Vendor and purchaser — Action by purchasers of house against vendors alleging misrepresentation and negligent misstatement and against purchasers’ surveyors alleging negligence — House was represented as having main drainage but in fact it drained into a cesspool through a joint system with a neighbouring property — Purchasers bought the house for £215,000 and sold it about a year later after the present litigation had started for £252,000, but claimed damages despite the profit on resale — The sequence of events was curious — In the sale particulars there had been a misrepresentation by the vendors’ agents that the house had main drainage, but this error had been corrected by the agents in a letter to the purchasers’ solicitors — Unfortunately this crucial letter had disappeared, no copy of it had ever been found on the file, and the purchasers had not been told of the correction — The vendors, however, repeated the misrepresentation in a conversation between one of them and the purchasers’ surveyor, who reported to his clients as a result that the house had main drainage — It was in fact repeated once more, this time by the vendors’ solicitors in replying to a pre-contract inquiry — In due course the purchasers, not knowing that their own solicitors had been informed of the absence of main drainage, decided (in consultation with those same solicitors) to proceed with the purchase, relying on the answer to the pre-contract inquiry and on their surveyors’ report — On the questions of liability, the Vice-Chancellor decided first that the purchasers’ surveyors had not been negligent — They were justified in accepting the vendors’ assurance that there was main drainage — It would have been impossible without a special test (which the purchasers expressly declined) to ascertain the ultimate destination of the effluent and in any case it was normally a solicitor’s function to check the type of drainage by a preliminary inquiry — There was no evidence that the surveyors had acted contrary to accepted good professional practice — As to the liability of the vendors under the Misrepresentation Act 1967, the difficulty in the way of the purchasers was the fact of their solicitors’ knowledge that the drainage was not main drainage — Such knowledge on the part of the purchasers themselves would clearly have been fatal to their case and the Vice-Chancellor held, after considering a number of authorities, that the knowledge of the solicitors must be imputed to the purchasers — He also held that the position was not altered by the later representation on the part of the vendors — Although the purchasers relied on it they would not have done so if they had known all the facts of which the knowledge was imputed to them — Thus any loss did not flow from the representations but from the failure of the purchasers’ solicitors to convey the relevant information to their clients — The purchasers’ remedy, if any, was against their solicitors — The Vice-Chancellor concluded by expressing his view on damages in case the matter went further — He found on the evidence that the absence of main drainage did not affect the house’s value; thus even if he had held the vendors liable no damage had been proved — Purchasers’ claim dismissed against all defendants
The following
cases are referred to in this report.
Arta, The
(Markapper Inc v N W Spratt & Son Ltd)
[1985] 1 Lloyd’s Rep 534, CA
Ayrey v British Legal & United Provident Assurance Co Ltd
[1918] 1 KB 136
Bawden v London, Edinburgh & Glasgow Assurance Co [1892] 2 QB
534
Blackley v National Mutual Life Association (Australasia) Ltd [1972]
NZLR 1038
Newsholme
Bros v Road Transport & General Assurance Co
Ltd [1929] 2 KB 356
Thake v Maurice [1986] QB 644; [1986] 2 WLR 337; [1986] 1 All ER
497, CA
Wells v Smith [1914] 3 KB 722
This was an
action by Mr and Mrs Strover, the purchasers of a house called ‘Greenbank’ at
Ashurst, East Sussex, against the vendors, Mr and Mrs Harrington, and against
surveyors instructed by the purchasers, Cobbs Property Services Ltd.
M J Douglas
(instructed by Farrer & Co) appeared on behalf of the plaintiff purchasers;
P Goodenday (instructed by Thornton Lynne & Lawson) represented the
defendant vendors; and D I Ridd (instructed by Barlow Lyde & Gilbert)
represented the third defendants, Cobbs Property Services Ltd.
Giving
judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: On April 23 1986, Mr and Mrs
Strover entered into a contract with Mr and Mrs Harrington to buy a house,
Greenbank, Ashurst, East Sussex, and certain fixtures and fittings, all at a
price of £215,000. The contract was completed on May 21 1986. The particulars
of sale, as a result of which they were introduced to the property and bought
it, stated that the property had main drainage.
Certain
answers given by the vendors’ solicitors to inquiries before contract also
stated that the property had main drainage. The Strovers engaged a firm of
surveyors, Cobbs Property Services Ltd
report stated that the property had main drainage. Soon after completion the
Strovers discovered that the property did not enjoy main drainage but drained
into a cesspool. In this action, Mr and Mrs Strover as plaintiffs claimed
damages for misrepresentation and negligent misstatement against the vendors,
Mr and Mrs Harrington, and damages for negligence against their surveyors,
Cobbs.
The
proceedings started by a writ issued on November 1 1986. In December 1986,
without changing the drainage system in any way, the Strovers put Greenbank on
the market again. They effected a resale in June 1987 at a price of £252,000 —
that is to say, a profit in the year of some £37,000.
Notwithstanding
that profit, the plaintiffs, Mr and Mrs Strover, bring this action saying that
if the property had had main drainage it would have been worth some £15,000 to
£20,000 more than that.
The
conveyancing background of the case is this. The house now known as Greenbank
was formerly an old coach-house, and together with an adjoining property,
Sheraton House, was formerly church property. In 1962 the church sold the two
properties, Sheraton House and Greenbank, to two separate purchasers. At that
time there was a joint drainage system used jointly by Sheraton House and Greenbank.
Shortly stated, the system was this: the foul-water drainage from Greenbank
drained into the grounds of Sheraton House, passed under or through Sheraton
House itself out to the far side, together with of course the foul water from
Sheraton House, into a field some distance the other side of Sheraton House,
where there was a cesspool. The cesspool had a capacity of only some 1,000
gallons.
