Vendor and purchaser — Sale by auction — Misrepresentation — Rents from properties sold wrongly represented as open to negotiation — Statements in auction particulars and by auctioneer misrepresented the position in regard to rent reviews — Action by purchasers for rescission — Whether representations would have induced a reasonable person to enter into the contract relevant only to onus of proof — Any material misrepresentation which induces a person to enter into a contract is a ground for rescission —
arose out of the plaintiff company’s successful bid for three properties at an
auction; 940, 942 and 944 High Street, Finchley — The properties consisted of
commercial premises on the ground floors with residential accommodation above —
In each case there was a lease, comprising only the commercial premises of the
relevant property, for a term of 10 years from December 25 1982 — Each lease
contained a provision for rent review after five years — There was, however, a
difference, of significance for the present litigation, between the rent review
provisions of 940 as compared with 942 and 944 — In the case of 942 and 944
there was the familiar machinery of a notice by the landlords specifying the
amount of the new rent required, followed by a provision to the effect that, on
the tenant’s failing to serve a counternotice within a time-limit, the
specified rent would be deemed to be agreed by the parties — In the case of 940
the rent review notice did not have to specify the new rent required, and
consequently there was no provision about a specified rent being deemed to be
agreed on the tenant’s failure to serve a counternotice — The defendant vendors
in fact sent notices to all three of their lessees, specifying a rent of £4,000
(in place of £1,700) for 940, £3,500 (in place of £1,500) for 942 and £3,750
(in place of £1,600) for 944 — The tenant of 940 replied by letter saying that
£4,000 was too high and suggesting a lower figure — The tenants of 942 and 944
gave no replies in writing, although each of them made comments by telephone to
the vendors’ agents, the exact content of which was disputed — Thus no formal
counternotice in writing, as required by the rent review provisions, was given
in respect of 942 or 944 — It should be mentioned that the residential parts of
the three properties were separately let to other tenants, but nothing turned
on that
defendants decided to sell the properties by auction — The auction particulars
under ‘Annual Rental’ gave the original rents reserved by the leases, £1,700
for the shop at 940, £1,500 for the shop at 942 and £1,600 for the shop at 944
— Under ‘remarks’ was the statement:
1987 outstanding. Full repairing and insuring. No rent has been quoted
addendum (which itself had been amended) was circulated to those attending the
auction. It stated (as amended):
first be offered as one lot and, if unsold, as three separate lots. Notices
have been served. The tenants have offered £3,500 per annum for number 940,
£3,100 per annum for number 942 and £3,300 per annum for number 944, all of
which have been rejected by the freeholders
were derived from the letter from the tenant in the case of 940 and the
telephone conversations with the other tenants
all — When the time came for the three properties to be offered the auctioneer
made the following statement from the rostrum:
am first offering this as one lot. There is a mistake on the addendum which I
should like to refer you to please. On the addendum where it says ‘No notices
have been served’, please delete ‘No’. So there should not be ‘No’. Notices
have been served on the tenants about the rent reviews and the tenants have
offered what is stated there, all of which, I am told, have been rejected by
the freeholders. So that is the statement I am asked to read out. The three
tenants have made offers but no offers have been accepted.
bid was then made on behalf of the plaintiffs of £490,000 for the three
properties
after the auction was therefore that representations had been made by the
vendors that the current rent reviews in relation to each of the three
properties had not been agreed or determined, so that rents were still open to
negotiation — In fact, so far as 942 and 944 were concerned, rents had been
specified in the landlords’ trigger notices and no counternotices in writing
had been served by the tenants — Subject to any successful submission to the
contrary, the rents specified were deemed to have been agreed by the parties
and removed entirely from the realm of negotiation
surprisingly, the matter ended in litigation — The vendors purported to elect,
under condition 22 of the National Conditions, to terminate the contract on the
failure of the purchasers to complete — They claimed to forfeit the deposit of
£49,000 and to recover as damages a loss of £110,000 they incurred on the resale
of the property for that much less than the plaintiffs’ bid of £490,000 — The
plaintiffs, however, issued a writ claiming to have been induced to enter into
the contract at the auction by material misrepresentation and seeking the
return of the deposit of £49,000 and damages to cover the conveyancing costs
thrown away
that the plaintiffs were entitled to rescind the auction contract for
misrepresentation Scott J had to determine a number of questions — He rejected
a submission that the auctioneer, either in pre-auction remarks or in
statements made from the rostrum, did not have authority to bind the vendors —
He rejected a submission that the landlords’ notices in respect of 942 and 944
were not effective trigger notices because not couched in a sufficiently
mandatory form — He also rejected a submission that the telephoned
communications of the tenants of 942 and 944 could be accepted as oral
counternotices; apart from any other consideration, only a written notice can
be ‘served’ — Finally, the judge dismissed a suggestion that the
misrepresentations were not material and he referred with approval to the view
of Goff and Jones on the Law of Restitution that the question whether
representations would have induced a reasonable person to enter into a contract
was relevant only to the onus of proof — Plaintiffs had established their claim
to rescission of the contract on the ground of material misrepresentation for
which the defendant vendors were responsible — Plaintiffs were entitled to the return
of their deposit and damages in respect of lost conveyancing expenses,
amounting to £1,851.35 in both cases with interest
The following
cases are referred to in this report.
