A decision last year at first instance illustrated how a “negotiating device” (in this case, to encourage a purchaser to agree to a price increase) can constitute fraudulent misrepresentation. This year the same dispute was referred to the Court of Appeal because the supplier disputed the customer inducement (or causation) test which had been applied by the High Court as part of the customer’s misrepresentation claim.
A US customer contracted with a Netherlands based supplier of dried egg products. The contract price was subsequently renegotiated, the proposed price increase having been described by the supplier as reflecting the additional costs of ensuring its compliance with US regulatory requirements. A costs breakdown was provided to show this, the customer agreed to the price increase and the renegotiated contract was signed. In fact the new price included a profit element and the real motivation for the price increase had been the increase in the market price for eggs since the date of the original contract.
In time the customer concluded that the supplier's processes did not comply with US regulatory requirements and rejected the goods. However the supplier’s processes were compliant and it claimed damages of €19 million for loss of profit attributable to the customer's breach of contract. One part of this dispute concerned whether damages payable to the supplier should be calculated on the basis of the original contract or the, higher priced, renegotiated contract.
As we reported in last year's Case Round Up, at first instance the court found that “what was said about the additional costs was a negotiating device used to persuade [the customer] to agree an increase to the already agreed price.” It concluded that the supplier did not believe the uplift to be a genuine estimate of the additional cost and that the supplier's presentation of the price increase as being such constituted a misrepresentation of fact.
Misrepresentation claims require an element of causation between the misstatement and the innocent party's subsequent behaviour. The usual test for misrepresentation claims is whether, "but for" the misrepresentation, the claimant would have "entered in to the contract" (or accepted the new price, in this case). However because this misrepresentation was fraudulent the High Court applied a weaker test, asking itself whether, "but for" the misrepresentation, the customer "might have acted differently" (from agreeing to the price increase). Applying that test the court concluded that the fraudulent misrepresentation might have induced the customer to agree to the price uplift and rescinded the renegotiated contract. This left the original contract left in place and resulted in a lower damages award for the supplier.
This year the supplier disputed the High Court’s “might have” test. Commenting that it was “surprising that these are still controversial questions”, the Court of Appeal concluded that, in cases where the misrepresentation is fraudulent:
- it should be presumed in fact (not law) that that the innocent party was induced by the fraudulent representation; and
- it will be very difficult, but not impossible, to rebut this presumption.
Applied to the facts of the case, the presumption was that the customer had been induced to agree to the price increase by the supplier’s fraudulent claim that the increase represented the supplier’s additional compliance costs. The supplier had not rebutted this presumption.
The outcome, therefore, remained unchanged. The second contract was rescinded and the supplier’s damages were calculated on the basis of the original contract price.
Wells v Devani [2019] UKSC 4 (BAILII entry available here) The Supreme Court considered whether an oral agreement between vendor and estate agent was sufficiently certain as to be binding. An estate agent brought proceedings against his client for non-payment of commission. Following a telephone call between them, the agent had successfully found a purchaser for the client’s flats. In that call the parties had agreed that the agent’s commission of 2% plus VAT but the trigger event for payment had not been discussed. The vendor argued that the absence of this information made the relationship too uncertain for the obligation to pay commission to be binding. The Supreme Court held that as a matter of interpretation the commission was payable on completion of the sale. Although interpretation disputes usually turn upon drafting the context and conduct of the parties could also be relevant. In this case a reasonable person would have understood the parties to have meant for completion to trigger the right to payment with the amount due would be paid out of the proceeds of sale. The contract was sufficiently certain and complete to be enforceable. (1) Mr Stavros Neocleous (2) Mrs Kalliroy Neocleous v Ms Christine Rees [2019] EWHC 2452 (Ch) (BAILII entry available here) An exchange of emails satisfied the legal requirement for the sale of land to be in in writing and signed (section 2(1) Law of Property (Miscellaneous Provisions) Act 1989). The claimant in this dispute sought specific performance of the sale of land. The agreement to sell had been reached in the context of another dispute and formed part of a compromise agreement documented by the exchange of solicitors emails. Seemingly, the defendant subsequently changed her mind. She sought to challenge the sale on the basis that the email exchange did not satisfy the legal technicalities for a land disposition which require the agreement to be in writing and signed. The signatures on the relevant emails had been automatically applied, in the usual way. Was this significant when assessing whether or the emails had been “signed” ? The court decided that it was not. The presence of the name indicated a clear intention to authenticate or sign the email’s contents. The contents of the email only appeared above the automatic name because of the writer’s conscious decision to insert its contents. “Many thanks” showed that the content was connected with the sign off. What’s more, the recipient had no way of knowing whether the name had been added automatically or the sender had manually entered his or her name. The email had been signed and the claimants were entitled to the order for specific performance. This finding is in line with earlier cases on guarantees and a recent report of the Law Commission intended to clarify the position.
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