Vendor and purchaser–Whether particulars in auction catalogue contained misrepresentations, including a representation that the trade of a wine bar was currently being carried on at the premises being sold–Law as to misrepresentation and non-disclosure–Refusal of purchaser to complete on learning of the facts–Deputy judge granted vendors specific performance–Purchaser’s appeal allowed–Laurence v Lexcourt Holdings Ltd considered
purchaser complained that the general impression conveyed by the particulars of
the premises, which he had purchased at auction, was that they contained a wine
bar which was currently being carried on by someone who had an existing lawful
licence to do so–The particulars in question included, inter alia, a column
headed ‘Lessee and Trade’ under which were the words ‘A Pommell (Wine Bar)’ and
there were photographs showing people apparently entering or leaving premises
described as ‘Wine bar by day, cocktail bar by night’–The particulars contained
information as to the term and the rental, including the words ‘Rent reviews
1988 and 3-yearly’–The facts were that the tenant had lost his justices’
licence, the premises had at the time of the auction ceased to be used as a
wine bar and cocktail lounge, and the tenant was in arrear with his payments of
rent–The appellant, on discovery of the facts, refused to complete–The vendors,
respondents to the appeal, brought proceedings for specific performance which
were successful before Mr Julian Jeffs QC, sitting as a deputy judge of the
Chancery Division–The appellant then appealed
appellant emphasised that the particulars would lead a purchaser to believe at
least that the premises contained a wine bar which was functioning and would
continue to be used for that purpose in the future–That was not so–The named
tenant was temporarily out of business and would be permanently so unless he
could get his licence back and in the meantime the money-earning capacity of
the business was sterilised–In response the vendors said that the particulars
had only a narrow meaning and were accurate so far as they went–As a
transaction in bricks and mortar the particulars gave correct information, set
out the contractual position as regards the tenant and stated the permitted
user correctly–It was to the latter that the words ‘Wine Bar’ were related
Appeal, accepting that the matter was one of impression, disagreed with the
view of the judge below and rejected the respondents’ submissions–The general
thrust of the particulars did misrepresent the actual state of affairs–The
tenant was not running a wine bar, there was no existing licence, the business
was not in such a healthy state as the description conveyed–The court referred
to the decision in Laurence v Lexcourt Holdings Ltd as providing a close analogy with the present
case–The appeal was allowed; the appellant was entitled to rescind the
contract; and he was entitled to recover damages from the respondents to the
extent of his wasted legal costs
The following cases are referred to in
this report.
Charles Hunt Ltd v Palmer [1931] 2 Ch
287
Laurence v Lexcourt Holdings Ltd [1978] 1
WLR 1128; [1978] 2 All ER 810
This was an appeal by Freddy Jacob
Ezekiel against the decision of Mr Julian Jeffs QC, sitting as a deputy judge
of the Chancery Division, who ordered specific performance by the appellant of
a contract to purchase premises at 414-416 Coldharbour Lane, Brixton, London
SW9, at the suit of the vendors, Atlantic Estates plc, the plaintiffs in the
action and the respondents to this appeal.
Norman Primost (instructed by Philip Ross
& Co) appeared on behalf of the appellant; Joanne Moss (instructed by
Kaufman Kramer Shebson) represented the respondents.
Giving judgment, MUSTILL LJ said:
This is an appeal by Mr Freddy Jacob Ezekiel from a decision by Mr Julian Jeffs
QC, sitting as a deputy judge of the High Court, ordering specific performance
of a certain contract at the suit of Atlantic Estates plc.
The history of the matter is as follows.
On April 28 1986 a lease was entered into by the predecessors in title of
Atlantic Estates plc in relation to premises at 414-416 Coldharbour Lane in
south-west London to a Mr Anthony Pommell. The only material provision of that
lease for present purposes is in clause 3(13) thereof that the tenant should:
Not without the landlord’s consent in
writing (such consent not to be unreasonably withheld) . . . use or allow to be
used the demised premises or any part thereof other than for the business of a
wine bar/cocktail lounge for members.
The initial rent on this lease was
£11,000 pa exclusive. The evidence was that this was an historic rent below the
market rent for the neighbourhood and the lease contained a provision for rent
review in every third year of the term based on the current letting value of
the premises. In 1987 the reversion of the lease was assigned to the plaintiffs
in the present action.
