Vendor and purchaser — Contract for the sale of land — Statements before contract in reply to preliminary inquiry — Section 2(1) of Misrepresentation Act 1967 — Negligence — Action by purchasers — Whether vendors liable for loss and expense suffered by purchasers, subject to proof of damage — Claim against vendors’ solicitors to be dealt with in third party proceeding
first of three judgments which relate to the same series of transactions and
should be read together — In this judgment Mervyn Davies J decided only the
issue of liability, leaving the quantification of damages and a third party
claim against the defendants’ solicitors to be decided subsequently — The
litigation arose out of statements made before a contract for the sale of a
block of freehold and leasehold property in Soho, London W1 — The property was
situated in Broadwick Street, Poland Street and Livonia Street — The questions
of quantum of damages and third party liability were determined by Morritt J in
the subsequent judgments* — Some procedural matters require explanation — In
the original proceedings the plaintiffs, Cemp Properties Ltd, the purchasers of
the properties, named the vendors, Dentsply Research & Development Corporation,
as the first defendants and the latter’s solicitors, Denton Hall & Burgin,
as the second defendants — The claim against the solicitors was, however,
discontinued on that basis and ordered to continue as a third party proceeding
— It forms the subject of Morritt J’s second judgment
statements of which the plaintiffs complained were made by the defendants’
solicitors in the ordinary course of inquiries preceding contract — The
statements were to the effect that certain deeds (which disclosed the nature
and extent of rights to light and air enjoyed by the proprietors of a
neighbouring property over the subject-matter of the contract of sale) were not
available for inspection — These statements were in fact, although not to the
knowledge of the defendants or their solicitors, untrue — The deeds had been in
the possession of the defendants’ solicitors and, indeed, were contained in the
bundle of deeds later handed over by the solicitors on completion — Mervyn
Davies J found the plaintiffs’ claim based on the Misrepresentation Act 1967
established (subject to the proof of damage) — He did not make any finding on
the claim based on negligence, holding that, if there was a duty of care, the
plaintiffs would have to prove the same fact of inducement as under the 1967
Act; and the damages claimed were the same — Judgment for the plaintiffs on the
issue of liability
*Editor’s note: Judgments of Morritt J on
February 24 1989 (see p 196 post) and March 21 1989 (see p 205 post).
The following
cases are referred to in this report.
Anns v Merton London Borough Council
[1978] AC 728; [1977] 2 WLR 1024; [1977] 2 All ER 492; (1977) 75 LGR 555;
[1977] EGD 604; 243 EG 523 & 591, [1977] 2 EGLR 94; [1977] JPL 514, HL
Brown v Raphael [1958] Ch 636; [1958] 2
WLR 647; [1958] 2 All ER 79, CA
Esso Petroleum Co Ltd v Mardon [1976] QB
801; [1976] 2 WLR 583; [1976] 2 All ER 5; [1976] 2 Lloyd’s Rep 305, CA
Hedley Byrne & Co Ltd v Heller & Partners
Ltd [1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s
Rep 485, HL
Nottingham Patent Brick & Tile Co v Butler (1885) 15 QBD
261; (1886) 16 QBD 778
Smith v Land & House Property
Corporation (1884) 28 ChD 7
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd
[1986] AC 80; [1985] 3 WLR 317; [1985] 2 All ER 947; [1985] 2 Lloyd’s Rep 313,
PC
Wilson v Bloomfield (1979) 123 SJ 860,
CA
The claim by
the plaintiffs, Cemp Properties Ltd, was put forward as a claim under section 2
of the Misrepresentation Act 1967, alternatively for damages for negligence.
The defendants were effectively Dentsply Research & Development
Corporation. Their solicitors, Denton Hall & Burgin, had been named as
second defendants, but the judge ordered the claim against them to be tried
separately as a third party proceeding.*
*Editor’s note: Judgment of Morritt J on
March 21 1989 (see p 205 post).
Michael
Lyndon-Stanford QC and Stephen Bickford-Smith (instructed by Titmuss Sainer
& Webb) appeared on behalf of the plaintiffs; Alan Sebestyen (instructed by
Slaughter & May) represented the defendants, Dentsply Research &
Development Corporation; Alan Steinfeld QC (instructed by Reynolds Porter
Chamberlain) represented Denton Hall & Burgin.
