Thu, 13 Jun 2019
The recent decision of the Court of Appeal in BV Nederlandse Industrie Van Eiprodukten v Rembrandt Entreprises Inc  EWCA Civ 596 provides welcome clarification in relation to the fraudulent misrepresentation claims and in particular:
- Who has the burden of proof?
- What exactly must be proved?
The relevant factual background is set against an avian flu epidemic in the United States in 2015 which had dire consequences for suppliers of egg products. The epidemic compelled Rembrandt Enterprises, Inc. to destroy over 50% of its birds and to find a supplier of egg products to perform its business commitments. The supplier it found was BV Nederlandse Industrie van Eiprodukten ("NIVE"), based in The Netherlands, with which it contracted on 13th May 2015 to purchase 4200 metric tonnes of products on the condition that the procedures in The Netherlands satisfied the US regulatory authorities. The required approval was granted.
On 21st May 2015, NIVE emailed Rembrandt stating that there would be unanticipated extra regulatory costs and that the prices would have to be increased "after thorough calculation". This led to a second contract being agreed.
On 6th September 2015 shipments began. Later that month NIVE informed Rembrandt that some of the products would be supplied by its sister company Henningsen van den Burg ("Henningsen"). Rembrandt's solicitors wrote to NIVE alleging that NIVE was failing to comply with US inspection requirements and suspended Rembrandt's continued performance of the contract.
In 2016 NIVE began proceedings for loss of profit on the sales that would have taken place but for such suspension of performance. Rembrandt defended the proceedings on the basis that in breach of contractual warranty the product did not comply with US regulations and that the second contract had been procured by NIVE's fraudulent misrepresentation that the increased sale price was calculated by reference only to the extra costs incurred as a result of compliance with US regulations whereas in truth the increased price included an element of profit.
At first instance, the judge held, inter alia, that:
- The agreed increase in the sale price included an element of profit and that the representation that the increase was reached "after thorough calculation” was a fraudulent misrepresentation.
- In law there was a presumption that Rembrandt relied on the representations and that it was for NIVE to prove that the second contract would have been made even if there had been no fraudulent misrepresentation.
On appeal it was submitted that the judge had been wrong to reverse the normal burden of proof which would apply in cases of innocent or negligent misrepresentation, namely that the representee had the burden of showing that he would not have entered into the contract had the representation not been made.
Lord Justice Longmore in his judgment set out the following propositions:
- If a representor fraudulently intends his words to be taken in a certain sense and the representee understands them in that sense and enters into a contract, it is likely to be inferred that the representee was induced to enter into the contract on the faith of the representor's statement. It is fair to call this a presumption of inducement. But it is a presumption of fact which can be rebutted, not a presumption of law which cannot be rebutted or can only be rebutted in a particular way (see ).
- The legal burden of proving inducement/reliance is on the representee and the fact that the court may start by making a presumption of fact in his favour does not change that position (see ).
- There is an evidential presumption of fact (not law) that a representee will have been induced by a fraudulent representation intended to cause him to enter the contract and that the inference will be "very difficult to rebut" to use the words of Lord Clarke (see ).
- It is sufficient for a representee to show that he might have acted differently (see ).
- The word "might" means no more than being actively present in the mind of the representee (see ).
This judgment provides welcome clarification in relation to proving fraudulent misrepresentation and the nature of evidence to be included in a witness statement in such claims. It is clear from this judgment to practitioners that the burden of proof for fraudulent misrepresentation rests on the representee to prove that he/she had been materially "influenced" by the representations in the sense that they were "actively present to his mind" and that there is no requirement as a matter of law for the representee to state in terms that he/she would not have made the contract but for the misrepresentation.