[2002] EWCA Civ 15
The Spice Girls (SGL) entered into a contract with an Italian company, Aprilia World Service (AWS), who manufactured motorcycles. Under the contract AWS agreed to sponsor the Spice Girls tour of Europe, due to end on 29 May 1998, and the tour of the United States then planned for the period from 15 June to 31 August 1998. At the time of entering the contract AWS believed that all the Spice Girls would remain members of the group until the end of the tour. However, at the time of entering the contract the Spice Girls knew that one of their members, Geri Halliwell, was going to leave the group on 27 May 1998. AWS claimed that the Agreement had been induced by misrepresentation.
The trial judge, Arden J concluded that
'Given that the benefits of the commercial shoot could not be enjoyed by Aprilia if one of the Spice Girls left the group before March 1999, participation in the shoot in my judgment carried with it a representation by conduct that SGL did not know, and had no reasonable ground to believe, that any of the Spice Girls had an existing declared intention to leave the group before that date. Nothing was done to correct that representation which was a continuing representation. It was on the facts found material to Aprilia's decision to enter into the agreement that none of the Spice Girls was intending to leave in the contract period. Accordingly, SGL had a duty to correct its misrepresentation. What I have said about the commercial shoot must equally apply to other promotional material depicting the five Spice Girls which was intended to be used at any time during the period of the agreement.'
The issue before the Court of Appeal was whether SGL was liable to AWS under s.2(1) Misrepresentation Act 1967 either on the narrow basis accepted by the judge but challenged by SGL or the wider basis for which AWS contended.
Morritt VC
The Facts
11. To explain the submissions of the parties and our conclusions it is necessary to describe the factual background in much greater detail. Nevertheless it is convenient at the outset to set out the terms of s.2(1) and to make some observations on it at this stage. S.2(1) provides:
...Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true...
12. Thus liability depends on four elements: (a) a misrepresentation made by one person to another, (b) a subsequent contract between them, (c) consequential loss and (d) an absence, at the time the contract was made, of a belief or reasonable grounds therefore in the truth of the facts represented. If all those conditions are satisfied then the representor is liable to the representee for such damages as would be payable if the misrepresentation had been made fraudulently...
The Representation
51. At the outset it is necessary to reiterate certain well-established principles. First, though the representation must be one of fact representations as to the future or of opinion frequently contain implied representations with regard to the present or to the knowledge of the representor. Spencer Bower, Turner and Handley on Actionable Misrepresentation 4th Ed. paras 26 to 28. Second, a representation once made is likely to have continuing effect. So if made for the purpose of an intended transaction it will continue until the transaction is completed or abandoned or the representation ceases to be operative on the mind of the representee. With v O'Flanagan [1936] 1 Ch. 575, 585. Spencer Bower, Turner and Handley 4th Ed. paras 61 and 62. Third, if at a time when it is continuing the representor discovers that the representation was false when made or has become false since he should correct it. The principle is most clearly expounded in the judgment of Romer LJ in With v O'Flanagan [1936] 1 Ch. 575, 586 where he said
...If A with a view to inducing B to enter into a contract makes a representation as to a material fact, then if at a later date and before the contract is actually entered into, owing to a change of circumstances, the representation then made would to the knowledge of A be untrue and B subsequently enters into the contract in ignorance of that change of circumstances and relying upon that representation, A cannot hold B to the bargain. There is ample authority for that statement and, indeed, I doubt myself whether any authority is necessary, it being, it seems to me, so obviously consistent with the plainest principles of equity...
An alternative formulation, with which Romer LJ agreed, appears in the judgment of Lord Wright MR at page 583. After citing with approval the judgment of Turner LJ in Traill v Baring 4 De G.J.& S 318, 329 he said that ...the position is based on a duty to communicate the change of circumstances.... Fourth, the meaning and effect of a statement or of conduct must be ascertained in the light of the circumstances pertaining at the time. Those circumstances will include the course of the negotiations and any earlier representations.