Giving
judgment, MERVYN DAVIES J said: The plaintiffs in this action are Cemp
Properties (UK) Ltd (‘Cemp’). The first defendant is Dentsply Research &
Development Corporation. The corporation is a US corporation and is referred to
as ‘R&D’. The second defendant is the firm of Denton Hall & Burgin. The
writ was issued on July 13 1983 with a statement of claim endorsed. There have
been amendments and the writ has been reissued on amendment. Yet further
amendments to the statement of claim were allowed on day three of the hearing.
On the same day, the plaintiff was given leave to discontinue as against the
second defendant. There is in being a contribution notice whereby the first
defendant claims contribution from the second defendant. That claim will
continue as a third party proceeding. I need say no more about the third party
proceeding at this stage.
Another
procedural matter to mention arises out of the application further to amend the
statement of claim that was made in the course of the trial. On March 19 1986
Master Creightmore (the action having been commenced in the Queen’s Bench
Division and transferred to this division on July 31 1986) ordered that the
trial be
. . . as to liability only, and that all
issues as to damages be tried separately, subsequent to the determination of
questions as to liability on a date to be fixed.
So a two-stage trial was ordered. The
claim, as I will more particularly mention later, is for damages for innocent
misrepresentation and for negligence arising out of statements made prior to an
exchange of contracts for the sale of land.
Before the
discontinuance that I have mentioned, Mr Steinfeld for Denton Hall & Burgin
(‘DHB’) sought to say that (1) damage is an essential ingredient for the causes
of action; (2) damage as alleged could not sustain the claim and that was so
whether one looked at the statement of claim on day one or in the form in which
it was proposed to be amended. He so submitted because he had in mind, should
he be successful in his submission, moving to strike out the statement of
claim. I heard lengthy argument on the matter, the argument arising in the
course of the plaintiff’s application (by Mr Lyndon-Stanford) to amend the
statement of claim in its allegations concerning damage. As the argument
proceeded, it became plain to me as the authorities were produced that the
question as to what exactly the plaintiff could or could not rely on as loss or
damage to sustain a plea of innocent misrepresentation (should material
misrepresentations be established) was by no means clear.
I was referred
to an expert’s report of much technicality from the plaintiff’s side. The
report is intended to be used, in due course, to support a claim that a loss to
the plaintiff may be calculated by reference to what was termed ‘development
loss basis’, alternatively a ‘market value basis’. In the end, I allowed the
proposed amendments to the statement of claim in toto. In so deciding, I
took account of the following considerations:
(a) Mr Sebestyen for the first defendant did not
formally object to the amendments;
(b) DHB could have applied to strike out a long
time ago, the statement of claim having been served in 1983;
(c) whatever else is said it is likely that, if
material misrepresentations are proved, some loss has ensued;
(d) Mr Steinfeld accepted that damage might be
proved on a market value basis;
(e) to answer the question set out above (ie
exactly what the plaintiff can or can not rely on as loss or damage) will
involve entering to a considerable extent the ground intended to be covered by
the second stage of the trial; and
(f) to deal with Mr Steinfeld’s submission (ie
that the plaintiff can show no actionable loss) would have involved adjourning
the whole trial to enable Mr Steinfeld to adduce, during the first stage of the
trial, expert evidence on the topic of the plaintiff’s expert evidence already
referred to. Already on the fourth day of the trial it seemed right to go on
with deciding the allegations about the misrepresentations but to leave all
questions of loss to be decided at the second stage;
(g) I saw no difficulty in proceeding as a first
stage to decide whether or not there have been material misrepresentations,
leaving to a second stage the question whether or not (if misrepresentation is
established) the loss thereby ensued. I do not feel myself constricted by the
wording of the master’s order.
Accordingly I
proceeded to regard this first stage of the trial as being for the purpose of
establishing whether or not any material misrepresentations, or negligence, are
established. There is reserved to the second stage of the trial the question
whether or not, if material misrepresentations or negligence are established at
this first stage, there was sustained by the plaintiff any damage that may
support a plea of misrepresentation or negligence and, if so, the quantum of
such damage.
