Dart v Ely & Anor

In a negligent misrepresentation claim, inducement is assessed by asking what the claimant would probably have done had the true position been disclosed. Where the claimant would have withdrawn from the transaction, damages are measured by comparing the price actually paid with the price a hypothetical buyer, aware of the concealed problem and its associated risk, would have paid. The valuation must reflect uncertainty as to the outcome of the risk, rather than assume that the feared event was certain. An appellate court may determine liability and quantum itself where the evidence permits and a rehearing would be disproportionate. A first-instance finding of fact may be overturned where it rests on material errors in the assessment of the evidence.

The claimant bought land from the respondents for development. The respondents conceded that they had negligently failed to disclose the local authority’s intention to seek a modification order declaring public rights of way over the land.

The Recorder dismissed the claim, finding that the misrepresentation had not induced the purchase. He also considered that the claimant had failed to prove loss. The claimant appealed, challenging the factual findings on reliance and the approach to damages. The central issues were whether the claimant would have proceeded with the transaction if properly informed and, if not, how his loss should be assessed.

1. Appeal allowed. The Recorder’s decision could not stand because his conclusions on the claimant’s likely reaction to the undisclosed proposal were based on material errors in the evidence. The Court of Appeal was entitled to interfere where the factual conclusions were not supported by the evidence.
2. The claimant had proved, on the balance of probabilities, that he would not have proceeded with the purchase had he known of the proposed modification order. He would have regarded the proposal seriously, obtained legal advice and appreciated that he might face a lengthy and expensive dispute affecting the proposed development.
3. The claimant’s willingness to pay more than the bank’s valuation did not, without first rejecting his reasonable explanation, establish imprudence or demonstrate that he would have bought despite the undisclosed risk. The Recorder had also placed impermissible weight on the revocation of legal aid, a credit matter unrelated to the issues in the action.
4. For negligent misrepresentation, the measure of damage is the same as for fraud: the difference between the price paid and the price which a hypothetical buyer, knowing of the concealed problem, would have paid on the open market. The relevant knowledge was of the proposal and the risk that a public right of way might be established, not knowledge that the proposal would necessarily succeed. This approach was supported by Cemp Properties (UK) Ltd v Dentsply Research and Development Corporation [1991] 2 EGLR 197 and Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254.
5. The Court assessed the risk of success at approximately 66 per cent, fixing the hypothetical price at £70,000. The claimant therefore recovered £16,000, being the difference between that figure and the £86,000 purchase price. Judgment was entered for the claimant with damages of £16,000.

• Court of Appeal (Civil Division): Allowed the appeal from the Southampton County Court, set aside the Recorder’s decision, entered judgment for the claimant and awarded £16,000 damages.
• Southampton County Court: The Recorder dismissed the claim, finding no inducement and indicating that loss had not been proved.