52. The representation for which AWS has contended ever since it amended its defence and counterclaim in December 1999 is that
...SGL did not know and had no reasonable grounds to believe at or before the time of entry into the agreement that any of the Spice Girls had an existing declared intention to leave the group during the minimum term of the Agreement..., i.e. before March 1999. This was accepted by the judge but only in respect of the commercial shoot on 4th May 1998 and ...other promotional material depicting the five Spice Girls which was intended to be used at any time during the period of the agreement....
53. In our view the judge took too limited a view of the effect of the course of the negotiations as a whole and the specific documents and conduct relied on. We have already described the course of negotiations in some detail. Accordingly at this stage it is sufficient to highlight the most salient facts and events.
54. First, shortly after the conclusion of the heads of agreement on 4th March 1998 SGL supplied the logos, images and designs depicting each of the Spice Girls which were to be used by Aprilia in the promotion of the scooters. It must have been quite obvious from all such material and the judge's finding... that the same five girls were required for all of them. AWS was entitled to use them throughout the period of 12 months for which the heads of agreement and, subsequently, paragraphs 10.8 ..“ 10.10 and 13 of the Agreement provided. As we understand it such material was consistently used thereafter so as to generate a connection in the public eye between the Spice Girls and the scooters. In our view the representation contended for is necessarily implicit in that conduct from early March 1998 onwards. In, seemingly, connecting such material only to the commercial shoot on 4th May 1998, in our view, the judge seriously understated its significance.
55. Second, the events of 9th March 1998 were such as to bring to the attention of four of the other five directors of SGL the fact that Ms Halliwell had declared her intention to leave in September 1998. It follows that the representation implicit in the approval and use of the promotional material was false when made, or to the extent it was made before 9th March, became false on 9th March 1998. The fact that the other Spice Girls mistakenly as it turned out did not take Ms Halliwell seriously is immaterial.
56. Third, the subsequent events merely served to affirm, not correct, the initial representation and its falsity. Thus, the photocalls in Madrid, Munich and Paris held on or between 16th and 26th March may have been unsatisfactory to Ms Fuzzi but they took place and their effect was no different to the other promotional material. There were five Spice Girls each with her ...distinct and individual image, style and personality....
57. Fourth, the fax of 30th March 1998 was sent by Mr Pettett in the light of the information given to him by Ms Halliwell and the tour manager at Arnhem on 27th March 1998. For the reasons we have already explained (paragraph 27 above) we do not agree with the judge's narrow construction of that document. In our view it was an express assurance that each Spice Girl was fully committed to all the matters contained in the heads of agreement and in the draft agreement then circulating for the full term of 12 months. There is implicit in such assurance the representation for which AWS contends. That representation was false when made because of the declaration of intention made by Ms Halliwell on 9th March 1998 and never qualified or withdrawn. The fact that Mr Pettett did not consider that he was making such a representation is irrelevant. Greenwood v Leather Shod Wheel Co. [1900] 1 Ch 421, 434. Knowledge of the fax is to be attributed to SGL because KLP was its agent. Krakowski v Eurolink Properties Ltd [1995] 183 CLR 563, 582-4.
58. Fifth, the events of the meeting held at Wembley on 25th April 1998 demonstrated quite conclusively the falsity of all the representations previously made. Whichever formulation of the principle enunciated in With v O'Flanagan is adopted and whatever view is taken of the declaration made by Ms Halliwell on 9th March 1998 it is quite clear that SGL could no longer deal with AWS on the previous basis without disclosing Ms Halliwell's expressed intention...