The conveyance
of Greenbank to the predecessors in title of Mr and Mrs Strover contains the
grant of an easement to drain Greenbank through the drainage system under
Sheraton House to the cesspool.
It is common
ground in this case that the actual cesspool with its capacity of 1,000 gallons
is wholly inadequate to receive the sewage from the two houses under modern
conditions, save in the way in which it is in fact operated. The cesspool was
designed to contain all solid and liquids within the cesspool itself.
Periodically the cesspool was pumped out. At some stage it has been ‘adequate’
by permitting the fluids entering the cesspool to flow out of the cesspool into
a trench. Once the foul liquids are in the trench, they then percolate through
into the subsoil. There is no evidence that the percolation system is other
than effective; the foul water does not emerge elsewhere but disappears from
the trench directly into the subsoil, which has a very good porosity and
absorbs all the liquids necessary. The cesspool has been pumped out for at
least the last 20 years annually by the local authority, latterly at a moderate
cost.
Mr and Mrs
Harrington, the vendors, acquired the property in 1976. A Mr and Mrs Hutton
acquired Sheraton House, the adjoining property, in 1980. In the pleadings and
in certain parts of the evidence it was alleged that prior to the purchase by
Mr and Mrs Strover there had been troubles relating to the joint sewage system
as between the occupiers of Sheraton House on the one hand and the occupiers of
Greenbank on the other. In the event, no direct evidence was led of there
having been such troubles, nor was any direct evidence led that the drainage
system had ever backed up into Sheraton House. For present purposes, those
allegations must be competely ignored. There is no relevant evidence to the
effect that the drainage system had previously given trouble. The most the
evidence shows is that the system whereby the piping was carried under Sheraton
House had been found defective and adapted in 1980.
Coming now to
the particular circumstances of the present case, in early 1986 the vendors, Mr
and Mrs Harrington, instructed agents, Parris & Quirk, to prepare
particulars of sale. In those particulars of sale it was prominently said that
the amenities included main drainage. An agreement subject to contract having
been reached in February 1986, Parris & Quirk wrote to the purchasers’
solicitors, Farrer & Co, confirming the sale subject to contract at a price
of £215,000 to include the carpets, curtains, kitchen equipment and a garden
tractor. A certain amount of time was taken up in the course of the hearing as
to the value of those fixtures and fittings. It is I think for present purposes
enough to say that they were taken by the purchasers as having a value of some
£5,000.
That
information having been sent to Farrer & Co on February 13, five days later
Parris & Quirk wrote a letter of cardinal importance in this case, which I
must read. The letter is addressed to Mr Hamnett of Farrer & Co and is
addressed to him personally. It is headed: ‘In the matter of Greenbank’, and
reads as follows:
Further to
our telephone conversation today, I confirm that our sale particulars are
incorrect inasmuch as that the above property is not connected to mains
drainage but is served by septic tank.
He also
enclosed three copies of a site plan. The statement that the property was not
connected to the mains drainage was of course correct. The statement that it
was served by septic tank was not correct; the drainage was not to a septic
tank but to a cesspool.
That letter
was acknowledged by letter from Farrer & Co dated February 20 1986, which
thanked Parris & Quirk for the letter of February 18 with the enclosures.
The letter is signed with an illegible signature.
The position
therefore was that at that stage the purchasers’ solicitors were clearly
informed that the particulars were in error and that there was no main drainage
attached to the property. Thereafter, that piece of information was completely
lost sight of. Indeed, when the case started before me, the position being
adopted by the plaintiffs was that they were still requiring the defendants to
prove that that letter had ever been sent and received by Farrer & Co. In
due course, I am glad to say that position was modified, and Farrer & Co
accepted that that letter had been received and that the acknowledgement of
February 20 had come from Farrer & Co. The fact remains that at no stage
was the information contained in that letter ever communicated by the solicitors
to their clients. The letters were not apparently found on the file and at no
stage was there any reference apparently made in Farrer & Co’s advice to
the information contained in that crucial letter. That is the first of the
unusual facts of this case.
Thereafter, Mr
and Mrs Strover instructed Cobbs to conduct the survey. The letter accepting
instructions expressly pointed out that Cobbs could, if the clients wished,
arranged for specialist tests to be carried out on inter alia the
drainage. In response, on February 27, Mr Strover wrote back to Cobbs saying
that at that stage they did not require any specialist tests.
On March 3
1986 Mr N R R Butler [ASVA], the surveyor conducting the survey on behalf of
Cobbs, went to Greenbank and surveyed the property. It is Mr Butler’s evidence
that he there met Mrs Harrington — which she agrees — and that he was told by
Mrs Harrington that the property had main drainage and drained through Sheraton
House. Mrs Harrington in her evidence denies that she ever said that to Mr
Butler.
On the same
day, March 3, Mr Butler met and had a long discussion with the purchasers, Mr
and Mrs Strover, and discussed a number of things. Mrs Strover says that among
the matters discussed was the question of drainage. Mr Butler does not recall that
but is not prepared to say that it did not occur.
On March 6
Cobbs sent their survey report to Mr and Mrs Strover. It contained a number of
limitations and provisos which at this stage at least I need not refer to. What
is crucial is that at para 23 the following occurs:
The foul
drainage system. The property is drained to the main sewer by a drain line
through the adjacent property. The drains are in good order where visible.
The matter
then proceeded between solicitors; draft contracts and entries on the register
were sent. The entries on the register disclosed the existence of the easement
permitting drainage through the joint drainage system expressly to a cesspool
on the adjoining land belonging to the church. On April 2 Farrer & Co
submitted inquiries before contract. There were a number of inquiries relating
to drainage. The most important was general inquiry no 6, the inquiry being
this:
6A. Drainage.
