Hamilton v Allied Domecq Plc
| Jurisdiction | Scotland |
| Judgment Date | 30 March 2001 |
| Date | 30 March 2001 |
| Docket Number | No 66 |
| Court | Court of Session (Outer House) |
OUTER HOUSE
Lord Carloway
Contract—Misrepresentation—Negligent misrepresentation—Whether necessary to aver “special relationship”—Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (cap 73), sec 101
Damages—Negligent misrepresentation inducing contract under which defenders gained control of company from pursuers—Whether fall in value of pursuers' shares due to defenders' subsequent actings flowed from misrepresentation
Section 10(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 provides that a party to a contract who has been induced to enter it by negligent misrepresentation by another party shall not be disentitled, by reason only that the misrepresentation is not fraudulent, from recovering damages for loss suffered as a result of the misrepresentation.
The pursuers were shareholders in a company which produced mineral water. In order to develop the company it was necessary to secure access to an effective distribution network. The pursuers entered into discussions with various companies which could supply such access. The defenders could supply such access through a distribution company owned by a consortium of drinks manufacturers, including the defenders. In the course of negotiations the defenders' director B, who was also a director of the distribution company, represented that the defenders' distribution arrangements would be made available to the pursuers' company. In November 1992 the pursuers and the defenders entered into a shareholders' agreement in terms of which the defenders agreed that a subsidiary of the defenders would take a majority shareholding and control of the company. It was averred that the pursuers did so in reliance on said representation. The distribution arrangements were not made available, and the company's profitability was impaired and it was ultimately placed in administration. The pursuers raised an action against the defenders for reparation in respect of negligent misrepresentation.
The defenders argued that there was no “special relationship” of the type required to establish liability for negligence for pure economic loss in terms of Hedley Byrne & Co v Heller and Partners in respect that (1) the nature of the statement made was not clear from the pleadings, and in any event related to the future activities of a third party and was therefore not one on which the pursuers could rely; (2) there was no special skill averred in relation to B; (3) there were no averments as to what the pursuers would have done but for the representation; (4) the transaction to which the statements related was purely the choice of a suitable investor; and (5) the action was purely that choice and the pursuers did not make further investment or change their position. They further argued that no loss flowed from the pursuers becoming minority shareholders, which did not cause the destruction of the share value. The pursuers argued that this was a case of negligent misrepresentation and not Hedley Byrne liability and therefore no special relationship required to be shown, but in any event there was a “special relationship” in that (1) the representation was one which B was capable of bringing about and was a representation of fact and not intention; (2) B was capable of bringing about access to the distribution network as he was also a director of the distribution company; (3) it was not necessary to aver what the pursuers would have done
but for the reliance; (4) the reliance induced the choice of investor; and (5) the action taken was to enter into the shareholders' agreement. They further argued that the loss flowed from the pursuers ceasing to be majority shareholders and allowing the company to come under the control of the defenders.Held (1) that the terms of the representation made was clear from the pleadings (p 835D); (2) that in Scots law there was a remedy for negligent misrepresentation and there was no need to enter into the field of whether there was a “special relationship” (p 836A–H); (3) that in respect of loss, it was sufficient for the pursuers to aver that they had an asset of a particular value which was destroyed by the contract (pp 838I–839A); (4) that the pursuers were not bound to aver the various courses of action they might have taken but for the contract (p 839A); and proof before answerallowed.
Opinion that in any event a special relationship did exist in that the parties were joining together as shareholders to secure the long term success of the company, and that B was a director of both the defenders and the distribution company and had special knowledge about the availability of the distribution network and the pursuers were reasonably entitled to rely on his statements on that topic (p 838A–B).
John Stewart Hamilton and Stebbings Inc raised an action for damages against Allied Domecq Plc.
The full facts and the averments of parties appear sufficiently from the opinion of the Lord Ordinary (Lord Carloway).
The cause called before the Lord Ordinary for a hearing on the procedure roll on 8 March 2001.
Cases referred to:
Banque Bruxelles Lambert v Eagle Star (sub nomSouth Australia Asset Management Corporation v York Montague Insurance Co LtdELR) [1997] AC 191
Bridgegrove Ltd v SmithUNK [1997] 2 EGLR 40
Caparo Industries v DickmanELR [1990] 2 AC 605
Davis & Co (Wines) Ltd v Afa-Minerva (EMI) LtdUNK[1974] 2 Lloyds Rep 27
Downs v ChappellUNK [1996] 3 All ER 344
Esso Petroleum Co Ltd v MardonELR [1976] 1 QB 801
Hedley Byrne & Co v Heller & PartnersELR [1964] AC 465
Jamieson v JamiesonSC 1952 SC (HL) 44
Mutual Life and Citizens' Assurance Co v EvattELR [1971] AC 793
Reitze v Strathclyde Regional Council 2000 SLT 593
White v JonesELR [1995] 2 AC 207
Textbooks referred to:
Chitty, Contract (28th ed) paras 6.001, 6.004, 6.010, 6.085
McBryde, Contract para 9–75
McGregor, Damages (16th ed) paras 2006, 2009 (and first supplement)
Walker, Delict (2nd ed) pp 896–901
At advising, on 30 March 2001—
LORD CARLOWAY—
1. The Pursuers' Pleadings
[1] The pursuers each sue the defenders for the loss of the value of their respective shareholdings in Gleneagles Spring Water Company Limited (“Gleneagles”). This company was incorporated on 9 September 1985. The shares were initially acquired by the second pursuers, who provided some £1,000,400 in loan finance to Gleneagles. Gleneagles commenced setting up a business of extracting, bottling and selling mineral water. They acquired certain water exploitation rights, wayleaves and planning permissions. They established a pilot bottling plant.
[2] In November 1991 the company Vittel (part of the Nestle group) entered into negotiations for the purchase of Gleneagles for £3,500,000, which the pursuers say was a reasonable estimate of its value at that time. However, this deal was not progressed as Nestle decided to bid for Perrier instead. Gleneagles decided to advance their development plans. This necessitated securing access to an effective distribution network. The general idea was to find someone with an existing network to become a trade partner with and to invest in Gleneagles. The two major distributors, apart from Vittel, were controlled by either Cadbury Schweppes plc or Britvic Soft Drinks Limited. Britvic were owned by a consortium of drinks manufacturers including the defenders.
[3] In March 1992 the defenders expressed an interest in becoming trade partners of Gleneagles and appointed Mr David Beatty to deal with the matter. He was a director of both the defenders and of Britannia Soft Drinks Limited, Britvic's holding company. He was also deputy chairman of J Lyons & Co Limited, a subsidiary of the defenders. By letter dated 25 March 1992, Mr Beatty proposed an arrangement which included: “Allied Lyons…to have responsibility for domestic UK and international distribution of the product for so long as we retain at least a 50% shareholding”. The pursuers' agent responded that, as the second pursuer owned the shares in Gleneagles, the plan ought to be that once the defenders had invested in Gleneagles, the pursuers would each retain 25 per cent of the shareholding.
[4] During the course of sundry meetings between the parties or their agents: “Mr Beatty repeatedly...
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