Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2 (31 January 1969)

IN THE SUPREME COURT OP JUDICATURE.
COURT OP APPEAL.
Appeal of plaintiff from judgment of Mr. Justice Swanwick
without a jury, London, dated July 24th, 1967.

Royal Courts of Justice.
31st January 1969.

B e f o r e :

THE MASTER 0F THE ROLLS (Lord Denning)
LORD JUSTICE WINN
and
LORD JUSTICE SACHS.

____________________

Between:

HERBERT LEONARD DOYLE
Plaintiff Appellant
and
 
OLBY (IRONMONGERS) LIMITED
CECIL AUGUSTUS OLBY
LESLIE MORTON OLBY
and
A. OBLY & SON LIMITED
Defendants Respondents.

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(Transcript of the Shorthand Notes of The Association of Official Shorthandwriters, Ltd.
Room 392, Royal Courts of Justice, and 2, New Square, Lincoln’s Inn, London, W.C. 2.)

____________________The Plaintiff Appellant, Mr. Doyle, appeared in person.
Mr. DAVID A.L. SMOUT (instructed by Messrs. George and George) appeared on behalf of the Respondent Defendants.

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HTML VERSION OF JUDGMENT
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THE MASTER OF THE ROLLS: Mr. Doyle in 1963 was minded to buy a business. He saw an advertisement in Daltons Weekly. He get particulars. The business was said to belong to A. Olby & Son Ltd., 12 Upper High Street, Epsom,, Surrey, and the turnover £27,000. The price staked for the lease, the business and goodwill was £4,500. The stock was to be taken at valuation. Mr. Doyle made further enquiries about it. On 6th November, 1963, Mr. Leslie Olby, a director of the company, produced accounts to him. They were for the three years ending 31st December, 1962. In a covering letter Mr. Olby said:

“Dear Mr. Doyle, As requested we are enclosing accountant’s figures covering Olby (Ironmongers) Ltd., 12 Upper High Street, .Epsom, Surrey.”

Those figures showed that for those three years there had been considerable profits: £1,821 net profits in 1960; £1,749 in 1961; and £l,36l in 1962. Mr. Doyle also saw Mr. Cecil Olby who worked en the premises. Mr. Doyle asked Mr. Cecil Olby what staff were employed. Mr. Cecil Olby said:

“One Manager, two assistants, one van-driver, and a part-time clerical assistant; with a wage bill of £42 a week.”

He added that one of the staff was a vary old man. Mr. Doyle also asked Mr. Cecil Olby how the trade was geared as between the retail trade and the wholesale trade. Mr. Cecil said:

“Two-thirds retail; one-third wholesale – all over the counter”.

In other words, it was trade which was done from the shop itself and would not need a traveller to go round and canvass for orders. On those representations, Mr. Doyle agreed to buy this business. The agreement was entered into in January 1964. Mr. Doyle agreed to pay £4,500 down in cash, which covered the goodwill, fixtures and fittings, and the remainder of the lease (which had about four years to run). The stock was to be bought on valuation. In addition, there wag a restrictive covenant on the sellers, Olby (Ironmongers) Ltd., in which they covenanted that they would not for five years engage in any Ironmongers’ business within a radius of ten miles from 12 Upper High Street, Epsom.

Mr. Doyle paid the £4,500. He took over stock at a valuation of £5,000 which he paid. He needed a longer lease, so he surrendered the existing lease and took a longer lease at a greatly increased rent. The freeholder who benefited was Mr. Cecil Olby himself.

In order to pay all the money, Mr. Doyle put up all the cash he had – £7,000; and he raised £3,000 on mortgage from Askinex Ltd.

So he went into occupation. But I am afraid that things were very different from what he was led to believe. The turnover was far less than he had been told. The trade was not all over-the-counter. Half of the trade was wholesale business which could only be obtained by employing a traveller to go round to the customers. Mr. Doyle could not afford to employ a traveller. So all that trade was lost. The whole transaction was a disaster for Mr. Doyle. To add to his troubles, in February 1964, soon after Mr. Doyle went into occupation, a company called A. Olby Ltd. of Penge (which was closely associated with the vendor company, A. Olby (Ironmongers) Ltd.) canvassed and sent travellers round to customers who had been previously customers of the Epsom business. The judge held that this was not a breach of the restrictive covenant, though I am not so sure about it.

