Fraudulent Misrepresentations Made During Pre-Contract Negotiations

6 May, 2010

The Technology and Construction Court recently gave a landmark judgement relating to fraudulent misrepresentations made in pre-contract negotiations, awarding BSkyB £200m in interim damages for claims made by its supplier EDS –   BSkyB Ltd v HP Enterprise Services UK Ltd (formerly EDS) 

 

EDS had made a number of incorrect claims about its software, and BSkyB alleged that these were not merely negligent, but amounted to fraudulent misrepresentation. The court agreed that one claim made by EDS – that the system would be delivered within nine months – had been made fraudulently, as the individual making it had made no attempt to check the claim and indeed had ignored concerns within EDS over whether the timescale was achievable. The significance of this was that the contractual limitation of liability was held not to apply, increasing EDS’s liability from £30m to at least £200m.

 

Fraudulent misrepresentation is hard to prove, and this case does not make it any easier. However, it highlights the risks to vendors of rash statements made by salespeople. Even a statement that is merely reckless as to the truth may constitute fraudulent misrepresentation and expose a supplier to unlimited liability.

 

Service providers will wish to ensure they take more care over backing up pre-contractual statements with evidence, and ensuring that their “entire agreement” clauses make it clear the buyer is not relying on any pre-contractual statements in entering into the contract. Conversely, buyers should ensure that pre-contractual promises are properly reflected in the contract itself.

 

Reviewed in 2015