The claim is a
claim for misrepresentation pursuant to the Misrepresentation Act 1967,
alternatively for damages for negligence. The claim arises out of the events
preceding the making of a contract for the sale of land dated February 15 1980
between R&D as vendor and Cemp as purchaser, with DHB acting as solicitors
for R&D. By the contract R&D agreed to sell to Cemp a block of property
in London W1, being 26-40 (even nos) Broadwick Street, 1A Poland Street and
8-13 Livonia Street as the same was registered at HML and Registry freehold
with absolute title under Title NGL 100819 and leasehold with absolute title
under Title NGL99712 (being the residue) of a term of 49 years from December 25
1968 granted by a lease (hereinafter called ‘the lease’) dated March 14 1969
and made between the Commercial Union Assurance Co Ltd of the one part and the
Amalgamated Dental Co Ltd of the other part. The purchase price was £2,100,000.
The contract incorporates the 19th edition of the National Conditions of Sale,
together with some special conditions; but at the trial neither side place any
reliance on the conditions, National or special.
It will be
seen from the description set out above of the property sold that there was to
be transferred to the purchaser not only a freehold but also a leasehold
interest. When the contract was being negotiated the freehold interest was
vested in a company called Dentsply Ltd while the leasehold interest was vested
in a company called AD International Ltd, formerly known as Amalgamated Dental
Co Ltd. The two companies last mentioned and also R&D were all companies in
the same group. It was intended, as I understand, that R&D should procure
the transfer of the freehold and leasehold interests to Cemp. At any rate that
is what, in effect, occurred, completion taking place on May 15 1980.
The leasehold
interest sold was created by the lease dated March 14 1969 already mentioned,
ie for 49 years from December 25 1968 in favour of the Amalgamated Dental Co
Ltd (now AD International Ltd). The land demised is that comprised in Leasehold
Title NGL99712, being the same area of land as that comprised in the Freehold
Title NGL100819 referred to in the contract of sale. The said area comprises
the properties in Broadwick Street, Poland Street and Livonia Street already
mentioned. I refer to the area as the ‘R&D land’. The R&D land is
identified on a plan annexed to the lease and also on the plans of the Land
Registry title just mentioned.
The 1969 lease
demises the R&D land subject to and with the benefit of ‘the provisions
contained in the deeds and documents specified in the second schedule hereto’.
The second schedule itemises five documents, two of which are now material.
They are (1) an agreement under seal dated June 26 1928 and made between
Maxwell Ponting Ltd and the tenant, ie Amalgamated Dental; and (2) a deed dated
February 3 1934 made between the same parties. These deeds (called ‘the Maxwell
deeds’) are said to relate to rights to light over the R&D land enjoyed by
the owners of 1-5 Poland Street (‘the Maxwell land’). The properties comprised
in the Maxwell land
R&D land. When the Maxwell deeds were executed it seems that Amalgamated
Dental (not R&D) owned the R&D land whereas the Maxwell land was owned
by Maxwell Ponting; but by a lease made in 1927. The 1928 Maxwell deed recites
that in the south wall of the premises on the Maxwell land there are windows
which overlook the R&D land:
. . . in respect of which the right or
easement of light and air over the said land has been acquired or exists and
which said windows are marked ‘A’, ‘B’, ‘C’ and ‘E’ and a ventilator marked ‘D’
on the plans annexed hereto.
The 1928 Maxwell deed then provides by
clause 1 that the deed is to remain in force until the 1927 lease determines.
Clauses 2 and 3 of the deed are as follows:
2. The
lessees shall be at liberty to erect upon their said land adjoining the
premises leased by the lessors to them buildings in accordance with the plans
marked ‘A’ and ‘B’ annexed hereto and for that purpose may block up and close
the windows marked ‘C’ and ‘E’ and the ventilator marked ‘D’.
3. On the
determination of the lease the lessees will reopen the said windows ‘C’ and ‘E’
and the ventilator ‘D’ making good in a substantial manner to the satisfaction
of the lessors’ surveyor all damage to the lessors’ premises occasioned thereby
and they hereby agree that no right or easement of light or air over the
lessees’ said premises shall have been surrendered, destroyed or varied in any
shape or form by the lessors or anyone claiming through or under them by reason
of this Agreement, but that on the determination of this Agreement the lessors’
rights shall remain and be of full effect.
The plans
referred to show window ‘A’ on the second floor of the south wall of the
Maxwell building facing the R&D land, with window ‘B’ directly below it,
and windows ‘C’ and ‘E’ and ventilator ‘D’ at a lower level. The plans also
show the building permitted to Amalgamated Dental by virtue of clause 2 above.
