Greenglade Estates Ltd v Chana and another

Sale of land – Warranty of authority – Damages – Auctioneers holding auction sale – Agreement reached after auction for sale and purchaser of unsold lot comprising seven flats – Owner of flats denying having authorised sale – Purchaser’s claim against owner for specific performance failing – Auctioneers conceding claim for breach of warranty of authority – Quantum of damages – Appropriate valuation date The second defendant, a firm of chartered surveyors and auctioneers, conducted an auction sale in which one of the lots comprised seven subtenanted flats in a large detached house. The first defendant was the registered leasehold proprietor of the flats. The lot failed to reach its reserve price of £670,000 and, immediately after the auction, a representative of the claimant approached the auctioneer with a view to purchasing it by private treaty. A sale was agreed at £670,000 and a memorandum of sale was completed, signed by the claimant and by the second defendant as agent for the vendor. The claimant paid a deposit of 10% to the second defendant. The first defendant later denied having authorised any sale of the property. The sale did not complete on the contractual completion date and the first defendant did not respond to a notice to complete served by the claimant. The claimant brought proceedings against the first defendant for specific performance. By his defence, the first defendant alleged that he had not been a party to the sale agreement, which had in fact been made by a third party using his identity to obtain moneys by fraud. In view of that defence, the claimant joined the second defendant to the proceedings, claiming damages for breach of warranty of authority. In the light of the first defendant’s evidence at trial, the parties agreed that the specific performance claim should be dismissed and that judgment should be entered against the second defendant on the breach of warranty claim. An issue remained as to the quantum of damages. The parties accepted that the proper award was the value of the property, less the agreed price, and that the valuation date should be postponed for so long as the claimant had reasonably continued to seek completion of the sale. They differed as to the proper valuation date on the application of that approach. Held: Judgment was given accordingly. Damages for breach of warranty of authority should put the claimant in the same position as if the warranty had been accurate and the sale had been authorised by the owner of the property. The appropriate measure is therefore the value of the property, less the agreed price. Although the logical date for valuation is the agreed completion date, damages can be assessed at a later date where it is just to do. There is authority for the proposition that the valuation date can be postponed for so long as the claimant reasonably continued to seek completion of the sale; the parties agreed on that approach in the instant case. The mere fact that completion is unlikely to be achieved does not make it unreasonable to pursue it. It had been reasonable for the claimant to continue to pursue its alternative claims against both defendants in all the circumstances. Accordingly, it was just to value the property as at the date of the trial. Per curiam: Where damages are awarded for breach of warranty of authority, the logical date for valuation is the agreed completion date. The claim for breach of warranty involves a hypothetical assumption that the owner of the property authorised the sale; on that assumption, the claimant would have received the property on the contractual completion date, in the absence of evidence that the owner would have resisted or delayed completion for some other reason. An approach that postpones the valuation date for so long as the claimant reasonably pursued completion of the sale is problematic since it conflates the hypothetical with the actual situation, whereas it is the difference between those two scenarios that represents the measure of the claimant’s loss. This was the hearing of an issue as to the correct date for the assessment of damages payable by the second defendant, Strettons Ltd, to the claimant, Greenglade Estates Ltd, for breach of warranty of authority to sell property owned by the first defendant, Himat Singh Chana. Mark Warwick (instructed by Kaye Tesler & Co) appeared for the claimant; Thomas Bell (instructed by CMS Cameron McKenna LLP, of Bristol) represented the second defendant.     Giving judgment, David Donaldson QC said: 1. In the course of the first day of what was envisaged as a two-day hearing before me, this tripartite action collapsed to a single issue relating to quantum as between the claimant and the second defendant. To explain the nature of that issue and how it arises, it is however necessary to describe at least briefly the proceedings prior to that collapse. 2. The second defendant (Strettons) is a large firm of London chartered surveyors and auctioneers. Lot 70 in one of its auctions held on 8 September 2009 comprised the long leases of seven subtenanted flats in a large detached house at 279 Church Road, Upper Norwood, London SE19. The registered leasehold proprietor of the flats was the first defendant (Mr Chana). 3. The claimant is the vehicle for a consortium of property investors, including Mr Robert Steinberg, who attended the auction on the claimants behalf. Lot 70 failed to reach its reserve price of £670,000. Immediately afterwards Mr Steinberg approached the auctioneer directly with a view to a purchase by private treaty. Having referred back apparently to his principal, the latter told Mr Steinberg that £670,000 was the minimum acceptable price. The consortium took the view that the true market value was more like £1m and decided to accept the offer. A memorandum of the sale was completed, with Mr Steinberg signing for the consortium as Buyer and Strettons signing as agent for the Seller, and the deposit of 10% was paid to Strettons. The claimant then passed the matter to its conveyancing solicitors, Bude Nathan Iwanier (BNI). 