Liability for misrepresentations made to a third party
CRAMASO v OGILVIE-GRANT, EARL OF SEAFIELD & OTHERS (SC) [2014]
The highest Court in the United Kingdom, the Supreme Court (SC), considered whether a party could be liable for a negligent misrepresentation made before a contract was entered into where the party to which the representation was originally made was not the ultimate contracting party.
Facts:
- Mr Erskine (E) was interested in buying the grouse moor at a castle in Scotland but he was concerned about the number of grouse on the moor and the effects of over-shooting. The estate owners asked their surveyor to send E an email to reassure him which essentially said that the level of grouse on the moor should not be a concern. On the basis of that email E set up a new limited liability partnership, Cramaso (C), and concluded the purchase of the moor in C’s name.
- It then transpired that the level of grouse on the moor was smaller than as originally described and it would take longer than anticipated to restore the grouse population to the levels that E intended.
- C brought a claim against the former estate owners for their alleged misrepresentation, which if not fraudulent was arguably negligent.
Decision:
- The allegation of fraud was not substantiated and so the question was whether C was induced to enter into the contract by a negligent misrepresentation and, if so, whether it was entitled to recover damages.
First Court:
- The first Court in Scotland found that there had been a misrepresentation about the grouse which was made honestly but negligently and which had induced C to enter into the contract. However, the estate owners could only be liable to C for a negligent misrepresentation if they owed C a duty of care at the time when the representation was made in the email. As C did not exist at that time, the Court said there could be no such duty, and the claim failed.
Second Court:
- C appealed. The second Court in Scotland said that the first Court had been wrong to say that because C was not in existence at the date of the email, the claim could not be successful. However, when the email was sent it was held that the estate owners could not have reasonably foreseen that anyone other than E would have relied upon the representation. The appeal Court therefore held that no duty of care was owed to C.
Supreme Court:
- C then appealed to the SC. The SC took a different view and considered that the previous Courts’ approach was not correct. The starting point should have been to look at whether the contract was concluded on the basis of a continuing representation by the estate owners to C. A representation will not always be a continuing one. However, in this case the SC found that the representation had continued until the contract was concluded. The negotiations in the context of which the email was sent carried on in the same way after it became clear that C and not E personally would be the contracting party. C was just to be the legal vehicle used to channel E's investment.
- There was no disclaimer of the representation and by their conduct, the estate owners implicitly asserted to C the accuracy of that representation in a situation where it was still foreseeable that the representation would induce the other party (whether E or C) to enter into the contract. They therefore assumed a responsibility to C for the accuracy of the representation and owed C a duty of care, which they failed to fulfil.
- At the time of writing, the amount of damages to be awarded to C was still to be decided.
Points to note:
- This case shows that in appropriate circumstances the Courts are willing to impose a continuing responsibility on a party who makes a pre-contractual representation even where there is an interval of time between the making of the representation and the conclusion of a contract. This is still the case where the party which originally received the representation is not the one who actually enters into the eventual contract. This has to be a sensible outcome since in many cases the exact legal entity which enters into the transaction will be a legal formality. In reality the representation has still had an influence on the entry into the contract.
- The SC said, “What matters is the continuing potency of the representation as an inducing factor.” The party making the representation will not therefore be able to rely upon a technicality regarding a change in the identity of the contracting party in order to be able to defeat the claim.