It was a low building that has been used, as I understand, as a garage. It had
no north wall of its own, using the south wall of the building on the Maxwell
land (1 Poland Street) as its northern boundary. It is clear that the garage
would cut out the light from windows ‘C’ and ‘E’ and from the ventilator. It
would not affect the top window ‘A’ and would have no very marked effect, as I
see it, on window ‘B’. It is to be noted that the 1928 deed contains, in the
recital that I have mentioned, an acknowledgment by the owner of the R&D
land that the windows in the south wall of the Maxwell land enjoy easements of
light over the R&D land.
The 1934
Maxwell deed was executed because Amalgamated Dental wished to erect a new and
higher building on a part of the R&D land that is to the south of the
garage I have mentioned; so that walking south along Poland Street, one would
see the buildings on the Maxwell land, then the low garage and then the (new)
higher building on the R&D land, with each building immediately adjoining
its neighbour. The 1934 deed recites that the (new) building threatens:
to interfere with the ancient lights of
the south wall (at the southern extremity of the Maxwell land) . . . and the
plan annexed hereto indicates the manner in which such ancient lights would be
affected.
It was then agreed that Amalgamated
Dental and the persons claiming under it should have full liberty and power to
erect the new building ‘in accordance with the plan annexed hereto but not
otherwise’. By clause 5 of the deed it was agreed that notwithstanding the
provisions of clause 1 of the 1928 deed these should, after the determination
of the lease therein mentioned, remain in force until determined by notice in
writing given by Maxwell specifying a date for such determination; so that
clause 3 of the 1928 agreement was to read as though the words ‘on the
expiration of three months’ notice in writing being given by the lessors to the
lessees to that effect’ were substituted for the words ‘on the determination of
the lease’ at the commencement of such clause. Importantly, clause 5 goes on to
provide that on the expiration of such notice, Amalgamated Dental were
forthwith to reopen the windows and ventilator and carry out the work as
provided in clause 3 of the 1928 deed to the reasonable satisfaction of
Maxwell’s surveyor.
The new
Amalgamated Dental building was duly built on the R&D land in the 1930s. At
some time Amalgamated Dental ceased to occupy the Maxwell ground floor and
basement but continued to own the new building on, and the rest of, the R&D
land. By 1979 the Maxwell land was owned by persons whom I will call ‘the Fund
Trustees’. Such was the land ownership when the contract of sale dated February
15 1980 was executed. Negotiations for the contract were conducted by DHB for
R&D and by Messrs Clifford Turner (‘CT’) for Cemp. As I have said,
misrepresentation is alleged. Seven instances are pleaded in the statement of
claim. I will set them out in three groups — A, B and C.
A: Under cover
of a letter dated January 29 1980 DHB gave answers to inquiries set out on a
printed form — CON29 (long). Inquiry 8 was:
8. Adverse Rights
(A) Is the vendor aware of any rights or informal
arrangements specifically affecting the property other than any disclosed in
the draft contract or immediately apparent in the draft contract or immediately
apparent on inspection which are exercisable by virtue of an easement, grant,
wayleave, licence, consent or otherwise or which are in the nature of public or
common rights?
(B) Is the vendor aware of any other overriding
interests as defined by the Land Registration Act 1925 section 70(i)?
The answer to that inquiry was, ‘No, but
the property is subject to any there may be’.
B: Under cover
of a letter dated February 6 1980 DHB sent to CT answers to some ‘further
inquiries’ that had been sent by CT on January 31 1980. There are two inquiries
therein, with the DHB answers thereto as follows:
4. Third
Party Rights
Unless details have already been
supplied, is the vendor aware of any rights or informal arrangements which are
exercisable by virtue of any easement, wayleave, licence, consent, statute,
custom or otherwise? If so, please
supply full details including copies of any relevant documents.
The answer to that inquiry was ‘No’.
5. Covenants
and other matters.
(a) Unless already supplied, please supply a copy
of any conveyance or other deed imposing any covenants, stipulations,
restrictions or agreements affecting the property.
(b) In whom is the benefit of the covenants,
stipulations, restrictions and agreements now vested?
. . .
(g) Is the vendor aware of any dispute or
possible dispute with the owner or occupier of any adjoining or neighbouring
property regarding easements, covenants or other matters relating to the
property or its use?
The answer to that inquiry was, ‘5. None
other than those already been notified. B, not applicable. G, No’.
