BV Nederlandse Industrie Van Eiprodukten v Rembrandt Entreprises Inc

Court of Appeal

Citations: [2019] EWCA Civ 596; [2020] QB 551; [2019] 3 WLR 1113; [2019] 4 All ER 612; [2019] 2 All ER (Comm) 501; [2019] 1 Lloyd’s Rep 491.

Facts

The claimant agreed to sell 4200 tons of egg product to the defendant on the condition that their procedures received regulatory approval. Later, the claimant informed the defendant that they were increasing the price. They claimed that this was to account for unexpected additional costs in meeting regulatory requirements. This was a lie.

The parties negotiated a second contract to include the increased price. The claimant then informed the defendant that the claimant’s sister company would be providing the product. The defendant refused to perform its end of the contract. They argued that the claimant was not complying with regulatory requirements.

The claimant sued for breach of contract. They claimed their own loss of profit, as well as those profits lost by the sister company. The defendant responded that it was entitled to rescind the second contract. This was because the claimant had fraudulently misrepresented to them that the increased price reflected increased regulatory costs. They also argued that the common law privity of contract rule prevented the claimant from recovering profits lost by its sister company.

Issue(s)

1. Was the defendant entitled to rescind the contract?
2. Could the claimant recover profits lost by its sister company?

Decision

The Court of Appeal held that the defendant had validly rescinded the contract for misrepresentation. The claimant could therefore only sue for breach of the first contract (with the lower sale price). Additionally, the claimant could not sue for profits lost by its sister company.

This Case is Authority For…

In fraudulent misrepresentation cases, the representee bears the burden of proving that the representation induced them to enter the contract. However, the test for inducement is different in fraud cases compared to negligence or innocent misrepresentation. In fraud cases, the representee must show that the representation ‘materially influenced’ them. This means that they must show that the representation was actively present in their mind when they made the decision.

The representee does not need to prove that but for the representation, they would not have entered into the contract. They need only show that they might have acted differently. The fact that the representee had other reasons to contract does not necessarily preclude him from showing that the representation induced the contract.

Where the misrepresentation is fraudulent and the representor intended it to cause the representee to enter the contract, there is a presumption of fact that it induced the contract.

Other

One consequence of the common law privity of contract rule is that a party may only sue for its own losses. It cannot normally sue for losses incurred by a third-party.

The Lords noted that there is an exception to this rule where the parties to the contract intended or knew at the time of contracting that it would be partly performed by, or benefit, a third-party. This originates in cases like Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85. However, in this case the defendant was not even aware of the sister company’s existence at the time of contracting, so the exception did not apply here.