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Misrepresentation – measure of damages – pop band in sponsorship contract – failure to notify member’s intention to leave

[Misrepresentation Act 1967 s.2(1).]

S, the company that promoted the Spice Girls, sought the payment of various fees due under a sponsorship agreement with AWS, a subsidiary of A, a motor cycle and motor scooter manufacturer. AWS counterclaimed for damages on the grounds that it had been induced by a misrepresentation to enter into the contract, as it was already know that GH, a band member, had indicated that she intended to leave the band before the agreement has been concluded between S and AWS. AWS contended that it considered that continuity of the band’s original line up was essential to the success of its advertising campaign for a motor scooter associated with the band’s name. Judgment was given in favour of AWS on the counterclaim [2000] E.M.L.R. 478,[2000] 6 C.L. 126), with an order for damages to be decided at a later date.

Held, ordering S to pay AWS £39,699 and dismissing S’s claim against AWS, that under the Misrepresentation Act 1967 s.2(1) damages were calculated as if the misrepresentation was fraudulent and their purpose was to compensate AWS for losses flowing from the contract, not to put it in the position it would have been in if the misrepresentation not been made. The damages encompassed all direct losses, irrespective of their foreseeability, and included consequential loss, Royscott Trust v. Rogerson [1991] 2 Q.B. 297, [1991] C.L.Y. 1311, East v. Maurer [1991] 1 W.L.R. 461, [1991] C.L.Y. 1306 and Smith New Court Securities Ltd v. Scrimegeour Vickers (Asset Management) Ltd [1997] A.C. 254, [1996] C.L.Y. 996 applied. AWS’s claim was limited to its own losses as only AWS and S were privy to the contract and AWS did not have to give credit for any profit made by A. AWS had a right to reimbursement of its costs from A under a separate agreement, but S could not rely on that agreement to reduce its liability to AWS, as the agreement between AWS and A was res inter alios acta, Banque Bruxelles Lambert SA v. Eagle Star Insurance Co Ltd [1995] Q.B. 375, [1995] C.L.Y. 1834 applied and Bence Graphics International Ltd v. Fasson UK Ltd [1998] Q.B. 87, [1996] C.L.Y. 1196 distinguished. Sponsorship fees paid to S before the contract was concluded were irrecoverable, as payment had not been induced by the misrepresentation. AWS could recover damages for merchandise delivered to S under the contract where AWS had paid for it prior to delivery, but it could not recover production, storage and advertising costs for the merchandise because this had been incurred by A. S’s claim for unpaid sponsorship fees would not be allowed as AWS could have recovered these in damages for misrepresentation had they been paid.

SPICE GIRLS LTD v. APRILIA WORLD SERVICE BV (DAMAGES) [2001] E.M.L.R.8, Arden, J., Ch D.

“Current Law” April 2001