1. Does the property drain, (a) directly into a local authority sewer, and (b)
without any part of the drains other than the flat sewer passing through any
neighbouring property? 2. If not, how is
the property drained? Please supply
details of any easement, licence or agreement relating to its drainage, and of
the charges, if any, payable in respect thereof.
To that the
vendors’ solicitors gave this reply:
The property
has mains drainage. Please see the office copy entries for details of easements
granted and reserved.
There is
therefore, in answer to that inquiry no 6, a further repetition of the representation
that there was mains drainage.
The
pre-contract inquiries raised by Farrer & Co included certain other
inquiries directed to the nature of the drainage. In particular, additional
inquiry no 3 asked:
Please
specify on a plan the whereabouts of the cesspool referred in the
this have been exercised by the vendors without any dispute with the adjoining
owners.
The response to
that was, ‘Please inspect’.
Farrer &
Co were not satisfied with that answer to the inquiry and pursued it, but it is
unnecessary for me to trace the matter through, since what was being pursued
was the question of the exercise by the vendors without dispute of the rights
over the cesspool. Since the whole question of there having been such a dispute
has dropped out of this case, it is unnecessary for me to trace the further
pursuit of that inquiry.
The
conveyancing pre-contract inquiries having proceeded and the survey having been
received, shortly before April 23 there was a meeting between the purchasers,
Mr and Mrs Strover, and their solicitors. The state of the evidence as to that
meeting is rather strange. I have certain information as to what took place. Mr
Goodenday, for reasons which I did not quite understand, objected to various
other pieces of evidence relating to that meeting being produced, since he said
it was not evidence against him. On the limited information that I have as to
that meeting, it appears that there was a report on the position prepared by
Farrer & Co, which I have not seen. Among other matters that report raised
the question of drainage. There was a discussion as to the position on
drainage, the question being this: why was there a reference on the title to an
easement of drainage to a cesspool while the vendors were representing in the
answer to the inquiries that there was main drainage? I was told, and I accept, that the decision
was taken by Mr and Mrs Strover, in the light of the advice then tendered, that
they would rely on the unambiguous answer given to inquiry no 6, and on the
statement contained in Cobbs’ report that there was main drainage; the view
being taken that presumably the drainage had been altered since the grant of
the original easement.
On that
footing, and plainly in my view in reliance on the misrepresentation, Mr and
Mrs Strover exchanged contracts on April 23.
The National
Conditions of Sale applied to the contract. National Condition 17 provides:
1. Without
prejudice to any express right of either party, or to any right of the
purchaser in reliance on the Law of Property Act 1969, Section 24, to rescind
the contract before completion, and subject to the provisions of Paragraph 2 of
this Condition, no error, misstatement or omission in any preliminary answer
concerning the property, or in the sale plan, or the special conditions, shall
annul the sale; nor, save where the error, misstatement or omission relates to
a matter materially affecting the description or value of the property, shall
any damages be payable or compensation allowed by either party in respect
thereof.
Completion of
the sale took place on May 21. Mr and Mrs Strover did not move in immediately
but, as I understand it, at some stage late in June. Quite shortly thereafter,
they had discussions with Mr and Mrs Hutton at Sheraton House, from which they
discovered the true position as to the drainage. They were upset. They
instructed Fox & Manwaring to prepare a report on the drains, which was
submitted to them on July 18 1986. Nothing turns on the detail of that report;
broadly it suggested the installation of a septic tank in the grounds of
Greenbank separately from the joint drainage system under Sheraton House.
On July 28
Farrer & Co, on behalf of the plaintiffs, wrote to the vendors, to Parris
& Quirk and to Cobbs, complaining of the misrepresentations as to the
drainage of the property. The reply from Parris & Quirk is of some
importance. On July 29 they replied, saying:
We wrote to
Mr Hamnett of your company on February 18 advising you that our sale
particulars were incorrect and that the property was not connected to main
drainage.
It was
apparently as a result of that that the long-forgotten letter of February 18
for the first time resurfaced; but, as I have said, Farrer & Co had
apparently no copy of it on their file.
All parties
denied liability and, as a result, on November 21 1986 the writ in this action
was issued against the vendors, Mr and Mrs Harrington, as first and second
defendants, and Cobbs as third defendants. In December 1986 the Strovers
decided to put Greenbank on the market again, it not having proved satisfactory
as a house to them — not because it was anything other than a very nice house
but, so they told me, partly because of the drainage, partly because of
difficulties of adaptation, and partly because country life had not appealed
unduly to Mrs Strover.
It was put on
the market in December 1986 at a price of £252,000. The true nature of the
drainage (which remained the overflowing cesspool) was disclosed, as was the
existence of this litigation. The property was resold in May or June of 1987 at
a price of £252,000, plus £750 for the tractor.
One therefore
has a change in the market price, or a change in the price, between what the
Strovers paid for it — £215,000 — and the £252,000 obtained approximately a
year later.
A strange
feature of the evidence before me is that there is no explanation of a number
of the cardinal questions in this case. First, I have been given no explanation
as to how Parris & Quirk in the first instance came to include a statement
that there was mains drainage. Mr R M Brocklebank [ARICS] from Parris &
Quirk gave evidence. He was not the gentleman who took the details and
particulars. He indicated by name the gentleman who did take the details, and
said he was available to give evidence; but he was not called. Mr Brocklebank
said that under the firm’s usual practice statements of this kind were
certainly not made up out of the draftsman’s head and were normally obtained
from the vendors. There is still no explanation as to how that original
misrepresentation was made. No cause of action is based by the plaintiffs on
the misrepresentation in Parris & Quirk’s particulars.