Nunes v Davies Laing & Dick Ltd (1985) 51 P&CR 310; [1986]
1 EGLR 106; 277 EG 416
Overbrooke
Estates v Glencombe Properties Ltd [1974] 1
WLR 1335; [1974] 3 All ER 511
In this action
the plaintiffs, Museprime Properties Ltd, sought rescission of a contract
signed at auction, return of a deposit of £49,000 and damages to cover
conveyancing expenses thrown away, on the ground that they were induced to
enter into the contract by a material misrepresentation for which the
defendants, vendors of three properties at 940, 942 and 944 High Street,
Finchley, London N12, were responsible.
Peter Ralls
(instructed by Lewis Lane & Co) appeared on behalf of the plaintiffs;
Norman Primost (instructed by Kaufman Kramer Shebson) represented the
defendants.
Giving
judgment, SCOTT LJ said: The action in which I must now give judgment is
one in which the plaintiff, Museprime Properties Ltd, was the successful bidder
at an auction held on June 9 1988 for three adjacent properties, 940, 942 and
944 High Street, Finchley, London N12. The price bid was £490,000. The contract,
signed at the auction, required Museprime to pay a deposit of £49,000, the
usual 10%. That was done. The vendor was the defendant in the action, Adhill
Properties Ltd.
On July 14
1988 Adhill Properties Ltd served a contractual completion notice on the plaintiff,
calling on the plaintiff to complete the contract within a specified period.
The plaintiff did not do so, and in consequence Adhill Properties Ltd elected,
pursuant to the relevant condition, to treat the contract as at an end and the
deposit as forfeited. But it is the contention of the plaintiff, and was before
the rescission to which I have referred, that it was induced to enter into the
contract at the auction by a material misrepresentation
this action, seeking the return of the deposit of £49,000 and, in addition,
damages to cover the conveyancing costs incurred and, in the event, thrown
away.
For its part,
the defendant vendor has counterclaimed for damages for breach of contract.
Subsequent to the rescission to which I have referred the defendant resold the
property for a sum £110,000 less than the £490,000 bid by the plaintiff at the
June 9 auction. So that sum, with interest from the date of resale, is sought
by the defendant as damages.
To explain the
misrepresentation relied upon by the plaintiff it is necessary for me to refer
to the history of these three properties and to describe them. They are, as I
have said, in the High Street, Finchley. They are in what has been described as
‘a secondary commercial area’, and at the fringe of that secondary commercial
area to boot. Each consists of commercial premises on the ground floor, with
residential accommodation above. The three properties were the subject of leases
made in 1983. The lessor under the three leases, the then freeholder, and the
predecessor in title of Adhill Properties Ltd, was the same in the case of each
lease. The lessees were not all the same. With one significant exception, the
terms of the leases were the same. Each granted a term of 10 years from
December 25 1982. Each comprised only the commercial premises of the relevant
property. Each contained a provision for rent review after five years. In the
leases of the commercial parts of nos 942 and 944 respectively the rent review
provisions, to be found in the second schedule to the respective leases, were
as follows:
Provided
further, and it is hereby further agreed, that at any time before the
expiration of the fifth year of the said term the landlord may serve on the
tenant a notice in writing (hereinafter called ‘the rent review notice’)
requiring an increase of the rent first hereby reserved as from the expiration
of such year to an amount specified in the rent review notice, and thereupon
the following provisions shall have effect.
1. The tenant
may within one month after the receipt of the rent review notice serve on the
landlord a counternotice calling upon the landlord to negotiate with the tenant
the amount of the rent to be paid hereafter as from the expiration of the said
year.
2. If the
tenant shall fail to serve a counternotice within the period aforesaid the
tenant shall be deemed to have agreed to pay the increased rent specified in
the rent review notice.
3. If the
tenant shall serve a counternotice within the period aforesaid calling upon the
landlord to negotiate with the tenant as aforesaid, then the landlord and the
tenant shall forthwith consult together and use their best endeavours to reach
agreement as to the amount of the rents to be paid hereunder as from the
expiration of the said year, but failing agreement, within two months of such
counternotice or such extended period as the landlord and the tenant shall
mutually agree . . .
The paragraph
then goes on to provide for the question to be referred to arbitration. Para 4
provides for the arbitrator to determine the question as to the relevant rent
by ascertaining the annual rack rental value of the demised premises.
The
corresponding provisions in the lease of the commercial part of no 940 differ
from the provisions I have just read in that the rent review notice did not
have to specify the new rent required by the lessor to be paid, and
consequently there was no provision to the effect that on the tenant’s failing
to serve a counternotice the specified rent would be deemed to have been
agreed. With that variation, there is no material difference between the rent
review provisions in the leases.
The initial
rent reserved under the lease of no 940 was £1,700 per annum, of no 942 £1,500
per annum, and of no 944 £1,600 per annum. The residential parts of the three
premises were separately let to other tenants. Nothing turns on that.
