Misrepresentation – Damages – Deceit – Claimant companies entering into contract to purchase office buildings – Answers to commercial property standard enquiries (CPSEs) being supplied to claimants on defendant vendor’s behalf – Answers stating property had no arrears of service charge and no disputes or complaints outstanding – Claimants seeking to recover deposit and damages in respect of answers to CPSE – Whether defendant making untrue representations – Whether claimants being induced to enter contract by misrepresentations – Whether misrepresentations resulting from fraud or recklessness – Claim allowed
In 1995, the defendant bought the freehold title to Wigmore Place which comprised three office buildings near Luton Airport. Some 79% of the office space was leased by a company, TUI. The day-to-day running of the property was carried out by A, the sole director and a shareholder of an administration company. In January 2013, TUI became concerned about the management of the service charge. Correspondence ensued with A and B (at the time a solicitor experienced in dealing with service charge queries to whom the matter had been referred). TUI was not satisfied with the replies to its queries and deducted sums from quarterly payments intended for the service charge made in June 2013.
The defendant was seeking to sell the property and, in March 2013, had finalised answers to commercial property standard enquiries (CPSEs) to be sent out to prospective purchasers which stated, amongst other things, there were no arrears in service charges and denied the existence of any disputes or complaints “so far as the seller is aware”. The responses referred to TUI having raised “further enquiries” about service charges.
In September 2013, the claimants entered into a contract to purchase the property from the defendant for £16,250,000 with a deposit of £812,500 payable in two tranches. Clause 8.1 of the contract provided that the defendant would sell the property free from incumbrances apart from, other things which would have been disclosed by the searches and enquiries which a prudent buyer would have made before entering into the contract. Clause 8.3 provided that the defendant had made full disclosure of the matters referred to in clause 8.1 and that the buyer (in acknowledgment of such disclosure) would not raise any enquiry, objection, requisition or claim in respect of any of them.
The claimants subsequently commenced proceedings to recover both the deposit and damages. They contended that they had been induced to enter into the contract by false representations to the effect that there were no service charge arrears and had been no complaints or disputes relating to the property, in particular, the service charge. Moreover, the defendant’s failure to disclose such matters meant that clause 8.3 of the contract was misleading or inaccurate and that the defendant had breached the warranty for which clause 8.3 provided. The claimants asked for the return of the deposit under section 49(2) of the Law of Property Act 1925 and maintained that it could recover damages pursuant to section 2(1) of the Misrepresentation Act 1967.
Held: The claim was allowed.
(1) The replies to the CPSEs had been misleading in what had been said about ‘”disputes” and “complaints”. The reference to further enquiries had given no indication of how matters in fact stood between the defendant and TUI. The correspondence revealed that they were at odds over certain matters including whether TUI was justified in withholding money, whether the defendant was entitled to distrain and even whether the parties were in dispute. TUI had not merely been raising further enquiries. In denying the existence of any dispute or complaint, the CPSEs had given a false impression. Further, clause 8.3 of the contract had contained another misrepresentation, in that it had stated that the defendant had made full disclosure of the matters referred to in clause 8.1. The reality was that the defendant had not adequately disclosed the existence of service charge arrears, disputes and complaints. In context, clause 8.3 involved both a warranty and a representation.
(2) On the evidence, the claimants had been induced to enter into the contract by the misrepresentations. It was evident that the contract had been drafted on the assumption that there were no arrears of service charge.
(3) Condition 9.1.3 in the contract provided that a buyer to whom misleading or inaccurate representations were made could rescind the contract only where the error or omission resulted from fraud or recklessness. An action in fraud would not lie where a statement was made by an agent who honestly believed it to be true, merely because the principal or another agent knew the statement to be false. It was incumbent on the claimants to establish their case on the balance of probabilities. In the present case, the court would approach the allegations of fraud on the basis that what was alleged was inherently improbable: Derry v Peek (1889) 14 App Cas 337 applied., Anglo-Scottish Beet Sugar Corporation Ltd v Spalding Urban District Council [1937] 2 KB 607, Armstrong v Strain [1952] 1 KB 232, Akerhielm v De Mare [1959] AC 789, Secretary of State for the Home Department v Rehman [2003] 1 AC 153 and B (children) (sexual abuse: standard of proof), Re [2008] UKHL 35 considered.
On the facts, the likelihood was that, in the period leading up to exchange of contracts, A and B, as the defendant’s agents, had both been alive to the fact that the replies to the CPSEs had stated that there were no service charge arrears when there in fact had been. Working as closely together as they had done, the chances were that they had discussed the problem between themselves. It was likely that they had felt that TUI had no real grounds for complaint so that a purchaser should not ultimately be prejudiced by the stance TUI was adopting. They might also have felt that the existence of arrears could be dealt with by issuing a credit note. However, they probably both lacked an honest belief in something that they each knew was being represented to the claimants: that that there had been no service charge arrears. It followed that the representation to that effect had been made at least recklessly. The claimants were entitled to have their deposit returned because the untrue representation that there were no arrears of service charge had resulted from fraud or recklessness. Furthermore, the claimants were entitled to the damages they claimed as damages in deceit.
Joanne Wicks QC (instructed by DAC Beachcroft LLP) appeared for the claimants; Mark Warwick QC and Camilla Chorfi (instructed by Philip Ross) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Greenridge Luton One v Kempton
