Cramaso LLP v Ogilvie-Grant, Earl of Seafield & Ors (Viscount Reidhaven’s Trustees) [2014] UKSC 9

A representation made during contractual negotiations for the purpose of inducing a contract will ordinarily be regarded as continuing until the contract is actually concluded, because it will generally be reasonable for the representee to continue to rely on it.

In a recent appeal before the UK Supreme Court, the court was asked to consider whether a duty of care arose out of certain representations where the entity seeking to rely on such representations was not in existence at the time such representations were made. The court held that the representations made were continuing in nature even where the identity of the prospective contracting party changed.

Facts

The respondents were owners of a grouse moor in Scotland where commercial shooting took place. Cramaso (the “appellant”) was a limited liability partnership formed by Mr Alistair Erskine (“Erskine”) and his wife as a vehicle for entering into a commercial contract with the respondents.

The respondents had sought to attract a tenant to invest in the moor to increase the number of grouse. In 2006, Erskine was approached in this regard and in considering the respondent’s offer, he expressed concern that the shooting planned for that season would leave an inadequate grouse breeding population on the moor.

Erskine’s concern was expressed in an e-mail to the respondents’ chartered surveyor (“Kennedy”). Kennedy forwarded this e-mail to the respondents’ chief executive (“Lewis”). Lewis responded to Kennedy (the “critical e-mail”) by referring to an earlier e-mail (the “August e-mail”) in which Erskine was copied, and invited Kennedy to forward his response to Erskine. The August e-mail stated that the grouse counts, which had been completed, had disclosed grouse stocks at the highest level in recent years. Lewis, in the August e-mail, expressed the view that the stocks appeared adequate to complete the booked shooting programme but that they would have to think through the stocking levels. The August e-mail contained among other things a description of the count system used by shooting estates, and an extrapolation of the count.

Kennedy forwarded the critical e-mail to Erskine, as Lewis suggested.

The appellant’s claim

Erskine decided to proceed with the transaction and concluded the lease in the name of a limited liability partnership (i.e. the appellant). The respondents were informed of this and discussions continued between Erskine and Lewis with the lease signed within a few months of the appellant’s incorporation.

Erskine subsequently discovered that the areas counted pursuant to the counting system were not representative of the moor as a whole, that the grouse population was smaller than he had believed, and that it would in consequence take longer for the population to recover to the point where shooting could take place at the level he had intended. He considered that Lewis had deliberately misled him in the critical e-mail in order to induce him to take on the lease, and brought the present proceedings on that basis.

At first instance, the court held that the appellant could not recover damages because it had not been in existence at the time when the critical e-mail was sent. The court at first instance reasoned that, although the respondents owed a duty of care to Erskine, no such duty was owed at that time to the appellant, because the court was of the view that a non-existent entity could not hold any right or be owed any duty.

Issues before the Supreme Court

On appeal, the main issue before the Supreme Court was whether, on the assumption that the respondents owed a duty of care in negligence to Erskine, such a duty of care was therefore owed to the appellant.

It was accepted by the court at first instance that the critical e-mail contained a material misrepresentation, namely an implicit representation that the counts were representative of the population of grouse on the moor.

Judgment

The Supreme Court noted that the representation contained in the critical e-mail was undoubtedly of a continuing nature so long as Erskine remained the prospective contracting party. The question was whether the representation continued after the identity of the prospective contracting party changed, and if so, whether the respondents assumed a responsibility towards the appellant for the accuracy of the representation.

The court held that the change in the identity of the prospective contracting party (i.e. from Erskine to the appellant) did not affect the continuing nature of the representation, or the respondents’ continuing responsibility for its accuracy. Where the inference to be drawn is that a representation continued to be made until the contract was concluded, it may also be inferred that the risk of harm being suffered as a result of reliance upon it, in the event that it was inaccurate, continued to be foreseeable. In such circumstances, the representor may be taken to have assumed responsibility for the accuracy of the representation towards the contracting party who relied upon it, even though that person was not the original representee.

The court noted that negotiations which had been underway between Erskine and the respondents, in the course of which the critical e-mail was sent, simply continued after it had become apparent that a limited liability partnership was to be used as Erskine’s investment vehicle. The representation made in the critical e-mail remained operative in the mind of Erskine after he began to act in the capacity of agent of the appellant, up until the time when the lease was executed on behalf of the appellant. The court held that the appellant was thus induced to enter into the contract by that representation.

The court further held that, by continuing the negotiations with the appellant through Erskine as its agent, the respondents by their conduct implicitly asserted to the appellant the accuracy of that representation. The court held that the respondents owed the appellant a duty of care which they had failed to fulfil and they were therefore liable in damages for any loss suffered by the appellant as a result.

Comments

This case demonstrates how a continuing representation can be capable of remaining in effect until a contract has been concluded, and even where the identity of the prospective contracting party may change prior to concluding that contract. Where the identity of the prospective contracting party has changed, a representor may, depending on the facts of a given case, be taken to have assumed responsibility for the accuracy of the representation towards the contracting party who eventually relies on it, even though that person was not the original representee.