Mr. Doyle was most dissatisfied, and in May 1964 he brought this action for damages for fraud and conspiracy against the company which sold him the Epsom business, that is, Olby (Ironmongers) Ltd.; against Mr. Cecil Olby, who was the man who worked in that business; Mr. Leslie Olby, his brother, who was a director; and against A. Olby & Son Ltd., which was the company at Penge, of which Mr. Leslie Olby was managing director.

Although Mr. Doyle had started the action, he had to remain in occupation. He had burnt his boats and had to carry on with the business as best he could. He tried to sell it, but there were difficulties. One was that the landlord, Mr. Cecil Olby, would not give him a licence to assign, and so forth. After three years he did manage to sell it for a sum of some £3,700. This cleared off the mortgage to Askinex Ltd., but he was left with many outstanding debts to the bank, to suppliers, and the like. His debts came to £4,000, and he has been sued in the County Court by many of his creditors.

The case came for trial before Mr. Justice Swanwick in July 1967. It took many days, but in the end Mr. Justice Swanwick found that the defendants had been guilty of fraud and conspiracy. The accounts which were produced in November 1963 to Mr. Doyle contained “a blatantly wrong figure” for wages and management remuneration. The representation by Mr. Cecil Olby that the sales were “all over the counter” was completely untrue, and must gave been known to Mr. Cecil Olby to be untrue. He was a traveller himself and went round to customers on two days a week at least. His wages amounted in the year 1962 to £555. That figure was not brought into the accounts which were produced to Mr. Doyle, and made them completely false. It turned out that Mr. Cecil Olby had had a breakdown and was not really capable of doing much business. But Mr. Doyle was not to know that. The Judge found that the representations were false to the knowledge of Mr. Cecil Olby, and that this knowledge must be imputed to the other defendants because he was acting on their behalf. Furthermore, there was a conspiracy between them to defraud Mr. Doyle.

The defendants put in a notice of appeal against the finding of fraud and conspiracy. It was on the list in this Court when the case was called on for hearing yesterday, but it was not persisted in. Mr. Smout abandoned it. So we approach the case on the accepted footing that Mr. Doyle was induced by the fraud and conspiracy of the defendants to buy this business.

The Judge awarded Mr. Doyle £1,500 damages. Mr. Doyle appeals against that award. He says it is far too small. The Judge arrived at the figure of £l,500 by accepting the submissions of Counsel then appearing for Mr. Doyle. The Judge said as to damages:

“My task is simplified by the submissions of the plaintiff’s Counsel, which I accept, that there are two alternative bases for damages, each of which arrives at virtually the same round figure. The first is that, to preserve the trade custom, it would have been necessary to employ a part-time traveller at about £600 a year, and I think there is a reasonable prospect that such a person could have been obtained. If 2½ times that figure is taken, that being the normal basis for valuing goodwill, it actually represents, as I have said, a reduction in the value of the goodwill equivalent to the cost of making good the representation, that is, about £l,500. Second, and alternatively, if the trade custom was 50% of the turnover, its loss would result in a reduction in the value of the goodwill of 33% to 40%, which, applied to the accountant’s figures of £4,000, again would approximate to a round figure of £1,500. Therefore, I think it is at this figure that I can best quantify the loss.”

It appears, therefore, that the plaintiff’s Counsel submitted, and the Judge accepted, that the proper measure of damages was the “cost of making good the representation”, or what came to the same thing, “the reduction in value of the goodwill” due to the misrepresentation. In so doing, he treated the representation as if it were a contractual promise, that is, as if there were a contractual term to the effect “The trade is all over the counter. There is no need to employ a traveller.” I think it was the wrong measure. Damages for fraud and conspiracy are assessed differently from damages for breach of contract.

