- Non Disclosure of Resignation of Consultant's Key Personnel from a Project Can Amount to Misrepresentation or Fraud
- November 24, 2009 | Author: Richard F. Lyons
- Law Firm: Mayer Brown JSM - Hong Kong Office
The decision in Fitzroy Robinson Limited v Mentmore Towers Limited and Others, decided in July 2009 by Mr Justice Coulson in the English Technology and Construction Court, highlights the importance of architects and other parties to construction contracts informing their employers when named key personnel or "key men" cease to be involved in a particular project where, for example, a key man resigns.
During the pre-contract stages of the project, the architects bidding for design services had stated that a particular, named individual would act as team leader throughout the project. That individual subsequently resigned prior to three separate contracts being entered into. The defendant clients were not aware of the resignation until after the contracts had been concluded.
Mr Justice Coulson found that the architects in this case had withheld information concerning the resignation of a key member of its staff from the client in order to secure the contracts. Accordingly, the client in these circumstances was entitled to claim damages for:
misrepresentation under s2(1) of the Misrepresentation Act 1967 (similar to S3 of the Misrepresentation Ordinance); and
for fraudulent misrepresentation at common law.
In 2006, Fitzroy Robinson Limited (FRL) was engaged to act as architects and lead consultant in a scheme to develop a club in Piccadilly, London and to develop Mentmore Towers located in Buckinghamshire, Southern England together with an associated country house hotel (the Project). The Defendants (Employers) in this case comprised three separate companies which entered into three separate contracts (the Contracts) with FRL.
The key member of FRL's team was a Mr Jeremy Blake. Mr Blake was the Director who put together the bid documents and was heavily involved in the pre-contract meetings. The Defendants were told by FRL that Mr Blake would be involved throughout the Project.
On 17 March 2006, Mr Blake tendered his resignation to Mr Thompson of FRL. Mr Thompson did not inform the Defendants of Mr Blake's resignation until 14 November 2006, some eight months after the resignation had been tendered.
On 24 December 2007, the Defendants issued a notice of suspension to FRL placing the Project on hold. FRL commenced proceedings against the Defendants for unpaid fees. The Defendants counterclaimed for, among other things, the losses they had suffered as a result of statutory or fraudulent misrepresentation and negligent misstatement in relation to the concealment of Mr Blake's resignation until November 2006.
To make a damages claim arising from fraudulent misrepresentation the claimant must demonstrate:
that there was a contract between the parties;
that the representor made a misrepresentation to the representee before the contract was entered into;
that the misrepresentation was fraudulent;
that the misrepresentation acted as an inducement to the representee to enter into the contract; and
that the representee suffered loss as a result.
In order for fraud to be established, it is necessary to prove the absence of an honest belief of what has been stated.
The parallel claim brought by the Defendants under s2(1) of the Misrepresentation Act also required that they prove (i),(ii),(iv) and (v) of the above test.
A dispute arose between the parties as to whether the statement that Mr Blake would be involved throughout the Project was capable in law of being a misrepresentation. FRL's case, unsurprisingly, was that it was not a misrepresentation, rather a statement of future intent which at law is not capable of being a misrepresentation (Inntrepreneur Pub Co (CPC) v Sweeney  EGLR 132 at para.62). The Defendants contended that the representation that Mr Blake was going to be team leader and be involved throughout the Project was a vital element in the consideration of FRL's successful bid for the Contracts. The Defendants case was that there was a clear representation, which became a misrepresentation on or about the time that Mr Blake resigned.
Mr Justice Coulson found that FRL had repeatedly represented to the Defendants during pre-contract negotiations that Mr Blake would be involved throughout the Project in the crucial role of team leader. He also accepted that the bid documents for the Contracts were almost exclusively based around the experience and expertise of Mr Blake. That was not, as FRL contended, a statement of future intent. It was a representation of fact and was designed to induce the Defendants to enter into the Contracts.
It was also held that FRL should have notified the Defendants as soon as Mr Blake had tendered his resignation in March 2006. It was clear that the reason for not disclosing that fact was the concern about not being awarded the Contracts. Mr Blake was well liked by the Defendants and his involvement in the Project clearly induced the Defendants to enter into the Contracts with FRL.
Mr Justice Coulson did, however, state that the Project was somewhat atypical in that it was rare, in his experience, that the promised involvement of an individual amongst a team of several other professionals was the clear and obvious reason for a party to enter into a contract. This was, however, definitely the case here. Mr Justice Coulson also found that FRL's representation about Mr Blake was significant and false.
Of greater significance and concern to those in the construction industry was that the judge found that there had been fraud on the part of FRL. Mr Thompson of FRL had knowingly and dishonestly failed to correct a false representation about Mr Blake. He also knew that disclosure of Mr Blake's resignation would likely affect FRL's chances of being awarded the Contracts. At the time the Contracts were entered into, there was a false representation that was deliberate and made for a specific purpose, namely to ensure that FRL got the job. On that basis, Mr Justice Coulson found that the test for fraudulent misrepresentation had been satisfied.
Mr Justice Coulson noted that although he was not required to quantify the loss suffered by the Defendants, they may have difficulty in proving a loss suffered in consequence of the misrepresentations and any sum recovered was likely to be "modest".
The decision in this case sends out a clear message that architects and consultants need to take great care when naming key personnel to be used for a particular project. It is often an express requirement in consultancy agreements that key personnel are named and that any changes are to be notified in writing. Having experienced and well respected professionals in a team is often part of an overall bid strategy to "induce" a particular client to enter into a contract.
The only saving grace in this decision is perhaps that, as the judge remarked, it would be quite difficult in practice to prove and quantify loss arising from the departure of an individual from a professional project team.
In the light of this decision it is suggested that:
- if a party, pre-contract, represents that named key personnel will be involved throughout a project, any changes to those named personnel should, at the pre-contract stage, be immediately communicated in order to avoid potential claims post contract by Employers for misrepresentation and/or fraud; and
- if a contract specifies named key personnel, and those named key personnel move to another project or resign from their positions post contract, this should be communicated in writing to the Employer to avoid any potential liability for breach of contract.