59. Sixth, it is clear that far from correcting the previous misrepresentations SGL continued and affirmed them. There was the draft agreement originally issued on 24th March and reissued on 30th April. No doubt the phrase ...currently comprising... points primarily to the present (whether at the time of the draft or as of the imminent time when the Agreement was executed) and in that limited sense was true. But to our minds, in the context of the surrounding circumstances, it was concerned with an agreement which would continue into the future, in much the same sense as the conduct of SGL in approving the promotional material or of the Spice Girls in participating in the commercial shoot, in each case, for future use. In these two latter senses there was implicit in the representation derived from the conduct of SGL in circulating the draft agreement with the phrase "currently comprising" the representation for which AWS contends. It follows that, in that context, to say that the Spice Girls currently comprised the five named individuals without going on to say that one of them was going to leave within the period of the Agreement was false when made. What was omitted rendered that which was actually stated false or misleading in the context in which it was made: see Chitty on Contracts, 1999 28th Ed, vol 1, para 6-016.
60. Seventh, as the judge held, participation in the commercial shoot necessarily carried the same implication and was likewise false. It did nothing to correct the previous misrepresentations, indeed it gave them additional force.
61. SGL contended that the conduct relied on by Arden J could not give rise to the misrepresentation she found. Counsel pointed out that both the approval of the promotional material and participation in the commercial shoot on 4th May were required by the terms of the Agreement. Reliance was placed on the fact that Ms Halliwell did not appreciate that the deal with AWS could not be terminated before March 1999. It was also suggested that the description of the group as ...currently comprising... showed that there was no representation as to their future composition.
62. We do not accept those submissions. The fact that the Spice Girls were doing what the, as yet unsigned, Agreement required appears to us to support, not negate, a conclusion that the representations alleged are to be implied. The knowledge of Ms Halliwell as to the terms of the prospective Agreement is irrelevant because whether any and if so what representation is to be implied is to be determined objectively in the light of what was said and done. For the reasons we have already given we consider that the description ...currently comprising... supports the conclusions at which we have arrived.
63. Whilst it is necessary to give each episode separate consideration it is also necessary to have regard to their cumulative effect. This is not a case of an isolated representation made at an early stage of ongoing negotiations. It is the case of a series of continuing representations made throughout two months' negotiations leading to the Agreement. Later representations gave added force to the earlier ones; earlier representations gave focus to the later ones. It is in this context, not the much more limited one the judge adopted, that the submissions for SGL as to inducement and reliance must be considered.
Inducement and Reliance
64. S.2(1) Misrepresentation Act 1967 provides that
.....if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently.....
It is not disputed that the statute requires the representation to have induced the representee to enter into the contract. In addition SGL submits that the statutory analogy with damages in fraud introduces the additional requirement that the representation as understood was intended by the representor to induce the contract.
65. Arden J relied on Smith v Chadwick (1884) 9 AC 187, 196 for the proposition that inducement and reliance may be inferred from the purpose of the representor, the nature of the statement and the fact that the contract was entered into. She referred to the evidence of both Ms Fuzzi and Sr Brovazzo to the effect that AWS would not have entered into the Agreement if they had known that Ms Halliwell had declared an existing intention to leave in September 1998. She pointed out that unless AWS did enter into the Agreement it could not obtain the benefit of the promotional material or the commercial shoot...
66. These conclusions were challenged by SGL on the grounds that it had not been established that AWS understood the representations in the sense contended for by AWS (E. A. Grimstead & Son Ltd v McGarrigan Court of Appeal 27th October 1999 unreported), or that SGL intended to induce AWS to sign the Agreement in reliance on representations so understood (Nautamix BV v Jenkins of Retford [1975] FSR 385 a case in fraud). SGL submits that there was no evidence that AWS relied on the representations in that sense; in particular AWS relied on the commercial success of the Spice Girls to keep them together. SGL contends that there was no evidence from any individual in AWS to the effect that AWS would have withdrawn from the negotiations had the representation not been made. It is suggested that AWS was committed too far to justify any implication of withdrawal.
67. We do not accept these submissions. The representation bears the meaning in which it would be reasonably understood by the representee, that is to say, the natural and ordinary meaning which would be conveyed to a normal person. Akerhielm v De Mare [1959] AC 789. In the circumstances no one at AWS gave any consideration at the time to what representations were to be implied into the statements and conduct of the Spice Girls. But this is not a case in which the representations were ambiguous, so that the problem exemplified in E. A. Grimstead & Son Ltd v McGarrigan does not arise. There is no reason to think that AWS did not understand the representations in the sense alleged. The judge so inferred with regard to approval of promotional material and participation in the commercial shoot. We would do likewise in relation to the other representations to which we have referred.
