Category Archives: Misrepresentation

Unfounded opposition to adjudicators invalidated decision

Where one party to an adjudication makes a fraudulent misrepresentation during the appointment process would that invalidate the process of appointment and make the appointment a nullity so that the adjudicator would not have had jurisdiction to act in the adjudication?

In the High Court case of Eurocom Ltd v Siemens Plc [2014] the application form sent to the Royal Institution of Chartered Surveyors (“RICS”) seeking the appointment of an adjudicator misrepresented to the RICS that a number of individuals had a conflict of interest.

Eurocom’s agent had admitted that he used the section of the application form allocated to name “adjudicators who would have a conflict of interest in this case” to refer to people without any conflicts of interest who he did not want to be appointed.

So there was a very strong prima facie case that the agent had made a clear misrepresentation and a deliberate and/or reckless false statement and that therefore he had made a fraudulent representation to the RICS as the adjudicator nominating body.

The High Court ruled that where a party applies to an adjudicator nominating body and makes a fraudulent representation then the fraud cancels the advantage which would otherwise have been got from the transaction by voiding the transaction completely.

The false statement had been material. It had been made during a process by which an adjudicator had to be nominated by an impartial adjudicator nominating body and, was improperly made to eliminate candidates based on them having a conflict of interest when actually they had none.

Where there had been a material fraudulent misrepresentation in the process of applying to an adjudication nominating body, the application for a nomination of an adjudicator would be invalid and it would be as if no application had been made.

It did not matter whether the RICS was deceived or not.

The fraudulent misrepresentation would have invalidated the process of appointment and made the actual adjudicator’s appointment a nullity so that the adjudicator would not have had jurisdiction to make the award Eurocom were now seeking to enforce through the courts.

So Siemens had an arguable defence to Eurocom’s claim. That claim must go to a full hearing and Eurocom were denied summary judgement on the claim to enforce the adjudicator’s award.

This case and it’s outcome is a clear warning to anyone who may be minded to use any parts of an application form for their own collateral purposes.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Actual Architect’s Certificates came too late to protect buyers

Reliance must follow representation and cannot be retrospective to the transaction it induces the buyer to enter into.

Where a seller indicates that an Architect’s Certificate is in existence (when it is not) or that it will be forthcoming after completion of the sale and, in either event, the Certificate does come forward but only after exchange of contracts and completion the buyer may have problems relying on it as the following case indicates.

In Hunt & Ors v Optima (Cambridge) Ltd & Ors [2014] Optima (Cambridge) Ltd (“Optima”) built 2 blocks of flats at Jubilee Mansions, Peterborough. Strutt & Parker (“S & P”) were retained by them to carry out inspections in the course of development and produce “Architects Certificates” in respect of the flats for the benefit of the purchasers and their lenders.

Before exchange of contracts the purchasers were told that they would receive Certificates on completion.

S & P carried out some ten inspections of the works, producing to Optima Certificates as to the relevant stages of construction of the flats.

S & P also provided Certificates to the purchasers attesting to the satisfactory construction of the flats.

The building works were carried out badly and the inspections were negligent.

Eight of the purchasers sued Optima and S & P.

In the case of two of the claimants the Certificate was executed before the date of the sale agreement between them and Optima. S & P accepted liability to them.

In respect of six other claimants (“the claimants”), the Certificate was not provided until after, and perhaps long after, the exchange of contracts and completion of the relevant flat lease.

The procedure for the claimants other than claimants 7 and 8 – Mr & Mrs Peace – was for S & P to send the Certificates (in draft or as completed) to Optima’s solicitors (“Irena Spence”) – who then submitted them to the claimants’ solicitors’ firms.

Was the fact that the Certificates had been received by the claimants after contract and completion an obstacle to the recovery by them of damages from S & P?

Exceptionally Mr and Mrs Peace, were not the original purchasers from Optima. The original purchaser of their flat – flat 17 – was Chantal Smith whose lease was dated 2003. She sold the lease to them in 2006.

The negligent statements relied on were the statements contained in the signed Certificate eventually provided to the relevant claimant. But the claimants could not have relied on those statements in committing themselves to their purchase contracts because those statements did not then exist.

At most they could be said to have relied on an understanding either (i) that there was a Certificate already in place; or (ii) that they would receive a Certificate on or after completion.

