Contract – Breach of warranty – Summary judgment – Claimant sellers under share purchase agreement bringing proceedings against defendant purchasers for unpaid consideration – Claimants applying for summary judgment – Whether claimants entitled to declaration that defendants had no real prospect of establishing issues raised at trial – Application granted
The defendants agreed to purchase, and the claimants agreed to sell, the entire issued share capital of a commercial lettings agency which was a business providing various services to residential landlords, primarily through its website.
The services included a facility for private landlords to advertise their properties for rent on various online property platforms such as Rightmove and Zoopla because the company held a residential lettings membership with those platforms for which it paid membership fees.
The claimants gave a warranty that the company had not defaulted under any agreement or arrangement to which it was a party. The contract provided that the warranties were subject only to “any matter which is fully, fairly and specifically disclosed in the disclosure letter” to be given to the defendants immediately before the agreement was executed; and to time limit on a claim for breach of warranty which had since expired. However, it contained a proviso that the limit did not apply “where there has been fraud or negligent non-disclosure”.
The defendants said that the platforms did not allow their members, such as the company, to advertise lettings on behalf of other commercial operators, acting as a “sleeve” through which other commercial landlords would gain access to the advertising profile of the platforms without paying their annual membership fees. They accepted that they had been informed of the existence of the restriction during the course of due diligence but said that they were not told that the company was operating its business in breach of that restriction; nor were they informed of the extent of that breach. The claimants argued that under the platforms’ terms and conditions applicable at the time there was no contractually effective restriction.
The claimants issued proceedings for unpaid consideration. The defendants counterclaimed for misrepresentation and/or breach of the no-default warranty. The claimants applied for summary judgment under CPR 24.2 by way of a declaration that the defendants had no real prospect of establishing at trial that the alleged restriction existed under the terms and conditions of its contracts with either platform at the time of the agreement; or that, when considering whether there had been fraud or negligent non-disclosure, the assessment of what disclosure had been given was based on what was in the disclosure letter.
Held: The application was granted.
(1) The defendants argued that it would be an extraordinary outcome if commercial agents throughout the country were able to gain access to the market access offered by the platforms not by signing up to their terms and paying their fees, but simply by paying a fee to the company. They contended that the platforms could not have expected their terms and conditions to operate in such a way and that, on a proper construction, they did not. The difficulty with that argument was the inconvenient truth that for a provision having such an important commercial effect, they were unable to point to any clear statement of it in any of the contractual provisions binding the company.
The Rightmove terms included “agents” in the definition of the clients of the company. That was straightforward and plain and entitled the company to take on the business of clients who were agents, and that agents included firms or corporate entities in the business of selling or letting residential or commercial properties or land on behalf of a third party. It was only in exceptional cases that commercial common sense could drive the court to depart from the natural meaning of contractual provisions. It was not the court’s function to rewrite the contract for the parties. The draftsman of the terms could not have intended to open the door wide in the definition of the client/agent relationship, only to close it again by means of a careful scrutiny of several other provisions. That would mean choosing to ignore the plain meaning of the words the parties decided to use and placing upon the agreement a construction simply because it was said to be more commercially sensible for Rightmove: Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 EGLR 119 and Prophet v Hugget [2014] EWCA Civ 1013 applied.
Further, the Zoopla terms contained no express wording that prohibited the company advertising properties where its clients were themselves commercial operators. It had gone to the trouble of defining an online business but did not provide for how any fetter on the ability of the member to upload properties would operate. It was clear that they might have sought to do so in respect of members possessed of physical branches but crucially, in neither case, did Zoopla take the opportunity to express the restriction in plain and straightforward language when they easily could have done.
(2) The purpose of the disclosure letter was to carry into effect an agreement between the parties that in respect of any warranty given, no claims could be made in respect of it by the defendants on the basis that it was untrue, to the extent of the facts and matters fully, fairly and specifically disclosed in the disclosure letter. In essence the claimants were showing that the warranty was not true and the defendants were agreeing that they knew that was to be the case.
As to the proviso, what the parties were trying to say was that the defendants would not be prevented from bringing a late claim if the reason it was brought late was the concealment by the sellers of facts and matters essential to the decision or knowledge necessary to be able to bring such a claim. If the purchasers did in fact know, because the sellers did disclose information about the matter, then the bar would still apply. Whether enough had been disclosed would be a matter for argument. However, it could not be argued that if the defendants did know of a matter, albeit that it was not in the disclosure letter, that the matters had not been disclosed to them for the purposes of the proviso.
(3) Accordingly, both declarations sought by the claimants would be made by way of summary judgment. The defendants had no real prospect of succeeding on the issues that they had raised. Nor could any compelling reason be seen why either issue should be left for disposal at trial.
Daniel Goodkin (instructed by Flint Bishop LLP) appeared for the claimants; Kyle Lawson (instructed by Eversheds Sutherland (International) LLP) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Butcher and another v Pike and others
