Misrepresentation Act 1967 — Innocent misrepresentation — Purchase of freehold house at auction sale in reliance on innocent misrepresentation in the particulars — Particulars stated that the first floor was let at a weekly inclusive rent of £2.55 and that application had been made for the registration of a fair rent — In fact the first floor was also the subject of a concurrent lease for a term of 99 years from September 25 1979 at a ground rent of £40 per annum — It would have been possible for the representative of the plaintiff purchasers who attended the auction to become aware of this lease of the reversion before the sale if he had inspected a copy of the charges register available in the auctioneers’ office, but he did not take advantage of this facility — After the auction sale and before completion the plaintiff company’s solicitors were supplied with the relevant documents of title, including a copy of the lease of the first floor, but it appears that neither the vendor’s nor the purchasers’ solicitors fully appreciated the effect of that lease at the time
before Mr Robert Wright QC, sitting as a deputy judge of the Chancery Division,
the plaintiff purchasers claimed damages for misrepresentation, relying on
section 2(1) of the Misrepresentation Act 1967 — The judge held, however, that
the claim for damages failed, on the ground that the purchasers had elected to
complete: ‘by making the election to complete without protest [they] exhausted
the effect of the misrepresentation and cannot be said to have completed
relying upon it.’
the appeal was whether it is right that where there has been a misrepresentation
before contract which has induced a party to enter into a contract, but the
facts have become known to the party, or to his agent acting for him in the
transaction, before completion, the purchaser is then bound either to rescind
or to complete on the terms of the contract without any further remedy after
completion by way of a claim for damages or compensation — The defendant vendor
accepted that if there had been a fraudulent misrepresentation inducing a
purchaser to enter into a contract for the purchase of land and the fraud was
discovered only after completion, the purchaser would have a claim for damages
notwithstanding completion — It was also accepted that if the fraud became
apparent after contract but before completion, the purchaser could reserve his
cause of action for damages by electing to complete without prejudice to his
claim for damages — The defendant, however, submitted that there had to be an
express reservation of such a cause of action in damages, otherwise it would be
lost — Held, rejecting this last submission, that it was contrary to the 1967
Act and to dicta in Arnison v Smith and Gordon v Selico Co Ltd — Accordingly the plaintiffs in the present case were
not precluded from claiming damages by the fact that the purchase had been
completed — Appeal allowed
The following
cases are referred to in this report.
Arnison v Smith (1889) 41 ChD 348
Gordon v Selico Co Ltd [1986] 1 EGLR 71; (1986) 278 EG 53, CA
This was an
appeal by the plaintiffs, Production Technology Consultants Ltd, from a
decision of Mr Robert Wright QC, sitting as a deputy judge of the Chancery
Division, rejecting their claim as plaintiffs to damages against Derek Joseph
Bartlett, the defendant and present respondent, for his misrepresentation in
the particulars at an auction sale of a house at 42 Culverden Road, Balham,
London SW12.
C P F Rimer
(instructed by A R Wilkin & Co) appeared on behalf of the appellants; J
Littman (instructed by Talfourd & Co, of Hornchurch, Essex) represented the
respondent.
Giving
judgment, DILLON LJ said: This is an appeal by the plaintiff in the action, a
company called Production Technology Consultants Ltd, whose moving spirit is a
Mr Behcet, against a decision of Mr Robert Wright QC, sitting as a deputy judge
of the High Court in the Chancery Division, as long ago as July 30 1986.
The judgment
of the learned deputy judge was a reserved judgment; he appears to have been
somewhat belaboured by the citation of numerous authorities which do not appear
to have any relevance to the very short point, which is the only point taken on
this appeal.
The plaintiff
company bought at an auction sale held on December 10 1980 lot 46, which is a
freehold house known as 42 Culverden Road, Balham, London SW12. It was bought
as an investment. It was divided into four flats on different floors. According
to the particulars the top floor was leased for a term of 99 years from
September 25 1979 at a ground rent of £40 a year. The first floor was let to a
Mr Buttle at £2.55 per week inclusive and a registered rent had been applied
for. The ground floor was leased for a term of 99 years from March 25 1976 at a
ground rent of £30 per annum and the semi-basement was let at a weekly rent of
£5 inclusive. On those figures a calculation of total income was given and there
was a reference to the landlord’s paying the rates for the first and
semi-basement floors.
Those
particulars were misleading and inaccurate, in that the first floor was also
subject to a separate lease for a term of 99 years from September 25 1979 at a
like ground rent of £40 per annum.
