Dhaliwal v Hussain & Anor

A representation is construed by asking what a reasonable recipient would understand from the words in their context, including any necessary implication. A seller who states that a business became wholly private, while withholding material information showing that part of its turnover depended on NHS work which had ceased, may be liable for fraudulent misrepresentation. Reliance need not be the sole or main inducement and may arise from information received after agreement in principle but before the binding contract. Damages ordinarily include the difference between price and true value, wasted acquisition and resale costs, and reasonable interim trading losses. Gains from steps taken to restore the claimant’s position must be brought into account, but later increases in an asset’s value are not retrospectively deducted from loss assessed at acquisition.

The claimant bought a dental practice from the defendants for £625,000. She alleged that replies to pre-contract enquiries falsely stated that the practice had changed from mixed private and NHS work to purely private work in April 2006. In fact, substantial NHS-related income had continued through individual dentists’ contracts and had ceased by April 2007. She also alleged breach of a warranty that the business had not materially deteriorated since 31 March 2007, breach of contract concerning removed consumable stock, and sought damages.

The defendants denied reliance and loss, and alleged that the contract was unenforceable because the price had been apportioned to reduce SDLT. The court determined liability, illegality, valuation and damages.

1. Misrepresentation. The reply that the practice had changed from mixed private and NHS work to purely private work in April 2006 conveyed, in context, that the practice had no NHS work thereafter and that the £404,000 turnover shown for the following year was wholly private. That meaning was false. The defendants’ subjective intention did not control construction.
2. The replies were made in circumstances in which reliance was expected. The claimant knew of them, considered them, and relied on them in proceeding to exchange and complete. Reliance can be established by information received after an agreement in principle but before the legally binding contract. The representation materially influenced the transaction, although it need not have been the sole cause.
3. The defendants knew the true position, knew the information was important to valuation, and deliberately used an incomplete formulation to avoid disclosure. The representation was therefore fraudulent within the principles stated in Derry v Peek (1889) 14 App Cas 337. The claim under s 2(1) of the Misrepresentation Act 1967 would also have succeeded, but it was unnecessary to determine it.
4. The warranty was breached. The practice had the effective benefit of the individual NHS-related contracts at the accounts date, and its trading position materially deteriorated when that ability was lost. The claimant’s supposed knowledge that there was no practice-level PCT contract did not establish knowledge of the true position.
5. The illegality defence failed on the facts. The claimant did not procure the contractual apportionment to evade SDLT. The court also questioned whether the relevant provisions of Sch 4 to the Finance Act 2003 required the parties to agree a just and reasonable apportionment in the contract, and noted the approach to illegality in Patel v Mirza [2016] UKSC 42.
6. Damages were assessed at £140,000 for the primary loss, £94,643.78 for the first three consequential heads, and £1,000 for removed consumable stock, subject to further submissions on interest. The court applied the principle in British Westinghouse v Underground Electric Railways Co of London [1912] AC 673: rent from the replacement lease reduced continuing finance loss, but did not retrospectively reduce earlier trading losses or the acquisition-date loss.

Judgment was therefore entered for the claimant on the fraudulent misrepresentation, warranty and stock claims, with the remaining consequential-loss claim disallowed.

First-instance decision. No prior appellate decision is stated in the judgment.