C: Under cover
of the same letter dated February 6 1980 DHB sent to CT some ‘additional
inquiries’ (also sent by CT on January 31 1980). One inquiry therein, with the
DHB answer thereto, is as follows:
2. (a) Please
supply copies of the Deeds and documents specified in the Second and Third
Schedules to the head lease, together with copies of all party wall awards made
under the London Building Acts.
(b) If copies of the above are not available, is
the vendor aware of the contents of these Deeds and documents or of any
complaint of any obligation on the part of the successors in title to the
original parties?
The answer to that inquiry was, ‘2. (a)
[blank], (b) No’.
The statement
of claim (see para 5A) pleads that the answers given above constituted
representations made to induce the plaintiff to enter into the contract. Para
5B of the statement of claim adds to the complaints by referring to some words
in a letter dated February 11 1980 written by CT to DHB:
In your replies to our further inquiries,
you said that you had no knowledge of any of the Deeds or Documents referred to
in the Second and Third Schedules to the Head Lease . . . do you have any
pre-registration Deeds which might possibly include those specified in the
lease, or do you have any idea who else might possibly have the Deeds?
There was no reply to that inquiry. It is
said that DHB consequently impliedly represented that they did not have the
deeds in their possession. It turned out, as I will mention later, that DHB did
have the deeds in their possession.
The contract
was completed on May 15 1980. The plaintiff sought a planning consent and
negotiated for a building contract. On July 15 1980 Mr John Gill, the architect
acting for Cemp, wrote to the Cemp surveyor stating that in order to build as
proposed there was need to ‘extinguish’ the two windows that I have called ‘A’
and ‘B’. He suggested that some agreement be made with the owners of the
windows (ie the Fund Trustees). The matter was not immediately resolved and on
September 17 1980 planning consent was given.
At last there
was on October 13 1980 a meeting between Cemp’s architect and their surveyor
and representatives of the Fund Trustees. At about this time the Fund Trustees
produced copies of the
consternation because, while all the time Cemp had felt capable of dealing in
their development with any rights of light enjoyed by windows ‘A’ and ‘B’ (on
the upper floors), they (Cemp) could not proceed with their development if they
were to be obliged, pursuant to the Maxwell deeds, to open up windows ‘C’ and
‘E’ and afford light thereto. I may say at this stage that CT had in fact the
previous May been handed the Maxwell deeds by DHB when there was handed over on
completion a bundle of old deeds. DHB had evidently not appreciated that the
Maxwell deeds were in the bundle. Equally CT did not immediately appreciate
that they were there. It was not until about October 14 1980 that CT looked at
the bundle (when the problem about the lights had arisen) and found there
copies of the Maxwell deeds (see CT letter dated October 21 1980).
The efforts to
reach an agreement with the Fund Trustees were not immediately successful. The
fund spoke of compensation of £75,000 or more, a suggestion that Cemp found
unacceptable. On December 18 1980 the solicitors acting for the fund served a
notice on Cemp terminating ‘the agreements as to rights of light dated June 26
1928 and February 3 1934’. Notice was to the effect that rights of light
thereto enjoyed were to be determined on March 25 1981 and Cemp were required
immediately following that date to reinstate the south wall of 1A Poland Street
in accordance with the provisions of clause 3 of the 1928 agreement. The notice
refers to 1A Poland Street, but that is plainly a reference to 1 Poland Street,
that being the building in which there are the windows that enjoy rights of
light. However, despite the notice, agreement was eventually reached between
Cemp and the Fund Trustees. There is a deed dated October 30 1981 to which they
are party. The deed recites that it is supplemental to the Maxwell deeds. It
provides:
(1) that Cemp are permitted to build in
accordance with some specified drawings and that the trustees abandon any
rights of light and air in respect of windows ‘C’ and ‘E’ and ventilator ‘D’;
(2) Cemp acknowledges that the trustees enjoy
indisputable rights of light and air to windows ‘A’ and ‘B’ to the extent shown
on a plan ‘B’ annexed to the deed. The specified drawings referred to
incorporate, as I understand, a light well to afford light to the Maxwell wall.
This 1981 deed enabled Cemp to proceed with their development.
But Cemp
considered that R&D had misled them in the course of answering the
inquiries I have set out above. A writ was issued on July 13 1983. I need not
now refer to the pleadings, save to say that damages are claimed (a) in
consequence of R&D having made material inducing misrepresentations in the
course of answering the inquiries — that is a claim under the Misrepresentation
Act 1967, and (b) for negligence in that R&D breached a duty of care to
Cemp to take reasonable care to ensure that the answers to the inquiries were
accurate.
