CA-2024-001949 & CA-2024-001935 - [2025] EWCA Civ 1212

The case that Uniserve was entitled to rescind the supply contract for misrepresentation was addressed by Mr David Walsh KC. He advanced two related submissions. The first was that that the judge failed to apply the correct test for reliance on a misrepresentation set out in The C Challenger [2022] EWCA Civ 231, [2022] 1 Lloyd’s Rep 521, para 63. The second submission was that the judge failed to give weight to the evidential presumption that when a fraudulent misrepresentation is made which is intended to cause the representee to enter into the contract, the representee will indeed have been induced by the misrepresentation to do so, that presumption having been described as ‘very difficult to rebut’ (BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596, [2020] QB 551, para 43).

It is well established that in order for a right to rescind to arise, a representation need not be the only reason for the representee’s decision to enter into the contract, but it must have played a real and substantial part in inducing him to do so. As explained in The C Challenger:

‘61. It is common ground that a party seeking to rescind a contract for misrepresentation must show that the representation played a real and substantial part in inducing it to enter into the contract in question. As explained by Mr Justice Christopher Clarke in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep 123 at [153], the misrepresentation need not be the only reason for the party’s decision to enter into the contract, but the representee will have no grounds for complaint if it would have entered into the contract on the same terms even if the representation had not been made. …

62.

What would have happened if the representation had not been made is a question of fact, although (as with any counterfactual) necessarily hypothetical. Once it is proved that a false statement was made which was “material” in the sense that it was likely to induce the contract, it is a fair inference of fact, although not of law, particularly strong in a fraud case, that the representee was induced by the statement to enter into the contract. But that inference is capable of being rebutted.’

Mr Walsh relied in particular on what was said in the first sentence of the next paragraph of The C Challenger judgment:

‘63.The court is therefore required as a first step to identify the hypothetical factual scenario in which the representation had not been made. In the present case, three possibilities were canvassed. The first was that the Owner said nothing about the vessel’s speed and consumption, as if the 22^nd November 2016 letter had never been sent. On that scenario, the judge found, not surprisingly, that no charterparty would have been concluded: in practice, a shipowner wishing to let out its vessel on time charter must offer performance warranties.’

It is apparent from the context, when the paragraph is read as a whole, that the issue there was to identify the relevant counterfactual, i.e. what if anything would have been said about the topic in question, there the vessel’s speed and consumption, if the misrepresentation in question had not been made. That question arose in the context of negotiations for a time charter, in circumstances where in practice something will always be said about speed and consumption before a contract is concluded.

Mr Walsh submitted that instead of considering whether Uniserve would have entered into the supply contract if the representations in the Waller email had not been made, the judge sought to assess which was the more powerful motivating factor for Uniserve, the Waller email or the reports by Majlan following their investigations.

I would reject this criticism of the judgment. The judge found that Uniserve did not take on trust the information provided by Mr Waller, but instead commissioned its own due diligence on the production capabilities of the Hitex factory. That investigation was undertaken by Majlan. Majlan reported that Hitex’s production capabilities were not as described in the Waller email. By the time the supply contract was concluded, Uniserve knew that what had been claimed in that email was not correct, but it decided to conclude the contract anyway.

Uniserve’s managing director, Mr Iain Liddell, gave evidence that he would not have entered into the contract if he had not been told the information in the Waller email, but the judge did not believe him:

‘129. Mr Liddell in his second witness statement claims that he would not have entered into the Supply Contract if he had not been told that the Hitex had 5 million masks available on 15 April 2020 and 5 million masks available on 22 April 2020 and have the production capacity to produce a further million facemasks every week from then on. In my view this is simply not true.

130.

Mr Liddell sought in cross examination to distance himself from the due diligence efforts, saying that he was relying on Dr Stead. Nevertheless, he was copied into emails and was aware that the results of the due diligence contradicted the information in the Waller Email. By 23 April, Uniserve as an organisation was clearly aware that the predictions of supply and production information in the Waller Email were proving incorrect. This was known by Mr Bonnett, it was known by Uniserve’s representative Dr Stead, and it was known by Mr Liddell.

131.

The question of inducement is one of fact. It is apparent from the authorities that the test is not necessarily whether the representation was believed but rather whether the representation in fact induced the contract.

132.

As is noted at Chitty on Contracts at 10-045 in Hayward v Zurich Insurance Co Plc [2016] UKSC 48 at [44], the Supreme Court held that a settlement of an insurance claim could be avoided by the insurer when it discovered that the amount of loss had been exaggerated fraudulently, even though at the time of the settlement the insurer had doubts over the extent of the claim. It was sufficient that the false claim influenced the insurer in the sum offered in settlement. Lord Clarke said that even in a case in which the claimant knows that the representation was a lie, the claimant “may be able to establish inducement on the facts”. No doubt Lord Clarke is correct in this, but the cases where someone is induced by a statement that is known or believed by that person to be false are likely to be few.

133.

In the case before me, I am satisfied that the facts are that the Waller Email did not induce Uniserve to enter into the Supply Contract. It is fanciful to believe that Uniserve was still relying on these in preference to its own due diligence which clearly contradicted these statements. …

136.

I find that Uniserve was not relying on the Waller Email (or indeed on any of the other predictions as to production and stock availability that had been made) when it signed the Supply Contract on 23 April. It entered into the Supply Contract in the knowledge that these predictions were unlikely to be met.’

This was a finding of fact which, on the evidence, the judge was entitled to make. It is fatal to Uniserve’s case on misrepresentation. It means that the evidential presumption that a misrepresentation has induced the contract was rebutted. As I have said, it is not clear whether the judge found that the misrepresentation was made fraudulently or merely negligently. In either case, however, the presumption, albeit stronger in the case of fraud, is capable of being rebutted and, on the evidence, was rebutted in this case.

As the judge added, there is nothing surprising about this when the circumstances of the Covid pandemic are considered. At a time of acute demand for PPE, Uniserve decided to conclude a contract despite its doubts about Hitex’s ability to perform, but it did so on terms which enabled it to terminate the contract if those doubts proved well founded. In that sense, it had nothing to lose.