Sale of land – Misrepresentation – Damages – Respondent purchasing flat in appellant’s development – Appellant held liable for inducing respondent’s purchase by misrepresentation regarding existence of disputes over heating and hot water system – Damages awarded by reference to difference in value between purchase price and actual market value with defects – Whether damages to take into account profit made by respondent on subsequent resale of apartment – Appeal dismissed
In January 2012, the respondent completed the purchase of an apartment in a development in Chobham Lakes, Surrey, for £240,000. The apartment formed part of a gated community of 54 dwellings managed by the respondent developer. The appellant moved into the property with her young son and lived there for two years, after which she sold the apartment for £275,000.
The respondent brought a claim against the appellant for damages for misrepresentation in relation to her purchase of the apartment. She contended that the appellant had impliedly represented, by omissions in its responses to standard pre-contract enquiries, that it was not aware of certain disputes which affected the value of the property. In the county court, the judge found that the appellant was guilty of misrepresentation by implying that it was not aware of a dispute regarding the working of a biomass boiler system which serviced the apartments and a related dispute regarding inadequate provision of heating and hot water.
The judge held that the respondent was entitled to the “normal measure” of damages, namely the difference between the actual value of the apartment and the price that she had paid for it. He found that the respondent should only have paid £225,000, taking into account defects, and he accordingly awarded damages of £15,000. He took the view that the damages should not be reduced by reason of the subsequent increase in value of the apartment, since, had the respondent paid the right price for the apartment initially, the profit that she realised on its sale would have been £15,000 more than she actually made.
The appellant appealed. As well as challenging the judge’s findings of fact on various matters, it contended that the judge had erred in law in deciding that the respondent had suffered a capital loss on the purchase of the property, by wrongly assessing loss at the date of the transaction when he should have taken into account the profit on the subsequent sale. It argued that, where the respondent had made £35,000 profit on the sale of the apartment, the normal measure of damages did not accord with the overarching principle of compensation.
Held: The appeal was dismissed.
The judge had been entitled to find as a fact that there were disputes about the biomass heating system. With regard to the award of damages, it would be surprising if a wrongdoer could take advantage of a rise in the market value of an apartment when it had induced the purchase by a misrepresentation. It would be natural to suppose that such a rise in value had nothing to do with that wrong. While there was authority that profit resulting from a subsequent sale could be brought into account if the subsequent transaction was part and parcel of the transaction which gave rise to the wrong, that principle did not apply on the facts of the instant case: British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 distinguished.
Many people buying property with a defect would not want to move for a while and, if any subsequent sale was not undertaken as part of their obligation to mitigate their loss, they should be able to recover loss calculated on the traditional basis of the difference in value between the value of the property as represented and the property’s true value at the date of purchase. It was not suggested that the respondent had any obligation to mitigate by reselling. She needed to live in an apartment with her young son. When the time for buying another property arrived, it arose in the ordinary course of her domestic life rather than being due to the defects in the heating system, which were then in the course of being repaired. The benefit of the rise in the market value of the apartment should be a benefit that the respondent was entitled to retain, rather than a benefit for which she should account to the misrepresenting vendor: Hussey v Eels [1990] 2 QB 227 applied; Bacciottini v Gotelee & Goldsmith (a firm) [2016] EWCA Civ 170; [2016] 4 WLR 98; [2016] EGLR 29 distinguished.
The award of damages should not be reduced by reason of the fact that, at the time of the respondent’s onward sale of the apartment, the NHBC were arranging rectification of the heating system pursuant to their guarantee. To the extent that the existence of the guarantee brought a benefit to the respondent, it was in the nature of insurance. On well-established principles, the fact that a claimant had been able to use an insurance policy to reduce or extinguish her loss was not to be brought into account. The same principle should apply to the NHBC guarantee which the respondent acquired as part of her contract of purchase: Bradburn v Great Western Railway (1874) LR 10 Exch 1 and Parry v Cleaver [1970] AC 1 applied.
Paul Letman (instructed by Magrath LLP) appeared for the appellant; Pepin Aslett (instructed by Lester Aldridge LLP) appeared for the respondent.
Sally Dobson, barrister
