Bv Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises, Inc.

A fraudulent representation that a stated figure is a genuine estimate of additional contractual costs is actionable where the representee is entitled to take it seriously. In a fraudulent misrepresentation case, inducement may be established if, but for the representation, the representee might have acted differently. A strong inference of inducement arises where the representation was made to secure a particular contractual result, and it is difficult to rebut that inference.

An approved foreign inspection system need not replicate every feature of the domestic inspection regime where the applicable regulations limit domestic requirements to those applicable to the approved foreign system. Rescission may be granted where the practical result is restoration of the benefit obtained through the misrepresentation.

NIVE agreed to supply dried egg products to Rembrandt under a contract governed by UK law. After the price was renegotiated, NIVE represented that EUR 2.50 per kilogram represented its additional costs of complying with United States inspection requirements. Rembrandt later rejected the products, alleging fraudulent misrepresentation and breach of warranty.

The principal issues were whether NIVE had fraudulently misrepresented the cost figure; whether the products complied with contractual warranties and United States regulatory requirements; whether rescission was available; and how damages should be assessed. The court also considered whether NIVE could recover losses suffered by Henningsen, a related company intended to supply part of the product.

1. Fraudulent misrepresentation. NIVE’s figure of EUR 2.50 per kilogram was presented as an estimate following a calculation. It was not honestly believed to be a genuine estimate of additional costs because it included profit. The representation was therefore a misrepresentation of fact.

2. Rembrandt was entitled to take the representation seriously. It was made repeatedly, in response to requests for detail, and was intended to persuade Rembrandt to accept the price increase. The fact that the negotiations also reflected rising market prices did not prevent the representation from being actionable.

3. For fraudulent misrepresentation, the court proceeded on the basis that the weaker inducement test applied: it was sufficient that, but for the representation, the representee might have acted differently. A particularly strong inference of inducement arose because the representation was made for the purpose of obtaining the price increase and that result followed. NIVE failed to show that Rembrandt would have agreed to the increase even without the representation. The defence succeeded.

4. Warranties and inspection requirements. The approved Netherlands inspection system involved inspections when eggs were broken and before shipment. Properly construed, the relevant United States regulations did not require imported products made under an approved equivalent foreign system also to have been inspected under the domestic system. The words “to the extent applicable” limited the domestic standards by reference to the approved foreign inspection system. The warranties were not breached.

5. Rescission and damages. Rescission of the revised contract left the original contract in force. The practical restoration required was repayment of the additional EUR 2.50 per kilogram obtained through the misrepresentation, amounting to EUR 1,594,750. Rescission was therefore available.

6. NIVE’s damages were to be assessed by reference to the original prices. The court assessed likely supply at 75 per cent of the contractual quantity, treated surplus yolk as a cost, and held that substantial catch-up deliveries were not permitted without Rembrandt’s consent. NIVE could not recover Henningsen’s lost profits because Rembrandt had not contracted for Henningsen to receive a benefit and no legal necessity required recovery by NIVE.

7. The parties were directed to agree the appropriate calculation of NIVE’s damages and any invoice claims. Rembrandt’s separate claim for receiving, storage and handling costs failed.