BV Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596

(BAILII entry available here)

A decision last year at first instance illustrated how a “negotiating device” (in this case, to encourage a purchaser to agree to a price increase) can constitute fraudulent misrepresentation. This year the same dispute was referred to the Court of Appeal because the supplier disputed the customer inducement (or causation) test which had been applied by the High Court as part of the customer's misrepresentation claim.

A US customer contracted with a Netherlands based supplier of dried egg products. The contract price was subsequently renegotiated, the proposed price increase having been described by the supplier as reflecting the additional costs of ensuring its compliance with US regulatory requirements. A costs breakdown was provided to show this, the customer agreed to the price increase and the renegotiated contract was signed. In fact the new price included a profit element and the real motivation for the price increase had been the increase in the market price for eggs since the date of the original contract.

In time the customer concluded that the supplier's processes did not comply with US regulatory requirements and rejected the goods. However the supplier's processes were compliant and it claimed damages of €19 million for loss of profit attributable to the customer's breach of contract. One part of this dispute concerned whether damages payable to the supplier should be calculated on the basis of the original contract or the, higher priced, renegotiated contract.

As we reported in last year's Case Round Up, at first instance the court found that “what was said about the additional costs was a negotiating device used to persuade [the customer] to agree an increase to the already agreed price.” It concluded that the supplier did not believe the uplift to be a genuine estimate of the additional cost and that the supplier's presentation of the price increase as being such constituted a misrepresentation of fact.

Misrepresentation claims require an element of causation between the misstatement and the innocent party's subsequent behaviour. The usual test for misrepresentation claims is whether, "but for" the misrepresentation, the claimant would have "entered in to the contract" (or accepted the new price, in this case). However because this misrepresentation was fraudulent the High Court applied a weaker test, asking itself whether, "but for" the misrepresentation, the customer "might have acted...