UK: Significant Supreme Court Decision On Negligent Misrepresentation

In a judgment given on 12 February 2014, the Supreme Court considered a claim based on negligent misrepresentation made in pre-contractual negotiations.

The facts

The case involved a businessman who had incorporated an LLP as the vehicle to enter into a lease for a grouse moor on an estate, but subsequently acted as agent for the LLP in continuing and completing negotiations. The Supreme Court held that the landlords had negligently made an implicit misrepresentation to the businessman before the incorporation of the LLP, which was then repeated to him in his role as agent for the LLP and continued until signature of the lease. In this case the businessman suffered loss regarding the grouse counts on the moor that turned out to be much smaller than the businessman had been led to believe. It was held that the landlords owed a duty of care to the LLP on the basis of the negligent misrepresentation prior to incorporation of the LLP – it was foreseeable that the representation would induce the businessman to enter into the contract and the landlords were liable for any loss (e.g. the businessman's associated expenses) suffered as a result.

Background

The Supreme Court considered the principle established in the case of Briess v Woolley. The Briess case stated that a principal can be responsible for fraudulent misrepresentations made by his agent which induces another party to enter into a contract which the agent makes on behalf of his principal if the misrepresentation continues to influence the representee after the agent's appointment (even if it was made before the agency began). The Supreme Court extended the principle here as the representation was made to (rather than by) the contracting party's agent prior to the commencement of the agency and the representor (in this case, the landlords) could, depending on the facts, be taken to be implicitly repeating the representation previously made. Though the Briess case involved a fraudulent misrepresentation, the Supreme Court held that it should be able to apply to a negligent misrepresentation too.

Decision

In this case it was found that the landlords had a continuing responsibility for the negligent misrepresentation until the contract was concluded, and were liable for the losses suffered by the contracting party induced into concluding a contract as a result of the negligent misrepresentation made earlier to a different representee (the businessman).

The Supreme Court has therefore now stated that a negligent misrepresentation can potentially have a continuing effect until a contract is concluded, where the person who makes the representation, or to whom it is addressed, becomes the agent of the person by whom the contract is concluded. The Supreme Court has therefore extended the principle established in Briess.

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