Edwards v Ashik

Contract – Sale of land – Fraudulent misrepresentation – Appellant purchasing nightclub from respondent – Appellant contending induced to complete purchase by respondent’s fraudulent representations – County court ruling against appellant on preliminary issues on liability concerning appellant’s actual knowledge – Appellant appealing against that decision – Whether judge erring in law – Appeal allowed

The parties entered into a lease, mortgage and sale agreement in relation to a nightclub operated from premises in London SE14. A dispute in respect of alleged misrepresentations made by the respondent vendor to the appellant purchaser in replies to pre-contract inquiries relating to the sale of the business and the grant of a new lease of the premises by the respondent to the appellant. The appellant completed the purchase and went into occupation of the premises pursuant to the lease.

A number of questions on liability were directed to be tried as preliminary issues and the county court found that there had been fraudulent misrepresentations in the replies to the pre-contract inquiries relating to noise complaints. However, she went on to find that, even if the respondent had told the appellant about the complaints, on the balance of probabilities, it was more likely than not that the appellant would have proceeded with the purchase. Accordingly, the answers to the pre-contact inquiries had played no part in the appellant’s decision to go ahead.

The appellant appealed, contending that the judge had misdirected herself in treating the issue of inducement as turning on the question: what would the appellant have done if he had been told the truth about the complaints. The appellant argued that, in view of the presumption in favour of inducement by a dishonest misrepresentation and the terms of the contract of sale, the judge should have held that the dishonest answers were a material cause of the appellant’s entry into the contract.

Held: The appeal was allowed.
(1) It was common ground that the judge had been right to hold that, in view of the fraudulent misrepresentation found, a presumption arose that the appellant had been materially induced by the misrepresentations to enter into the contract. In view of that, the onus shifted to the respondent to prove, on a balance of probabilities, that in fact the misrepresentation had not been a material cause of the purchase. The presumption of inducement was rebutted by the representor showing that the misrepresentation had not played a real and substantial part in the representee’s decision to enter into the transaction, though the representor did not have to go so far as to show that the misrepresentation had played no part at all: Dadourian Group International Inc v Simms [2009] EWCA Civ 169 considered; Downs v Chappell [1997] 1 WLR 426 distinguished.
(2) Knowledge of the appellant’s solicitor was treated as the appellant’s knowledge for the purpose of misrepresentation. In all normal conveyancing transactions, the parties impliedly gave actual authority to their solicitors to receive on their behalf all relevant information from the other party relating to that transaction. Whether there was express or ostensible authority, the purchaser was estopped from denying that he had received information relating to the transaction, which had been communicated to his solicitors acting in the same transaction. Such knowledge had to be imputed to the principal.
It could not be right that there was reliance on replies to pre-contract inquiries only where the actual words of the replies were shown or communicated to the purchaser. In most conveyancing transactions where the purchaser was unsophisticated, the effect of the replies was summarised, or the solicitors merely advised the client that there was nothing untoward in the replies that should concern the purchaser and it was “okay to proceed”. In those circumstances, the purchaser knew that there was nothing untoward that his solicitor had discovered in the pre-contract disclosure. On the facts of the present case, the solicitor had summarised the effect of the replies for the appellant and he had been aware of it before he entered into the contract: Strover v Harrington [1988] Ch 390 considered.
(3) In the present case, the judge had erred in failing to address the right question which was whether or not there was positive evidence that, at the relevant time, the appellant had in fact not been materially induced to contract by the misrepresentation. On the evidence, there had been no separate consideration by the judge of what evidence overturned the presumption that the replies had induced the appellant to enter into the contract, which there would have been if the judge had addressed the correct question. Accordingly, the judge’s finding on the question of inducement could not stand. Reconsidering the issue, on the evidence, the presumption of inducement had not been rebutted: Barton v County NatWest Bank Ltd [1999] Lloyds Rep Banking 408 considered.
(4) It was also necessary to determine whether the appellant had affirmed the contract. The question to be decided was whether the continued use of the nightclub had amounted to an unequivocal demonstration to the respondent that the appellant had elected to treat the contract as valid. In the circumstances, the judge had erred in concluding that the continued business occupation had been an unequivocal election to affirm the contract. It was clear that the appellant had been intending to claim remedies for fraud and was only delaying to see what the respondent had to say about the allegations. His delay had not been an unequivocal act: Peyman v Lanjani [1985] Ch 457 considered.