An indication of the form that a statement would take when issued fell far short of the representation the claimants needed to demonstrate i.e that a Certificate could be relied on before it was issued.

In fact only claimants 5 and 6 had any form of indication that S & P was in a position to sign a Certificate, as opposed to a mere indication of what would be the form of any Certificate once signed.

Those considerations applied even more forcefully to Mr and Mrs Peace, the 7th and 8th claimants. Before they bought they were not told that an Architect’s Certificate had been or would be issued nor were they provided with any draft.

They received a Certificate nearly 3 years after they completed their purchase. This was the first time they knew anything of S & P and the work they had carried out. All that they got pre-contract and completion was the seller’s inaccurate “yes” answer to the question whether there were any guarantees or insurance policies of three specified types.

For the claimants, other than Mr and Mrs Peace, one straw they could clutch at would be afforded by construing the Certificate, as a form of warranty, which would require an intention to create contractual relations.

Those of the claimants’ solicitors who told their clients that the Certificate was like a guarantee were adopting this line of reasoning.

However, the Certificate was not any form of warranty. The Certificate was described as such; and not as a promise, warranty or guarantee. It contained no reference to any consideration. Although it was to be relied upon by subsequent purchasers, and those lending to them, there was no reference to any possible assignment of the “Architect’s” obligations.

The document certified that various things had happened and gave various conclusions as to the state of completion of the property and the standard of its construction.

Clause 5 said “I am aware that this Certificate is being relied upon…”. However this was no more than was to be expected of a document which the maker intended to be relied on so as to give rise to a potential liability in negligent misstatement. Those words would have been unnecessary if there was to be contractual liability under a warranty anyway. So also was the confirmation in clause 7 that the certifier had appropriate experience.

The Certificate was not written akin to a contract or “on its face” a warranty.

It ought to be considered how the Certificate would be viewed by a reasonable person with the level of knowledge he could be expected to have. As people buy land with legal assistance, how would the document appear to someone who knew how a warranty contract was distinctly different?

So the judge lower down was wrong to find that the claimants were entitled to succeed based on a negligent misstatement or collateral warranty. So the Court of Appeal allowed the appeal and dismissed the claimants’ claims.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

On Facts no misrepresentation – or reliance by investor

For a misrepresentation claim to succeed the claimant must show both that a material misrepresentation was made and that he relied on it.

The case that follows illustrates that a sophisticated professional who invests may face higher hurdles here.

In Roberts v Egan [2014] the issues were whether any representation was made and, if so, the extent of the representation. The claimant was an experienced solicitor who had made two investments, each of £204,000, in a scheme involving acquisition and development work on various new shopping centres. The claimant had lost the whole of his investment and now sued the respondent to get it back.

The claimant based much of his claim upon the statements in the three-page report, he alleged to have been attached to an email, and a one-page summary attached to the same email.

The three-page report said “the debt for undertaking the developments would be organised by [the developer, Henry Davidson Developments Limited] via their own bank, RBS in Nottingham, and we will just continue to own the sites but have no responsibility for the development funding throughout the building period”; and the one-page summary of the investment proposal, also prepared by the respondent, contained a further statement that “… the developers will arrange their own bank finance with the LLP making balancing profit payments on completion”.

It was the claimant’s case that these were representations which the making of his investment had relied on BUT that in fact the investment vehicle (“A5”) had ultimately borne the risk of the costs of the development as it provided security in the form of a third party mortgage over the properties in favour of the developer’s bank (NatWest) to cover the possibility that the developer might default on the borrowings that the developer had incurred to fund its development costs.

The claimant said, as a prospective investor, the respondent owed him a duty of care to ensure that the representations made were correct and that he had, in reliance upon those representations, made by the respondent through an intermediary, invested the sum of £408,000 in A5.

The High Court ruled that:

The statement and report were simply outline proposals which had been superseded by more detailed draft funding documentation emailed onto the claimant. It was necessary to take all of the pre-contract communications, concerning the investment scheme, made by or on behalf of the respondent to the claimant and view them objectively, in a common sense and realistic fashion, so as to understand what, if any, representation was being made about development funding and the ownership of the sites by A5.

In fact there was no express reference in either the three-page report or the one-page summary to the issue of security. Neither document purported to tell prospective investors about the security position.

