Edwards v Ashik

In fraudulent misrepresentation, the representor must rebut the presumption that the misrepresentation materially induced the transaction. It is insufficient merely to show that the representee would probably have proceeded if told the truth. Positive evidence must establish that the misrepresentation did not play a real and substantial part in the decision, including by causing the representee to continue with an existing intention to contract. Information communicated through the purchaser’s solicitor may constitute reliance on replies to pre-contract enquiries. Affirmation is assessed objectively. Continued use of premises is not necessarily unequivocal affirmation where correspondence clearly communicates an imminent claim for rescission and the use continues only briefly while the representor is given an opportunity to respond.

The claimant appealed from an order of the Central London County Court made after trial of preliminary issues in his claim to rescind a lease, mortgage and sale agreement for fraudulent misrepresentation. The trial judge found that the defendant had made fraudulent misrepresentations in replies to pre-contract enquiries, but held that they had not induced the claimant to contract and, alternatively, that the claimant had affirmed the agreements by continuing to operate the nightclub after learning of his right to rescind.

The appeal concerned whether the judge had applied the correct approach to inducement and whether continued occupation and business use, in the context of correspondence alleging fraud and threatening proceedings, amounted to an unequivocal election to affirm.

1. Inducement. The finding of fraudulent misrepresentation raised a presumption that the claimant had been materially induced. The burden therefore shifted to the defendant to prove that the misrepresentation was not a material cause of the transaction: [2009] EWCA Civ 169. The proper question was not what the claimant would have done if told the truth. The defendant had to provide positive evidence that the claimant was not in fact materially influenced by the misrepresentation.
2. The approach in Barton v County Nat West Limited [1999] Lloyd's Rep. Banking 408 was adopted as the appropriate guide. Inducement may be passive. A misrepresentation may induce a person to persevere with a transaction which he already wishes to complete. The trial judge had focused on the hypothetical “what if” question and had not separately addressed whether the presumption had been rebutted. Her conclusion on inducement could not stand.
3. Knowledge of the claimant’s solicitor was treated as the claimant’s knowledge for these purposes, applying Strover v Harrington [1988] Ch 390. Reliance on replies to pre-contract enquiries does not require the replies themselves to be communicated verbatim. A solicitor’s summary that it was safe or satisfactory to proceed may communicate their effect and may materially induce the purchaser.
4. Clause 10.3 of the sale agreement excluded reliance on specified representations but did not amount to an agreement that the claimant had positively relied on the excepted replies. It did not determine the factual issue of inducement. On the evidence, the claimant’s admissions did not clearly establish that he placed no reliance on his solicitor’s advice. The presumption was not rebutted.
5. Affirmation. The question was whether continued use of the nightclub, viewed objectively and in all the circumstances, unequivocally demonstrated an election to treat the agreements as valid. The principle in Peyman v Lanjani [1985] Ch 457 was applied. Continued occupation would probably have amounted to affirmation without the correspondence, but the repeated letters threatening proceedings for fraudulent misrepresentation made the use equivocal. The claimant’s prompt election after the defendant’s dismissive response was consistent with the earlier communications.
6. The appeal was allowed. The fraudulent misrepresentations were a material inducement, and the claimant had not lost his right to elect rescission. The unresolved legal effect of the misrepresentations was left for determination by the Central London County Court if the parties could not agree.

• High Court (Chancery Division): Allowed the appeal from the Central London County Court. The court substituted its conclusions on inducement and affirmation and left the legal effect of the misrepresentations for the county court.
• Central London County Court: On 23 January 2014, after trial of preliminary issues, found fraudulent misrepresentations but held that they had not induced the claimant and that he had affirmed the agreements.