It was submitted by Mr. Smout that we could not, or, at any rate, ought not, to correct this error. I do not agree. We never allow a client to suffer for the mistake of his Counsel if we can possibly help it. We will always seek to rectify it as far as we can. We will correct it whenever we are able to do so without injustice to the other side. Sometimes the error has seriously affected the course of the evidence, in which case we can at best order a new trial. But there is nothing of that kind here. The error was made at the end of the case. All the evidence had been taken on the footing that the damages were at large. It was only in the final submission that the error was made. Such an error we can, and will, correct.

The second question is what is the proper measure of damages for fraud, as distinct from damages for breach of contract. It was discussed during the argument in Hadley v. Baxendale & Co.((1854) 9 Ex 341), and finds a place in the notes to Smith’s Leading Cases (13th edition) page 563, where it is suggested there is no difference. But in McConnel v. Wright (1903 1 Ch. 546) at page 554, Lord Collins pointed out the difference. It was an action for fraudulent statements in a prospectus whereby a man was induced to take up shares. Lord Collins said of the action for fraud:

“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 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.”

But that statement was the subject of comment by Lord Atkin in Clark v. Urguhart (1930 A.C. 28) at page67. He said

“I find it difficult to suppose that there is any difference in the measure of damages in an action of deceit depending upon the nature of the transaction into which the plaintiff is fraudulently induced to enter. Whether he buys shares or buys sugar, whether he subscribes for shares, or agrees to enter into a partnership, or in any other way alters his position to his detriment, in principle, the measure of damages should be the same, and whether estimated by a jury or a judge. I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement. The formula in McConnel v. Wright may be correct or it may be expressed in too rigid terms.”

I think that Lord Collins did express himself in too rigid terms. He seems to have overlooked consequential damages. On principle the distinction seems to be this: in contract, the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in the contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say;

“I would not have entered into this bargain at all but for your representation. Owing to your fraud, I have not only lost all the money I paid you, but, what is more, I have been put to a large amount of extra expense as well and suffered this or that extra damages.”

All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen. For instance, in this very case Mr. Doyle hag not only lost the money which he paid for the business, which he would never have done if there had been no fraud: he put all that money in and lost it; but also he has been put to expense and loss in trying to run a business which has turned out to be a disaster for him. He is entitled to damages for all his loss, subject, of course to giving credit for any benefit that he has received. There is nothing to be taken off in mitigation: for there is nothing more that he could have done to reduce his loss. He did all that he could reasonably be expected to do.

This brings us to the third question: must we send the case back for a new trial for damages; or can we assess them ourselves? The difficulty is that we have not got a transcript of all the evidence. Mr. Doyle is a poor man. He comes here without legal aid. Ha was unable to afford a transcript. The defendants, I presume, could afford it, but they have not thought fit to get one. There was a finding of fraud and conspiracy against them. They gave notice of appeal against that finding. Yet they did not get a transcript of the evidence. It was they who ought to have done so. In these circumstances I do not think it would be right to put either party to the expense of getting a full transcript of eight or nine days’ evidence with all the delay that would entail. The Court must do the best it can to put right the error which has taken place. I will not go into the details myself as to the figures. It is a case for assessing damages at large much as a jury would do. Lord Justice Winn has considered the matter carefully and he will deal with it; but I say in advance that I agree with the figure which he is going to propose, that the damages should be in the sum of £5,500.

