Vendor and purchaser — Contract for the sale of land — Third stage in litigation following establishment of vendors’ liability under Misrepresentation Act 1967 and quantification of damages* — Third party proceedings between vendors and their solicitors — Whether solicitors liable to indemnify vendors against costs and damages suffered
solicitors concerned did not dispute a failure of due care on their part and
accepted that they were liable to indemnify the vendors against costs — They
disputed, however, that they were liable to indemnify the vendors in respect of
the damages awarded to the purchasers — The solicitors contended that an
indemnity in that respect would amount to unjust enrichment — The vendors put
their claim against the solicitors on two bases — The first was the common law
ground that an agent who, through failure of due care or skill, rendered his
principal liable to a third person was liable to his principal for any
consequential loss or damage suffered by the principal — The second basis was a
claim for indemnity pursuant to section 1(1) of the Civil Liability
(Contribution) Act 1978
of the vendors’ case, however framed, was that the train of events which led to
their liability to pay the purchasers £151,500 by way of damages began with the
failure of the solicitors to disclose vital deeds concerning neighbouring
proprietors’ rights to light and air in answer to the purchasers’ preliminary
inquiry — Morritt J rejected the suggestion that to indemnify the vendors
against the award of damages would constitute unjust enrichment — The award of
damages was not based on calculations of market value but on the extra costs
incurred by the purchasers in consequence of being initially misled and then
having to extricate themselves from their difficulties
found the solicitors liable, on the first of the two bases mentioned above, to
indemnify the vendors not only in respect of costs but also in respect of the
damages of £151,500 payable to the purchasers — There was no need to decide on
the second basis of claim, under the Civil Liability (Contribution) Act 1978 —
The judge, however, indicated that in his opinion a claim on this basis would
fail for the reason that the solicitors could not be liable, in the words of
the Act, ‘in respect of the same damage’ — As the disclosed agents acting
within the scope of their authority, they could not be liable under the
Misrepresentation Act 1967 — Judgment on the third party claim on the first
basis accordingly
*Editor’s note: For earlier proceedings
see judgments of Mervyn Davies J on November 20 1987 (at p 192 ante) and
Morritt J on February 24 1989 (at p 196 ante).
The following
cases are referred to in this report.
County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987]
1 WLR 916; [1987] 1 All ER 289, [1986] 2 EGLR 246, CA
Doyle v Olby (Ironmongers) Ltd [1969] 2
QB 158; [1969] 2 WLR 673; [1969] 2 All ER 119, CA
Resolute Maritime Inc v Nippon Kaiji Kyokai [1983]
1 WLR 857; [1983] 2 All ER 1; [1983] 1 Lloyds Rep 431
In this, the
third stage of the litigation between the plaintiffs, Cemp Properties (UK) Ltd
and the defendants, Dentsply Research & Development Corporation, the claim
by the latter for indemnity against their solicitors, Denton Hall & Burgin,
was pursued, as ordered by Mervyn Davies J at the first stage, as a third party
proceeding.
Alan Steinfeld
QC (instructed by Reynolds Porter Chamberlain) appeared on behalf of Denton
Hall & Burgin; Alan Sebestyen (instructed by Slaughter & May)
represented Dentsply Research & Development Corporation.
Giving
judgment, MORRITT J said: On November 20 1987 Mervyn Davies J decided that,
subject to the question of loss and damage, the defendant in the action,
Dentsply Research & Development Corporation (to which I shall refer as ‘R
& D’), was liable to the plaintiffs, Cemp Properties (UK) Ltd (to which I
shall refer as ‘Cemp’), pursuant to section 2(1) of the Misrepresentation Act
1967, through a representation made on February 6 1980 by the third party,
Denton Hall & Burgin, acting as solicitors for R & D.