The second
matter that remains unexplained is how Farrer & Co completely lost sight of
the letter from Parris & Quirk informing them of the true position that
there was no mains drainage.
The third
matter that is unexplained is how, given the true state of affairs, and given
the fact that Parris & Quirk knew as a result of information communicated
to them by the Harringtons that there was no mains drainage, it came about that
Mr and Mrs Harrington’s own solicitors made exactly the same misrepresentation
thereafter in answer to the inquiries before contract.
The facts of
the case are unusual to say the least.
I propose to
deal first with the question of liability and then thereafter with the question
of damages. First, are the surveyors, Cobbs, liable for professional
negligence? The prime question on that
issue is whether or not Mr Butler was told by Mrs Harrington that there was
mains drainage. His evidence was that he had a conversation with her, either in
the kitchen or the hall of Greenbank; that he put a question to her asking whether
the property was connected to the mains drainage, to which she answered, ‘Yes;
the drains run through our neighbour’s property into the road’, indicating the
general direction of the run of the drain. In cross-examination, he accepted
that she might have misheard his question, but had no doubt whatsoever that the
answer was given that I have recounted.
Mrs Harrington
on the other hand absolutely denied talking about drains to Mr Butler at all.
She denied that she could have told him that there was mains drainage because
she knew very well that there was not. She denied telling him that the drains
ran through Sheraton House. There is therefore here a complete conflict of
evidence.
Mr Butler
impressed me as a careful and impressive witness. I have no doubt that he was
telling me the truth and that he was in fact told by Mrs Harrington that there
was mains drainage. I am prepared to accept that she may have misheard the
question, but I find that he certainly thought he had been told there was mains
drainage.
In case that
is not sufficient and this case goes further, I must make a finding as to what
the position is if there was no mishearing. On that I have to prefer Mr
Butler’s evidence. As I have said, he was an impressive witness. The immediate
response of Cobbs when the matter was taken up with them was a response that Mr
Butler had been told by Mrs Harrington that there was mains drainage. The
survey report, as I have mentioned, refers to the fact that there is a joint
drainage system through the adjoining property. Nobody has put forward any
suggestion as to where Mr Butler could have got that information from, save
through what he was told by Mrs Harrington; yet Mrs Harrington denies
discussing drainage at all. Finally, there is the total background mystery as
to how the question of mains drainage ever came into this case at all. The
Harringtons’ evidence is that they knew it was not mains drainage and knew it
was cesspool drainage, and yet in some way they have twice managed through
their agents to make the representation that it was mains drainage. I am not
satisfied that I know the full story from the Harrington point of view.
Therefore, if I have to make a finding, I find that I accept Mr Butler’s
evidence that he specifically asked the question and Mrs Harrington
specifically gave the answer that there was mains drainage.
That being the
position, the question is whether Mr Butler, and therefore Cobbs, can be held
to be guilty of negligence in reporting as they did in categorical terms that
there was mains drainage. Mr Butler in evidence said that it was the normal
practice with questions of drainage to ask the vendor what the position was. As
is manifest, it is impossible, without special tests, to discover where a drain
goes. You can look at the manhole and see the direction in which it is running,
but the ultimate destination of the sewage can be ascertained only if you know
where to look for the ultimate destination. It was not his practice — and
indeed it was unascertainable on his evidence — if told there was mains
drainage, to seek to find the junction with the main sewer, because there was
often not a visible junction in the road at all. There was no other evidence
led before me as to what is sound, careful surveying practice. It has not been
proved that the way in which Mr Butler proceeded in relying on what he was told
by the vendors is contrary to good surveying practice. Therefore, in my
judgment, there can be no question of his being negligent in so relying. The
only question is whether, in the unambiguous way in which he asserted that
there was mains drainage, he was negligent.
Mr Douglas, in
his powerful submissions on behalf of the plaintiffs, submitted that since Mr
Butler was in fact relying only on the word of the vendor and not on any objective
observation or verification of the nature of the drainage, the report which he
put in should not have contained a categorical statement as to the nature of
the drainage but should have been qualified by such words as ‘it is thought
that’, or ‘it is said that’ the property has mains drainage, thereby alerting
Mr and Mrs Strover to the fact that he was going on secondhand information on
the subject.
Mr Douglas
points out many passages in the surveyors’ report where such qualification is
inserted in cases where it was impossible for Mr Butler to verify specifically
whether or not a state of affairs existed. In cross-examination, Mr Butler
accepted that with hindsight it might have been better to qualify the
categorical statement in the way in which Mr Douglas suggests he should have
done.
If this was a
matter for me to decide, in the absence of evidence as to the practice of
skilful surveyors, I would not hold Mr Butler liable in negligence for failing
to qualify his report. Of its nature, the ultimate destination of the sewage is
impossible to detect without sophisticated testing. The surveyor is therefore
bound as a matter of commonsense to rely on what he is told. In doing an
ordinary survey for a purchaser thinking of buying, the surveyor is bound to rely
primarily on what he is told. The position is not the same as where he is
unable to inspect, for example, to see whether there is a damp course behind
the plaster. That is a matter which is capable of verification by objective
viewing. It is not done because to do so means taking the plaster off. But
without some limitation on the words used, it could be said that the surveyor
had held himself out as having looked to see or represented that he had looked
to see. In my judgment, the nature of drainage is different for the reasons
that I have given.
Moreover, in
the context of house purchase, it is obviously known to the surveyor, and one
would have thought to the client, that it will be the solicitor’s function in
making preliminary inquiries to verify exactly this point. There is a
common-form printed inquiry which relates to the nature of drainage which is
made on every house purchase conducted by a solicitor. The surveyor’s report is
not the principal means for verifying the nature of the drainage.