The rent
review provisions were available to be operated after December 25 1987, the
expiration of the first five years of the terms granted by the leases. A Mr
Welch, a chartered surveyor and fellow of the Incorporated Society of Valuers
and Auctioneers, acted as consultant to a firm of estate agents and valuers,
Sandro Brahms & Co, who acted for Adhill Properties Ltd in connection with
these three properties. On January 4 1988, on the writing paper of Sandro
Brahms & Co, Mr A Welch [FSVA FRVA], as consultant, wrote letters to each
of the tenants of each of the three commercial premises. The letter to the tenant
of no 942, a Mr Carrier (I might add that the tenants were Mr Carrier and his
wife, but no point is taken by either party on the fact that this letter was
addressed simply to Mr Carrier) referred to the lease dated March 8 1983 under
which Mr and Mrs Carrier held the premises, and said:
On behalf of
your landlords, Adhill Properties Limited, we hereby give you notice under the
rent review provisions in the above-mentioned lease that in the opinion of your
landlords the open market rental value of the premises as at the date fixed for
review, namely 25th December 1987, is £3,500 per annum.
A letter in the
same form was written by Mr Welch to Mr Hemington, the tenant of the commercial
premises at no 944, save that in that letter the rent specified was £3,750 per
annum. A letter in the same form was written to the tenant of the commercial
premises at no 940, with £4,000 per annum being the rent specified. It will be
recalled that the lease of the commercial premises at no 940 had not required a
rent to be specified in the notice sent triggering off the rent review
procedure. None the less, Mr Welch’s letter did mention £4,000 per annum as the
desired rent.
The tenant of
no 940 answered by a letter dated January 12 1988, protesting that the £4,000
per annum was too high and suggesting a rent of £3,250 per annum as being more
appropriate. That letter may be regarded, therefore, as having instituted the
negotiation about the rental level for the second five years of the term that
the rent review provisions in the relevant lease had contemplated and required.
No written response to the letter of January 4 1988 was received from either Mr
Carrier or Mr Hemington or anyone on their behalf. Instead, the evidence
discloses that each of them telephoned Mr Welch. They telephoned as a
consequence of having received Mr Welch’s letter of January 4 1988. There is a
dispute between them and Mr Welch as to what the content of the conversations
was. Both Mr Carrier and Mr Hemington told me that they had been entirely
content with the rent suggested by Mr Welch in his letter to them. They said
that they made no protest at all about the suggested level of the new rents for
the next five years.
Mr Primost,
counsel for the defendant, challenged them on this and, both in cross-examination
and in his submissions to me, expressed some scepticism about the picture being
presented of tenants happy to pay a new rent more than twice as much as the
rent they had previously been paying. I do not think this is a point on the
evidence that I need to decide, although I confess to sharing Mr Primost’s
scepticism. I, too, have not heard of tenants telephoning, on receiving a
suggestion of a substantial increase of rent, and being enthusiastic about the
suggested increase. It is not as though either of the two tenants had taken any
professional advice as to what the appropriate rental level should be. For my
part I would be prepared to accept what Mr Welch has said in his evidence on
this point. He said that both Mr Hemington and Mr Carrier teleponed in order to
object to the level of rent being suggested. He said this was a normal tenant’s
reaction; so I think it would have been. He said he asked for counteroffers and
they each suggested a lower rent: Mr Carrier suggested £3,100 for his premises;
Mr Hemington suggested £3,300 for his premises. Mr Welch said that that was
really the import of the communication between himself and the two tenants on
the occasion to which he was referring. He told me that he informed his clients
of the rental suggestions that had been made by the tenants, that his clients
were not willing to accept the proposals, but that his instructions were then
withdrawn and he was told to take no further action. He said that Mr Hemington
and Mr Carrier were so informed. There the matter rested.
It will be
noted that no formal counternotice had been given either by Mr Carrier or by Mr
Hemington. Whether it was necessary for it to have been given or what the
consequence was of that state of affairs I shall have to consider later.
Following the
withdrawal of Mr Welch’s instructions and the communication to Mr Hemington and
Mr Carrier that nothing further for the time being was going to happen, they
continued to pay rent at the original rate reserved under the leases.
Adhill
Properties Ltd then decided to place the properties on the market for sale. The
mode of sale decided upon was auction and arrangements were made for them to be
sold at the Connaught Rooms in Great Queen Street, London WC2, by Harman Healy
& Co, auctioneers, on June 9 1988. Mr Barnett of Harman Healy was in charge
of the auction. The auction particulars describe the properties. There is a
photograph, from which a fair idea of their character and style can be seen.
There is a description of the properties of the usual sort to be found in
auction particulars, with details of the tenants and of the annual rentals
currently reserved. Under the heading ‘Annual Rental’ is to be found against
each property the original rent reserved by the lease: that is to say, £1,700
for the shop at no 940, £1,500 for the shop at no 942 and £1,600 for the shop
at no 944. There is then a heading entitled ‘Remarks’ and
review 1987 outstanding. Full repairing and insuring. No rent has been
quoted.’ The particulars contain also
some general conditions of sale, which have figured in the argument before me
and to which I will later refer.
