Cramaso LLP v Ogilvie- Grant, Earl of Seafield & Ors (Scotland) [2014] UKSC 9

Mr Erskine received a negligent misrepresentation about grouse numbers on a moor before forming Cramaso LLP, which then signed the lease. The Supreme Court held the misrepresentation was continuing, so the LLP could recover damages despite not existing when the statement was made.

Facts

The respondents owned a grouse moor at Castle Grant and sought a tenant willing to invest in increasing grouse numbers. Mr Erskine entered into negotiations to take a lease. On 29 September 2006, the respondents’ chief executive Mr Lewis sent an email (the ‘critical email’) containing grouse population estimates extrapolated from counts conducted only on the most densely populated parts of the moor. The estimated population was materially higher than the actual population. The email was forwarded to Mr Erskine on 2 October 2006. Mr Erskine then decided to proceed and instructed solicitors to form a limited liability partnership as the contracting vehicle. Cramaso LLP was incorporated on 16 November 2006 and the lease was executed between 8 December 2006 and 18 January 2007. Once the inaccuracy emerged, Cramaso sought reduction of the lease and damages.

The Lord Ordinary (Lord Hodge) held there was a negligent (but not fraudulent) misrepresentation which had induced Mr Erskine, but dismissed the claim on the basis that Cramaso did not exist when the email was sent and therefore could be owed no duty of care. The Second Division upheld that conclusion on the basis of insufficient proximity under Caparo Industries plc v Dickman.

Issues

The principal issues, as reframed in the Supreme Court, were:

• Whether the negligent misrepresentation made before Cramaso’s formation could be treated as a continuing representation operative at the time the lease was concluded;
• Whether, in those circumstances, the respondents owed Cramaso a duty of care in respect of the accuracy of the representation;
• Whether, under section 10 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, Cramaso could recover damages as a party induced into the contract by a negligent misrepresentation made by another party to that contract.

Arguments

Appellant (Cramaso)

Cramaso contended that the misrepresentation was continuing and remained operative when the lease was executed. As Mr Erskine had become Cramaso’s agent, the respondents could not disclaim the way in which the contract had been brought about. Reliance was placed by analogy on Briess v Woolley.

Respondents

The respondents argued that, under Caparo, no duty of care could be owed to Cramaso because at the time of the email there was no one other than Mr Erskine whose reliance was reasonably foreseeable, and Cramaso did not then exist. They further submitted that Cramaso had to show that Mr Lewis knew or ought to have known there was a high degree of probability the email would be passed to Mr Erskine.

Judgment

The Supreme Court (Lord Reed delivering the leading judgment, with Lord Toulson concurring) allowed the appeal.

Continuing nature of the representation

The Court held that a representation made in pre-contractual negotiations to induce a contract is ordinarily to be treated as continuing until the contract is concluded. Lord Reed drew on authorities including Smith v Kay, With v O’Flanagan, Brownlie v Campbell and the Australian decision in Jones v Dumbrell. A representor bears a continuing responsibility for the accuracy of such representations, which may give rise to liability if not corrected before the contract is concluded.

Change in identity of the contracting party

The change in the prospective contracting party from Mr Erskine personally to Cramaso did not break the chain. Neither party drew a line under the earlier negotiations or sought fresh assurances. By continuing the negotiations without withdrawing the representation, the respondents implicitly continued to assert its accuracy to Cramaso through Mr Erskine, now acting as its agent. The Court drew direct support from Briess v Woolley, where a fraudulent misrepresentation made before the representor became an agent was held to be a continuing representation for which the principal was liable. The same reasoning applied where, conversely, the representee later became an agent, and to negligent as well as fraudulent misrepresentations.

Duty of care and section 10 of the 1985 Act

Lord Reed clarified that section 10(1) of the 1985 Act is drafted negatively: it removes the bar (formerly imposed by Manners v Whitehead) on recovery of damages where a contracting party was induced by a non-fraudulent misrepresentation, but it does not create a statutory liability. A duty of care must still be established at common law, though in pre-contractual negotiations between parties such a duty will usually be obvious, following Esso Petroleum Co Ltd v Mardon. The Court considered that the cases interpreting section 10(1) at first instance (Hamilton v Allied Domecq and BSA International v Irvine) had been imprecise in suggesting the section itself provides the remedy.

Application

On the facts found by the Lord Ordinary, the respondents owed Mr Erskine a duty of care in respect of the critical email; by continuing negotiations after Cramaso’s formation without disclaiming the representation, they assumed responsibility to Cramaso for its accuracy and owed it a duty of care, which was breached.

Lord Toulson’s concurring judgment

Lord Toulson agreed, emphasising that Caparo-type analysis was unnecessary where a representation is made by one prospective contracting party directly to another in respect of the very transaction being negotiated. The Esso v Mardon principle applied. He endorsed the analogy with Briess v Woolley, observing that the continuing potency of a representation does not depend on whether it was made fraudulently or negligently.

Implications

The decision confirms that, in Scots law, pre-contractual misrepresentations are ordinarily to be treated as continuing until the contract is concluded, and that the representor’s responsibility for their accuracy continues throughout. Significantly, a change in the identity of the contracting party (for example, where an individual incorporates a vehicle to take the contract) does not necessarily extinguish the representor’s responsibility, provided negotiations continue seamlessly and the representation is not withdrawn.

The judgment also clarifies that section 10(1) of the 1985 Act does not impose a statutory duty but removes the historical bar to damages where fraud cannot be established. A duty of care must still be shown, although in the pre-contractual context between negotiating parties this will normally be readily established under the principle in Esso v Mardon, without resort to the full Caparo tripartite test.

The decision is of practical importance to commercial parties, particularly where incorporated vehicles are formed mid-negotiation to take contracts. Representors who wish to limit ongoing exposure should expressly withdraw or qualify earlier representations, or stipulate that fresh assurances are required. The Court was careful not to suggest a general duty of care in contractual negotiations, noting that parties remain entitled to pursue their own interests and that disclaimers, time limits, contractual exclusions or supervening contractual terms may negate any such duty. The case will return to the Court of Session for further procedure on remedy.

Verdict: Appeal allowed. The Supreme Court held that the negligent misrepresentation was a continuing representation which remained operative at the time the lease was concluded, that the respondents had assumed responsibility to Cramaso for its accuracy and owed it a duty of care, which they had breached. The case was remitted to the Court of Session for further procedure.

Source: Cramaso LLP v Ogilvie- Grant, Earl of Seafield & Ors (Scotland) [2014] UKSC 9