• Are Pre-Contractual Representations “Continuing”? Even if the Contracting Parties Change?
  • March 21, 2014 | Author: Sam Rogers
  • Law Firm: McCarthy Tétrault LLP - Toronto Office
  • Circumstances change and what is true today may not be true tomorrow. For that reason, some representations carry with them the obligation to advise the representee if the relevant circumstances change. These are usually referred to as “continuing” representations.

    But can a continuing representation carry with it the obligation to update a third party, to whom the representation was not even made? The UK Supreme Court says it can in Cramaso LLP v Ogilvie-Grant, Earl of Seafield and Others, a case with a peculiar set of facts which may have broad implications for parties engaged in pre-contractual negotiations.

    Background

    The Appellant, Cramaso LLP, was a vehicle formed by Mr. Alistair Erskine and his wife in order to enter into a lease of a grouse moor on which commercial shooting of grouse took place. The Respondents were the owners of the moor.

    In the course of negotiations, prior to the formation of Cramaso LLP, the Respondents made representations concerning the grouse population to Mr. Erskine in an email. On the basis of this representation, Mr. Erskine decided to lease the moor and advised the Respondents that he intended to form an LLP to take the tenancy. Cramaso LLP was then incorporated and the lease was signed. Subsequently, Mr. Erskine discovered that the population figures were inaccurate.

    At trial, Lord Hodge accepted that the email contained a material misrepresentation and held that the Respondents had acted honestly but negligently. Lord Hodge also accepted that the representation had induced Mr. Erskine to enter into the lease. However, Lord Hodge noted that the Appellant had not existed at the time the email was sent and therefore no duty of care could have existed between the Respondents and the Appellant (a duty of care is a necessary element of negligent misrepresentation).

    The parties appealed to the Inner House which found that the non-existence of the Appellant was not determinative. Rather, relying on Caparo Industries plc v Dickman,the issue was whether it could have been reasonably foreseen that someone, other than Mr. Erskine, would have relied on the representation in the email. The Inner House held that it could not and therefore there was no “proximity” between the Appellant and the Respondent.

    The Decision

    The Supreme Court had a fundamental disagreement with the analysis engaged in by the lower courts. Rather than viewing the case as one where A had relied on a representation made by B to C, the court viewed the representation as a “continuing representation, which was capable of remaining in effect until” the contract was concluded.

    The Court therefore focused on three questions. First, was the representation of a continuing nature? On this point, the Court noted, after reviewing the applicable case law, that:

    "The law is thus capable, in appropriate circumstances, of imposing a continuing responsibility upon the maker of a pre-contractual representation in situations where there is an interval of time between the making of the representation and the conclusion of a contract in reliance upon it, on the basis that, where the representation has a continuing effect, the representor has a continuing responsibility in respect of its accuracy. (para 23)

    The Court concluded that the representation contained in the email to Mr. Erskine “was undoubtedly of a continuing nature so long as Mr. Erskine remained the prospective contracting party.” (para 24)

    This led the Court to their second question: Did the representation, and responsibility for its accuracy, continue after the identity of the contracting party changed? The Court noted that there are no cases directly on point, although in Briess v. Woolley [1954] AC 333 the House of Lords considered the converse case i.e. a representation by A to B relied on by B in contract with C, where A became the directing mind of C.

    In Cramaso, the Court held that:

    "[T]he change in the identity of the prospective contract party did not affect the continuing nature of the representation, or the respondent’s continuing responsibility for its accuracy... Neither party drew a line under the previous discussions, after the appellant was formed, in order to begin afresh. Neither party disclaimed what had previously been said in the course of their discussions, or sought assurances that it could be relied upon as between the appellant and the respondents. (para 30)

    For those reasons, the Court held that the Respondents had “assumed a responsibility towards the appellant” and therefore owed it a duty of care. (para 31)

    Finally, the court considered the recovery of damages. The Court’s analysis here turned on a consideration of the relevant Scottish law and in the result held that the Respondents were liable for any losses suffered by the Appellant.

    The Case in Canada

    In Canada, there is no dispute that some representations can be considered “continuing representations” depending on the circumstances in which they are made. For example, see the recent judgment of Justice Saunders in Moulton Contracting Ltd. v. British Columbia, 2013 BCSC 2348.

    It is less clear how the second question would be decided. The particular facts of Cramaso, do not appear to have been adjudicated in Canada. The Alberta Court of Queen’s Bench considered similar circumstancse in 1098872 Alberta Ltd. v. Phoenix Land Ventures Ltd., 2011 ABQB 606, but the case turned on other facts and the court did not decide the issue.

    Although the result seems just, a Canadian court might struggle to find a duty of care owing to a party that did not exist. A Canadian court may also take issue with the seemingly broad category of persons and entities who may be owed a duty of care as a result of the holding in Cramaso. For example, if we imagine that Mr. Erskine had instead joined a bank and issued a loan to the Respondents on the basis of the representation, would the same reasoning apply?

    Finally, it goes almost without saying that a party in Canada can recover damages in cases of negligent misrepresentation. See: Oz Optics Limited v. Timbercon, Inc., 2011 ONCA 714.

    Implications

    While the particular facts of Cramaso are unusual, the Court’s finding of a duty of care does appear to represent an expansion of the duty as it relates to claims of negligent misrepresentation. Courts, in the UK and elsewhere, may take this as license to expand the circumstances in which a duty of care exists between contracting parties.

    One final note: the doctrine of privity had no application in Cramaso because negligent misrepresentation does not require it, see: Mantella v. Mantella, 2006 CanLII 10526 at para 34.

    Case Information

    Cramaso LLP v Ogilvie- Grant, Earl of Seafield & Ors, [2014] UKSC 9

    Docket: UKSC 2012/0025

    Date of Decision: February 12, 2014