The auction
particulars were circulated among the community in London thought to be
interested in such sales, and a copy came to the attention of Mr B R
Maunder-Taylor [FRICS] and Mr S C Henley [BSc FRICS]. Each of these gentlemen
is a chartered surveyor of experience.
Mr
Maunder-Taylor’s expertise and experience lie mainly in the area of rental values.
Apart from carrying on a professional business with partners, he has a property
company, Markham Street Properties Ltd, by which he, as I understand it,
speculates in properties. Mr Henley, also in practice as a professional
chartered surveyor, has a property company, Museprime Properties Ltd, the
plaintiff in this action, by which he does the same. His main skills and
expertise lie in the field of property development. They, as I understand it,
act together in various joint ventures which come to their attention, and they
decided to act together for the purpose of bidding for and, if possible,
purchasing nos 940, 942 and 944 High Street, Finchley. Each of them received a
copy of the auction sale particulars. They arranged to attend the auction together.
Mr Henley
arrived first. He found, as did Mr Maunder-Taylor when in turn he arrived at
the auction room, that on the seats provided for the audience was an addendum
to be added to the auction particulars. The addendum provided, in relation to
the properties with which I am concerned, this:
This will
first be offered as one lot and, if unsold, as three separate lots. No notices
have been served.
The ‘no’ had
been deleted and initialled ‘H.H.&Co.’ presumably by Mr Barnett. It
therefore read, with the deletion:
Notices have
been served. The tenants have offered £3,500 per annum for number 940, £3,100
per annum for number 942 and £3,300 per annum for number 944, all of which have
been rejected by the freeholders.
There is a
comment I think I should make at once as to the contents of the addendum
notice. The only evidence that I had of the provenance of those rentals,
£3,500, £3,100 and £3,300, has been, as to 940 the letter from the tenant of
January 12 1988 to which I have referred, and as to 942 and 944 respectively,
the telephone conversations with Mr Welch to which Mr Welch testified. The
content of this notice is some ground for preferring Mr Welch’s evidence of the
contents of those conversations to that of Mr Carrier and Mr Hemington, because
if the conversations were not as Mr Welch recollected, there is no explanation
that I can think of as to where these particular suggested rentals came from.
If the tenants were as delighted with the rents specified in the January 4
letters as they would have had me believe, they would not have made these lower
offers; and it is not believable that these lower offers were simply invented
by the vendors in order to be referred to in the addendum.
Mr Henley
perused the auctioneer’s file regarding these properties. The file contained
copies of the three leases but nothing else material to the commercial parts of
the premises. It did not contain copies of the ‘notices’ referred to in the
addendum. So it is not surprising that Mr Henley had a conversation with Mr
Barnett. Mr Henley’s evidence about this was not challenged. In
cross-examination Mr Henley said:
Mr Barnett
told me it was still possible to negotiate proper market rents for the shops.
He said nothing had been agreed by the landlords. I was informed by Mr Barnett
that the landlords had not quoted figures in the notices.
He went on to
say:
I asked Mr
Maunder-Taylor if you could have a valid notice without specifying the price.
He said you could.
That evidence
was consistent with what he had said in chief. My note of his evidence-in-chief
is:
I spoke to
Barnett. He said the notices had been served but that he was advised that no
rents had been agreed and that so far as he was aware the landlords had quoted
no rents in the notices.
The auction
then commenced, Mr Maunder-Taylor having by this time arrived. When the time
came for these properties to be dealt with an announcement was made by Mr
Barnett from the rostrum. A transcript of the announcement is available. Mr
Barnett said:
Lot 74 A-C: I
am first offering this as one lot. There is a mistake on the addendum which I
would like to refer you to please. On the addendum where it says, ‘No notices
have been served,’ please delete ‘No’. So there should not be ‘No’. Notices
have been served on the tenants about the rent reviews and the tenants have
offered what is stated there, all of which, I am told have been rejected by the
freeholders. So that is the statement I am asked to read out. The three tenants
have made offers but no offers have been accepted.
Mr Barnett
then went on to refer to the residential parts of the premises, but I need not
read what he said in that connection.
The bidding
took place. Mr Maunder-Taylor did the bidding. The successful bid was £490,000.
A contract was then and there signed. Mr Henley signed on behalf of his
company, Museprime Properties Ltd, as purchaser.
It may be
convenient if I summarise at this point the difficulty that has arisen and that
has been discussed in this case. So far as 940 was concerned, the rent review
notice of January 4 had been given, a negotiation about rental values had been
initiated by the tenant, but nothing had been agreed. There is no difficulty so
far as that is concerned. So far as 942 and 944 are concerned, however, the
notice of January 4 had been given; in oral communications by the tenants to Mr
Welch lower rents had been suggested, but there the matter had been left. No
formal counternotices had been served by the tenants. There was a possibility
at least that the ‘deeming’ provision in the rent review provisions had taken
effect, so that the rent specified in the January 4 notices had become, for
want of counternotices served within the requisite month, the effective rent
for the second five years of the terms. But Mr Maunder-Taylor was of the
opinion, and had been since he saw the initial rents reserved by the leases
(information he obtained from the auction particulars), that those rents were
excessively low as at the time they were fixed in 1983 and that rents as at
December 25 1987 at an average of £7,500 per shop would be achievable on the
rent review procedure. He was concerned, therefore, that the rent review
procedure and the fixing of the new rent should remain open.
