A Few More Thoughts on Misrepresentation
When you get to my time of life, it is not unusual to be asked as to how conveyancing has changed since I started in practice. And yes, there have been changes – some not for the better!
But a recent case set me thinking about one thing that has not changed; the importance of pre-contract enquiries. For better or worse we still have the rule ‘caveat emptor’ – although these days we are not supposed to say it in Latin but must say ‘buyer beware’. Either way, the more that a buyer can find out about the house he or she is about to spend a fortune on, the better.
These days we have the Property Information Form prescribed by the Law Society and the Protocol that says we should not ask ‘standard’ additional enquiries. This is fair enough, many of us still remember from pre-Protocol years the pages of irrelevant questions some conveyancers inflicted on sellers. But do we ask the buyer client whether there are any specific issues they need clarifying about the property? We really ought to do so.
If the answers given are not entirely truthful, an incorrect reply could be a misrepresentation.
Misrepresentation is an untrue statement made by one contracting party which is relied upon by the other, which induces him/her to enter into the contract, and as a result of which he/she suffers loss.
First Tower Trustees Ltd v CDS (Superstores International) Ltd  EWCA Civ 1396 is a commercial property case but it does remind us of various issues that are relevant to residential conveyancing as well.
The misrepresentation alleged occurred during negotiations for the grant of a lease of part of an industrial building. The landlord was asked to provide replies to the Commercial Property Standard Enquiries (CPSE) – the commercial property equivalent of the Property Information Form (PIF) in residential conveyancing. The CPSE contains an introductory statement that “The Seller confirms that pending exchange of contracts or, where there is no prior contract, pending completion of the Transaction, it will notify the Buyer on becoming aware of anything which may cause any reply that it has given to these or any supplemental enquiries to be incorrect.” The PIF for residential property places a similar obligation on the seller. We should specifically remind seller clients about this obligation and not rely on them reading the provision in the form.
Lewison LJ set out the issue in the case as follows:
“Enquiry 15.4 (b) asked for details … of the existence of any hazardous substances including asbestos or asbestos containing materials. The reply was: “The Buyer must satisfy itself”. Enquiry 15.5 asked for details of notices, correspondence relating to real or perceived environmental problems that affected the property, including communications relating to the actual or possible presence of contamination at or near the property. The reply … was: “The Seller is not aware of any such notices etc but the Buyer must satisfy itself”. Enquiry 15.7 asked for details of any actual, alleged, or potential environmental problems (including actual or suspected contamination) relating to the property. The answer was: “The Seller has not been notified of any such breaches or environmental problems relating to the Property but the Buyer must satisfy itself”.
On 16 April 2015, the landlords’ agents received a copy of a report produced by a specialist company which indicated that there was some asbestos in the [property]. On 20 April 2015 the landlords’ agents received an email from VPS, a specialist firm that they had used. That reported a health and safety risk caused by asbestos near the loading bay.”
Despite the requirement in the CPSE form, this information was not passed onto the prospective tenants. When the tenant discovered the problem after entering into the lease, it claimed damages for negligent misrepresentation from the landlords representing the cost of remedial works and alternative accommodation in the meantime.
The High Court held that this was a clear case of misrepresentation and there was no appeal from that part of this decision. However, the landlord tried to rely on an exclusion clause in the lease. This stated: “The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord”.
The judge held that this clause could not be relied upon as it was void as it failed to satisfy the ‘reasonableness test’ under s 3 Misrepresentation Act 1967. Under this provision any contractual term which would exclude or restrict any liability or remedy in respect of misrepresentation is void unless it satisfies this test. It was this finding that was appealed.
The Court of Appeal dismissed the appeal. Although the parties appeared to have an equal bargaining position and were both legally represented, the clause was unreasonable and therefore void. In particular, there was no saving provision allowing the tenant to rely on replies to pre-contract enquiries. The clause, therefore, attempted to take away the very purpose of raising pre-contract enquiries in the first place. Lewison LJ added: “Indeed, in my judgment, he was right to stress the importance of pre-contract enquiries in the field of conveyancing; and right in the conclusion to which he came. As the judge said if clause 5.8 governs the landlords’ liability the important function of replies to enquiries before contract becomes worthless.”
In residential conveyancing, Special Condition 6 on the Law Society contract form incorporating the Standard Conditions of Sale 5th Edition provides:
“Neither party can rely on any representation made by the other unless made in writing by the other or his conveyancer, but this does not exclude liability for fraud or recklessness”.
This is generally regarded as being reasonable and so valid and allows reliance on the PIF. However, one does sometimes come across provisions more on the lines of the one in this case, which clearly will normally be void.
Further, the Special Condition does mean that if the buyer has been told anything orally by the seller, we should ensure that the question is re-asked before contract by the conveyancer so as to obtain a written reply. Otherwise, this Special Condition will prevent reliance on it. Again we should be proactive and ask buyer clients as to any oral representations that are important to them, rather than expecting them to tell us.
So yes, there have been changes over the years, but some things never change!