In Cramaso LLP v Viscount Reidhaven's Trustees (2014), the Supreme Court considered a claim relating to a negligent misrepresentation made in pre-contractual negotiations. The Supreme Court held that the lower Scottish courts had erred in finding the non-existence of a duty of care between the respondent, a landlord, and the appellant, an LLP created to enter into a lease, which had suffered losses resulting from a negligent misrepresentation made to its agent prior to its incorporation. The Supreme Court held that the respondent had a continuing responsibility for this negligent misrepresentation until the conclusion of the contract. The court also held that a duty of care was established between the respondent and the appellant, despite the fact that the negligent misrepresentation was made before the incorporation of the appellant.

Background

In 2006, Viscount Reidhaven's Trustees, the owners of a grouse moor in Scotland (the "owners"), sought to lease the moor to a tenant. They appointed a chartered surveyor to attract potential tenants and he entered into discussions with an interested businessman. Following a visit to the moor, in an e-mail to the surveyor, the businessman expressed his concerns that over-shooting on the estate had caused significant damage to grouse stocks. The surveyor relayed this to the owners, agreeing that over-shooting had indeed taken place and stating that this may make the letting of the moor impossible. To reassure the businessman, the owners then prepared an e-mail, which was forwarded to the businessman by the surveyor (referred to in the Supreme Court judgment as the "critical e-mail"), which gave a misleading figure for the total grouse population on the estate. The businessman decided to proceed with the lease. He informed the owners that he planned to incorporate a limited liability partnership, Cramaso LLP ("Cramaso"), as a vehicle to enter into the lease. He also subsequently acted as agent for Cramaso to negotiate the terms of the lease. When the businessman later discovered that the grouse population was smaller than had been indicated, Cramaso issued proceedings in the Scottish Court of Session to seek damages for misrepresentation and the reduction of the contract (a Scots Law term for the setting aside of the contract).

At first instance, the Judge found that the critical e-mail contained a negligent misrepresentation. However, applying the principles set out inCaparo Industries Plc v Dickman (1990) to establish the existence of a duty of care, the Judge held that no duty of care was owed to Cramaso by the owners because Cramaso had not been in existence at the time that the critical e-mail was sent to the businessman. As such, Cramaso was unable to recover damages. 

Upon Cramaso's appeal, the appellate court disagreed with the Judge's view that a non-existent entity is precluded from being owed a duty of care. However, again applying the principles set out in Caparo, the appellate court held that there was insufficient proximity between the appellant and the respondents for the existence of a duty of care. Although the critical e-mail contained a negligent misrepresentation, the respondents could not have reasonably foreseen that the critical e-mail would be relied upon by anyone other than the businessman. Accordingly, the Court held that no damages should be awarded to the appellant.

Cramaso appealed to the Supreme Court, which unanimously allowed its appeal.

Decision

Lord Reed's lead judgment raised two key questions. First, whether the representation made in the critical e-mail was of a continuing nature, and secondly whether the respondents' responsibility for the accuracy of the representation continued after the identity of the contracting party had changed.

In relation to the first question, the Supreme Court held that the law is capable of imposing a continuing responsibility on the maker of a pre-contractual representation, which continues until a contract is concluded. As such, it was held that the misrepresentation in the critical e-mail was indisputably of a continuing nature, as long as the businessman remained the contracting party.

Although it concerned a misrepresentation which was fraudulent rather than negligent, the Supreme Court considered the case of Briess v Woolley (1954) to be analogous in relation to the second question. InBriess, it was held that a principal can be responsible for fraudulent misrepresentations made by his agent. The Supreme Court extended the application of this principle to the converse situation of the present case, in which the representation was made to the contracting party's agent, as opposed to by the agent. The Supreme Court held that by continuing contractual negotiations with the appellant, through its contracting agent, the respondents were implicitly asserting the accuracy of the representation made in the critical e-mail. The agent, and therefore the appellant, continued to be motivated by the representation in the critical e-mail. The change in identity of the contracting party did not affect the continuing nature of the representation, nor the respondents' continuing responsibility for its accuracy. As such, a duty of care was established between the appellant and the respondent, which was breached. The respondents were liable to pay damages for the resulting loss suffered by the appellant, which were assessed in accordance with Scots Law.

Comment

The Supreme Court judgment is significant in that it has widened the scope of liability for negligent misrepresentation. It is the first time that the court has considered the liability of a party making a negligent misrepresentation which induces the conclusion of a contract by someone other than the original party to whom the misrepresentation was made. The judgment indicates that a negligent misrepresentation can continue if the person to whom the representation was made becomes an agent of the eventual co