SPS Groundworks & Building Ltd v Mahil

Sale of land – Auction – Title defect – Appellant purchasing land at auction but failing to complete – Overage covenant absent from sales documents – Respondent vendor seeking to recover shortfall between price agreed and price obtained from second purchaser – Appellant counterclaiming for return of deposit and buyer’s premium – County court giving judgment for respondent – Appellant appealing – Whether respondent fulfilling duty to disclose defect in title by inclusion in legal pack – Appeal allowed A plot of land owned by the respondent, situated near the White House, Gaulby Lane, Stoughton, Leicestershire, was sold by auction in February 2019. The appellant made the highest bid of £130,000 plus VAT. She signed a memorandum of sale and paid a deposit of £13,000 with an agreed completion date of 12 March 2019. The appellant failed to complete. The respondent issued a notice to complete but the appellant refused to do so. The respondent accepted her refusal as a repudiatory breach of contract. The property was later sold at a second auction for a lower price and the respondent brought proceedings against the appellant to recover the shortfall between the price agreed with the appellant and that subsequently obtained. The appellant argued that she was induced to enter the contact by misrepresentation, that there was a failure to disclose a defect in the title to the land and that she validly rescinded the contract. She relied on the description of the land in the auction catalogue and also the absence from the sale documents of an overage covenant. She counterclaimed for repayment of the deposit and the buyer’s premium in the sum of £14,074. The county court judge said that the overage clause was a defect in title. However, it was in the legal pack and the appellant was on notice that it was a vital document and she should have studied it before bidding. The misrepresentation claim would be dismissed because the appellant was determined to buy the land in any event. Judgment was given for the respondent in the sum of £43,440 and the appellant’s counterclaim was dismissed. The appellant appealed. Held: The appeal was allowed. (1) A vendor of property had a duty of disclosure in respect of defects to title. Specifically, the vendor was bound to give the purchaser full, frank and fair information, or a fair and proper opportunity to gain such information, about any defect. A purchaser’s imprudence in not making enquiries would not relieve the vendor of the duty of disclosure. In the absence of proper disclosure contractual conditions could not be relied on to save the vendor. The equitable principle of disclosure could not be circumvented by the inclusion in the contract of a condition deeming the purchaser to have knowledge of the defect. In the present case, the judge failed properly to apply the equitable principle of disclosure and wrongly took into account the maxim caveat emptor which did not apply to defects in title. The references in the brochure, and by the auctioneer, to the need to read the legal pack were not enough to comply with the duty of disclosure. The references were made in respect of all 35 properties for sale and the appellant was not put on any notice of any unusual feature of the title in respect of this particular lot and could not have been put on notice by inspection of the property. She was entitled to assume the duty of disclosure had been complied with and that there would be no unusual defects in the legal pack. The reference to the need to read the legal packs did not provide a fair and proper opportunity to become aware of the defect. Full and frank disclosure required the overage clause to be specifically brought to a potential purchaser’s attention in the particulars, by an addendum notice of the type or by specific reference by the auctioneer. The appellant’s acceptance of terms and conditions was on the condition that the duty of disclosure had been complied with. Accordingly, the judge fell into error. (2) The land had only limited scope for development and provided only a speculative investment opportunity. No reasonable tribunal properly directing itself could have concluded otherwise. Any challenges to findings of fact by a judge had to pass a high threshold test. An appellate court might only reverse a decision if any significant finding of fact was unsupported by the evidence and/or was one that no reasonable judge could have reached. Thus, even if it were possible to duplicate the role of the trial judge, it could not in practice be done: Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5, Grizzly Business Ltd v Stena Drilling Ltd [2017] EWCA Civ 94 and Perrys v Raleys Solicitors [2019] UKSC 5; [2019] 2 WLR 636 considered. The appellant was required to prove was that she would not have entered the contract but for the misrepresentation. The judge’s finding of fact amounted to a view that the appellant did not act as a reasonable purchaser would and relied solely on her own judgment having viewed the land. That finding was not unsupported by the evidence nor one that no reasonable judge could have reached. As a result, the misrepresentation claim based on the description of the scope for development and potential for investment would have failed for want of reliance even if the judge had found misrepresentations. (3) The appellant had argued that the judge was wrong to exercise his discretion to allow the respondent to argue (the matter not having been pleaded) that the auction conditions had been incorporated into the contract of sale. It was a fundamental rule of litigation that a claimant’s statement of case had to include all relevant facts. A judge might in appropriate circumstances allow a party to depart from its pleaded case where it was just to do so, although it was good practice to amend pleadings, even at trial. However, the prejudice threshold was a low one and a party need only show that a departure from the pleaded case “might” cause prejudice before an application to amend was required. If that threshold was met, it would ordinarily not be just to allow a party to depart from the pleaded case advanced up to trial. The judge was in a better position than the appellate court to consider the extent to which the issue could have or did cause potential prejudice and the court was not persuaded that the judge fell into error in his assessment. Steven Taylor (instructed by Direct Access) appeared for the appellant; Mark Diggle (instructed by Pattersons Commercial Law, of Leicester) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of SPS Groundworks & Building Ltd v Mahil