For the
plaintiff, evidence was given by Mr Philip H White, who is effectively in
charge of Cemp, Mr J A S Gill, the Cemp architect, and Mr R C S Hill, a
solicitor of CT who acted in the matter of the contract. The defendants called
no evidence. Mr Lyndon-Stanford appeared for the plaintiff. Mr Sebestyen was
for the defendants.
I consider
first the claim under the 1967 Act. The relevant provision is section 2(1),
which reads:
2. — (1)
Where a person has entered into a contract after a misrepresentation has been
made to him by another party thereto and as a result thereof he has suffered
loss, then, if the person making the misrepresentation would be liable to
damages in respect thereof had the misrepresentation been made fraudulently,
that person shall be so liable notwithstanding that the misrepresentation was
not made fraudulently, unless he proves that he had reasonable ground to
believe and did believe up to the time the contract was made that the facts
represented were true.
Mr Sebestyen
said he did not rely on the words after ‘unless . . .’, so I may disregard
them. Mr Sebestyen also said that he was content that the knowledge of DHB be
imputed to R&D. Mr Lyndon-Stanford said that the elements of the statutory
tort are: (1) the formation of a contract; (2) a representation or representations
made by one party to the contract to the other prior to the making of the
contract; (3) that the representation proves false; (4) that the representee
relied on the representation; and (5) ensuing damage. Item (1) is established
and I am not now concerned with (5).
As I have
indicated, the misrepresentations relied on are said to lie in the answers to
inquiries set out above in groups A, B and C. In this connection there is an
important admission in para 12 of the defence. This relates to the inquiry in group
C. The answer there — ‘No’ — is admitted in para 12 of the defence to be
‘inaccurate in so far as it suggested that copies of the deeds were not
available’. That admission — I will refer to it as answer C2(b) — was properly
made because it was common ground that the deeds referred to (the Maxwell
deeds) were at all material times in the possession (unknowingly) of DHB.
There was a
dispute about the other answers. As to group B5(g), I find as a fact that there
was no misrepresentation. The plaintiff said that B5(a) was a misrepresentation
in that the answer meant ‘none [can be supplied] other than those notified to
you’, importing the suggestion that no deeds were available; whereas they were
available. As I see it, that answer is to the same effect as answer C2(b)
(which admittedly contains a misrepresentation alleged against the defendants).
Accordingly, one need not consider B5(a) further. The plaintiff also said,
faintly, that B5(b) was a misrepresentation. If it was, I am not prepared to
treat it as a material misrepresentation.
The group A8
answer was said to be a misrepresentation in that the vendor was aware of the
Maxwell deeds; the deeds were in their possession, so that with reasonable
diligence their contents would have been discovered and then the vendor would
have been aware of easements affecting the property in that the Maxwell deeds
preserve rights of light.
The group B4
answer, answering an inquiry very similar to A8, was said to be a
misrepresentation for the same reason. Mr Lyndon-Stanford appreciated that many
inquiries asked ‘is the vendor aware . . .?’ as opposed to inquiries framed in
absolute rather than awareness terms (see, for example, B5(b)). Nevertheless,
he said, an ‘aware’ question requires an answer honestly given after reasonable
investigation. The vendor, he said, had here not made any reasonable
investigation; otherwise the vendor would have found the Maxwell deeds. He
referred to Nottingham Patent Brick & Tile Co v Butler (1886)
16 QBD 778.
Mr Sebestyen’s
view was that answers to ‘aware’ inquiries were not to be scrutinised with the
rigour that might be applicable to ‘absolute’ inquiries. He said that while
answers were to be given responsibly there was no occasion for a vendor to
answer ‘aware’ inquiries otherwise than according to his honest belief without
there being any obligation to engage in research. Otherwise, he said, the
answering of preliminary inquiries would become intolerable. I do not find it
necessary to attempt to say what a vendor’s duties are when he deals with an
‘aware’ question. In this case the whole weight of the attack on the vendors
derives from the fact that the vendors said they were not in possession of the
Maxwell deeds, whereas they were. The vendors have admitted that
misrepresentation (see answer C2(b)). Accordingly the plaintiff is entitled to
succeed if the other elements of the statutory tort are established.
