Crystal Balls at the Ready: When Are You Liable for Future Projections?

In the recent case of FoodCo UK LLP and others v Henry Boot Developments Ltd[1], the High Court provided some guidance on the requirements to prove fraudulent misrepresentation in relation to a statement about the future, and when the duty to correct continuing statements will arise.

In this case the claimant tenants alleged that they had been induced by the defendant developer to enter into leases at a planned motorway service area (MSA) because of fraudulent misrepresentations made by the defendant. The representations in question related to the likely number of visitors, the extent of motorway signage to advertise the MSA, and the facilities which would be provided. Ultimately, the High Court rejected the claims for fraudulent misrepresentation because the defendant held an honest belief in the predictions it had made, which were based on reasonable grounds.

Statements about the future – fraudulent misrepresentation

Generally speaking, to establish a claim for fraudulent misrepresentation the claimant must prove that:

• the defendant made a representation to the claimant
• that representation was false
• the defendant made the representation either knowingly without belief in its truth, or recklessly as to whether it was true or false
• in reliance on the representation, the claimant entered into a contract with the defendant.

If the defendant can show that it held an honest (albeit erroneous) belief in the truth of the representation it cannot be fraudulent. A lack of reasonable grounds for an honest belief is not enough in itself to prove dishonesty i.e. even if the court were to conclude that it was unreasonable for the defendant to believe a statement is true, if the defendant was honest in that belief, he is not fraudulent.

As mentioned, the law does not attach any legal consequences to statements about the future per se because they cannot be either true or false when they are made. Instead, if the claimant can prove that a statement about the present is implied with the statement about the future, the truth about that statement can have legal consequences. Sounds convoluted, but typically, the claimant argues that the defendant implied a present belief in the truth of the future statement. Consequently, if the person making the representation does not have an honest belief in the prediction at the time of making it then he will have made a false representation of fact.

However, in the case of fraudulent misrepresentation it is necessary to go one stage further. The claimant must show not only that, objectively viewed, the prediction was understood by him as implicitly representing that the defendant had reasonable grounds for making the prediction; but also that the defendant understood that to be so.

The law doesn't expect the maker of the statement to imply that he knows of no fact whatsoever that might falsify the statement, rather the question to ask is "what would the reasonable person in the position of the representee understand by the words used..."

Correcting continuing representations

The High Court went on to clarify that the representor does not have a duty to constantly keep the representee updated about changes in circumstances. Rather the duty is to communicate that change if and only if the falsity exists at the date the contract is concluded.

Lessons to be learned

It is very difficult to prove fraudulent misrepresentation and so most misrepresentation claims will allege negligent misrepresentation instead or in the alternative because the requirements here are not so difficult to overcome. However, claims for negligent misrepresentation can be avoided by including a well drafted entire agreement clause and non-reliance clause, which provides that when the contract is signed, it is the entire and only agreement between the parties superseding all prior negotiations and documents (as was the case in this instance).

If you would like further advice on misrepresentation or entire agreement clauses, contact our CDR team.

[1] [2010] EWHC 358 (Ch)