Mr Behcet,
having formed the view that Mr Buttle was unlikely to remain the tenant of the
first floor for long, attended the auction and bid for the property. His was
the highest bid. The conditions of sale for lot 46 provided that the property
was sold subject to the entries in the charges register of the title; it
provided also that a copy of the register might be inspected at the offices of
the auctioneers during usual office hours prior to the auction, but Mr Behcet
did not take advantage of that facility. The office copy entries would have
disclosed the existence of the 99-year lease of the first floor.
The deputy
judge found as a fact that Mr Behcet bought relying on the particulars; he
accepted Mr Behcet’s evidence that he would not have bid, or at any rate the
price at which he would have bid would have been much less, if he had known of
the 99-year lease.
After the
auction had been held Mr Behcet instructed solicitors to act for the plaintiff
company. They were supplied by the defendant vendor’s solicitors with copies of
the three 99-year leases, including the lease of the first floor, but it
appears that neither firm of solicitors fully appreciated the effect of the
grant of the 99-year lease in reversion on Mr Buttle’s weekly tenancy, because
the correspondence between the vendor’s and the purchaser’s solicitors leading
up to completion was concerned with the apportionment of the rent payable by Mr
Buttle. Of course, in view of the grant of the 99-year lease, which was a lease
to the vendor, the defendant Mr Bartlett, and his son, the only rent to be
apportioned was the rent under the 99-year lease, and the lessees under that
lease were entitled to Mr Buttle’s rent.
The purchase
was completed by post on January 19 and 21 1981. On January 19 the solicitors
for the plaintiff company sent a bank draft for the money on the basis that in
return they were sent the land certificate, the three leases, authority to
inspect and a deed of assignment in respect of arrears of rent. The reply on
January 21 from the vendor’s solicitors thanked them for the document, enclosed
the land certificate and so forth, and then went on:
So far as the
Deed of Assignment is concerned, unfortunately we have only at this late stage
realised that the same is slightly wrong in the sense that there is a 99 Year
Lease applicable to the first floor, ie, 42C. This means that the question of
arrears or otherwise in that case are not applicable, since they are the
responsibility of the Ground Rent Tenant of that flat . . .
The response
to that was that on January 29 the plaintiff company’s solicitors objected very
strongly that the plaintiff company had a very substantial claim for damages on
the ground of misrepresentation, which they were instructed to pursue; they
suggested alternatively that the 99-year lease at a ground rent might be
surrendered and extinguished, but that did not happen.
The action
came on for trial. The learned deputy judge stated at the end of his judgment
that he was satisfied that Mr Behcet relied upon the representation in the
particulars in entering into the contract and thereby acted to his detriment.
He also accepted that a certain general condition of the contract excluding the
provisions of the Misrepresentation Act 1967 was avoided by the Unfair Contract
Terms Act 1977, but nothing turns on that in this appeal. But he held that the
claim for damages for misrepresentation must fail because the contract was
completed with express notice of the long lease in issue. He says that the
plaintiff had an election whether to rescind or go ahead,
and by making
the election to complete without protest he exhausted the effect of the misrepresentation
and cannot be said to have completed relying upon it.
The question,
of course, is whether he entered into the contract relying upon it.
There is no
doubt that the misrepresentation in this case was entirely innocent and that it
was in no way fraudulent, but the Misrepresentation Act 1967 effected a very
important change in the law. Previously, damages for an innocent
misrepresentation could not be recovered; damages for misrepresentation could
be recovered only if the misrepresentation was fraudulent.
Section 2(1)
of the 1967 Act provides as follows:
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.
The final
condition is not relevant in this case and it is not suggested that it can be
invoked. The position is, therefore, that under section 2(1) if the person
making the misrepresentation would be liable for damages in respect thereof had
the misrepresentation been made fraudulently, that person will be so liable
notwithstanding that the misrepresentation was not made fraudulently.
I should,
however, digress at this moment to deal with a point on which Mr Littman for
the respondent/defendant sought leave to amend his respondent’s notice. We
refused that application; it concerns the words ‘and as a result thereof had
suffered loss’. Mr Littman submitted that the plaintiff company had failed to
show that it had suffered loss. By agreement between the parties the trial
before the deputy judge was conducted as a split trial on liability only, on
the footing that if the plaintiff succeeded the court would direct an inquiry
as to damages. The parties came to court, each armed with a surveyor’s report
as to the value of the property at the relevant times, but agreed that it was
inappropriate to take up the time of the court with the evidence of value and
loss until the issue as to liability had been decided and the basis, if any, on
which there was liability had been determined by the judgment of the court.
