UK: The Continuing Effect Of A Negligent Pre-Contractual Misrepresentation

Last Updated: 1 May 2014
Article by Wai Yue Loh and Ajay Ahluwalia

Cramaso LLP (Appellant) v. Ogilvie-Grant, Earl of Seafield and Others (Respondents) (Scotland) [2014] UKSC 9

Pre-contractual representations: to whom is the duty owed? A recent Supreme Court Judgment dealing with an appeal from the Scottish Inner House decides that a party can be liable for a pre-contractual misrepresentation, even though the representation was first made to a party other than the ultimate contracting party. While this is a decision developing upon Scots law principles, it may well be persuasive (and is therefore significant) authority for English jurisprudence.

The background facts

The Respondents were the owners of a grouse moor at Castle Grant in Scotland, over which commercial shooting takes place. They sought to attract a tenant who would be willing to undertake the substantial investment in the moor in order to increase the number of grouse. In the autumn of 2006, the Respondents contacted an individual, E, to pursue the possibility of his taking a lease of the moor.

The Respondents made representations in an email to reassure E that the moor had the capacity to bear the planned shooting that season. The email included information about grouse counts and the estimated grouse population of the moor, extrapolated from the counts. The counts were based on the parts of the moor which were considered to be the most heavily populated by grouse, and were not representative of the moor as a whole. As a result, the estimated grouse population, as stated in the email, was well in excess of the actual population.

As negotiations progressed, E informed the Respondents that he intended to use a new LLP entity, Cramaso LLP, as a special purpose vehicle (SPV) to acquire the lease. The appellant LLP was incorporated on 16 November 2006 and the lease was signed on various dates between 8 December 2006 and 18 January 2007.

Proceedings were brought against the Respondents on the basis of misrepresentation.

The Lower Scottish Court decisions

At first instance, the Judge found that E had been induced to enter into the lease on behalf of Cramaso by a misrepresentation that had been made negligently. However, the Judge dismissed the proceedings on the ground that, at the time the misrepresentation was made, Cramaso had not come into existence. Cramaso appealed the decision. The Appeal Court held that the Respondents could only have foreseen that the representation would be relied upon by E, but not Cramaso. For that reason it was held that no duty of care was owed to Cramaso at the time when the misrepresentation was made, and Cramaso therefore had no cause of action.

The UK Supreme Court

The Supreme Court decided that this approach was incorrect. The starting point was that, in the right circumstances, a representation had the capacity to have a continuing effect.

The Supreme Court relied on the House of Lords decision in Briess v. Wooley [1954] to the effect that where there is a gap in time between the misrepresentation being made and when the contract is entered into, the law regards the representation as continuing during the whole interim period, unless the representation is withdrawn or modified. As a result, if the representation continues to have a causative effect from the time it was made through to the time when the contract is concluded, then the representor has a continuing responsibility in respect of the accuracy of the representation.

The Supreme Court decided that the representation was undoubtedly of a continuing nature so long as E remained the prospective contracting party. The key question to be decided was whether the representation continued after the identity of the prospective contracting party changed and, if so, whether the Respondents assumed a responsibility towards Cramaso for the accuracy of the representation.

Continuing representations

The Supreme Court held that the fact that the ultimate contracting parties were not the original representor and representee did not necessarily preclude the possibility that the representation may continue to be asserted and have a causative effect so as to induce the conclusion of the contract.

On the facts, the parties' conduct was such that the representation continued to have a causative effect, so as to induce the conclusion of the contract, even after Cramaso replaced E as the potential contracting party.

Lord Reed, giving the leading judgment, noted that the Respondents were fully aware that E had set up Cramaso as an SPV solely in order to acquire the lease. E's continuing negotiations with the Respondents were from then on in the capacity of an agent for Cramaso rather than on his own behalf. There had been no change in the status of the representation, which had not been withdrawn and remained operative in the mind of E after he began to act in the capacity of an agent for Cramaso, up until the time when the lease was executed. Cramaso was thus induced to enter into the contract by that representation. The Respondents therefore owed Cramaso a duty of care, which they failed to fulfil. Cramaso was accordingly allowed to recover for negligent misrepresentation.

Comment

The decision means that a contracting party can be liable in negligence for a representation made in pre-contractual negotiations, and which induced the conclusion of the contract by someone other than the original representee. It is submitted that the decision reached was the correct one. Although there are some novel features to this decision, the Supreme Court were very conscious of asserting that the problem did not require new principles to resolve, and the decision was reached on the grounds of long-established legal principles and on the specific facts.

That said, this is the first reported decision dealing with this point expressly. The decision will be of particular importance and interest to parties who are in the practice of incorporating SPVs for the purpose of entering into contractual arrangements. Given that a pre-contractual representation can have continuing effect and can even survive a change in identity of the representee, special thought should also be given to how parties wish to treat pre-contractual representations.

The case also serves as a helpful reminder of the use of entire agreement clauses in appropriate circumstances if parties wish to exclude reliance on representations not contained within the four corners of the agreement.

As an appeal under Scots law, the decision is merely persuasive, rather than binding, authority in English law. However, although the Supreme Court has not yet authoritatively decided this point as a matter of English law, it is suggested that for all practical purposes commercial parties can assume that the decision sets out the English law position.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions