Greenridge Luton One Ltd & Anor v Kempton Investments Ltd

In a property sale, inaccurate replies to pre-contract enquiries may amount to actionable misrepresentations where they give a false impression about service-charge arrears, disputes or complaints. A contractual provision confirming full disclosure may itself operate as both a representation and a warranty. For rescission under Condition 9.1.3 of the Standard Commercial Property Conditions, it is sufficient that the relevant error or omission resulted from fraud or recklessness. Fraud depends on the representor’s honest belief in the representation as understood by the representor. Knowledge cannot be aggregated between an innocent principal and agent to create composite fraud. Where liability for deceit is established, a general damages limitation clause will not exclude or restrict that liability unless it does so clearly and unambiguously.

The claimants contracted to buy Wigmore Place from the defendant. Before exchange, replies to Commercial Property Standard Enquiries stated that there were no service-charge arrears and no complaints or disputes, although TUI had withheld service-charge payments and was in sustained disagreement with the defendant.

The claimants entered into the contract, later learned of the service-charge dispute, and purported to rescind under Condition 9.1.3 of the Standard Commercial Property Conditions. The defendant treated that step as repudiation and accepted it, retaining the deposit. The principal issues were whether the replies and contractual disclosure provisions were misrepresentations, whether they resulted from fraud or recklessness, and whether the claimants could recover their deposit and consequential expenditure.

1. Misrepresentation. The replies to the CPSEs were inaccurate when supplied and at the date of contract. The statement that there were “no arrears” was false because TUI had withheld part of its service-charge payment. The statements denying disputes and complaints were also misleading: the correspondence showed that TUI and Kempton were at odds over the withholding of money, the right to distrain and even whether there was a dispute. The defendant’s statement in clause 8.3 that it had made full disclosure was likewise a representation, as well as a warranty. The court relied on Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 (Ch) by comparison.
2. Reliance. The claimants were induced to enter the contract by the misrepresentations. The evidence and transaction documents showed that the CPSE replies were important to the purchase and that the contract had been drafted on the assumption that there were no service-charge arrears.
3. Fraud or recklessness. The relevant inquiry was whether the representors honestly believed the statements to be true in the sense in which they understood them, applying Derry v Peek (1889) 14 App Cas 337 and Akerhielm v De Mare [1959] AC 789. Mr Bains and Mr Aksler honestly believed that there was no “dispute” in their narrower understanding of that expression. Their statements about service-charge arrears were different. They knew that TUI had withheld money and probably lacked an honest belief that there were no arrears. The representation therefore resulted at least from recklessness.
4. Attribution and proof. Knowledge is not aggregated between an innocent principal and agent to create composite fraud. The court considered Armstrong v Strain [1952] 1 KB 232 and Anglo-Scottish Beet Sugar Corporation Ltd v Spalding UDC [1937] 2 KB 607. The ordinary civil standard applied to the allegations, although inherent improbability was relevant to assessing whether the burden was discharged, following Home Secretary v Rehman [2003] 1 AC 153 and In re B (Children) [2008] UKHL 35.
5. Remedies. Condition 9.1.3(a) entitled the claimants to rescind because the misrepresentation about arrears resulted from fraud or recklessness. It was unnecessary to decide the alternative substantial-difference ground or the application for return of the deposit under section 49(2) of the Law of Property Act 1925. Condition 9.1.2 did not prevent recovery of the claimed damages for deceit. It was not sufficiently clear and unambiguous to exclude or limit fraud liability, and it did not state that damages were available only where that condition applied. Judgment was therefore entered for the claimants for return of the £812,500 deposit and damages of £395,948.