference between the price she paid for the practice and its true value at the date of the transaction.

In addition, the court also awarded Dr Dhaliwal compensation for consequential loss caused by the misrepresentation.

If you like to read the full case, click here

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