On February 24
1989 I assessed the quantum of damage at £151,500 and awarded Cemp interest on
that sum, to run from July 1 1981. The facts of the case are set out in the
judgment I handed down on February 24. I am now concerned with R & D’s
claim in third party proceedings to be indemnified by DHB against R & D’s
liability to pay Cemp’s costs and R & D’s own costs of the first two
hearings and against its liability to pay Cemp’s damages of £151,500 and
interest thereon.
R & D’s
claim is put on two bases. First, it is alleged that an agent who through
failure to exercise the requisite degree of care or skill in the conduct of his
agency renders his principal liable to a third party is liable to his principal
for any consequential loss or damage suffered by the principal. R & D
claims that in practice if not in theory the liability of the agent will be to
indemnify his principal against the liability to the third party.
Second, R
& D claims an indemnity from DHB pursuant to section 1(1) of the Civil
Liability (Contribution) Act 1978. DHB does not dispute that it failed to
exercise the requisite degree of care and skill and is liable to R & D. It
also accepts that R & D reasonably defended the claim made against it by
Cemp. Thus DHB accepts that it is liable to R & D to indemnify R & D
against the costs and to indemnify R & D against its own costs of those
hearings. The dispute is whether DHB is liable to R & D for all or any part
of the damages and interest R & D is liable to pay Cemp.
DHB’s
contention may be summarised in this way: the problem arose from rights to
light and air enjoyed by the adjoining owners under the Maxwell deeds. The
negligence of DHB consisted of failing to disclose these deeds to Cemp in
answer to a preliminary inquiry. Damages were awarded to Cemp in whole or in
part to represent the amount by which Cemp, in ignorance of the content of the
deeds, paid more than the true market value for the property. If DHB was liable
to pay to R & D the damages so computed, R & D would be unjustly
enriched at the expense of DHB.
In the action
Cemp’s claim was put on three alternative bases. The first, the developer’s
loss basis, was a calculation made as described in my earlier judgment, to
compute the monetary value to Cemp of the extra and consequential costs and
delay incurred to cope with the position when the deeds subsequently came to
light in October 1980. The second was the market value basis, namely the price
paid less the true value of the property at the time. The third was a hybrid
claim, as explained in my earlier judgment.
I concluded
that the developer’s loss basis was not wrong in principle but was not a proper
calculation of Cemp’s loss. I also concluded that the market value basis was
not wrong in principle, but I did not accept Cemp’s expert evidence as to the
true market value of the property at the time. I also concluded that the hybrid
claim was not wrong in principle. It followed from my judgment on the market
value computations that the hybrid claim was not a proper computation of the
loss suffered by Cemp.
I then
proceeded to consider County Personnel (Employment Agency) Ltd v Alan
R Pulver & Co [1987] 1 WLR 916* for the proposition that prima facie
measures of damages should not be mechanistically employed, particularly where
they involve speculative and unreal valuation exercises. After reference to two
other cases I stated:
It seems clear that I am entitled to and
should consider the extra costs incurred either as a check on the true market
value of the site in February 1980 or as more appropriate than the usual
measure to adopt in the circumstances of this case or as consequential damage
actually sustained, even if the normal measure of damage reveals no loss.
*Editor’s note: Reported also at [1986] 2
EGLR 246.
I proceeded to
consider the extra costs involved and, on the basis of Doyle v Olby (Ironmongers)
Ltd [1969] 2 QB 158, deducted from those extra costs the benefit derived
therefrom. I stated:
Thus, from the additional cost of
£158,000 it is necessary to deduct a benefit of £21,500, leaving prima facie
a figure of £136,500. However, I do not think this figure is sufficient on
any of the bases I am considering.
If the figure of £136,500 is taken as a
check on the amount by which the price paid exceeded the true value of the site
in February 1980, it takes no account of the effect of the uncertainty which
knowledge of the contents of the Maxwell deeds would have caused to prospective
purchasers in relation to the permitted height of the flank wall of any new
building.