The furthest that they went was the statement in the three-page report that A5 would “just continue to own the sites but have no responsibility for the development funding throughout the building period”.

The claimant said there was an implicit misrepresentation there that there would be no third party security over the sites themselves and that there would be no security for development funding over the site.

However the court held that the claimant had not even seen that three page report and that it had not been emailed onto him by the intermediary at the material times.

In any event any qualified solicitor and experienced and astute commercial investor such as the claimant, objectively reading those documents would have appreciated that these were no more than outline proposals, and that matters of detail would have to be addressed in the detailed funding documentation and long-form security documentation that would have to be drawn up and settled before the investment scheme could go ahead. The court found that these had been emailed to the claimant in draft and held that, on the claimant reading them, they would have operated to cancel any misrepresentation or, false impression there may have been earlier.

The High Court held that there was no material reliance by the time the claimant came to make his two investments, upon the statements in the report or the one-page summary.

So the court rejected the claims in misrepresentation on the grounds that there was no material misrepresentation and, if there were, there was no material reliance on them by the claimant.

As an aside the court said that had there been any misrepresentations the court would have ruled them to have been made by the respondent’s limited company rather than by himself acting in person.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Bank didn’t get Property Company’s Director’s Guarantee by misrepresentation or duress

One of the main features of economic duress is that it involves “illegitimate pressure”: that’s to say pressure without any commercial or similar justification. The “rough and tumble of normal commercial bargaining” is not to be mistaken for illegitimate pressure. Whether it is will depend upon a consideration of all of the circumstances in any given case.

In Bank of India v Riat [2014] Nirpal Singh Riat, the Defendant, signed two limited guarantees as security for facilities provided by the Bank of India (“the Bank”) to Globepark Developments Limited (“the Company”). The Company was a family run business with Mr Riat and his son Ashwin Riat being the sole directors and shareholders. Mr Riat was a 98% shareholder. The Company developed and rented out properties.

He signed a guarantee in January 2006 (“the first guarantee”) in respect of a facility letter (“the first facility”). The first guarantee was limited to £1,237,000 together with interest, costs and expenses. He signed a second guarantee in August 2006 (“the second guarantee”) in respect of another facility letter (“the second facility”). The second guarantee was limited to £490,000 together with interest, costs and expenses.

The Company entered administration on 31 March 2010. The Bank made formal demands under the guarantees which he had resisted on various bases since March 2011.

Prior to the first facility the Claimant allegedly negligently misrepresented to the Defendant that the Claimant wished to expand its involvement in the property development sector which the Defendant said was not a true representation as to the, then, existing intention of the Claimant and induced the Defendant to enter into both of the guarantees.

The Defendant also said the first guarantee was voided for economic duress. He said the requirement of a guarantee was not mentioned at all by the Bank until the last possible moment, at a point when the Defendant had “burned his bridges” with Natwest Bank who were the, then, bankers for the Company leaving him with no practical alternative financiers.

The High Court accepted in principle that a bank’s statement that it wanted to increase its exposure in a particular business sector may, if untrue, be capable of providing the basis for a claim in misrepresentation. For example, the Bank’s policy may in fact have been to reduce lending in that business sector, or the lending may not have been its core business, or may have been limited to particular geographical areas.

The court found that the total amount of exposure in the Real Estate Sector, at the Bank’s main office, rose from £60.436 million as at 30 November 2005 to £68.287 million as at 31 January 2006. Relative to the total amount of actual advances that was an increase from 8.05% to 11.42%. So the first representation was actually true.

Even if the representation had been untrue, the court was not persuaded it had been relied on. Moreover it would have had no causal link to the facilities being taken up. They would have been taken up in full any way.

The requirement of a personal guarantee was standard practice under the Bank’s policies unless there was a good reason to waive the requirement. In fact the court found that there had been a discussion about the personal guarantee as early as 15 November 2005 because the Defendant had failed to provide a Statement of Assets and Liabilities as had been requested by the Bank. The Defendant must have known he was being requested to provide this on the sole basis that it was to ascertain his ability to give a worthwhile personal guarantee to support the Company’s application to the Bank.

The most important motivation for the Defendant choosing the Bank was that it was prepared to provide a 75/25 loan to value ratio on the Bremic Hotel which would enable the release of further funds for the purchase of other property.