I now come to
Mr Sebestyen’s interesting submissions. He accepted, as I understand, that the
vendors made a misrepresentation — answer C2(b) — in that they stated that the
Maxwell deeds were not in their possession whereas in fact they were. But, he
said, that was not an actionable misrepresentation. Referring to Halsbury’s
Laws of England, vol 31, para 1066 et seq, he said that a misrepresentation
is actionable only if it is (a) material and (b) has a tendency to induce the
representee to alter his position for the worse. Thus, he said, at the core of
the plaintiff’s case is the concept that answer C2(b) had a tendency to induce
the plaintiff to sign the contract. On any rational ground, it was said, the
answer could not have had that tendency. To be told when contemplating a
purchase that important deeds are not available (and that their contents are
unknown) is not to tempt a purchaser to buy. On the contrary, the purchaser is
discouraged. Here, he said, the misrepresentation did not tend to make the
property more desirable but, plainly, less desirable. By way of illustration,
he said that the cases relied on by the plaintiff were all cases in which the
misrepresentation relied on tended to increase (not decrease) the
attractiveness of the proposed bargain (see, for example, Smith v Land
& House Property Corporation (1884) 28 ChD 7 and Brown v Raphael
[1958] Ch 636).
Accordingly,
far from answer C2(b) tending to induce the contract, it caused the purchaser
to consider three courses of action: (a) breaking off the negotiations, or (b)
asking for an indemnity in respect of the missing deeds, or (c) taking a risk.
The purchaser, said Mr Sebestyen, had opted for (c), a course influenced by a
draft report on title by the solicitors produced at a Cemp board meeting on
March 14 1980, coupled with the fact that the vendors had put Cemp under
pressure of time in the matter of signing the contract.
As a sideline,
Mr Sebestyen said that to allow the claim would in effect now give to the
purchasers the indemnity they could have asked for before signing the contract.
In short, the argument is that there was no inducing misrepresentation in that
the misrepresentation did not tend to influence the purchasers to buy. It
placed them in a position where they could, if they wished, take a risk and
that risk they took with open eyes. Mr Sebestyen candidly stated that he could
make the same submissions even had answer C2(b) been given fraudulently.
I do not
accept Mr Sebestyen’s argument. My reasons are these. The falsity of answer
C2(b) turned a ‘won’t buy’ situation into a ‘may buy’ situation. Let me explain
that. The evidence of Mr White, who was an excellent witness, was that if the
Maxwell deeds had been produced at the board meeting on February 14 1980, then
Cemp would not have signed the contract. In fact the deeds were not produced
and answer C2(b) was that they were not available. That answer was false; but
believing it to be true the purchaser decided to buy, albeit realising that
there was some risk. In these circumstances it seems to me that the false
answer did tend to influence the purchaser to buy because, had a true answer
been given, the purchaser would not have bought. Negotiations would have been
broken off. The merit, if not the logic, of my approach emerges more starkly if
one considers the position on the footing that answer C2(b) was given
fraudulently (which of course it was not). On that footing, one envisages the
vendor knowing that he has the deeds, and knowing of their depressing effect,
deciding dishonestly to say that the deeds are missing. The purchaser again
buys, taking the risk. In that situation it would be unjust in the extreme to allow
the vendor to defeat a claim in deceit by saying that in any event his false
answer was not, in itself, an encouragement to buy. It was in fact an
encouragement to buy in the sense that he must have contemplated that the
purchaser would not consider buying at all if the truth were told. So, invoking
section 2(1) of the 1967 Act, just as an action for deceit would lie in those
assumed circumstances, so now there lies an action for innocent
misrepresentation in that the misrepresentation relied upon was innocent and
not fraudulent.
It follows
that I find that the plaintiff proves against the defendants an innocent
misrepresentation (for the purposes of section 2(1)) that is actionable subject
to proof of loss at the second stage of the trial.
As well as claiming
under the 1967 Act, the plaintiffs also claim, as I have mentioned, in
negligence. Para 6 of the statement of claim alleges that in answering the
group A, B and C inquiries set out above, R&D owed a duty of care to Cemp
to take reasonable care to ensure that the answers to the inquiries were
accurate. Then it is pleaded in effect that R&D were in breach of that duty
in failing (inter alia) to ascertain the whereabouts of the Maxwell
deeds, and that damage ensued (see statement of claim, para 15).
