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Misrepresentor remains in firing line following change of counterparty

04 March 2014. Published by Daniel Hemming, Partner

In Cramaso LLP v Ogilvie-Grant, Earl of Seafield and others[i] the Supreme Court considered whether a party could be liable for a negligent pre-contractual misrepresentation in circumstances where the party to which the representation was originally made was not the ultimate contracting party.

Briefly, the respondents were the owners of a grouse moor, which was used for commercial shooting.  The respondents were seeking a new tenant to invest in the moor and increase the number of grouse and entered into discussions with an interested party, Mr Erskine.  The respondents provided evidence to Mr Erksine of the representative grouse numbers on the moor.  Mr Erksine decided to take on the lease in the name of a new LLP and the negotiations between the parties continued.  Mr Erksine later discovered that the evidence provided was not representative of the actual numbers of grouse on the moor and brought proceedings in Scotland for negligent and fraudulent misrepresentation at common law.

At first instance, it was held that that the respondents did not owe the appellants a duty of care at the time the representation was made because the appellant did not exist at that time and so the claim failed. On appeal the parties agreed that the first instance judge had been wrong to find that the appellant's nonexistence at the date of the representation precluded a successful claim but held that there was no proximity between the parties because the respondents could not have reasonably foreseen reliance on the representation by anyone other than Mr Erksine.  

The Supreme Court did not agree with the approach of the lower courts and said that the starting point was to consider whether the lease was concluded on the basis of a continuing representation by the respondents to the appellants.  If it was, and if the respondents assumed a responsibility towards the appellant for the accuracy of the representation such that they owed it a duty of care, then the respondents could be liable to the appellant for the negligent misrepresentation.

The Supreme Court held that there was no reason in principle why a representation could not continue in circumstances where the original representee was not the contracting party and on the facts of this case held that a negligent misrepresentation could have continuing effect in circumstances where the original representee (as opposed to the representor) became the agent of the contracting party.

To read the full article, including the facts of the case, judicial reasoning and case comment, please click here.

[i] [2014] UKSC 9

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