Residential development – Fraudulent misrepresentation – Rescission of contract – Parties negotiating sale and leaseback of football ground – Defendant issuing notice against claimant’s registration of title alleging misrepresentations and bribery – Claimants seeking to set aside notice – Defendant counter-claiming for rescission of contracts – Whether defendant aware of payment – Whether misrepresentations inducing defendant to enter contract – Whether court having jurisdiction to rescind contract made prior to payment – Claim and counter-claim allowedin part
The claimants and the defendant entered into an agreement for the sale and leaseback of the defendant’s football ground for residential development. The defendant’s managing director (E) had represented it in the negotiations, which resulted in the parties agreeing to share on an equal basis the increase in the value of the ground attributable to obtaining vacant possession and planning permission, net of planning and development costs (the overage).
Following completion of the transaction, the defendant’s financial position was such that it entered into discussions with H, acting on behalf of the claimants, to sell its share of the overage. The defendant asked H for information concerning the planning position for the development and, following his responses, negotiations resulted in a higher price being agreed (the overage agreement).
During the negotiations, H had arranged for a payment of £10,000, which was funded by the first claimant, to be made to E, but E informed only one of his three fellow directors about the payment. The defendant subsequently registered a unilateral notice at the Land Registry against the claimants’ title to the ground. The claimants issued proceedings to secure, inter alia, the removal of the notice. The defendant counter-claimed that it was entitled to rescind the transactions owing to the bribery of E and the fact that it had been induced to enter into those transactions by the fraudulent misrepresentations of H.
Held: The claim and the counter-claim were allowed in part.
The defendant was entitled to rescind the overage agreement. Having been induced to enter into the agreement by a fraudulent misrepresentation for which the claimants were responsible, rescission was not subject to the court’s statutory discretion to award damages in lieu. However, there had been no impropriety in the arms’-length commercial negotiations that had led to the making of the sale agreements.
In cases of fraudulent misrepresentation, it was not enough for the representor to show that the representee would, even if the representation had not been made, still have entered into the contract. However, it was sufficient for the representee to show that the misrepresentation “was actively present to his mind”: per Bowen LJ in Edgington v Fitzmaurice (1885) 29 ChD 459.
In the present case, the project for the realisation of the development value of the ground set out in the sale agreements was sufficiently in the nature of a joint venture to require the parties to conduct themselves with mutual good faith.
The making by one contracting party to another of a material misrepresentation of fact that induced that other to enter into the contract gave that other the right to rescind the contract; this was qualified in cases of innocent or negligent misrepresentation by the court’s statutory discretion to award damages in lieu, but not so qualified where, as here, the misrepresentation was fraudulent.
Under the law relating to bribery, the payment to an agent of a company was required to be disclosed to the company to enable it to make an informed decision as to whether to permit the agent to do something that gave rise to a potential conflict of interest. Such an informed decision could in general be made only by the company’s board.
The payment by a person to the managing director of a company who is charged with negotiations on the company’s behalf would be disclosed to the company by the director only if the disclosure had been made to all its directors or to a properly convened board meeting attended by a quorum: Wilson v Hurstanger Ltd [2007] EWCA Civ 299 considered; Jafari-Fini v Skillglass Ltd (in administration) [2007] EWCA Civ 261 distinguished.
The right of rescission, or the court’s discretion to award rescission, could not extend to the unwinding of a transaction prior in time to the payment or agreement for payment constituting the relevant bribe to enable the defendant to seek the rescission not merely of the overage agreement, but also of the sale agreement.
Jonathan Seitler QC and Andrew Mold (instructed by Field Fisher Waterhouse) appeared for the claimants; Nicholas Davidson QC and Alexander Hall-Taylor (instructed by Ince & Co) appeared for the defendant.
Eileen O’Grady, barrister