The January 4
notices themselves were not available for inspection at the auction. Nothing
had been seen bar the copies of the leases that were in the auctioneer’s file.
But it is accepted by Mr Primost on behalf of Adhill Properties Ltd that the
announcement made by Mr Barnett with, it is accepted, the authority of the
vendors, that I have just read gave the impression to the listener that the
rent review procedure was still open and that new rents had not yet become
fixed. It was important to Mr Maunder-Taylor that that should be so because he had
made financial arrangements with his bank based upon his estimate of the new
rents that would be obtainable on the rent review. It is not surprising,
therefore, to find that the instructions given to the solicitors who were to
act for the plaintiff on the purchase included instructions to ascertain that
the rent review was still, as Mr Maunder-Taylor thought and as had been
indicated by what had been said by Mr Barnett from the rostrum, open.
A letter dated
June 10 1988 written by Mr Henley to the plaintiff’s solicitors, Lewis Lane
& Co, said:
All of the
upper parts are with full vacant possession (see addendum), and the sale was
based on the strict understanding that no rent review figures had been agreed
by the landlords.
Lewis Lane
wrote to the solicitors acting for the defendant, Kaufman Kramer & Shebson.
In their letter they said this:
Could you let
us have please copies of all correspondence and communications between the
landlord and tenant with regard to the rent reviews which were due in December
1987. We understand that no new rent has been fixed on each shop, and please
confirm.
The answer
from Kaufman Kramer & Shebson of June 3 1988 did not deal with that
request. So on July 1 1988 Lewis Lane repeated the request. They said:
We still
require copies of all letters, notices and attendance notes relating to the
rent reviews. These are not to be concluded but to be held in abeyance, as our
client will deal with them direct following completion.
Mr
Maunder-Taylor wrote to Lewis Lane and emphasised the importance of this in a
letter of July 1. He said:
Will you
please inform Messrs Kaufman Kramer & Shebson that we must see the rent
review notices served and any correspondence that may have been conducted
between the parties before we complete the purchase.
On July 4
Lewis Lane wrote to Kaufman Kramer & Shebson and said:
We understand
that in fact no notices relating to the rent review have been served and would
you kindly confirm. This was the information given to our client at auction. It
was upon such warranty that our client agreed to proceed. Copies of
correspondence should of course be supplied.
That seems to
have been somewhat of a misunderstanding. The information at the auction had
been that notices had been served. Finally, on July 13 1988, Kaufman Kramer
& Shebson wrote to Lewis Lane. They said:
We write to
confirm that the above property . . .
— they were
referring to a residential part of the property —
. . . is now
vacant, and therefore completion may take place tomorrow. We enclose copies of the
rent review notices served on the tenants at the above property. All subsequent
correspondence was without prejudice and no agreement has been reached in
respect of any of the properties and at the moment negotiations are not
proceeding.
That was a somewhat
strange letter because there had been no ‘subsequent correspondence’, bar the
one letter of January 12 1988 from the tenant of no 940. There had been no
correspondence at all in connection with the rent reviews under Mr Carrier’s
lease or under Mr Hemington’s lease. Copies of the notices were enclosed and
were of course perused by Lewis Lane & Co, and no doubt by Mr Henley and Mr
Maunder-Taylor as well. They could not fail to have noticed that each notice
specified a rent. That would have been contrary to what Mr Henley had been led
to believe by Mr Barnett in the pre-auction conversation to which I have
referred.
On the following
day, July 14, Kaufman Kramer & Shebson served a completion notice on Lewis
Lane, calling on the plaintiff to complete the contract in accordance with
condition 22 of the National Conditions of Sale as varied. The letter ended:
Kindly note
that the notice to complete expires fourteen days after service of the same.
The completion
notice prompted a protest from Lewis Lane on behalf of the purchaser. The
protest was based upon the position in respect of the rent reviews. Allegations
of breach of contract in that connection were made. There was no indication at
that stage of an intention on the part of the purchaser to rescind for alleged
misrepresentation.
By a letter of
July 28 1988 Lewis Lane said, among other things:
There may
well have been a serious misrepresentation with regard to the sale. In your
letter of 13th July you state that no agreement has been reached. The leases of
942 and 944 clearly state that if no counter-notice is served within one month
the tenant shall be deemed to have agreed to pay the increased rent specified
in the rent review notice. If no counter-notice has been served, then the
agreement on rent has been reached or deemed to have been reached on 942 and
944. We have constantly requested copies of correspondence, notices and attendance
notes and nothing has been produced. Our client is ready, willing and able to
complete but we cannot complete until this matter is resolved. We do not accept
your notice to complete, nor do we accept that there is any right whatsoever to
forfeit the deposit. We will issue proceedings and sue for damages.
It is plain
enough, therefore, that at the date that letter was sent, no election to
rescind had been made.