Equally, if it is taken as the amount of
the concealed increase in the purchase price or of the consequential loss, it
takes no account of the costs of delay to the office block section and the
greater expense involved in the method of constructing that block, that is to
say, in blocks instead of in one section from the ground floor up. While the
extra cost of the external wall has been included, no account is taken of the
reduced amount of office space available for letting due to its extra
thickness. Over four floors, the lost area cannot be dismissed as de minimis.
None of these matters can be precisely quantified, but in the context of a
development of this size justice would not be done unless some reasonably
substantial sum is included. Doing the best I can, I propose to add a further
£15,000.
My award of
damages was based on the extra costs incurred by Cemp in consequence of being
initially misled and subsequently having to extricate itself. I made no finding
as to what the true market value was at the material time. The cost to Cemp
incurred from October 1980 onwards was a further indication that the market
value of the property in February 1980 in a market which knew of the contents
of the Maxwell deeds could not be as little as the plaintiffs’ experts
suggested but was not itself proof of whether, and if so by how much, the price
Cemp paid was above market value. My conclusion was expressed in the following
terms:
Accordingly, I award Cemp damages in the
sum of £151,500. For the reasons I have given I conclude that this sum is the
sum of money required to put Cemp in the position it would have been in if the
misrepresentation had never been made to Cemp by R & D.
Dealing later
in a separate judgment with the question of the date
1981 as the date by which Cemp had incurred all the additional net expense to
which I have referred. I accept DHB’s submission that it should not be required
to indemnify R & D for any damages paid to Cemp which represented the
difference between the price Cemp paid and the true market value, but there was
no evidence which I was prepared to accept to establish whether there was then
any such difference and if so how much it was. That is why my award was based
on the additional net cost to Cemp arising out of the discovery of the Maxwell
deeds by Cemp in October 1980.
In those
circumstances, to require DHB to indemnify R & D against its liability for
damages and interest would not, in my judgment, involve any unjust enrichment
of R & D at the expense of DHB. By contrast, if I did not award such an
indemnity, R & D would have to pay to Cemp the net extra expense to Cemp
for which, as between R & D and DHB, DHB was responsible.
In these
circumstances the plaintiffs’ alternative claim does not arise, but in any
event in my judgment it would fail. Section 1(1) of the Civil Liability
(Contribution) Act 1978 provides as follows:
Subject to the following provisions of
this section, any person liable in respect of any damage suffered by another
person may recover contribution from any other person liable in respect of the
same damage (whether jointly with him or otherwise).
Thus R & D
would have to establish that DHB was liable to Cemp for the same damage. As the
disclosed agent acting within the scope of their authority, DHB could not be
liable to Cemp under the Misrepresentation Act 1967 (see Resolute Maritime
Incorporated v Nippon Kaiji Kyokai [1983] 1 WLR 857 at p 861). It
may be that in some cases there are circumstances giving rise to a special
relationship between the vendor’s solicitor and the purchaser from which a
common law duty of care arises, but this was a perfectly normal conveyancing
transaction in which the vendor’s solicitors answered inquiries before contract
raised by the purchaser’s solicitors. In those circumstances it would be absurd
if the solicitor for one party to the transaction owed a duty of care to
another party as well as to his own client.
Thus on the
first ground, but not the second, I will give judgment to R & D against DHB
by way of indemnity for the damages, interest and costs for which R & D was
liable to Cemp in the action and order DHB to pay to R & D its costs of
defending the action, to be taxed if not agreed on an indemnity basis.
I will hear
further argument on any other consequential matters arising from this judgment,
including the question of the costs of the third party proceedings.
After ordering Denton Hall & Burgin
to indemnify Dentsply Research & Development Ltd against the damages
payable to Cemp Properties (UK) Ltd, the judge gave directions as to the
payment of interest and costs. He ordered Denton Hall & Burgin to pay
Dentsply’s costs of defending the action, such costs to be taxed (if not
agreed) on an indemnity basis. Denton Hall & Burgin were ordered to pay
Dentsply’s costs in the third party proceedings, to be taxed on the standard
basis.