There was no significant pressure from the Bank let alone “illegitimate pressure”. The requirement for a personal guarantee was not unusual and had been brought to the Defendant’s attention by 15 November 2005 at the latest. He had other options for refinancing with Handelsbanken and other institutions and had sufficient time even to obtain independent legal advice. Indeed the solicitor concerned had confirmed that he appeared to understand the implications of what he was doing before signing the guarantee.

The court was also unimpressed by the length of time it had taken the Defendant to challenge the first guarantee.

So the court confirmed that the Defendant was bound by the guarantees and refused a declaration that he could cancel them.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

No preventative representations could get round failure to execute deeds properly

Where documents were not in fact executed in accordance with the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), does the fact that documents were described as deeds and meant to be such prevent (“estop”) the signatories from denying that the defective deeds were validly executed?

Briggs & Ors v Gleeds (Head Office) & Ors [2014] concerned a pension scheme (“the Scheme”) for employees of partnerships and companies within the Gleeds group (“Gleeds”).

As will be seen later the case is an important one on the 1989 Act and estoppel and deeds – all of which play an important role in property law.

The Scheme’s case that the signatories could be prevented (estopped) from denying that the defective pension deeds were validly executed failed on factual and legal grounds.

The Facts

Gleeds argued that:

1. By supplying the draft deeds and, perhaps, instructions as to how they should be executed, the Scheme’s Pension Adviser (“Aon”) impliedly represented to Gleeds and Scheme members that, legally speaking, execution in the manner indicated by the drafts would suffice; and

2. Gleeds and Scheme members relied on the representations to their detriment; and

3. Aon were acting on instructions from the Scheme trustees at the relevant times and so the representations should be attributed to the trustees; and

4. In the circumstances, an estoppel had arisen precluding both the trustees and Gleeds and Scheme members from challenging how the deeds were executed.

Fatally to Gleeds case the court found that Aon could not be said to have made such representations for the trustees, or on the trustees’ behalf, to the Gleeds and Scheme members in relation to the execution of the defective deeds.

Main Legal issue

The main legal issue was “how far could the principle of estoppel be invoked to prevent a party from asserting that the statutory requirements for a deed (under the 1989 Act) have not been satisfied?”

The court concluded that estoppel cannot be invoked where a document does not even appear to comply with the 1989 Act on its face or, in any event, could not be so invoked in the particular circumstances of that case. For the following reasons:

i) Parliament had imposed the evidential requirement that an individual must sign “in the presence of a witness who attests the signature” otherwise his deed was not validly executed as such; and

ii) The “deeds” at issue here were not “apparently valid”. It could be seen from each document that it had not been executed in accordance with the 1989 Act.

Had it been otherwise a person can sometimes be estopped (or prevented) from denying due attestation.

But if estoppel could be invoked in relation to documents that were not “apparently valid” people would not know where they stood with them and there would be uncertainty. The validity of a deed may remain important for many years. In relation to older “deeds” people without personal knowledge of the circumstances in which they were executed would not know whether they were valid or not.

A party to a “deed”, who had not himself executed the document in compliance with the 1989 Act, would have an election as to whether the document should be regarded as valid. If the document turned out inconvenient to him he could deny its status as a deed. But if it proved advantageous he could invoke estoppel.

So, if a “deed” provided for a pension scheme to change to money purchase instead of a final salary scheme, an employer who had not had his signature to the document witnessed could wait and see whether the change had actually been favourable to him; and

iii) if estoppel could be invoked in circumstances such as these Parliament’s and the Law Commission’s aims, behind the 1989 Act, to address those kinds of issues would be seriously undermined.

So, the members of the Scheme were not estopped (prevented) from refuting that the defective deeds had been validly executed since (a) Aon could not be said to have made representations on the Scheme trustees’ behalf to Gleeds or Gleeds Scheme members as to the execution of the defective deeds; and (b) estoppel could not be invoked to get around the 1989 Act in circumstances where it was quite apparent that the documents were not validly executed as deeds.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Sloppy Conveyancing Practice Denies Defrauded Solicitors Reasonableness Breach of Trust Defence

In Santander UK Plc v R.A. Legal Solicitors [2014] the solicitor’s client was buying a £200,000 house of which £150,000 was being advanced by Abbey Bank.