The likelihood
of a vendor’s misrepresenting the nature of the drainage must be very remote
indeed. Nobody, for example, has referred me to any other case where this has
previously happened. In those circumstances, to hold a surveyor liable for
failing simply to qualify the way in which he gives his answer, when he is, in
accordance with good practice, relying on information communicated to him which
in the ordinary run of events — indeed the invariable run of events so far as I
am aware — has proved to be accurate, would be to be imposing too high a duty.
That would be
my view of the matter if it were for me to decide; but in my judgment it is not
for me to apply my yardstick of what is or is not negligent. As a professional
man, Mr Butler can only be held liable for negligence in the conduct of his
profession if he acted in a way which no surveyor of ordinary skill would be
guilty of, if acting with ordinary care. No expert evidence was led as to the
practice of careful surveyors, and the burden is on the plaintiffs to prove
negligence.
Therefore, in
my judgment, there is no evidence on which I could hold Mr Butler to have been
negligent, even if, contrary to my own inclinations, I thought he had been.
Mr Douglas
submitted that that was the wrong approach and that in the circumstances of
this case I could decide the matter on the basis of Mr Butler’s own evidence.
He relied on the decision of the Court of Appeal in Thake v Maurice
[1986] QB 644. That was a case in which a doctor was alleged to have been
negligent in failing to give warning to the patient of a risk that the position
might change thereafter. The defendant himself gave evidence that in cases of
that kind it was his practice to give such warning, and that such warning was
necessary. It was held that there was no need for expert evidence from other
doctors to be called to prove what the defendant himself had accepted was the
proper practice. That seems to me wholly different from the present case. Mr
Butler did not give evidence that it was his or any other surveyor’s practice
to qualify their statements as to the form of drainage when relying on what
they were told by vendors. The highest it can be put is that with hindsight —
and I stress the word ‘hindsight’ — he thought it might be better to qualify the
statement. But the question is not what Mr Butler will think is desirable in
the future as a result of the perhaps bitter experience of this case, but
whether on March 4 1986 he fell below the then standards of a skilful and
careful surveyor. To my mind there is no evidence that he did so. Therefore, in
my judgment, the claim against Cobbs fails.
I turn then to
the claim against the first and second defendants. The case is put in two ways.
First, damages are claimed under the Misrepresentation Act 1967; and second, it
is alleged that Mr and Mrs Harrington were guilty of negligent misstatement.
I need take no
further time on the claim based on negligent misstatement. Mr Douglas accepts
that if he cannot succeed on the claim under the Misrepresentation Act, he will
not get home on the claim in negligence.
The
misstatements relied upon are, first, the answer given by the Harringtons’
solicitors in answer to the general inquiry and, second, the statement made by
Mrs Harrington to the purchasers’ agent Mr Butler, and by him further
transmitted to Mr and Mrs Strover in the surveyors’ report. The chapter of
accidents in this case is so extraordinary that it is not perhaps surprising
that the law does not clearly provide what the result should be. I will, at the
risk of extending this judgment unduly, state again the relevant facts. First,
the vendors’ selling agents make a misrepresentation in the sale particulars
that there is mains drainage. Second, the vendors’ selling agents specifically
inform the purchasers’ solicitors that that statement was an error and that
there is not mains drainage. Third, the purchasers’ solicitors do not inform
the purchasers of that fact. They do not inform them either immediately or at
any time thereafter. Fourth, the vendors through Mrs Harrington repeat the
misrepresentation by telling Mr Butler that there is mains drainage. Fifth, the
vendors through their solicitors again repeat the misrepresentation that there
is mains drainage, in answer to the pre-contract inquiries. Sixth, neither of
those two latter misrepresentations — the second and third misrepresentations —
is ever corrected. Seventh, the purchasers, in ignorance of the fact that their
solicitors have been told that there is not mains drainage, then decide in
consultation with those very solicitors to go ahead with the purchase in
reliance on the misrepresentations given in answer to the pre-contract
inquiries and in the surveyors’ report that there are mains drains.
It is not
really disputed — and I certainly find as a fact — that so far as the actual
intention of Mr and Mrs Strover is concerned, they did rely on the
misrepresentations contained in the answers to the pre-contract inquiries and
in Cobbs’ report, and that that was a material factor in their decision to go ahead
with the contract notwithstanding the entries on the register referring to
easements to a cesspool.
The
Misrepresentation Act 1967, section 2(1), 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 —
and there then
follows a proviso which has been subsequently amended which enables the maker
of the representation to escape liability if, shortly stated, he can show that
he had good grounds and did in fact believe in its truth. That proviso is
irrelevant in the present case, since no attempt has been made to show that Mr
and Mrs Harrington had any grounds for the belief that the property did not
have mains drainage.
The plaintiffs
must therefore prove four things: first, that they entered into the contract;
and plainly they did. Second, after a misrepresentation had been made to them
by the vendors; plainly it was. Third, that as a result of that
misrepresentation they suffered loss; that is a matter which I think may be of
considerable importance and will consider later. Fourth, that the
misrepresentations made by the Harringtons, albeit made innocently, would have
given rise to damages if they had been made fraudulently. That last requirement
requires one to go back to the old law of misrepresentation.
It is common
ground that the person to whom a representation is made (the representee)
cannot complain if he knows the misrepresentation to be false and knows the true
position. The law is concisely stated in Spencer Bower & Turner
on Actionable Misrepresentation, 3rd ed at p 214. Therefore, if Mr and Mrs
Strover had known that there was not mains drainage, they could have no claim
in misrepresentation. The first question is whether the knowledge of Farrer
& Co, their solicitors, that there was not mains drainage, or the
information which Farrer & Co had that the selling agents were saying that
it did not have mains drainage, can be imputed to Mr and Mrs Strover for the
purpose of considering their right of action in misrepresentation. Though Mr
and Mrs Strover did not in fact know the contents of the letter, their agent
who was responsible for communicating relevant information to them, namely,
their solicitors, did have that information. In those circumstances, can the
Strovers be heard to say they did not know?
