Cramaso LLP v Ogilvie-Grant, Earl of Seafield and Others

A pre-contractual representation intended to induce a contract will ordinarily continue until the contract is concluded. Its continuation depends on the circumstances, and it may cease through withdrawal, lapse, discovery of the truth or a material change of circumstances.

A change in the prospective contracting party does not necessarily end the representation. Where negotiations continue through a person who becomes the new party’s agent, the representor may implicitly repeat the representation and assume responsibility to the new party.

Section 10(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 removes the former requirement to prove fraud. It does not create statutory liability. A claimant seeking damages for negligent misrepresentation must still establish breach of a common-law duty of care.

The respondents owned a grouse moor which they wished to lease. During negotiations, their representative sent information to Mr Erskine which negligently overstated the moor’s grouse population. Mr Erskine relied on that information when deciding to proceed, but subsequently formed the appellant as the vehicle through which the lease was concluded.

The Lord Ordinary found negligent misrepresentation but dismissed the claim because the appellant did not exist when the representation was first made: [2010] CSOH 62. The Second Division upheld that result: [2011] CSIH 81; 2012 SC 240.

The Supreme Court considered whether the representation and responsibility for its accuracy continued after Mr Erskine became the appellant’s agent, and whether section 10(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 permitted recovery without proof of a duty of care.

1. The appeal was allowed unanimously. Lord Reed gave the leading judgment, with which Lord Mance, Lord Clarke, Lord Carnwath and Lord Toulson agreed. The respondents owed the appellant a duty of care concerning the negligent representation and were liable for any resulting loss. The case was returned to the Court of Session for further procedure.

2. A representation made during pre-contractual discussions may remain operative until the contract is concluded. Whether it does so depends on the facts. It will not induce the contract if it has been withdrawn, has lapsed, has become irrelevant or the representee has discovered the truth. Where it remains operative, the representor may have a corresponding continuing responsibility for its accuracy.

3. The change from Mr Erskine as prospective tenant to the appellant acting through him did not end the representation. The negotiations continued without being restarted, and the respondents neither withdrew the representation nor disclaimed reliance upon it. By continuing and concluding negotiations through Mr Erskine, the respondents implicitly asserted the representation’s accuracy to the appellant. Reliance by the contracting party remained foreseeable, so the respondents assumed responsibility to the appellant.

4. Briess v Woolley [1954] AC 333 demonstrated that a representation can continue where the relevant agency begins after the original statement. Its approach applies conversely where the original representee later becomes the contracting party’s agent. It also applies to negligent as well as fraudulent misrepresentations because the representation’s continuing potency does not depend on the representor’s honesty.

5. Section 10(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 does not itself impose liability. It removes the former rule that damages for a pre-contractual misrepresentation by the other contracting party required proof of fraud. Entitlement to damages continues to depend on the common law and therefore on breach of a duty of care.

6. Parties negotiating a contract owe no general duty of care in conducting the negotiations. A duty may nevertheless arise for a representation which the maker can reasonably foresee is likely to induce the other party to contract. In this established context, courts ordinarily need not reconsider the tripartite Caparo formulation from first principles. A disclaimer, a lapsed time limit, unforeseeable reliance, an effective contractual exclusion or contractual regulation of the represented subject may negate or limit the duty.

1. United Kingdom Supreme Court: Allowed the appellant’s appeal in [2014] UKSC 9 , holding that the respondents owed the appellant a duty of care and were liable for any resulting loss.
2. Inner House of the Court of Session, Second Division: Dismissed the appeal and upheld the Lord Ordinary’s decision: [2011] CSIH 81; 2012 SC 240.
3. Outer House of the Court of Session: The Lord Ordinary found negligent misrepresentation but granted absolvitor because the appellant did not exist when the representation was originally made: [2010] CSOH 62.