LORD JUSTICE WINN: I agree respectfully entirely with the judgment delivered by my Lord, and desire only to echo and then add a little to what he has said about the proper measure of damages for deceit. It is a most remarkable fact, as my Lord has remarked, that there is a complete dearth of authority upon the topic of the proper measure of damages in such a case. I would pay tribute to the passage in chapter 41 in Mayne & McGregor on Damages, 12th edition, where, in paragraphs 955 and some following paragraphs the learned authors have in effect proposed, in the absence of authority – since the cases to which they refer really lend no support for their proposition – that there should be a clear distinction drawn between the measure of damages which can be recovered for such a breach of contract as a breach of warranty as to the quality or value or condition of goods or premises sold, and the measure of damages for deceit – tortious fraudulent deceit. They make that proposition, and perhaps, if the judgment of this Court were to stand, they will in their next book have support for what they themselves were thinking. They refer to McConnel v. Wright, the case which my Lord has mentioned, and the case of Clark v. Urquhart (1030 A.C. 28), where a passage from Lord Atkin occurred which has been read by my Lord. It is right too observe that that passage of Lord Atkin’s speech was entirely obiter, since the subject-matter of the ease then before their Lordships’ House was nothing more than the proper form of order which should be made in the particular case, where there had been a payment into Court with a denial of liability and a number of complicated events. When one finds a great lawyer of Lord Atkin’s standing saying that which my Lord has quoted, for my part I think there is ample authority for the propositions in the edition of Mayne to which I have referred and the ruling which this Court is now giving. It is of interest, though of no direct support to that ruling, to note that a very similar distinction is found in decided authorities between damages for breach of contract and damages for breach of warranty of authority to contract on a principal’s behalf. In the case of Firbank’s Executors v. Humphreys (18 Q.B.D. 54) at page 60 Lord Esher said:

“The damages, under the general rule, are arrived at by considering the difference in the position he would have been in had the representation been true, and the position he is actually in, in consequence of its being untrue”.

It appears to me that in a case where there has been a breach of warranty of authority, and still more clearly where there has been a tortious wrong consisting of a fraudulent inducement, the proper starting point for any Court called upon to consider what damages are recoverable by the defrauded person is to compare his position before the representation was made to him with his position after it, brought about by that representation, always bearing in mind that no element in the consequential position can be regarded as attributable loss and damage 13 it be too remote a consequence: it will be too remote not necessarily because it was not contemplated by the representor but in any case where the person deceived has not himself behaved with reasonable prudence, reasonable common sense or can in any true sense be said to have been the author of his own misfortune. The damage that he seeks to recover must have flowed directly from the fraud perpetrated upon him. I gave myself during the argument in this Court an illustration – hypothetical, of course – which I understood Mr. Smout was prepared to accept as theoretically a sound illustration of the principle which these judgments are enunciating, for the first time, it may be, always assuming, of course, that that principle was itself to be accepted. If a man in this country is made the victim of a fraudulent misrepresentation that a business in Bangkok, Hong Kong, Manilla or the Fiji Islands has certain equipment, certain assets, certain goodwill, certain trade contracts and profits, and is thereby induced to pay for that business, it being, of course, understood by both parties to the transaction of sale for the procurement of which a fraudulent misrepresentation is made, that he will set out to that remote place with his family and it may be his household goods, at very considerable expense, and on arrival will acquire living accommodation and perhaps have to buy additional furniture and engage staff or servants, and he acts upon the representations and incurs all such expenses, and the business is found to be very different from that which it was fraudulently represented to be, so that he cannot survive out in the remote place to which he has gone and is bound to come back again, then I, speaking for myself, would not hesitate to give him all the outgoings from his pocket of the kinds which I have indicated up to such time as he should sensibly have come home again and had the money to come back again, less, of course, by way of set-off, any benefit which he has derived from the exploitation of such assets as he found there upon his arrival.