4. On 25 September 2009, Mr Philip Waterfield, Strettons auction director, wrote to the claimant as follows: “We may have been in contact already but I am writing to all purchasers of a number of lots which were offered in our auction sale on 8 September. Hence my reason for contacting you as purchasers of the above property. Since the auction a third party has alleged that he owns this property (and others) and it should not have been offered for sale. This party has not provided any documentary evidence of identity or ownership but we are treating the allegations seriously and the matter has been reported to the police. I confirm that Strettons are holding your deposit. Your solicitor, to whom we are copying this letter, may wish to con-tact the solicitor acting for the party who instructed us in the sale and whose contact details are: Elliott Costa, Taylors Legal I am sorry that I do not have any further news at this stage…” 5. BNI was, however, unable to obtain any information from Taylors Legal. Completion not having taken place on the due date BNI served a notice to complete on 21 October 2009, but without response. 6. On 17 November 2009, Mr Waterfield wrote again to the claimant, saying: “As you will be aware there has been no resolution to the sale of the above property. Disappointingly, the solicitor acting for the seller advises that he has closed its files and the police do not seem to be interested in investigating. We hold your deposit but if the sale is not going to complete I would like to return it to you without delay. The issue I have is that it is not in Strettons domain to rescind the contract which would then place us in a position of having to return the deposit. However, bearing in mind the time which has elapsed since the September auction sale and the lack of recent involvement by the sellers solicitor, I would like to take the initiative by suggesting that, if you now consider the contract for your purchase to have been rescinded you should specifically request for the deposit money to be refunded.” 7. On 3 December 2009, the claimant issued the present proceedings against Mr Chana seeking an order for specific performance of the contract. No defence was served, and in July 2010 the claimant applied for summary judgment. At the hearing of the application Mr Chana appeared in person to object, and it was ordered that the case should continue as a Part 7 claim and that Mr Chana should serve a defence, which he did on 24 September 2010. The defence denied that Mr Chana was a party to any agreement for sale of the properties, and alleged that the contracted party was another party called Mr Karan Singh who used the identity of the defendant to obtain monies by way of fraudulent transaction. It further stated that it was Karan Singh and not the defendant who had engaged the services of Taylor Legal. 8. In reaction to these averments, the claimant joined Strettons as the second defendant to the action. Their defence was served on 28 April 2011. It took no position on whether Mr Chana was correct in his allegation that he had never authorised the sale, adding that Strettons had relied on representations by the sellers solicitors that Mr Chana was the seller and that he had provided ID to confirm his identity. They rightly did not suggest that such reliance would provide a defence to the claim for breach of warranty of authority. 9. At the trial before me, Mr Chana gave evidence, with some detail, that he had not authorised the sale, supported by testimony from one of his managing agents. It was a matter of indifference to the claimant whether it recovered judgment against the First or against the second defendant, and counsel for the claimant did not therefore challenge the evidence of either Mr Chana or his supporting witness in cross-examination. Nor did counsel for the second defendant. Both counsel then confirmed formally to me on behalf of their clients that they made no challenge to that evidence and did not ask the court to reject it and agreed that, accordingly, there should be judgment (1) in favour of the first defendant dismissing the claim against him, and (2) against the second defendant on the claim for breach of warranty of authority. It was also agreed that there should be an order for costs in favour of the first defendant but that the court should decide whether they should be paid by the claimant or the second defendant. 10. That left outstanding only the damages to be awarded against the second defendant for the breach of warranty of authority. On both principle and clear authority, such damages are for the fulfilment interest: they are intended to put the claimant in the same position as if the warranty had been accurate and the sale had therefore been authorised by Mr Chana. The appropriate measure is accordingly the value of the property less the agreed price. The claimant and Strettons are, however, in dispute as to the date at which the property is to be valued for this purpose. 11. Logic suggests that, absent evidence – not present here – that the true owner, if it had authorised the sale, would for some other reason have resisted and delayed completion, the relevant date should be the agreed completion date (in the present case, 30 days after the contract date). In Suleman v Shahsavari 1988 1 WLR 1181* Mr Andrew Park QC (sitting as a deputy High Court judge) did not, however, feel compelled to such a result. The vendors in Suleman were husband and wife, who refused to complete because they maintained that their solicitor had had no authority to sign on their behalf: in the event, the judge upheld that allegation as regards the husband. He therefore dismissed the claim for specific performance and gave judgment against the solicitor for breach of warranty of authority. The value of the house at the contractual completion date was £56,000, £9,500 more than the contract price; its value immediately prior to the hearing was £76,000. The judge pointed out that, on established case law, where the purchaser of a house who initially requires completion of the contract subsequently instead seeks or recovers damages for non-performance from the vendor, the damages may be assessed at a date other than the agreed completion date if it would be more just to do so, adding (at p1183D-E): “Where there have been dramatic changes in property values, it may be more just to assess damages at a different date That is particularly so where the innocent party reasonably continues to try and have the contract completed: in such a case it is logical and just to assess damages as at the date when (otherwise than by his default) the contract is lost.” The judge then stated (at p1184C-D) that: “It would be extraordinary if the plaintiff was entitled to a lower amount of damages against the solicitor than he would have been awarded against Mr and Mrs Shahsavari, had he had a good claim against them. In Suleman, the attempts to obtain completion had continued, and reasonably so, up to the date of the judgment. On this basis, the judge ruled that the value of the house was to be assessed at the higher figure obtaining at the date of his judgment rejecting the claim for specific performance.” 