Not notifying change of
key personnel amounts to misrepresentation
FITZROY v ANGLO SWISS [2009]
The Technology and Construction Court held that failing to inform a customer of the forthcoming departure of a key team member amounted to fraudulent misrepresentation. It was also a possible breach of the duty to cooperate, which is implied into many, if not all, professional services contracts.
facts:
- F won a contract largely because one of its directors was to be the team leader and be personally available and responsible for overall management, supervision and co-ordination of the project for its entire term, both provisions being expressly stated in the contract. The parties had largely agreed the contractual terms governing the appointment of F, but, as often happens, the contract was not signed until two months later. However, around the time work on the project started and before the contract was signed, the director in question resigned and despite limited efforts to retain him, F knew he was leaving when it signed the contract.
- F did not inform AS of this change for several months as it knew there was a good chance that AS might not have proceeded to sign the contract and may have looked elsewhere and because the individual involved was working out a lengthy notice period. When the director actually left F some months later, AS withheld payment as it was not happy and F made a claim for the outstanding monies. AS counterclaimed and raised the director’s resignation as an issue.
decision:
- The Court ruled against F due to its conduct in relation to the director and its subsequent attempt at ‘re-writing history’. F’s failure to correct the pre-contract assertions it had made about the director's involvement in the project, once it knew he was leaving, amounted to fraudulent misrepresentation and deceit. The Court was satisfied that if F had told AS that the director was leaving, it may not have won the contract and AS is now entitled to recover damages for the losses it has suffered as a result of the misrepresentation.
- The amount due to AS is not known although query what damage AS suffered and how damages were to be assessed? The Judge suggested that in this particular case any recoverable loss might be minimal but, presumably, in sufficiently serious cases the customer might have the right to terminate a contract and claim back any monies paid as well as claiming damages for wasted management time. Such a claim could be extremely significant.
points to note:
- When advising a potential customer about key personnel on a project, be truthful about their availability and whether or not their time on a project may be limited due to any plans to leave or because of promotion. Otherwise this could lead to a claim for damages resulting from a fraudulent misrepresentation (where a false representation has been made knowingly or recklessly).
- The implied duty to cooperate is an important one to bear in mind and, seemingly, cannot be excluded by contractual wording. The duty is not just limited to situations such as this but applies to the relationship generally. In the circumstances of this case, the duty obliged F to notify AS promptly as soon as it became aware that the individual involved was not going to be available as required for the entirety of the project.