In March 1988 things went wrong. There
was an application which was successful for the removal of the justices’
licence granted to Mr Pommell in respect of the premises for the supply of
drinks and of the licence for the use of the premises for music and dancing.
Thereafter on some day, which we do not exactly know, the premises ceased to be
used as a wine bar/cocktail lounge.
The plaintiffs got to hear about this on
June 28 1988 when their lessee, Mr Pommell, wrote to them explaining that he
had been unable to pay rent for the March quarter because the police had raised
objections to the renewal of his licences. He told the plaintiffs that he hoped
to reapply for the drinking licence on July 25 next. He went on to say that he
had been negotiating with the local authorities and hoped to receive support
from the community in relation to his application. Finally, he asked the
plaintiffs to bear with him until these various matters could be dealt with. In
fact, not only did he not pay the rent due in March but he failed to pay it in
relation to the subsequent quarters as well.
A little later the plaintiffs formed the
intention of disposing of these among other premises in the Brixton area, and
they brought into existence a catalogue relating to a number of adjacent
properties in Electric Avenue, Atlantic Road, Coldharbour Lane and Electric
Lane. The front page of the part of the document which described these premises
showed the building with which we are presently concerned. The photograph
depicted a building apparently on three storeys of which the ground floor
displayed a white facia board or plate, at one end of which was a sign with a picture
of a glass with the word ‘Steppers’ superimposed, underneath which were written
the words ‘Members Club’. Beneath the facia board there was an awning on which
appeared in largish letters the words ‘Wine bar by day, cocktail bar by night’.
In the photograph one can see two or three people who appear to be in the
process of entering or leaving the premises. On the next page of the
particulars were descriptions entitled ‘Situation’, ‘Property’ and ‘Tenure’.
Against the word ‘Situation’ was written:
Located in the centre of Brixton and
occupying an extremely busy retail position serving a densely populated
residential area only 2 miles Vauxhall Bridge.
On the following page we see two more
photographs, on this occasion relating to some of the other properties
comprised in the proposed sale. The page was headed with the word ‘Tenancies’
in red print, and then followed the words: ‘All let on effectively full
repairing and insuring leases.’ Below
this was a table in a number of columns. The columns were headed respectively:
‘Lot number’, ‘Property’, ‘Accommodation’, ‘Lessee & Trade’, ‘Term’, ‘Ann.
Excl. Rental’ and ‘Remarks’. These columns were completed in relation to
414-416 Coldharbour Lane, which was lot L, as follows. Under the heading of
‘Accommodation’ was found a description of the surface dimensions of the shop
and there was a reference to ‘+ Kitchen + 1st & 2nd Floors’ and then a
summary of the accommodation on those floors. Of much importance to the present
case is the entry in the column headed ‘Lessee & Trade’. This read: ‘A.
Pommell (Wine Bar).’ The term and the
rental were correctly described in the appropriate columns and then in the
column headed ‘Remarks’ there were some more words upon which reliance has been
placed: ‘Rent Reviews 1988 & 3 yearly. Notice served. No Rent quoted’.
There was nothing said in this document, and there is no suggestion that any
remark was made orally at the time of the auction which was to follow, to draw
the attention of potential purchasers to the misfortunes that had overtaken Mr
Pommell in his proprietorship of the wine bar.
Mr Ezekiel is a gentleman who carries on
business, among other things, in dealing with commercial properties. It is
apparently his practice to buy such properties at auction on the strength of
the description in the auction catalogue without himself making anything
substantial in the way of inquiries as to the nature of the business carried on
on the premises or as to the prosperity or otherwise of such business. Mr
Ezekiel told the learned judge that he was interested in buying this property
partly as an investment and partly because he had some friends or acquaintances
who had the idea of running a wine bar. At all events, Mr Ezekiel attended the
auction and purchased lot L. So far so good.
However, we then find that in September
1988 Mr Pommell again failed to pay the rent due, having already fallen into
arrears in respect of the two previous quarters, and it seems that at this time
and, indeed, at the time of the auction the wine bar remained closed as a wine
bar, although there is evidence that it was used as what was called a ‘games
room’. This was evidently not a permitted use under the lease or a use for
which planning permission was in existence.