12. I confess to serious difficulty in subscribing to the judges approach in Suleman. Since the claim for breach of warranty involves the hypothetical assumption that the sale had been authorised, it is on that basis that one has to consider when completion would have occurred: absent evidence that if the sale had been authorised by the owner completion would for some other reason have been resisted and delayed, the agreed completion date must represent the time when the purchaser would have received the property. No assistance can be obtained from the lapse of time during which in actual history completion was resisted and ultimately specific performance was refused because the sale was not in fact authorised. To do so is to conflate actual and hypothetical, whereas it is the difference between those two scenarios which represents the measure of the claimants loss. The decision could be justified in the result if the evidence permitted the conclusion that even if they had authorised the sale the vendors would have refused completion up to the date of the hearing: since the first half of the judgment is not reported, it is, however, unclear whether or not this might have been the judges view. That is not to say that some additional damages might not be recoverable where a claimant can demonstrate that in reliance on the representation of authority it refrained from investing the monies earmarked for payment of the purchase price in some similar property which would have benefited from the same market increase. Here again, given the abbreviated form of the report, it is unclear whether such a conclusion might have been available in Suleman; and no such evidence or argument was presented in the present case. 13. I am also far from convinced, notwithstanding a positive reference by Auld LJ to Suleman, that the point is foreclosed by Habton Farms v Nimmo [2004] QB 1, where the Court of Appeal was concerned with the position where the claimant was the vendor, and the property was a racehorse. 14. However that may be, in their submissions counsel for both parties concurred in inviting me to follow and apply the formula in Suleman by postponing the date of valuation for as long as the claimant had been acting reasonably in trying to have the contract completed. I shall proceed accordingly, despite a residual concern as to whether it is always right for the court to proceed on a particular view or formulation of the law simply because it has been agreed by the parties. 15. Counsel for Strettons, Mr Thomas Bell, placed emphasis in particular on the following matters: (1) Strettons first notified the claimant of Mr Chana’s allegation as early as 25 September 2009, in the letter from which I quoted at [4] above. (2) On 7 January 2010, Strettons reported to the claimants’ solicitors that Taylor Legal had advised them that the ID received from its client was counterfeit. (3) On 18 May 2011, Mr Chana’s solicitors sent to the claimants’ solicitors a copy of Mr Chana’s passport and of that which had been provided to Taylor Legal: manifestly these did not relate to the same individual. On this basis, they invited the claimant to confirm by return that it would now discontinue the claim against Mr Chana. Mr Bell invited the court to rule that further pursuit of specific performance was therefore unreasonable after January 2010, or at latest May 2011. 16. For the claimant, Mr Mark Warwick objected that this analysis was inappropriately truncated. In particular: (1) On 20 May 2011 the claimants’ solicitors replied to the letter of 18 May 2011 pointing out that Strettons client apparently possessed detailed knowledge of the property sufficient to pro-vide auction particulars and stressing that Strettons had not accepted that their client was not the true owner. That letter was copied to Strettons solicitors. (2) On 5 August 2011, Strettons solicitors wrote that: “For the avoidance of doubt, our client has not admitted liability in this matter. As far as we are aware, it remains far from clear that first defendant (sic) was not the individual whom (sic) instructed our client.” This position, described by them later – and perhaps somewhat tendentiously – as one of neutrality, continued up to the trial. 17. While agreeing that the claimants pursuit of the claim against Mr Chana was to be assessed against the criterion of reasonableness, counsel differed in how that test was to be applied. Mr Warwick argued that it was reasonable for the claimant to continue to seek specific performance until there was no longer any real prospect of success, in effect of proving that Mr Chana had authorised the sale. In counter, Mr Bell submitted that the pursuit of specific performance was unreasonable once it was unlikely that it would be obtained. These competing formulae are both restrictive glosses on the basic test of reasonableness, which is itself a gloss placed in Suleman on justice. As such, though in fairness to counsel they were advanced only in response to questioning by me, they are in my view to be viewed with reserve and arguably as illegitimate, not least because they exclude many other factors which might be relevant in a particular case. Having said that, I consider that so far as it goes Mr Warwick’s test is a closer guide to unreasonableness than Mr Bell’s: mere unlikelihood without more is insufficient to render the pursuit of completion unreasonable. And in the present case no more was relied upon. 18. From the time the passport copies were disclosed in May 2011, few would have placed heavy money on the claim against Mr Chana succeeding. That outcome was not however in any way certain, indeed Strettons solicitors themselves described it as far from clear that Mr Chana had not authorised the sale, and Strettons were never prepared to concede the point and accept liability. In these circumstances, I consider that the continued pursuit of the alternative claims against both defendants was reasonable, and that accordingly – in what I consider a preferable formula if Suleman is to be followed – it would be just to value the property as at the date of the trial. I am asked to refer the determination of the appropriate figure to the Master, in the event that it cannot be agreed by the parties. Judgment given accordingly.   * Editor’s note: Also reported at [1989] 1 EGLR 203; [1989] 09 EG 69