28 February 2014

Parties will commonly begin negotiating a commercial deal without yet having decided the legal form they will use to deliver it. Special purpose companies or partnerships can be formed when required and often will be to act as the counterpart to the final contract. So what rights does the ultimate counterparty have in respect of matters arising in the negotiation, if it was not legally involved at the time?

If one party misleads the other into entering the contract, normally, such a ‘misrepresentation’ would allow the wronged party to undo the contract. But how can a party which wasn’t involved, or even did not yet exist, at the time of the relevant comments claim to have been misled?

The Supreme Court had little difficulty in concluding that a vehicle used to enter a contract can be misled even when it did not exist when the relevant statements were made in Cramaso LLP v Viscount Reidhaven's Trustees [2014] UKSC 9.

In essence, following good commercial sense, the Court recognised that where an individual negotiates a deal and during the process of the negotiation he forms a special purpose vehicle which he continues to represent and uses to sign the contract then he continues to be motivated (when acting for the SPV) by statements made to him even before the incorporation of the SPV.

This works both ways – if a representation is made and then an SPV is formed by the person who made the representation which then enters a agreement – the SPV remains liable for the representation. Many businesspeople might think this was obvious. It took three Scottish Courts leading to the Supreme Court to confirm that.

Rebecca Houlden is part of Burges Salmon’s dispute resolution team led by David Hall.

Key contact

David Hall

David Hall Partner

  • Dispute Resolution
  • Banking Disputes
  • Business Crime and Regulatory Investigations

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