Very soon after the completion statement
was rendered in October 1988 the solicitors for Mr Ezekiel inquired why rent
had not been collected in relation to the June and September quarters and were
ultimately told by the plaintiffs’ solicitors that Mr Pommell had lost his
licence and that the wine bar was no longer being used as such. They also told
Mr Ezekiel that Mr Pommell was not paying the rent. After a certain amount of
correspondence, Mr Ezekiel refused to complete and proceedings were instituted
by writ for specific performance. In May 1990 the matter came before Mr Julian
Jeffs QC and in the result he gave the judgment for specific performance which
is now under appeal.
Those are the facts and I turn to the
law. There is no need to discuss this at any length for, although the present
case may be of interest to those who sell commercial properties and those who
buy them at auction without inspection or inquiry, it raises no new issue of
principle but merely turns on the application of well-established rules to the
particular circumstances of the dispute. These rules I take to be as follows:
(1)
The question whether one party has made a representation in the course
of negotiations for a contract depends upon what he has actually conveyed by
writing, words or conduct, such as a nod or a wink.
(2)
If one party has made a representation in this sense, it is no answer to
a claim or a defence founded upon it that if the representee had taken the
trouble to inquire he could have discovered that it was untrue.
(3)
Except in those cases where the nature of the contract is such as to
require certain facts to be disclosed, for example where the contract is one of
the utmost good faith, one party has no ground for complaint simply because the
other has not disclosed a fact which, if disclosed, would have influenced the
first party in deciding whether to enter into the contract.
(4)
There may, however, be circumstances in which the true import of what
was said or written is distorted by what is left unsaid, so that even if the
representation is literally true in every particular it is nevertheless
misleading.
I do not cite authorities for these
propositions, for in my opinion they are so well established as to require no
authentication. The question here — and it is a very short question — is
whether, applying these principles to the facts which I have summarised, the
consideration that the tenant was currently in arrears of rent and that the
wine bar was not trading because the tenant had lost his licence fell into the
category which called for inquiry by an intending purchaser and not spontaneous
disclosure by the vendor or whether the omission to state the fact caused the
particulars of sale to give a false impression of what was being sold.
In his judgment, which set out the law
and facts with complete accuracy, the learned deputy judge assigned the case
into the first category. If he were right in this, then his order for specific
performance was well founded, for in my opinion there is nothing in either of
the other grounds of appeal proposed by the appellant. The sole issue is
whether the view of the particulars of sale taken by the judge was indeed
right. For the appellants Mr Primost submits that it was not. Mr Primost’s
first and narrower argument is that the words in the last column of the description
of the tenancies, ‘Rent Reviews 1988 & 3 yearly Notice served’, conveyed to
the reader that the tenant was currently paying rent in a satisfactory manner,
because otherwise the landlord would not have troubled to give notice with a
view to obtaining even more rent. I cannot so understand these words. There is
no reason why the reader should assume that the landlord would abstain from
exercising his contractual right to secure a contractual rent for the
forthcoming three years simply because the tenant was currently in
difficulties, and it is well known that such notices
struggle for the tenant to keep up to date.
I do, however, accept that the words in
question may properly be relied upon as part of Mr Primost’s wider argument,
which emphasises the picture given by the particulars as a whole. There we see
a photograph of what looks like a wine bar trading as such. The column headed
‘Lessee & Trade’ show the name of the tenant followed by ‘Wine Bar’. Also
there was a statement of the rent of £11,000 and the proposed review of it.
Even if there were no representation here that the business was prospering or
even financially viable, at least (so the argument runs) the particulars would
lead a purchaser to believe that the premises currently contained a wine bar
and could continue to be used for that purpose in the future. This was not so.
The named lessee was temporarily out of business and would be permanently so
unless he could get his licence back, and the money-earning capacity of the
premises was sterilised.
In her argument in response, which lost
none of its cogency through its brevity, Miss Moss contends that the judge was
right. The particulars had only a narrow meaning and, according to that
meaning, were not only accurate so far as they went but gave a fair picture of
what they purported to give. The judge at the trial was right to treat this as
a transaction in bricks and mortar. A purchaser concerned with the investment
value of the property would need to know its location, dimensions and general
nature, the contractual rights of the freeholder in respect of rent, and the
contractual rights and duties of the tenant as regards permitted user. It was
to the latter information that the words ‘Wine Bar’ related. They appeared on a
page headed ‘Tenancies’ and were part of a description of the contractual
relationship between the vendor and the tenant, not an indication of whether
the permitted user was in fact being exercised or was for the time being
capable of being exercised. On this construction the deputy judge was right to
hold that everything being said was true and that the lack of the extra
information of which the appellant now complains had no distorting effect on
that truth.