If such
knowledge can be imputed to Mr and Mrs Strover, the second question which
arises is whether they had sufficient knowledge to be debarred from relying on
the misrepresentations subsequently made by the Harringtons. Neither of those
questions is easy and neither appears to be covered by any very satisfactory
authority.
Spencer
Bower at p 216 states quite unequivocally that for
the purpose of deciding whether a representee knows the representation to be
false, and knows the truth of the matter, the knowledge of the agent cannot be
imputed to the principal. Spencer Bower says:
Moreover,
actual and personal knowledge must be proved. Constructive or imputed notice is
entirely out of the question.
No authority is
cited which supports that proposition nor have I been referred to any authority
which directly covers it. As a matter of impression, in my judgment it ought to
be sufficient if in a transaction for the sale of land a vendor who has made an
innocent misrepresentation corrects that misrepresentation by informing the
purchaser’s solicitors of the true facts. To take not this case but one which
must be of common occurrence, say the vendor’s solicitor has given an erroneous
answer to a preliminary inquiry. The vendor’s solicitor then discovers his
error and corrects it by a communication to his opposite number, namely, the
purchaser’s solicitor. It could not be right, so it seems to me, that in those
circumstances the purchaser could be heard to rely on the original
misrepresentation, which has been corrected by communication to his own
solicitor, just because his own solicitor had failed to inform him of the
correction. If that were to be the law, in such a case the vendor for his own
protection would have to communicate not through the usual conveyancing
channels with the other side’s solicitor but with the other side personally.
Otherwise, he would stand the risk that notwithstanding his express correction,
he would still be held liable for the misrepresentation he had in fact
corrected to the solicitors.
My first
impression, therefore, is that the passage in Spencer Bower cannot be
right in its full width.
The
authorities cited to me certainly do not compel me to hold otherwise. No case
has been cited which deals with the events in this case, namely, the correction
by a vendor of a simple misrepresentation by communication of the true facts to
the agent of the purchaser.
The case of Wells
v Smith [1914] 3 KB 722 was one in which the defendant made a
fraudulent statement to the plaintiff’s agent, who communicated it to the
plaintiff. The crucial fact was that the plaintiff’s agent himself knew the
fact to be untrue, and was himself a party to the defendant’s fraud. It is not
surprising that the court held that the knowledge of the true facts by the
fraudulent agent of the plaintiff could not be imputed to the plaintiff. That
case seems to me a hundred miles away from the case we have here, since it
would be impossible to impute a fraudulent agent’s knowledge to his principal.
The other
cases cited are all concerned with insurance. If to the knowledge of the
insurers’ agent, but not of the insurers themselves, a proposal for insurance
contains a misrepresentation of fact, can the insurers escape liability, or is
the knowledge of the agent to be imputed to the insurers? In Bawden v London, Edinburgh &
Glasgow Assurance Co [1892] 2 QB 534 and Ayrey v British Legal
& United Provident Assurance Co Ltd [1918] 1 KB 136, in such
circumstances the knowledge of the agent was imputed to the insurers, who were
therefore unable to disclaim liability under the policy. The opposite
conclusion was reached in Newsholme Bros v Road Transport &
General Assurance Co Ltd [1929] 2 KB 356, in which the earlier cases were
commented on unfavourably.
In my judgment
the insurance cases turn on a different point to that before me. In making the
insurance proposal, the insured accepts that the facts in the proposal itself
are the basis of the contract and warrants their truth. The true analysis of
those cases is that they turn on the breach or otherwise of a contractual
warranty, not on the law of misrepresentation. In the case I have to deal with,
I am dealing purely with a collateral representation which is in no sense a
term of the contract. I do not think I get any help from those cases.
Next is the
decision of the Court of Appeal in The Arta [1985] 1 Lloyd’s Rep 534. In
that case the defendant shipbrokers represented that a particular client was
good for the financial obligations under a charter being negotiated with the
plaintiffs. In a completely different transaction, the plaintiffs’ brokers had
acquired knowledge which cast doubt on the financial integrity of the proposed
charterer; but the plaintiffs’ agent did nothing more to find out fuller facts
of the matter, nor did he inform his principal of what he had learned. The
Court of Appeal held that the defendants were liable for the misrepresentation,
and notwithstanding the state of knowledge of the plaintiffs’ agent.
The main
ground of the decision was that the plaintiffs’ agent did not become aware of
all the relevant circumstances until after the contract had been made and
therefore his state of knowledge could not be relevant to the question of
misrepresentation being actionable or not. However, there are dicta in
the case to the effect that even if the plaintiffs’ agent had known the full
position before the contract was entered into, his failure to inform his
principal would not have exempted the defendants from liability for their
misrepresentation. Goff LJ says at p 538:
The simple
fact is that the assurance was given by the defendants: it was negligently
given: it was obvious that it would be relied on by the plaintiffs: it was relied
on by them, and they had suffered damage in consequence. In these
circumstances, there can be no question of any novus actus interveniens
breaking the chain of causation.
I cannot
regard that and other dicta in the case as throwing much light on the present
case. There the Court of Appeal was considering the case where the
representee’s agent had received information not in the course of the
particular transaction but in a different transaction; such information not
being communicated to him by the other party to the transaction as a specific
correction of an earlier misrepresentation. I read the dicta in that
case as applicable to the facts of that case and not directed to a case such as
the present where there has been a specific correction of a previous error made
to the representee’s agent, who was acting for the representee in the same
transaction.
