Contract – Breach of warranty – Summary judgment – Respondent sellers under share purchase agreement bringing proceedings against appellant purchasers for unpaid consideration – Respondents applying for summary judgment – Whether respondents entitled to declaration that appellants had no real prospect of establishing issues raised at trial – Appeal dismissed
The appellants agreed to purchase, and the respondents agreed to sell, the entire issued share capital of a commercial lettings agency (BPG) 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 BPG held a residential lettings membership with those platforms for which it paid membership fees.
The respondents gave a warranty that BPG 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” (clause 5.2.1) to be given to the appellants immediately before the agreement was executed. However, it contained a proviso that the limit did not apply “where there has been fraud or negligent non-disclosure” (clause 6.2).
The respondents issued proceedings for unpaid consideration. The appellants counterclaimed for misrepresentation and/or breach of the no-default warranty. The respondents applied for summary judgment under CPR 24.2 by way of a declaration that the appellants had no real prospect of establishing 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 a disclosure letter, referred to in the agreement, for the purposes of clause 6.2.
The High Court granted the application, holding that the platforms’ terms did not prevent BPG from advertising lettings on behalf of other commercial lettings agents; and that the respondents were entitled to rely upon disclosures made to the appellants prior to the agreement otherwise than in a disclosure letter referred to in the agreement: [2020] EWHC 3362 (QB); [2020] PLSCS 226. The appellants appealed.
Held: The appeal was dismissed.
(1) Whether the property platforms’ terms prevented BPG from advertising lettings on behalf of other commercial lettings agents depended upon an objective consideration of the relevant terms and not upon the platforms’ subjective understanding of them. If the platforms wished to ensure that their own arguments as to the interpretation of their terms were considered by the court, it was open to them to apply to intervene in the proceedings but they had not done so.
(2) The appellants’ argument that it was commercially improbable that the platforms would permit a member such as BPG to act as a “sleeve”, through which other commercial lettings agents could gain access to the platforms without paying their membership fees, was not supported by any evidence before the court, still less any finding of fact, nor was it self-evident. It depended on factors such as the charging structure applied by the platforms; the ease with which commercial lettings agents might be distinguished from residential landlords who owned multiple properties and their managing agents; and the extent to which the platforms derived revenue from the payment of membership fees as opposed to other sources, such as advertising driven by traffic to the websites, which might be increased by a greater volume of listings regardless of the sources of those listings. The appellants argued that it was not just a question of the platforms’ revenue, but also the reputational risk to them if they could not control who listed properties or what properties were listed. However, it was not self-evident that the platforms’ control over their members through their contractual terms was insufficient to address that risk. Furthermore, even if the appellants were correct as to what was in the platforms’ commercial interests, it remained necessary to construe the words which they had used in their respective terms. This was not a case where a straightforward interpretation of the words used led to a commercially absurd result, nor a case in which commercial common sense had to be resorted to in order to resolve an ambiguity in the wording.
(3) On the true construction of the property platforms, the judge was correct to hold that the terms of each platform did not prohibit BPG from placing adverts on behalf of other commercial lettings agents.
The appellants accepted that they did not give notice of their claim within the period specified but said that there was “negligent non-disclosure” by the respondents because the relevant restrictions were not mentioned in the disclosure letter. The respondents contended that it was open to them to rely upon other disclosures.
The judge was correct to hold that “non-disclosure” in clause 6.2 did not refer only to disclosure in the disclosure letter, and hence (at least in principle) the claimants could rely upon other disclosures. Clause 6.2 made no reference to the disclosure letter, and its purpose was to provide an exception to the limitations of liability contained in clause 6.1. By contrast, clause 5.2.1 did refer to the disclosure letter, and its purpose was to except matters disclosed in the disclosure letter from the warranties.
(4) It was common ground that the respondents were under no duty of disclosure. Given that the disclosure letter was referred to elsewhere in the agreement, it was to be inferred that the absence of reference to it in clause 6.2 was intentional.
It would make little sense to ask whether there was negligent non-disclosure by reference to the disclosure letter if in fact there was disclosure in another communication. That would seem to involve an enquiry as to whether it was negligent for the respondents not to include the information in the disclosure letter even though they had disclosed it elsewhere. But there would be no point in such an enquiry given that the purpose of the disclosure letter was to limit the scope of the warranties for the benefit of the respondents, whereas the purpose of clause 6.2 was to provide an exception to the limitations in clause 6.1 for the benefit of the appellants.
The court did not accept the appellants’ argument that clause 6.2 should be narrowly construed because it was part of a limitation provision which was a form of exclusion clause since clause 6.2 provided an exception to the limitations in clause 6.1.
Kyle Lawson (instructed by Eversheds Sutherland (International) LLP) appeared for the appellants; Daniel Goodkin (instructed by Flint Bishop LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Butcher and another v Pike and others