Mr Rimer, who
was engaged in the case in the court below, told us that Mr Eyre, who then
appeared for the defendant, accepted that there was no question that they had
not proved loss sufficient to warrant an inquiry as to damages if they were
otherwise right in their submissions on law. As I have already mentioned, the
learned judge held that in entering into the contract Mr Behcet had acted to
his detriment. Prima facie there is considerable difference in value between a
flat let at a weekly rent of £2.55 to an elderly tenant who may well quit, and
a flat let for a term of 99 years at a ground rent of £40 a year only.
In those
circumstances, when Mr Littman applied to amend his respondent’s notice to
include a paragraph as follows:
Alternatively,
that the Plaintiff failed to prove that any loss (measured in the manner of
damages awarded in the tort of deceit) had been incurred by it, alternatively
had resulted from a misrepresentation made to it by the Defendant or from its
entering into a contract after the making of such a misrepresentation.
we ruled that
having regard to the way in which the case had been conducted in the court
below, that was not open to him.
The only issue
in this appeal, therefore, is whether it is right that where there has been a
misrepresentation before contract which has induced a party to enter into a
contract, but the facts have become known to the party, or to his agent acting
for him in the transaction, before completion, the purchaser is then bound
either to rescind or to complete on the terms of the contract without any
further remedy after completion by way of a claim for damages or compensation.
Mr Littman
accepts on behalf of the defendant that if there has been a fraudulent
misrepresentation which has induced a purchaser to enter into a contract for
the purchase of land and the contract is completed, and the fraud is discovered
only after completion, the purchaser will have a claim for damages as against
the vendor after completion and notwithstanding completion. He accepts also
that if the fraud becomes apparent after contract but before completion, the
purchaser could reserve his cause of action for damages by electing to complete
without prejudice to his claim for damages. But he says that there has to be an
express reservation of such a cause of action in damages, otherwise it will be
lost.
I find it
difficult to see the reasoning that is supposed to lie behind that. We have
been referred to cases which are concerned with the waiver of objections to
title and to purchasers’ being bound to accept title to property if they fail
to deliver, or follow up, requisitions on title according to the time-limits
prescribed by the contract. But that seems to me to be a completely different
territory. In so far as matters of title are concerned, the purchasers’ rights
depend particularly on the terms of the contract, but the 1967 Act gives a
right which overrides any provision in the contract. In fact, section 3 of the
1967 Act, as amended by the Unfair Contract Terms Act 1977, expressly states
that. It provides as follows:
If a contract
contains a term which would exclude or restrict
(a) any liability to which a party may be subject
by reason of any misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the
contract by reason of such a misrepresentation
that term
shall be of no effect except in so far as it satisfies the requirement of
reasonableness as stated in section 11(1) of the Unfair Contract Terms Act
1977; and it is for those claiming that the term satisfies that requirement to
show that it does.
As long ago as
1889 Cotton LJ, in his judgment in Arnison v Smith (1889) 41 Ch D
348, at the foot of p 371, said:
It was
contended that going on after receiving the circular was an affirmance of the
contract, with knowledge of the real facts, and that such affirmance is
inconsistent with this action. But a man may affirm a contract and yet sue the
person who by fraud induced him to enter into it.
We were
referred also to the decision of this court in Gordon v Selico Co Ltd
[1986] 1 EGLR 71. In giving the judgment of the court in that case Slade LJ
said at p 77J:
Even if at
the date of completion the plaintiffs had been fully aware of the fraudulent
misrepresentation which had been made to them, this would not have precluded
them from affirming the contract and seeking appropriate relief, though it
would have prevented them from seeking to rescind it.
The statement
of Slade LJ was also obiter, but in my judgment it was, if I may respectfully
say so, a correct statement of the law.
Accordingly,
the plaintiff company is not precluded from claiming damages by the fact that
the purchase was completed in the condition of mutual muddle between the
solicitors as to the effect of the 99-year lease which I have mentioned.
In these circumstances,
with every respect to the learned deputy judge, who seems to have been somewhat
led astray by the welter of old authority which was put before him, for my part
I would allow this appeal, set aside the order of the deputy judge and direct
an inquiry as to damages.
NEILL and
WOOLF LJJ agreed and did not add anything.
The appeal
was allowed; order of court below set aside; inquiry as to damages directed;
plaintiff/respondent’s costs of appeal, to be taxed and paid forthwith; costs
in court below reserved to hearing of inquiry.