Last, I was
referred to a New Zealand case, Blackley v National Mutual Life
Association (Australasia) Ltd [1972] NZ Law Reports 1038. Although the
decision in that case is not directly in point, it does to my mind provide some
guidance as to the proper approach. In that case the insured had made an
accurate and truthful proposal for insurance, but he was under an obligation to
disclose any material change of circumstances which occurred after the date of
the proposal but before the policy was issued. A material change of
circumstances did occur. The full facts of that change of circumstances were
made known to the insurers’ agent but not communicated by the agent to the
insurers themselves. The New Zealand Court of Appeal held that the disclosure
to the agent was sufficient. They held that he had ostensible authority to
receive such information. Therefore the insurers were estopped from denying
that they had received it. Therefore, the knowledge of the agent was imputed to
the insurers.
In my
judgment, similar principles apply in a case such as the present. In this, as
in all other normal conveyancing transactions, after there has been a
subject-to-contract agreement the parties hand the matter over to their
solicitors, who become the normal channel for communication between vendor and
purchaser in all matters relating to that transaction. In so doing, in my
judgment the parties impliedly give actual authority to those solicitors to
receive on their
transaction. The solicitors are under an obligation to communicate that
relevant information to their own clients. At the very least, the solicitors
are held out as having ostensible authority to receive such information.
Whether there be express or ostensible authority, the purchaser is, in my
judgment, estopped from denying that he received the information relating to
the transaction which has been communicated to his solicitors acting in the
same transaction. In my judgment, such knowledge should be imputed to the
principal. If that were not to be so, the consequences to which I have
previously referred would follow.
So in this
case, in my judgment, Mr and Mrs Strover must be treated, contrary to the true
facts, as though they in fact knew the contents of the letter of February 18
from Parris & Quirk, namely, that the representation in the particulars of
sale was erroneous in that the property did not have mains drainage.
However, the
matter does not stop there. After the disaster of the failure to communicate
the correction on the one side, we have the mirror disaster on the other,
namely, the repetition of exactly the same misrepresentation by the vendors.
What is the effect of that? It seems to
me there are two possible views. Mr Douglas contends that all that the Strovers
are to be taken as knowing is that the vendors were making conflicting
representations, at one time saying there was not mains drainage, at another
time saying that there was. That, says Mr Douglas, does not amount to knowledge
of the full truth which is necessary if you are to defend a claim for
misrepresentation. He says — and to my mind rightly — that if it is once shown
that a misrepresentation has been made, it is no answer for the representor to
say that the representee has been negligent and could have found out the true
facts if he had acted otherwise The representee is under no duty of care to the
representor to check on the accuracy of the representation. The representor is
bound by his representations, however careless the representee may have been.
That is one view which has considerable force.
The other view
is that if Mr and Mrs Strover had known, as they must be taken to have known,
of the contents of Parris & Quirk’s letter, they would never have entered
into this contract at all. Therefore, the cause of the loss, if any, suffered
by reason of their entering into the contract must be taken to be the failure
of Farrer & Co to inform them of the information they had received from
Parris & Quirk, not the later misrepresentation made by the vendors.
Although in fact Mr and Mrs Strover did rely on the later misrepresentation, if
they had known all the facts knowledge of which is to be imputed, they would
not have so relied. Thus the loss flows not from the later misrepresentation
made by the vendors but from the failure of Farrer & Co to communicate the
relevant information to their client.
I found this
much the most difficult point in the case, and I have reached a conclusion with
considerable hesitation. I find as a fact that if at the pre-contract meeting
Mr and Mrs Strover had known of the contents of the letter from Parris &
Quirk, and Farrer & Co in advising them had recollected its contents, Mr
and Mrs Strover would never have entered into the contract in the way they did.
I am satisfied that the existence of mains drainage as an amenity at the house
was important at least to Mrs Strover. The matter of drainage was specifically
considered at the pre-contract meeting, and the decision was taken on balance
to go ahead in reliance on the representation made in answer to the preliminary
inquiries and on Cobbs’ report. If it had been known to Mr and Mrs Strover that
there was exactly the opposite information in their hands — or should have been
in their hands — to the effect that there was no mains drainage, it defies all
probability that they would have gone ahead and contracted, at least without
fully investigating the position; and Mr and Mrs Strover impressed me as
careful people to whom this drainage was a matter of considerable importance.
On the information and evidence before me, I reach the view that they would not
have entered into this contract had they known the full facts.
On that
footing, I have with some hesitation come to the view that the causation
approach is the correct one. To succeed in an action for misrepresentation, the
plaintiff must show that the loss he has suffered is caused by, and is the
result of, the misrepresentation. In my judgment, the loss, if any, suffered by
the Strovers in this case did flowed not from the later misrepresentation but
from the failure of their own solicitors to inform them of the true position.
On the hypothetical state of facts which I have to assume, namely, that Mr and
Mrs Strover knew that the statement in the particulars that there was mains
drainage had been corrected, they would not have relied on the later
misrepresentation so as to enter into the contract in reliance on it. In my
judgment, the Strovers’ remedy is not against the vendors but, if any, against
their own solicitors. Of course, I have not heard the solicitors’ case on the
matter; I have not had their explanation; and so I cannot reach any view as to
whether there is an answer to such a claim.
I therefore
hold that the vendors are not liable for the misrepresentation contained either
in the answer to preliminary inquiries or in the indirect representation via Mr
Butler.
I should
shortly notice two points. Mr Goodenday for the vendors relied on National
Condition 17 as a defence, on the basis that the statement that the property
had mains drainage was not a material misdescription of the property. It is not
necessary for me to decide that point, but I have great doubts whether such an
argument could succeed. The type of drainage enjoyed by a property seems to me
a part of the description of the property, and indeed a material one.
