11th December 2018
Walker Morris looks at a recent supply chain case and explains how the law of misrepresentation can affect any modern retail business.
When parties consider doing business together, a multitude of enquiries, discussions and negotiations take place before any deal is done. Marketing campaigns, promotional offers and other communications have often been undertaken, and information has been displayed online, prior to the contemplation of any particular enquiries or leads. As part of the entire pre-contract process, myriad representations are made, many of which could give rise to liability.
To avoid inadvertently leaving yourself open to legal challenge, it is important to understand the types of statements and representations that can found the basis of a claim; what exactly is a legal misrepresentation; and what remedies flow when a misrepresentation occurs.
A misrepresentation is: an untrue statement of fact or law; upon which a party relies in being induced to enter a contract; and which thereby causes the relying party to suffer loss.
There are three different types of misrepresentation, each giving rise to different remedies for the party who has suffered loss.
In a recent High Court case  the parties had reached an agreement in principle for a supplier based in the Netherlands (the representor) to supply egg products to a company based in the US (the representee), but that was dependent on the US regulatory authorities approving the supply. When the approval was granted, contract price renegotiations ensued. The representor then provided an ‘estimate’ of its increased costs associated with complying with US regulatory requirements as a justification for a price increase. In fact, the cost increased figure did not represent a genuine estimate and the representor knew that. The representor also knew that the increased figure included additional profit. There was no doubt, therefore, that there had been a fraudulent representation, but the question for the court was whether that induced the representee to enter into the contract.
The court held that the relevant test is whether, ‘but for’ the representation, the representee would not have entered into the contract.
In addition, the court specifically clarified that it is sufficient for a representee to establish that a misrepresentation was a factor in its decision to enter the contract – importantly it need not be the only or the deciding factor.
All that effectively translates to there being a presumption that the fraudulent misrepresentation did induce the claimant to enter the contract. It is, of course, notoriously difficult to prove a negative, plus there is a high evidential burden in any case involving fraud.
Businesses should note that claimants may be more willing to pursue misrepresentation claims – even fraudulent misrepresentation claims – in light of this case.
There are a number of practical points and best-practice tips arising from this case, and from the law of misrepresentation generally, of which all retail businesses should be aware.
For further advice or assistance on misrepresentation or on exclusion/non-reliance/entire agreement provisions, please do not hesitate to contact any member of Walker Morris’ Commercial Dispute Resolution or Retail Teams.
 The measure of damages in these cases will be the tortious measure – that is, to restore the claimant to its pre-misrepresentation position
 BV Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises Inc  EWHC 1857 (Comm)