The claim, of
course, stems from Hedley Byrne & Co Ltd v Heller & Partners
Ltd [1964] AC 465. I was referred to the words of Lord Wilberforce in Anns
v Merton London Borough [1978] AC 728 as showing the approach to the
question whether or not a duty of care arises in a particular situation. The
report of Wilson v Bloomfield (1979) 123 SJ 860 shows that the
Court of Appeal regarded as arguable the proposition that a vendor’s solicitor
may owe a duty of care to a purchaser. But here the question is whether a duty
of care (to give accurate answers) is owed to the purchaser by the vendor in
the circumstances of this case. If one assumes that there is such a duty, then
the plaintiff will succeed in negligence because in essence the only further
steps to take are to prove (a) that the inaccurate answers given induced the
plaintiffs to enter into the contract and (b) ensuing damage. As to (a), in Esso
Petroleum Co Ltd v Mardon [1976] QB 801 Lord Denning MR at p 820D,
with a claim for negligent misrepresentation in mind, said:
If he negligently gives unsound advice or
misleading information or expresses an erroneous opinion, and thereby induces
the other side to enter into a contract with him, he is liable in damages.
As to (b), the damages claimed are the
same for the 1967 Act claim as for negligence (see statement of claim paras
13(A) and (B) — as finally amended — and para 16). Thus although one may say
that the 1967 Act tort is made up of the five elements itemised by Mr
Lyndon-Stanford (see above), while the tort of negligence connotes duty, breach
and damage, there is, as I see it, the same burden cast on the plaintiff, ie
given the existence of the duty, was the statement calculated to induce and did
it induce?
On the other
hand, if one assumes that here there is not owed such a duty of care as is
under discussion, then the plaintiff fails in his negligence claim. Under these
circumstances, it seems to me to be to no purpose to consider a claim in
negligence in that (a) if there is no duty of care the plaintiff fails in
negligence, but (b) if there is a duty of care the plaintiff is no better off
by pursing his negligence claim because he still has to prove the same inducing
as he has to prove in his 1967 Act claim, and, if he succeeds, he asks for the
same damages. That being the position, I am not prepared to find for the
plaintiffs in negligence.
I have been
encouraged to take this course by the words of Ormrod LJ in the Esso case at p
827E:
Mr Ross-Munro’s second point is that this
principle has no application to statements made in pre-contract negotiations
where they result in a contract. There is no specific reservation of this kind
in the speeches in Hedley Byrne, although Lord Reid may have assumed it.
He said at p 483: ‘Where there is a contract there is no difficulty as regards
the contracting parties: the question is whether there is a warranty’. This is,
I think, a difficult point, for it is an attractive argument that, when a
contract results, the rights of the parties should be governed by the terms
agreed, subject of course, to the right to sue for damages for fraud or under
the Misrepresentation Act 1967. In fact, since this Act was passed there may be
virtually no room for an action in negligence in such cases. But if there is a
gap, as there is in this case, because the Misrepresentation Act 1967 was not
in force at the relevant time, I see no reason why an action in negligence
should not be available in a proper case.
Furthermore, looking at Tai Hing
Cotton Mill Ltd v Liu Chong Hing Bank [1986] AC 80 at p 107, some
observations of Lord Scarman may, by analogy, be apt:
Their Lordships do not believe that there
is anything to the advantage of the law’s development in searching for a
liability in tort where the parties are in a contractual relationship. This is
particularly so in a commercial relationship. Though it is possible as a matter
of legal semantics to conduct an analysis of the rights and duties inherent in
some contractual relationship including that of banker and customer either as a
matter of contract law when the question will be what, if any, terms are to be
implied or as a matter of tort law when the task will be to identify a duty
arising from the proximity and character of the relationship between the
parties, their Lordships believe it to be correct in principle and necessary
for the avoidance of confusion in the law to adhere to the contractual
analysis: on principle because it is a relationship in which the parties have,
subject to a few exceptions, the right to determine their obligations to each
other, and for the avoidance of confusion because different consequences do
follow according to whether liability arises from contract or tort, eg in the
limitation of action.
Later, Lord Scarman goes on:
Their Lordships do not, therefore, embark
on an investigation as to whether in the relationship of banker and customer it
is possible to identify tort as well as contract as a source of the obligations
owed by the one to the other. Their Lordships do not, however, accept that the
parties’ mutual obligations in tort can be any greater than those to be found
expressly or by necessary implication in their contract.
Accordingly,
the claim succeeds under the Act but, as I have indicated, I do not think it
necessary to find in negligence.
