Sale of land — Failure to disclose deeds — Deeds revealing rights of light and air to neighbouring property — Misrepresentation — Damages — Whether difference in market values proper measure of damages — Whether additional construction costs proper measure of damages — Damages assessed on construction costs less benefits
Under a contract of February 1980, the plaintiff company purchased premises in Soho from the first defendants for a price of £2.1m. Completion took place in May 1980 and in October 1980 the plaintiffs were shown for the first time certain deeds; the deeds, of 1927 and 1934, concerned rights of light and air enjoyed by an adjoining property owner over the plaintiffs’ premises. It was the intention of the plaintiffs to redevelop their property and, in such an eventuality, by virtue of certain provisions in these deeds, the plaintiffs were obliged to reopen some windows in the flank wall of the adjoining owner’s building; windows that enjoyed rights of light.
As the adjoining freehold owner required £75,000 to release his rights, the plaintiffs, who had meanwhile commenced redevelopment of their property, partially redesigned the buildings they were erecting. An agreement was eventually reached whereby the neighbouring owner released his rights of light and air to two windows and a ventilator and the plaintiffs provided a light well to two remaining windows. The additional construction costs were £158,332, but the redesign resulted in eight flats around a light well in this part of the scheme rather than seven flats in the original scheme.
The plaintiffs brought proceedings against their original vendors for damages for innocent misrepresentation and for negligence. The action against the second defendants, Messrs Denton Hall & Burgin, solicitors, was discontinued, but they remained in the action as the first defendants had issued a contribution notice against them. On November 20 1987 Mervyn Davies J held that there had been an innocent misrepresentation, within the meaning of section 2 of the Misrepresentation Act 1967, but no negligence.
In their claim for damages, the plaintiffs supported three alternative claims: (1) £514,984 on the developer’s loss basis, a comparison of cashflows — those if no alterations to the buildings works had been needed and those with the alterations. (2) £750,000 on the market value basis; the purchase price less the value if the rights of light had been known. (3)£854,471 on the hybrid basis; this was a sum of the market value claim and certain of the additional building costs.
Held It was agreed that the measure of damages was the measure appropriate to the tort of deceit: Sharneyford Supplies Ltd v Edge [1986] Ch 128 followed. The claim is measured by comparing the plaintiff’s actual position with the position he would have been in if the misrepresentation had not been made; there can be no claim for a loss of a bargain. All three alternative claims were acceptable in principle despite the fact that the development resulted in a profit. But there were objections to the evidence supporting each basis. The restriction in the 1934 deed authorised any building provided that it did not infringe the rights to the five protected apertures to any greater extent than the accompanying plan indicated. But, because of doubt, a prospective purchaser of the site in February 1980 would have sought the agreement of the dominant adjoining owner before committing himself to any scheme of redevelopment.
The developer’s loss basis, as put forward, contained a fallacy in that the cash flow computations assumed that all costs which would have been incurred in any event would have been paid earlier than they were actually paid, as substantial parts of the redevelopment scheme were in fact unaffected by delay.
The use, in the second and third alternative claims, of the formula of the price paid less the true value at the time should not be mechanistically employed where this would involve a speculative and unreal valuation: County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1986] 2 EGLR 246 applied. There was doubt about the valuations put forward to support these bases and other evidence was available as to the costs the plaintiffs incurred in dealing with the problem.
Damages should be assessed on the additional costs less any benefits. The additional construction costs were £158,000; the extra value of the flats was £21,500; but a sum of £15,000 should be added for uncertainty about the rights of light. Judgment was for £151,500 plus interest at 2% above the minimum lending rate from July 1981.
Michael Lyndon-Stanford QC and Stephen Bickford-Smith (instructed by Titmuss Sainer & Webb) appeared for the plaintiffs; Alan Sebestyen (instructed by Slaughter & May) appeared for the first defendant; and Alan Steinfeld QC (instructed by Reynolds Porter Chamberlain) appeared for the second defendants.