Cramaso LLP v Viscount Reidhaven’s Trustees
Supreme Court (Scotland)
Citations: [2014] UKSC 9; [2014] AC 1093; [2014] 2 WLR 317; [2014] 2 All ER 270; [2014] 1 All ER (Comm) 830; (2014) 158(7) SJLB 37; [2014] CLY 2201.
Facts
The defender owned a grouse moor in Scotland. Erskine entered into discussions with him about leasing the moor. When Erskine expressed concern about the grouse stock, the defender sent him an email with a misleading estimate of the grouse population. Erskine decided to go ahead with the lease. He told the defender that he would create a limited liability partnership (‘LLP’) to hold the lease on his behalf, and proceeded to form the LLP with himself and his wife. The LLP leased the moor from the defender.
Erskine later learned that the email had been misleading. The LLP sued the defender for negligent misrepresentation. At first instance, the Lord Ordinary held that the defender had made an actionable misrepresentation. However, the defender made the misrepresentation at a time when the pursuer (the LLP) did not exist. As such, the defender could not have owed the LLP a duty of care.
On appeal, the Second Division of the Inner House of the Court of Session held that the fact that the LLP was not in existence was not inherently an obstacle to the claim. However, they also held that the claim still failed. This was because it was not foreseeable at the time the email was sent that anyone other than Erskine would rely on it. The LLP appealed to the Supreme Court.
Issue(s)
- Did the fact that the LLP did not exist at the time the defender made the misrepresentation affect whether the LLP could succeed in a claim for misrepresentation?
Decision
The Supreme Court held in favour of the LLP. The parties negotiated on the basis that any pre-contractual statements would continue to be accurate. The misrepresentation was therefore a ‘continuing’ statement implicitly asserted at all points during the negotiation – including after the LLP was created and Erskine informed the defender that they would be taking the lease. In those circumstances, the defender had a continuing duty to withdraw the representation before the contract was made. The defender failed to do so, which made them liable to the LLP.
This Case is Authority For…
An inference may be drawn from the parties’ behaviour during negotiations that any pre-contractual statement made is a ‘continuing’ representation. In these circumstances, a defendant is under a duty to correct the representation before contracting.
If it becomes foreseeable during the period in which the representation is continuing that a third-party might rely on the representation to enter the contract, that duty extends to the third-party.
Other
A continuing misrepresentation ceases to be operative if it is withdrawn, lapses, or the representee learns the truth before entering the contract. This is because the representee does not rely on the misrepresentation in those circumstances.
