Egg on your face: weaker test for inducement where misrepresentation fraudulent?

When NIVE sued Rembrandt for breach of its contract for the supply of egg products, Rembrandt claimed it had been induced to enter the contract by NIVE’s fraudulent misrepresentation. The court agreed that the representation had been made, but had it induced Rembrandt to enter the contract (NIVE v Rembrant)?

In recent years the test for inducement has been whether, ‘but for’ the misrepresentation, the party would not have entered the contract. However, the court held that for fraudulent misrepresentation a weaker test should apply: whether ‘but for’ the misrepresentation the party might have acted differently (as recognised in RZO v RBS).

Having other reasons to accept the revised price, Rembrandt couldn't say whether it would or might have agreed without the misrepresentation. The court found that there was a strong presumption that it had been induced to enter the contract. This presumption arises in circumstances where a fraudulent representation is made for the purpose of inducing a party to contract, and the party does in fact contract.

The evidential burden on NIVE to rebut this presumption was high – it needed to show that Rembrandt would (not might) have agreed to the revised price without the misrepresentation, which it could not do. This decision shows how difficult it is to overcome the presumption that a fraudulent misrepresentation did induce a contract, even where there is good evidence that other factors influenced the party’s decision.

An unusual feature of this case was that the contract induced by the misrepresentation was a revised contract at a higher price than previously agreed. When the revised contract was rescinded, the original contract was resurrected. Typically on rescission the parties would be ordered to make restitution and counter-restitution. Given the original contract was still on foot, the ‘practically just’ way to achieve this was considered. The Court decided that NIVE should return only the benefit it received as a result of the increased price that it secured through the misrepresentation.

Update April 2019: On appeal, after an extensive review of the cases, the court put the burden of proof issue differently but did not interfere with the judge's decision: there is an evidential presumption of fact (not law) that a representee will have been induced by a fraudulent representation intended to cause him to enter the contract and that the inference will be "very difficult to rebut".