On August 16
1988 the defendant purported to elect, pursuant to its rights under condition
22 of the National Conditions, to terminate the contract on the ground of the
failure of the purchaser to have completed in accordance with the completion
notice. The defendant purported to forfeit the deposit of £49,000 and, as I
have said, subsequently resold at a price of £110,000 less than the £490,000
that the plaintiff had agreed to pay.
The
plaintiff’s case is based on misrepresentation. It is accepted by Mr Primost,
for the defendant, that the right to rescind for misrepresentation, if such
right there were, survived the exercise of the condition 22 termination of
contract. Accordingly, I need not trouble myself with what otherwise might have
been a puzzling question. The question for me is whether the events that
happened over the period from June 9, the date of the auction, down to the end
of July 1988 gave the purchaser the right to rescind the contract on the ground
of misrepresentation.
The writ was
issued on September 20 1988. It has been amended but not in a particular that
is material to the misrepresentation point. Paras 3 and 4 set out the
misrepresentation relied on. Para 3 says:
It is the
plaintiff’s case that the above-mentioned particulars . . .
— ie the
auction particulars —
. . .
comprised or contained the following express or implied representations,
namely:
1 that the current rent review in relation to
each of the said premises had not been agreed or otherwise decided, and/or
2 that the current rent review in relation to
each of the said premises was still open to negotiation.
It is accepted
by the plaintiff that representations to that effect were made. It is not
accepted by the plaintiff that those representations were false.
Para 4 pleads
the result of the conversation between Mr Henley and Mr Barnett. It is alleged
that:
That conversation
involved representations that:
1 no rents had been fixed on any of the
premises, and
2 it would be possible for the purchaser of the
premises to negotiate new market rentals, as rental negotiations had not been
concluded with the tenants.
It is not
disputed that representations to that effect may have been made by Mr Barnett
to Mr Henley, but it is denied that Mr Barnett had any authority on behalf of
the vendor to make those representations, and condition 0 of the General
Conditions is relied on in that respect.
This is a
point which, it seems to me, I can deal with at once and in advance of
considering the other points in the case. Condition O in the General Conditions
of Sale contained in the auction particulars provides as follows:
Misrepresentation
Act 1967 and Unfair Contract Terms Act 1977
(a) All statements contained in these particulars
are made without responsibility on the part of the auctioneer or the vendors
and are statements of opinion and are not to be taken as or implying a statement
or representation of fact, and any intending purchaser must satisfy himself, by
inspection or otherwise, as to the correctness of each statement contained in
the particulars.
(b) The vendors do not make or give, and neither
the auctioneers nor any person in the employment of the auctioneers has any
authority to make or give, any representation or warranty in relation to these
properties.
Two points
arise: first, whether it is right to regard condition O, as framed, as
excluding actual and ostensible authority on the part of Mr Barnett to say
anything that might bind the vendors; and second, if it is, whether a term to
that effect can stand, having regard to the content of section 3 of the 1967
Act as amended.
I was referred
to a decision of Brightman J, as he then was, in Overbrooke Estates Ltd
v Glencombe Properties Ltd [1974] 1 WLR 1335, where, at an auction, a
similar general condition applied. Brightman J dealt with the matter on a
summons for summary judgment under Ord 86. He held (I am reading from the
headnote) that:
A principal
must be entitled to limit the authority of his agent, whether ostensible or
otherwise, and therefore the express limitation placed on the auctioneer’s
authority, by condition R(b), . . .
— the
comparable condition to O —
. . .
negatived any ostensible authority which the auctioneers possibly might
otherwise have possessed to make the representation which, for present
purposes, the court was prepared to assume was an innocent material
misrepresentation.
That authority,
with which I would respectfully agree, leads to this conclusion: that General
Condition O prima facie must be regarded as an effective limitation of
the actual and ostensible authority of Mr Barnett.
But, on the
facts of the present case the matter does not rest there. It is accepted that
there was originally an error in the auction particulars. The error was to be
corrected by the addendum, but the addendum, as originally typed, itself
contained an error, and so a statement was provided by the vendor for Mr Barnett
to read out at the auction in order to correct that error. It is plain, in my
judgment (and Mr Primost very properly has not sought to argue the reverse),
that Mr Barnett did, notwithstanding General Condition O, have authority on
behalf of the vendor to make the statement from the rostrum that I have read.
He had authority to correct the error in the addendum. Mr Primost has submited
that but for the statement read from the rostrum General Condition O limited
the authority of Mr Barnett. Mr Ralls, for the plaintiff, has submitted that Mr
Barnett was given an express and particular authority, notwithstanding General
Condition O, to correct the error in the addendum and, therefore, had authority
to make the pre-auction remarks to Mr Henley which he made, as well as to make
the statement from the rostrum. Both were dealing with the same point, namely
the correction of the auction particulars.
