MCI Worldcom International Inc v Primus Telecommunications Inc

For summary judgment, a defence or counterclaim must have a real prospect of success. An innocent misrepresentation by an agent may support rescission where the representation was factual, untrue and within the agent’s actual or apparent authority. A negotiating lawyer had no such authority to represent the parent company’s financial viability.

For damages under section 2(1) of the Misrepresentation Act 1967, the relevant liability is that of the contracting representor. The statutory inquiry cannot begin unless an actionable representation and the agent’s authority are established. Contractual entire-agreement and exclusion clauses are construed by reference to their subject matter and did not exclude separate representations about financial viability.

WorldCom claimed unpaid annual and upgrading charges under three telecommunications capacity agreements and an upgrade agreement. Primus accepted that it had terminated the agreements following WorldCom’s Chapter 11 bankruptcy but sought to defend the claim and counterclaim.

Primus applied to amend its defence and counterclaim. It relied on alleged representations about WorldCom’s financial strength, non-disclosure of earlier service orders, mistake and misrepresentation concerning the technical specification of a circuit, rescission, rectification and damages under the Misrepresentation Act 1967.

WorldCom applied for summary judgment and dismissal of the counterclaim. The central question was whether the proposed pleaded cases had a real prospect of success.

1. Disposition. The proposed defences and counterclaim had no real prospect of success. Judgment was therefore entered for WorldCom in the sum claimed.
2. Financial representations. An innocent representation by an agent in contractual negotiations may found rescission where it is a representation of fact, is untrue, and falls within the agent’s actual or apparent authority. The alleged assurances by WorldCom’s subsidiary’s in-house lawyer were, at most, opinions based on public information. Her function was to negotiate contractual wording, and there was no realistic prospect of establishing authority to represent WorldCom’s present or future financial viability.
3. Fraud and corporate attribution. There was no evidence that WorldCom’s directing mind knew that the statements would be made or intended to mislead Primus through the lawyer’s ignorance. The pleaded case therefore disclosed no realistic prospect of fraudulent misrepresentation.
4. Contractual wording. “Duly organised” referred to compliance of the company’s legal structure and constitution with Delaware law, not the lawfulness or quality of its accounts. Clauses 7.2 and 19 concerned the availability and transmission capacity of the circuits. They did not exclude representations about WorldCom’s financial viability.
5. Rescission and damages. Primus had acted promptly after obtaining relevant information, and prior termination on other grounds did not itself prevent later rescission. Restitutio in integrum appeared capable of being achieved on a broad-brush basis. However, the authority and actionable representation requirements were not met. Section 2(2) relief could not arise without an entitlement to rescind. If liability had been arguable, loss under section 2(1) would be assessed by the deceit measure, covering loss directly flowing from entering the contract.
6. Service orders and technical variation. The earlier service orders exercised an option and did not themselves supersede the later Second and Third Agreements. The incompatible circuit specification was a mutual mistake, but the parties resolved it by the Upgrade Agreement. Primus accepted the upgrade because of its immediate commercial needs, not because of an actionable misrepresentation. There was consequently no arguable basis for rectification, rescission or damages.