Sale of land – Fraudulent misrepresentation – Witness evidence – Claimant purchasing commercial property from defendants – Claimant claiming damages for fraudulent or negligent misrepresentations and breach of contract – Whether claimant induced to enter into sale by misrepresentations about duration of lease – Whether court entitled to draw adverse inferences from absence of witnesses – Claim dismissed
The claimant company was incorporated for the specific purpose of purchasing a commercial investment property known as the Himalaya Shopping Centre, situated at 65 and 67, The Broadway, Southall, Middlesex. The first defendant was the seller and the second defendant was its controlling director.
The claimant brought a claim for damages for fraudulent, or alternatively negligent, misrepresentations allegedly made to the claimant by the defendants during the course of the sale. There was also a parallel claim for damages for breach of contract. The value of the primary claim was said to be in excess of £8.776m. The defendants denied any and all liability to the claimant.
The claimant claimed that it was induced to enter into the sale contract, and a later loan agreement, by fraudulent (alternatively negligent) misrepresentations about the duration of the leases of the retail units on the ground floor of No.65 and the rental income from the tenants.
The defendants accepted that there was a misrepresentation, due to an innocent mistake; but they denied that there was any operative inducement because the claimant knew the true terms of the leases prior to the exchange of contracts.
Held: The claim was dismissed.
(1) In certain circumstances, a court might be entitled to draw adverse inferences from the absence, or silence, of a witness who might be expected to have material evidence to give on an issue in the action. That evidential “rule” was fairly narrow. Where a party relied on it, it had to set out clearly the point on which the inference was sought, the reason why it was said that the missing witness would have material evidence to give on that issue and why it was said that the party seeking to have the inference drawn had itself adduced relevant evidence on that issue.
If a court was willing to draw such inferences, they might go to strengthen or weaken the evidence adduced. However, there had to be a case to answer. If the reason for the witness’s absence or silence satisfied the court, then no such adverse inference might be drawn. If some credible explanation was given, even if it was not wholly satisfactory, the potentially detrimental effect of his or her absence or silence might be reduced or nullified. The drawing of such inferences was not something to be lightly undertaken: Magdeev v Tsvetkov [2020] EWHC 887 (Comm) and Wisniewski v Central Manchester Health Authority [1998] PIQR 324 followed.
The court then had a discretion, and would exercise it not just in the light of those principles, but also in the light of the overriding objective and an understanding that it arose against the background of an evidential world which shifted, both as to burden and the development of the case, during the trial.
Before the discretion to draw an adverse inference could arise, the party inviting the court to exercise that discretion had to: establish that the counter-party might have called a particular person as a witness and that that person had material evidence to give on that issue; identify the particular inference which the court was invited to draw; and explain why such inference was justified on the basis of other evidence that was before the court.
(2) The tort of deceit contained four ingredients: the defendant made a false representation to the claimant; the defendant knew that the representation was false, alternatively he was reckless as to whether it was true or false; the defendant intended that the claimant should act in reliance on it; and the claimant did act in reliance on the representation and in consequence suffered loss. An “intention to deceive” was not a separate or free-standing element of the tort of deceit. It was merely another way of describing the mental element of the tort: ECO3 Capital Ltd v Ludsin Overseas Ltd [2013] EWCA Civ 413 followed.
Questions of inducement and causation were questions of fact. It was sufficient for the misrepresentation to be an inducing cause and it was not necessary for it to be the sole cause. Once it was proved that a false statement was made which was “material”, in the sense that it was likely to induce the contract, and that the representee entered the contract, it was a fair inference of fact (though not an inference of law) that he was influenced by the statement; and the inference was particularly strong where the misrepresentation was fraudulent. In such a case, it was very difficult to rebut the presumption of inducement. Where the representee knew that the representation was false, he could not succeed; but the representee’s knowledge of the truth normally had to be full and complete. Partial and fragmentary information, or mere suspicion, would not do: Hayward v Zurich Insurance Company Plc [2016] UKSC 48; [2017] AC 142 applied.
In the present case, the defendants had discharged the heavy burden of rebutting the presumption of reliance and inducement. Although the court found that there was a fraudulent misrepresentation as to the length of the occupational leases, there was no actionable misrepresentation.
(3) In all the circumstances, the claimant’s claim for damages for misrepresentation was dismissed. Although the claimant had established that there was a fraudulent misrepresentation, it was not actionable because the defendants had established that it did not induce the claimant to enter into the sale contract; and, in any event, it had caused no loss to the claimant. The claimant did not act in reliance on the representation; nor had it suffered any loss. Although the claimant had established its claim for breach of contract in respect of the lease term representation, it had not proved that it had suffered any actual damage as a result of that breach.
(4) The defendants’ counterclaim for correction by construction or rectification of the lease term representation was rejected. On the facts as found, neither party was labouring under any mistake. They must have intended, and understood each other to intend, that the property was to be sold subject to the ground-floor leases, with their actual (rather than theoretical) contractual terms.
However, the defendants were entitled to sums outstanding under the loan agreement with interest at the rate of 3% per month, compounded monthly.
David Holland QC and Edward Rowntree (instructed by Cardium Law Ltd) appeared for the claimant; Ian Clarke QC and Nicholas Trompeter QC (instructed by SBP Law) appeared for the defendants.
Eileen O’Grady, barrister
Click here to read a transcript of Ahuja Investments Ltd v Victorygame Ltd and another