In my
judgment, having given this point such consideration as I can, Mr Ralls’
argument is to be preferred. I think, on the facts of this case, I am entitled
to regard Mr Barnett as having had an express authority that was not touched by
General Condition O to deal with the inaccuracy in the auction particulars and
the inaccuracy in the addendum. Those matters he dealt with in part by his
statement from the rostrum and in part by his remarks to Mr Henley. It is
accepted
authority in respect of what he said from the rostrum; I do not think it can
rely on O to exclude his authority in respect of what, on the same
subject-matter, he said to Mr Henley pre-auction. Accordingly, it seems to me,
the representations as pleaded in paras 3 and 4 must be regarded as having been
made by or on behalf of the vendor, Adhill Properties Ltd.
I must now
turn to the question of whether those representations were untrue. Mr Primost
has advanced a two-stage argument for the contention that they were not untrue;
that is to say, that the rent review did remain open, that new market rental
figures could still be negotiated with the tenants. It is accepted of course
that that was the position so far as the rent review on no 940 was concerned. I
must address myself to the position in respect of nos 942 and 944.
Mr Primost’s
first point was that the notices of January 4 1988 were not effective notices
to trigger off the rent review procedure set out in the leases. His point was
that the rent review provisions required the trigger notice to specify the
increase in the rent required by the landlord. The relevant language I should
perhaps read again: ‘Notice in writing requiring an increase of the rent to an
amount specified in the rent review notice.’
The letters of January 4 were not, Mr Primost pointed out, in that
mandatory form. They simply stated that ‘in the opinion of your landlords the
open market rental is’ £3,500 per annum in one case, £3,750 per annum in the
other. So, he said, these were not valid notices at all.
For two
reasons I find myself unable to accept that argument. First, as a matter of the
fair construction of these notices, they were, in my judgment, apt to operate
as trigger notices under the respective provisions in the leases,
notwithstanding that the reference to the rent was made as a suggestion of what
the rent might be rather than as a requirement of what the rent had to be. I
come to that conclusion because the language of the notice is inconsistent with
there having been any other intention than that the document should constitute
the notice triggering the rent review procedure: ‘We hereby give you Notice
under the rent review provisions of the above-mentioned lease.’
In my
judgment, applying the test stated by the Vice-Chancellor, Sir Nicolas
Browne-Wilkinson, in Nunes v Davies Laing & Dick Ltd [1986] 1
EGLR 106, that:
The
counternotice should be in terms which are sufficiently clear to bring home to
the ordinary landlord that the tenant is purporting to exercise his right.
transposing
that so that it is applicable to the original notice, I think these notices
were clear for that purpose and within that test.
I would add to
that point that Mr Welch’s evidence, he being the draftsman of the notices,
made it clear that he intended them to serve as the trigger notices under the
rent review procedure; and that the evidence of Mr Carrier and Mr Hemington
indicated that they received them as being trigger notices under the rent
review procedure.
My second
reason for rejecting Mr Primost’s argument is that his clients treated the
letters of January 4 as notices triggering the rent review procedure. In the
statement made on their behalf at the auction it was said that ‘Notices have
been served’. The amended addendum so stated. In the correspondence between
vendor’s solicitors and purchaser’s solicitors from June 9 down to the end of
July the January 4 letters were treated as valid notices triggering the rent
review procedure. The point that the letters were not valid notices was not
taken until later, after the completion notice had been served, after the vendor
had purported to terminate the contract for non-compliance with the completion
notice and after the written statement of claim, whereby the plaintiff
purported to rescind, had been served.
In my
judgment, it is not open to a party to blow thus hot and cold. All parties
treated these letters as effective notices and conducted their dealings on that
footing. It is too late, in my judgment, for the vendor to be permitted now to
assert that the letters did not have the effect that they were intended to have,
that the vendor thought they had and that all parties thought they had.
Accordingly, I am against Mr Primost on the first basis on which he contends
that the rent review remained open in respect of nos 942 and 944.
Mr Primost’s
second point was that counternotices effective to prevent the deeming provision
from taking effect had been served or given. He accepts of course that no
written counternotice was given, but, he contends, written counternotice was
not necessary and the telephone communications between Mr Carrier and Mr
Hemington respectively and Mr Welch constituted oral counternotices that would
serve the purpose.
I am against
him on both points. In my judgment, a fair reading of the rent review
provisions justifies the conclusion that the counternotice being referred to is
a notice that is to be in writing. The use of the verb ‘serve’ suggests a
written notice. The importance of the notice in view of the deeming provision
and in order to operate the time requirements of the arbitration provisions suggests
the need for certainty as to time of service. One may find that certainty with
a written notice, but it is likely to be absent with an oral informal notice.
In my judgment, these rent review provisions truly construed require a written
counternotice. It is accepted that there was no written counternotice and, in
my view, prima facie, the deeming provision would therefore have come
into effect one month after the service of the landlord’s notice.
Second,
applying again Sir Nicolas Browne-Wilkinson’s test of what is required of an
effective counternotice (be it noted that he was referring to a notice in
writing) I can find nothing in the evidence of what passed between the
respective tenants and Mr Welch to justify the conclusion that the
communication was sufficiently clear in content to ‘bring home’ to Mr Welch
that the tenants were electing for arbitration pursuant to the arbitral
provisions of the rent review procedure. So, even if it had been possible to
have an oral counternotice, the content of the oral communications relied on in
this case would not, in my judgment, suffice.