Having said that much, one turns to the instant case. It is, as my Lord has said and I respectfully agree, essentially a matter for a jury. I think myself with confidence that there is already sufficient evidentiary material available to enable this Court to make a jury assessment in round figures. It would be wrong and indeed an intolerable expenditure of judicial time and money of the parties to embark upon any detailed consideration of isolated items in the account on which a balance must be struck. I have looked at it myself in this way, and have arrived, let me say at once, at the same figure that my Lord has already mentioned. The starting point is a simple one: £4,500 was paid away out of his pocket by the plaintiff to acquire this business; and a further £5,000, in round figures, to take over stock at valuation. That was £9,500. When he came ultimately to leave the business, I say quite confidentially that he is not revealed by the evidence now before this Court, nor do I think it could have been shown by any evidence, having regard to the general circumstances of the case, to have hung on too long or to have behaved otherwise than as a sensible business man or to have brought misfortune upon himself. When he gave up the business after three years, he got out of it at that time £3,500 from the purchaser to whom he sold it, and he had, at a knock-down price, which I think was forced upon him, £800 for the sale of such stock as he then had. During the time that he was running or trying to run and revive this moribund, if not dead business, he drew £10 a week to live on out of the till, if one may use that expression, and he lived with his wife in part of the premises, for the totality of which he was paying a rental of £800 a year, plus, of course, rates. I think he should be debited with the £10 a week for the period and debited with £300 a year, making £900, for such living accommodation benefit as he then and his wife received from these premises. I would take those two items at a round figure together of £2,500. Adding up the benefits which I have mentioned, I arrive at a figure of £6,700 and call it £7,000. At that point, comparing outgoings with such benefits as ought to be set off, there is a gap or balance of losses of £2,500. Then one considers other consequences in terms of finance, because no damages are being awarded, at any rate, in this case today, by the Court for worry, strain, anxiety and unhappiness; it may be that in some cases such considerations might well be appropriate. He lost during the time he was trying to run this business additionally £700 that he borrowed from his mother and another relative. He incurred an overdraft of £1,400 with his bankers. At the time when he came out of occupation he was owing £480 odd for rates. He also owed some items, the items which he could actually recall in Court, totalling about £100, for goods supplied. He had been paying £22 odd a month interest on the loan of £4,000 which he had to raise in order to enable him to meet the purchase price of the business and the stock, which I have already mentioned, I do not propose to say more about details. If it were appropriate to go into those item by item, then I would think that three or four days would be set aside before some tribunal to investigate with more complete discovery; I venture to hope the result would not differ very much from that which I, as a common juror, have arrived at. As I say, one brings in those items. I have taken them at £6,800 which I have called £7,000 for the benefits, a gap of £2,500; and, having regard to the plaintiff’s evidence — when I say “evidence” I mean evidence before the trial Judge — and his answers to questions in this Court which I accept from him as an honest man, I think that a further round figure of £3,000 (for an estimated £3,380) should be added, and that his total loss should be £2,500 plus £3,000 — £5,500, as an award of damages. That means that this appeal should be allowed, in my view, to that extent.

LORD JUSTICE SACHS: I agree with all that has fallen from my Lords and with the award they propose.

I would first like to add a few words on the question whether anything that happened at trial should debar the plaintiff from recovering the amount of damages to which he is in law entitled. It has been submitted on behalf of the respondents that because in his closing address Counsel for the plaintiff Adopted at first instance an approach which led to the Judge making an assessment of damages upon the wrong basis, this Court cannot now award this plaintiff the sum to which in law he is entitled. Where an argument presented to this Court is different from that put before the trial Judge, this Court must approach with a degree of caution the question of whether to consider the new argument: but, after such examination it should be slow to impose a bar which would drive from the judgment seat any man with a just claim merely because it was not at trial presented in the best ay. Unless the respondent can, at any rate, show that he has been prejudiced by the course taken at first instance to such an extent that departure from it would be unjust to the respondent, there should be no bar. The books are full of instances where an appellant has succeeded on a different point to that taken at the trial. If and in so far as an erroneous approach at trial merely results in additional costs to the respondents, that can, of course, in appropriate cases be a matter to be dealt with by the appellate Court.

In the present case one has the position that the plaintiff has been the victim of a deplorable fraud — deplorable as regards the complete disregard of the defendants for commercial honesty; he has been awarded a sum that goes nowhere near the proper compensation, and to my mind, for the reasons given by the Master of the Rolls, there is no good reason why this Court should not order a proper compensatory award.

Turning now to the issue as to how much shall be awarded, it is the fact that the law as to the measure of damages recoverable in actions for deceit is one in which there is a dearth of direct authority except in cases relating to the purchase of shares, of goods, and of land, all of which have certain factors in common. The resulting problem is one which for my part I first came across some 35 years ago, and it is a problem that has in various forms recurred not infrequently in cases with which it has been my lot to be concerned. I take some comfort in the fact that over all that period it has seemed to me that practitioners have in general taken the same clear course as this Court is today adopting – based upon that passage in Clark v. Urquhart which is worth again recalling; in his speech Lord Atkin said in a concise manner:

“I should have thought it” – that is the measure of damages – “would be based on the actual damage directly flowing from the fraudulent inducement.”