68. It is not disputed that the various misrepresentations to which we have referred were made intentionally in the sense that the express statements and conduct in which they were implicit, if not express, were not accidental. In addition they were made in the context of a commercial relationship arising from heads of agreement already concluded which both parties hoped would reach fruition in a concluded and fully performed agreement. The various representations we have found to have been made were all such as to induce a normal person to act as AWS did. In those circumstances any requisite intention on the part of the representor will be presumed. Smith v Chadwick (ibid) p.190. In particular we cannot accept that SGL did not intend AWS to do exactly as it did, namely sign the Agreement, when it, SGL, failed to disclose to AWS immediately after the meeting on 25th April 1998 that Ms Halliwell definitely intended to leave in September 1998. Accordingly, in our view the conditions to which Oliver J referred in Nautamix BV v Jenkins of Retford were satisfied, whatever may be the relevance of the intention of the representor in a case outside fraud but within S2(1).
69. It remains to consider whether the misrepresentations we have found to have been made did induce AWS to sign the Agreement. SGL contends that no witness for AWS was called to give evidence to that effect. It is true that both Ms Fuzzi and Sr Brovazzo indicated that AWS would not have entered into the Agreement if they had known that Ms Halliwell would leave in September 1998 but that, counsel contended, is not the same as testifying that AWS entered into the contract in reliance on the representation. Moreover, SGL contended, the evidence of Ms Fuzzi appeared to be that AWS was so far committed to the sponsorship deal by 4th May 1998 that it would not have withdrawn even if it had known of Ms Halliwell's intentions.
70. It is sufficient that the misrepresentation is a material inducement, it does not have to be the only one. In Smith v Chadwick (ibid.) page 196 Lord Blackburn said:
...I do not think it is necessary, in order to prove [damage], that the plaintiff should always be called as a witness to swear that he acted upon the inducement. At the time when Pasley v Freeman was decided, and for many years afterwards he could not be so called. I think that if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, it is a fair inference of fact that he was induced to do so by the statement...
Lord Blackburn went on to point out that the inference was one of fact not law and that if no evidence is given as to reliance in fact that was ground for not drawing the inference.
71. Arden J did draw the inference that if the representations contained in the fax of 30th March 1998 had not been made Aprilia would have pulled out at that stage... As we have pointed out that finding is significant because it recognises the importance of the views of Ms Fuzzi to any decision AWS was likely to make. It is true that over the next five weeks AWS paid £300,000 towards the fee due to SGL and took further steps to put the Spice Sonic scooter into production. Even so the judge concluded that the representation arising from participation in the commercial shoot on 4th May 1998 was a material inducement to AWS to sign the Agreement two days later.
72. In our view the judge was entitled to conclude that the representations, express or implied, in both the fax of 30th March 1998, which continued, and participation in the commercial shoot on 4th May 1998 were material inducements to AWS to enter into the Agreement on 6th May 1998. Signature to the Agreement on 6th May 1998 bound AWS to pay to SGL £100,000 as the third instalment of the fee and £112,500 as the non-returnable advance against royalties on the Spice Sonic scooters. It is inconceivable, and Ms Fuzzi did not say, that AWS would have entered into those commitments had it been told of Ms Halliwell's declared intention to leave in September 1998. It might have entered into some other agreement with a view to cutting its losses but that was not alleged by SGL and is inconsistent with the evidence of Ms Fuzzi.
73. For all these reasons, while we consider that the judge took too narrow a view as to what representations were made and when, we do not accept the submissions for SGL that s.2(1) Misrepresentation Act 1967 is inapplicable. Subject to proof of damage, we conclude that SGL is liable to AWS under that provision...