Finally, I
would say this. If the situation had been one in which an oral communication of
wish to have an arbitration had passed between the tenants and somebody acting
on behalf of the landlord and that the tenants had been led to believe that the
oral communication was being accepted as sufficient and that arbitral process
would follow, I would then, notwithstanding the construction of the rent review
provisions that I favour, have concluded that the landlords could not rely on
the deeming provision. There would, I think, in the circumstances I am
postulating, be an estoppel preventing that apparently inequitable course. But
that position cannot assist the defendant in the present case, because there is
no suggestion that what passed between Mr Welch and the respective tenants
contained any reference to arbitration. The tenants were informed that the
matter would simply be left where it stood.
Accordingly,
in my judgment, the representations on which the plaintiff relies were
misrepresentations. Mr Primost, as a final fling by way of defence, contended
that the representations, even if misrepresentations, were not material ones.
By that he meant that the rents fixed (as this part of the argument requires
one to assume they were) of £3,500 and £3,750 respectively were the best rents
that could have been obtained on negotiation or by arbitration.
I should
perhaps have observed, when referring to the contents of the rent review provisions,
that once the matter goes to arbitration the arbitrator is required to fix the
rent review level at an amount corresponding with his assessment of rack-rental
value; he is not obliged to take as a top level the sum specified in the
landlord’s notice. Mr Maunder-Taylor had noticed this feature of the rent
review provisions and was of the view that the arbitration could lead to a
significantly higher figure than the figures specified in the January 4 1988
letters.
Mr Welch, who
is a professional of considerable experience (as indeed is Mr Maunder-Taylor)
disagreed profoundly with Mr Maunder-Taylor’s view on values and supported his
disagreement and his own opinion by reference to comparables and such
professional aids as zone As. These are approaches which are well known to any
judge who has tried disputes as to appropriate rent levels on rent review. But
the dispute is not, in my opinion, material for present purposes. A
representation is material, in my opinion, if it is something that induces the
person to whom it is made, whether solely or in conjunction with other
inducements, to contract on the terms on which he does contract. I would
gratefully adopt the view expressed in Goff and Jones on the Law of
Restitution, 3rd ed, at p 168, which reads:
In our view
any misrepresentation which induces a person to enter into a contract should be
a ground for rescission of that contract. If the misrepresentation would have
induced a reasonable person to enter into the contract then the court will, as
we have seen, presume that the representee was so induced and
on the misrepresentation either wholly or in part. If, however, the
misrepresentation would not have induced a reasonable person to contract, the
onus will be on the representee to show that the misrepresentation induced him
to act as he did. But these considerations relate to the onus of proof. To
disguise them under the cloak of ‘materiality’ is misleading and unnecessary.
And, as the
learned editors say a little way above that passage; the cases have tended to
treat materiality as synonymous with inducement.
I respectfully
agree with that view of the law and propose to apply it in this case. I do not
decide as between Mr Welch and Mr Maunder-Taylor whether Mr Maunder-Taylor’s
reliance on his ability to negotiate or succeed in obtaining on arbitration
rent levels higher than those specified in the January 4 1988 notices was
reasonable or unreasonable. I will assume for present purposes that it was
unreasonable, in which case the onus is on Mr Maunder-Taylor to satisfy me that
that factor did induce him, and through him Mr Henley, and through the two of
them the plaintiff company, to bid the £490,000 at the auction. Mr Maunder-Taylor’s
evidence has satisfied me of that and indeed I think Mr Primost accepted that
that was the only possible conclusion from his evidence, very firmly given as
it was. Mr Henley relied on Mr Maunder-Taylor’s expertise on rental values and
Mr Henley was the person by whom the plaintiff company acted.
In my
judgment, the rent review remaining open and the consequent ability of the
plaintiff to negotiate new rental levels for nos 942 and 944 or to go to
arbitration, if negotiation was not successful, with a view to obtaining higher
rentals than those specified in the January 4 1988 letters, was something that
induced Mr Maunder-Taylor to advise Mr Henley to bid the £490,000 and that
induced the plaintiff to contract. Mr Primost’s reliance on the absence of materiality,
in my judgment, fails.
Accordingly, I
have come to the conclusion that in this case there was a misrepresentation; it
was material; it did induce the plaintiff to enter into the contract; and that
at the time when the defendant purported to terminate the contract pursuant to
condition 22 the plaintiff was entitled to rescind for misrepresentation. In my
judgment, the misrepresentation case for rescission asserted in the statement
of claim succeeds.
I must now
mention the damages claim. The original damages claim in the statement of
claim, proceeding as it did on a loss of bargain basis, is not sustainable and
has been deleted by amendment. In its place there is simply a damages claim for
lost conveyancing expenses. The amount of those lost expenses has been proved
in evidence in the figure of £1,851.35. It is, in my view, right that the
plaintiff should be entitled to recover those expenses as damages. In my
judgment, the plaintiff is entitled to recovery of its deposit, with interest
at a rate on which I will hear counsel’s submissions, and the amount of damages
in question with, I suppose, interest from the date on which it paid that sum
to its solicitors.
