Citation.  EWCA Civ 596
Brief Fact Summary.
The plaintiff, a US company, contracted with the defendant, a Netherlands-based company, for the supply of egg products during the avian flu epidemic in the US. The defendant company after forming the first contract with the plaintiff raised its prices in order to cover the costs of compliance with US regulations. The plaintiff agreed to the price increase, forming a second contract. The plaintiff later alleged that the defendant fraudulently misrepresented the nature of the cost increase, because the increase included the element of profit, rather than just covering the cost of compliance with US regulations.
Synopsis of Rule of Law.
The plaintiff only has to show that the misrepresentation was one reason for entering into the relevant contract.
The avian flu struck the US in April 2015, causing disastrous effects on suppliers of egg products, like the plaintiff which had to destroy more than half of its own birds. To honor its commitments to buyers, the plaintiff had to find a new supply of egg products. It found the defendant Netherlands-based supplier and made a contract to buy 4200 metric tons of egg product over a two year period for set prices, provided that the procedures in the Netherlands satisfied US regulation authorities supervising the egg business. The relevant US authorities gave approval June 1, 2015. Before that approval came through, the defendant emailed the plaintiff claiming that there were extra regulatory costs and the prices would have to be increased. The plaintiff asked for a breakdown of the extra costs, which the defendant sent, and the plaintiff agreed to the increase in prices. The defendant later informed the plaintiff that its sister company Henningsen would supply some of the product and that Henningsen’s operations had also been approved by the relevant US authorities. As egg prices began to fall, the plaintiff claimed that the defendant was failing to meet US regulations. The defendant started proceedings for loss of profit due to the suspension of the contract, and the plaintiff claimed that the defendant acted fraudulently in calculating the price increase, as the increase included the element of profit, rather than just the cost of compliance with US standards.
(1) Did the defendant’s misrepresentation induce the plaintiff to enter into the second contract?
(2) Must the plaintiff prove that it was induced by the misrepresentation?
(2) Yes, but it is enough for the plaintiff to show that it might have acted differently without the misrepresentation. The trial court judgement is affirmed.
The onus to prove inducement in normal cases of misrepresentation is usually on the plaintiff, but the element of fraud makes the question more challenging. There is no requirement that plaintiff state that he would not have made the contract but for the misrepresentation, but this fact is part of the overall evidence of inducement. The fact that there were other reasons that the plaintiff may have entered into the contract does not mean that it was not induced by the misrepresentation.