Second, Mr
Goodenday expressly conceded that he was not putting forward any argument based
on contributory negligence as against the claim under the Misrepresentation
Act. Whether that concession was right or wrong it is unnecessary for me to
express a view, and I do not do so.
Finally,
therefore, I must come to the question of damages. I must express a view on
this in case the matter goes further and my view on the law and on liability is
held to be wrong. I must therefore shortly make the necessary findings as to
whether there was any damage suffered.
It is common
ground, subject to one minor point, that the measure of damages is to be found
by establishing the difference between the contract price, namely £215,000, and
the actual value which the property had in May 1986 with the cesspool drainage
that it had. Mr Ridd contended that because Mr Butler in his report valued the
property at £210,000, the right figure to take as against Cobbs was that
figure. I do not think that is right, but I do not believe that anything turns
on it, because the only relevant evidence has been by way of deduction from or
addition to whatever was the open market price.
Given the
nature of the drainage in this case, namely, to a cesspool which operates as
effective drainage only by permitting copious overflow of foul water, I would
have expected there to be a difference between the value of a property with
mains drainage and the value with such adapted cesspool drainage. It is a
system which depends on overflow and is operating not in accordance with the
design. There was some evidence, which I am perfectly prepared to accept, that
in the summer months the system smelt. I would have expected the price to
reflect the fact that not everybody would find that system very satisfactory,
and would at the lowest wish to install a proper septic tank system. My views
on drainage obviously coincide fairly closely with Mr and Mrs Strover’s in that
we do not regard this as satisfactory drainage.
Unfortunately,
that is not the question I have to decide. I have to decide on the evidence
before me what is the open market value of the property with the cesspool
drainage that it has. That does not necessarily coincide with what I would buy
or with what Mr and Mrs Strover would buy. It depends on whether purchasers can
be found to buy at a particular price, notwithstanding the nature of the
drainage.
All the
experts agreed that the open market value, with mains drainage, in May 1986 was
the contract price paid by Mr and Mrs Strover, namely £215,000. It was the
evidence of Mr J S K Calcutt [FRICS CAAV] the plaintiffs’ expert, that its
value with the drainage it actually had, namely, cesspool drainage, was some
£15,000 to £20,000 less than if it had mains drainage. The defendants’ experts
on the other hand say that the nature of the drainage, and indeed the form of
the particular installation here, makes no difference to the open market value
of the property. They say that cesspool drainage in this area, together with
the overflow system, is a very common form of drainage; that a number of
purchasers would indeed expect to find something of this kind; that in early
1986 the market was extremely buoyant, and there were many purchasers around,
and that some purchaser would be found who would be prepared to pay the same
price, whether it be mains drainage, septic tank drainage, or cesspool
drainage, provided the system was actually working in the sense of disposing of
the sewage, as this system was.
I have to
choose between those two views, and although it is contrary to my own
instincts, I have to find that the evidence of the defendants’ witnesses was
most impressive and persuasive,
Mr Calcutt’s
evidence seemed to me less satisfactory. First, his report was criticised as
expressing a view that at the time of the report, namely, October 1987, the
difference in value between Greenbank House with the drainage problems it has
and with the drains properly connected to the main sewer is £15,000 to £20,000.
That is plainly on the face of it a difference of £15,000 to £20,000 on the
then October 1987 figure. I find it difficult to accept his evidence in the
witness box that that differential remains the same whatever the basic value of
the house. His evidence was that the difference was not only £15,000 to £20,000
now but was £15,000 to £20,000 in May 1986 at a time when the market on his
evidence was 30% lower. I find that difficult to accept. The discount one would
have thought must vary according to the overall value of the commodity.
Second, taking
Mr Calcutt’s evidence as saying that the property was worth £20,000 less than
£215,000 in May 1986, that gave it a current market value in May 1986 of
£195,000. The one truly objective fact in this case is that it was sold, with
its existing cesspool drainage, one year later for £252,000. On Mr Calcutt’s
valuation, the result would be that apart from the drainage factor, the value
of the house had risen 30% over the year. Indeed, he gave evidence that that
was the average increase in value of housing in that area. I am not satisfied
with his answer on that point, which was given without research. Mr M P Brooker
[FRICS] [for the defendant vendors] gave evidence, which I accept, that 30% is
way outside the increase. There was a very substantial increase, but it was at
most 20% in the year in question.
If one takes
an average — and I appreciate it is only an average — increase of 20%, 20% of
£195,000, which is Mr Calcutt’s 1986 value, would be £39,000 and would give an
open market value in May 1987 of £234,000; yet it was actually sold for
£252,000. All that seems to me to indicate that a deduction of £15,000 to
£20,000 is out of line.
Finally, I
found Mr Calcutt’s evidence unconvincing as to why, even if a proper efficient
septic tank were to be installed, there would still be a difference in the
price of some £10,000. For the life of me, I cannot see why anybody should
require to, or would, drop his offering price by £10,000 if there was a truly
smell-free and efficient drainage system by septic tank working. The evidence
is that a septic tank could have been installed here for in the region of
£5,500.
For those
reasons, I am forced to prefer the evidence of the defendants’ experts and to
hold that, given the market conditions in May 1986, the fact that the property
did not enjoy mains drainage but only the use of an overflowing cesspool did
not affect its value, and whatever its form of drainage it was worth what Mr
and Mrs Strover paid for it, namely, £215,000. Therefore, even if I were to
have held that the defendants were liable, I would hold that no damage has been
proved.
Accordingly, I
dismiss the plaintiffs’ claim against all three defendants.