In cases such as the present the wrong done is tricking a plaintiff into a contract, and the plaintiff is entitled by way of damages to whatever sum he has lost by being thus tricked. The question as to what a purchaser has lost must naturally depend on the subject-matter of the contract. If the contract is simply one such as the purchase of shares, normally the maximum loss will be the money out of which the purchaser has been tricked, a sum which, however, may well include brokerage or stamp duty: the value of benefits received will be taken into account. If the purchase is one of a business which the plaintiff but for the fraud would not have acquired at all, the objective of the Court is to put the plaintiff, in so far as it is possible, into the same position financially as if he had not entered into the contract at all; in other words, one must look at the end result of his having entered into the transaction and find out what was his loss over all. In this behalf I entirely agree with what has fallen from my Lords, The acquiring of a business does normally entail the expenses of moving into fresh premises, keeping the business going, and at any rate continuing to keep it going until such time as it can be disposed of; and then one looks also at the expenses of selling. The computation of the loss may in many cases not be easy. Thus the Court must obviously take care not to include sums for consequences which may be due to the plaintiff’s own unreasonable actions, and also not to include results which are too remote – matters which often involve difficult questions of fact and degree. But such difficulties do not alter the duty of the Court which should approach the matter on a broad basis.

In this case the central fact is that the plaintiff was tricked into buying a business which he would not otherwise have bought at all. It was one which, even with suitable protective covenants from the fourth defendant — and none were acquired — would anyway have been singularly unattractive to anyone who had honestly been told all the relevant facts. It was a business on which such goodwill as there was depended greatly on whatever course might be adopted by the fourth defendant in the future; and I for my part doubt whether a suitable protective covenant which would have worked from a practical point of view could have been devised. Any value attached to the business itself as being a going concern on an independent basis was vary small indeed; and it would seem to me that when once the facts were fully known to a purchaser, any sizeable payment for goodwill would have been very unlikely.

In fact, as matters turned out, the fourth defendants, part of what was called “the Olby empire”, and whose name was A. Olby & Son Ltd., did within either weeks of the sale of the relevant business (which was being carried on as A. Olby & Sons), for reasons which they were in law entitled to adopt, take a course which in practice saw to it that any goodwill of the business sold that was recovered for the empire, got back into the hands of the fourth defendants. For when the plaintiff raised the question of whether he had not been tricked by the first defendant, the fourth defendant cut off his supplies and set about canvassing the customers of the business sold; and we have had the benefit of having seen a letter signed by a director of the fourth defendant which contains, amongst other things, two lists, “The list marked ‘B’ contains accounts which dealt with Epsom” – that is to say, the business sold – “and Mr. Coombe was instructed on the 20th February 1964 to call on those customers on behalf of Penge. Likewise, list ‘C’ contains Epsom accounts and ” -another gentleman – was asked to call on behalf of Penge” – the fourth defendant – “as from the same date”. I mention those facts because, whilst that defendant was entitled to take that course which they in fact later did, it does demonstrate the risks which a purchaser of the business sold would take and would have a bearing on what is the proper measure of damages if one had in this instance to make a separate assessment of the value of the business sold, as Mr. Smout submitted. In practice, however, any value it had is taken into account in the balance worked out by Lord Justice Winn.

Now turning from the general picture to figures, for my part I do not wish to add anything to what has been said on detail by my Lord, Lord Justice Winn. I would only add this, that, making my calculations, at times by a slightly different route, from that taken in the course of his judgment, I came to a figure within a very small margin indeed of £5,500, before I had heard any of the questions put to or answers given by Mr. Doyle to certain matters in this Court. That figure of £5,500 seems the right figure, purely upon the basis of those facts which were, we have been told, in evidence before the trial Judge: it has been reached on a broad basis and it is one with which I find myself in full agreement.

Appeal allowed; judgment for £5,500 instead of £1,500, with all the plaintiff’s costs.

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