Allied-Domecq cleared of misrepresentation - no 'duty to speak"

27/07/2007

John Hamilton ("Hamilton") owned a third of the shares in Stebbings Inc. ("Stebbings") (together the "claimant"). The claimant invested in a Scottish company, Gleneagles Spring Water Company Limited ("Gleneagles"), with a view to marketing spring water from the Gleneagles Estate in Scotland as a high quality brand. After lengthy negotiations, the claimant entered into a subscription agreement with Allied-Lyons (now Allied Domecq) whereby Allied-Lyons became the majority shareholder in Gleneagles, acquiring the overall management and control of Gleneagles with responsibility for distribution.

The business subsequently failed and Gleneagles was put into administration. Consequently, the value of the claimant's shareholding was reduced to nil. The claimant alleged that this resulted from their reliance upon a misrepresentation by one of Allied-Lyons' directors, David Beatty. Hamilton claimed he had made it clear that he thought it essential to try and penetrate both "on-trade" sales (to hotels, restaurants and pubs) and "off-trade" sales (to supermarkets and other off-licence outlets). He had understood that this strategy would be followed. In fact, Allied-Lyons' strategy was to focus only on off-trade sales which Beatty maintained was his clear position throughout.

Hamilton argued that Beatty was under a duty not to misrepresent the distribution strategy, and also that he had a "duty to speak" and to make it clear that the strategy proposed by Hamilton would not be followed. The judge at first instance found for Hamilton awarding him £1m and Stebbings £2m.

On appeal, the Inner House of the Court of Session (the Scottish Court of Appeal) held that there was not sufficient evidence to prove misrepresentation by Beatty. The Court also found that there was no evidence to establish a voluntary assumption of responsibility, and therefore no "duty to speak" could arise. The House of Lords unanimously upheld this decision.

([i]Hamilton and ors v Allied Domecq plc [2007] UKHL 33)

Contact: maustin@city-law.net

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