Hamilton and others (Appellants) v. Allied Domecq Plc (Respondents) (Scotland)

During an arm’s-length commercial negotiation, silence does not ordinarily create liability for negligent misrepresentation. A failure to speak can attract liability only where the defendant voluntarily assumed responsibility in the relevant sense and the claimant relied upon that assumption.

A claimant alleging an affirmative negligent misrepresentation must prove with sufficient clarity what was represented. Evidence that the defendant understood the claimant’s commercial objective, or appeared to accept that it was important, does not by itself establish a representation that a particular strategy would be implemented from the outset.

The appellants retained a minority interest in a mineral-water company after a subsidiary of the respondent became its majority shareholder under a subscription agreement. They alleged that the respondent’s representative had negligently induced the agreement by representing that distribution facilities would immediately be available for both the licensed trade and the retail trade. The written agreement contained no term about that distribution strategy.

The Lord Ordinary found the representation proved and awarded damages. The Second Division allowed the respondent’s reclaiming motion and assoilzied it: 2006 SC 221. The appellants appealed, contending that there had been either an affirmative misrepresentation or a negligent failure to explain that entry into the licensed trade would occur only later. The central issues were whether a duty to speak arose and whether the evidence proved the alleged affirmative representation.

1. Appeal dismissed unanimously. Lord Rodger of Earlsferry delivered the leading opinion. Lord Hoffmann, Lord Scott of Foscote, Lord Walker of Gestingthorpe and Lord Neuberger of Abbotsbury agreed with his reasons.

2. Per Lord Rodger, the proposed alternative duty to speak did not arise. The parties had been engaged in an arm’s-length commercial negotiation, and their proposed subscription agreement was not a contract uberrimae fidei. Although silence might have been morally questionable if the respondent’s representative knew that immediate access to the licensed trade was essential to the appellants, moral considerations did not establish a legal duty of disclosure.

3. Per Lord Rodger, Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 recognised that silence could give rise to negligence liability where there had been a voluntary assumption of responsibility in the relevant sense and reliance upon that assumption. Nothing in the evidence showed such an assumption of responsibility during these commercial negotiations. The alternative case based on silence therefore failed.

4. Per Lord Rodger, the affirmative misrepresentation case required proof that the respondent’s representative had represented that the company would receive assistance to enter both the licensed and retail trades from the beginning. The evidence showed at most statements about the respondent’s interest in distribution across all sectors, an expectation of eventual access and an understanding that licensed-trade access was important. It did not establish with sufficient clarity a representation that simultaneous distribution would occur from the outset.

5. Per Lord Rodger, the omission of any distribution strategy from the professionally negotiated subscription agreement was striking if that strategy was essential. The representative’s approaching retirement, his limited influence over the proposed distribution network and the evidence of his own retail-first strategy also weighed against the Lord Ordinary’s finding. The single oblique answer relied upon could not safely sustain the claim, particularly when its supposed substance had not been put to the representative in cross-examination.

6. The evidence accordingly did not warrant the Lord Ordinary’s finding of misrepresentation. The Second Division’s decision was affirmed, and the appellants were ordered to pay the respondents’ costs.

1. House of Lords: The appeal was dismissed unanimously. The Second Division’s decision was affirmed, and the appellants were ordered to pay the respondents’ costs: [2007] UKHL 33.

2. Second Division of the Court of Session: The court allowed the respondent’s reclaiming motion, reversed the Lord Ordinary’s decision and assoilzied the respondent: 2006 SC 221.

3. Lord Ordinary: The Lord Ordinary found negligent misrepresentation proved and awarded damages of £1 million to the first appellant and £2 million to the second appellant. The source heading identifies the earlier decision as [2003] ScotCS 216.