This is essentially a point of
impression, and I have to say that my impression differs from that of the
learned judge. To my mind the particulars viewed as a whole conveyed that the
tenant was running a wine bar, for which purpose he would, of course, require
an ‘on’ licence, which in its turn would add materially to the value of the
premises. In truth, he was not running a wine bar; he had no licence, and
neither he nor anyone else could run a wine bar there unless and until he or
someone else recovered the licence. The premises, in my judgment, were not as
described and the fact that in the future the tenant or some successor might be
fortunate enough to be able to restart the business and put the premises into
conformity with the description is not to the point. Accordingly, I would hold
that the appellant was entitled to rescind and an order for specific
performance should not be made against him. He is, in addition, entitled to
recover damages from the respondents to the extent of his wasted legal costs.
In reaching this conclusion I have
abstained from referring to the several reported cases having a somewhat
similar appearance to the present which were cited in argument before us, for
they do no more than illustrate how the undisputed principles of law can be
applied to various sets of facts. I should, however, mention the decision of Mr
Brian Dillon QC (as he then was) sitting as a deputy judge in Laurence v
Lexcourt Holdings Ltd [1978] 1 WLR 1128. Business premises were offered
by the plaintiffs to the defendants for use as offices for a term of 15 years.
The defendants inspected the premises, saw them in use as offices and found
them satisfactory. An agreement for a lease was made before it was discovered
that planning permission for this use related to only part of the premises, and
on a fresh application the planning authority granted permission only for a
period which would have left the tenants with a useful term of only two years
remaining. It was held that the defendants were entitled to succeed. I need not
read from the judgment at length, but would draw attention to a passage at p
1137 of the report, immediately following a citation from Charles Hunt Ltd v
Palmer [1931] 2 Ch 287, a case where leasehold shops advertised as
valuable business premises were, in fact, subject to a covenant in the lease
restricting the user to that of ladies’ outfitter, fancy draper and
manufacturer of ladies’ clothing. Mr Dillon’s judgment continued:
I read that judgment as indicating that
the description of the premises as ‘valuable business premises’ was misleading
and a misrepresentation in that they could not lawfully be used for other than
the one purpose under the terms of the lease. Therefore, there having been a
misrepresentation which, if the plaintiffs were entitled to compel performance
of the contract, would have led to the defendant being able to take something
very seriously different from what he was meant to expect that he would get
under the contract, the plaintiffs were not entitled to enforce the contract.
I interpose to say that those decisions
included Charles Hunt Ltd v Palmer. Continuing:
I think those decisions would have been
precisely in point in the present case if the restriction on office use until
the end of October 1977 had been contained in a headlease of the premises or in
a restrictive covenant in favour of the owner of the adjoining land. Does it
make any difference that the restriction arises not by virtue of some document
between subjects but by virtue of the decision of the planning authority, which
is available to anyone to find out about who chooses to make the usual searches
of the local authority? I do not think
it does . . .
This decision is not, of course, directly
in point any more than the other authorities referred to in argument, but it
does provide quite a close analogy to the present case, which reinforces me in
the view at which I have independently arrived.
I would, therefore, allow the appeal.
Agreeing, BALCOMBE LJ said: The
short point in this case is whether the words in the auction particulars in the
column headed ‘Lessee & Trade’ and the words ‘A. Pommell (Wine Bar)’ taken
together with the photograph of the property at the front of the particulars
amounted to a representation that at the date of the auction the trade of a
wine bar was currently being carried on at the premises, 414-416 Coldharbour
Lane, Brixton. The alternative is that the words amounted to no more than a
representation that use as a wine bar was the permitted user under the lease.
In my judgment, the first meaning I have
given above is clearly correct and the words amounted to a misrepresentation of
the true position. I am also of the view that by describing the premises as a
‘wine bar’, the plaintiff vendor represented that they could be lawfully used
as such, that is that there was an existing licence for the sale on the
premises of intoxicating liquor. In my judgment, on this point the case is
indistinguishable from Laurence v Lexcourt Holdings [1978] 1 WLR
1128 to which Mustill LJ has referred. It is clear that the purchaser relied on
the misrepresentation and the judge so found.
Accordingly, I agree that this appeal
should be allowed and I also agree with the order which Mustill LJ will
propose.
WOOLF LJ also agreed and did not add anything.
The appeal allowed with costs in the
Court of Appeal and below.