The standard form terms upon which Abbey instructed R.A. Legal required the firm to hold Abbey’s £150,000 on trust until completion.

RA Legal thought the Vendor of the property was represented by an established firm, Sovereign. In fact Sovereign had no instructions to act for the Seller of that property. The “Vendor” here was a fraudster purporting to sell a house in fact placed on the market by its true owner, someone else altogether.

The Certificate of Title and Request for Mortgage Funds R.A. Legal sent to Abbey contained a deliberate misrepresentation that investigation of title had been concluded.

On 21st July Sovereign returned (by post and by fax) replies to requisitions (final pre completion enquiries). The replies to replies to requisitions were partially nonsensical and partly incomplete. Because R.A. Legal failed to get these deficiences corrected the completion money was transferred to Sovereign’s client account without R.A. Legal getting Sovereign’s legal commitment to hold them to its order pending legal completion (or otherwise return them) either by the adoption of the Completion Code or in any other written form.

Nor had R.A. Legal any written (or any other) undertaking from Sovereign to obtain a discharge of the owner’s existing mortgage.

R.A. Legal released Abbey’s loan, and their client’s balancing payment, to Sovereign without any valid exchange of contracts or completion ever taking place.

Obviously R.A. Legal had no implied authority from Abbey to transfer the trust money otherwise than to the client account of the actual Owner’s/Vendor’s solicitors of the Property the Abbey was to get a mortgage on.

Here, Sovereign did not fit that description. It had no instructions from the Seller to sell to R.A. Legal’s Client, and had not the slightest intention of using any part of the money transferred to its client account to discharge the existing mortgage.

So R.A. Legal had indeed been in breach of trust in releasing Abbey’s money even if they genuinely believed that completion was taking place on the same day.

The money was misappropriated from Sovereign’s client account.

So, Abbey sued R.A. Legal for breach of that trust.

Nonetheless the first instance judge had concluded that R.A. Legal should be wholly relieved from liability under section 61 of the Trustee Act 1925.

Reliance of section 61 involved at least two main stages. Firstly, the trustee had the onus of proving that he had acted both honestly and reasonably.

Institutional lenders have tended to rely on departures from best practice as evidence of unreasonableness. If the reasonableness of the solicitor’s conduct depends on anything not recorded, the solicitor may be unable to discharge the burden of proof due to inability to recollect the detail. So in order to discharge the burden of proving that he acted reasonably under section 61, the solicitor will need to be able to provide a paper-trail demonstrating that any of his or his firm’s conduct connected with the loss sufficiently satisfies the reasonableness test.

When completion failed to take place R.A.Legal failed to seek Abbey’s instructions arising from the delay in completion. Indeed their failure to give Abbey any warning that its money was at risk until late November was wholly unreasonable.

They all represented departures from a sophisticated regime, worked out over many years, whereby risks of loss to lenders and lay clients had been minimised, even if not wholly eradicated.

Given their breach of trust they could not expect to persuade the court it was fair to excuse them from liability, on the basis that they had in connection with that loss, acted reasonably.

The court made a distinction with its decision in the earlier Davisons case where the solicitors had got an apparent commitment from someone they reasonably believed to be the vendor’s solicitor to adopt the Law Society Completion Code, so that the regime of protective undertakings had, as far as they could tell, in fact been put in place.

The Court therefore allowed Abbey’s appeal.

This blog has been posted as a matter of general interest. It does not remove the need to get proper legal advice in individual cases.

Employer had no Right to require Novation of Design Consultant Appointment at all and certainly not after Practical Completion

In the Construction World its not unusual for legal construction documentation to be entered into shortly before or even after practical completion. The case that ensues calls into question Employers’ abilities to require the appointment of design consultants to be novated to contractors after works under design and build contracts are practically completed, or perhaps even only well advanced.

It also warns of the consequences of the appointments of such consultants not providing for their appointments to be novated to the contractor – including that the Employer’s Requirement that their appointments be novated may amount to a misrepresentation, actionable by the builder and perhaps others, that the Employer has power to procure such novation when the omission of such a clause from the consultant’s appointment means they have not.

Timely novation is crucial to a design and build contractor who needs such consultants novating to it so that it can control those consultants and hold them responsible to it for the design elements which it has, in turn, undertaken responsibility for to the Employer and perhaps others.

In Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] the Claimant (“Hillcrest”) was a property developer. The Defendant (“B&C”) was a building contractor. By a Design and Build Contract in the JCT Standard Form (2005 Edition, Revision 2, 2009) (“the Building Contract”) B&C agreed with Hillcrest to undertake the design and construction of a major residential property at Sleepy Hollow, Castle Hill, Prestbury in compliance with the contract documents including the Employer’s Requirements.

The Structural Engineers, who were appointed by Hillcrest for the purposes of the Development prior to the making of the Building Contract, were Howard Taylor Associates (“HTA”).

Clause 1.1 of the Building Contract defined “Contractor’s Persons” as “the Contractor’s employees and agents, all other persons employed or engaged on or in connection with the Works or any part of them and any other person properly on the site in connection therewith, excluding the Employer, Employer’s Persons and any Statutory Undertaker and “Employer’s Persons” as “all persons employed, engaged or authorised by the Employer, excluding the Contractor, Contractor’s Persons, and any Statutory Undertaker but including any such third party as is referred to in clause 3.15.2.”

Unusually for a proposed design and build contract the appointment of HTA by Hillcrest made no provision for HTA’s appointment to be novated to the building contractor.

B&C declined to accept the novation of HTA’s appointment alleging that Hillcrest’s Employers Requirements had misrepresented it as having the ability to procure the novation and that HTA’s agreement to novate its appointment now, only after practical completion had occurred, was too late and had only been procured by heavy pressure.

Article 7 of the Building Contract said “If any dispute or difference arises under this Contract, either party may refer it to adjudication in accordance with clause 9.2″.

Clearly issues of misrepresentation here pre dated the contract and did not arise under it.

The Judge held against Hillcrest’s claim that B&C’s attempt to have the misrepresentation issue determined by the adjudicator outwith the scope of Article 7 constituted a breach of contract. He said it would only be a breach of contract to refer a dispute in this way if a provision was to be implied in the Building Contract that there should be no reference to adjudication other than as contemplated under Article 7. Such a term would only be implied if necessary to give business efficacy to the contract or if in other respects it was obviously to be inferred from the facts. Neither was the case here.

Hillcrest sought declarations:

that the Novation Agreement is valid and the services of HTA had been novated to B&C with retrospective effect
that B&C was bound to Hillcrest as if B&C were and had been from the inception a party to the Appointment in lieu of Hillcrest and
-that HTA was not an “Employer’s Person” for the purposes of the JCT DB and/or
-that B&C is estopped from denying that it is so bound.

However the court said that the execution by HTA of the Novation Agreement on 26 October 2012 was not effective to novate its appointment, because the Employer’s Requirements contemplated and required the execution by all three parties of a Deed “in accordance with the draft Novation Agreement included in Appendix F” which was a formal document which expressly provided for its execution by all parties as a Deed. No novation was contemplated absent the execution of the Deed.

Nor would novation after practical completion be in order. Clause 1.6.5.3, of the Employer’s Requirements expressly provided for novation to take place on the execution of the Building Contract, as was indeed contemplated by the draft Novation Agreement itself (Recital B). So by signing the Building Contract incorporating these Employer’s Requirements, B&C never consented to novation taking place at a materially later time, and certainly not after practical completion of the works. B&C might have materially benefited from a contractual relationship with rights against and obligations from HTA throughout the execution of the works. That’s what B&C consented to under the Building Contract but it was not what actually materialised.

HTA was from inception and had throughout the construction process remained “an Employer’s Person” under the Building Contract.

Alternatively, Hillcrest sought declarations that B&C was in breach of Contract in:

failing to procure the novation of HTA’s Appointment upon execution of the Contract

The court rejected this. Given the terms of paragraph 1.6.5 of the Employer’s Requirements and of the draft Novation Agreement annexed to them, B&C was entitled to assume that Hillcrest had secured the agreement of HTA to novate prior to the Requirements being submitted to contractors. Indeed Recital C to the draft Novation Agreement asserted that “the Consultant has agreed to enter into this Agreement”. So B&C was not in breach of contract if there was no pre-existing agreement on the part of HTA to novate and (as actually occurred) HTA delayed executing the Novation Agreement until after practical completion.

failing to counter-sign the Novation Agreement

Following from the above the court rejected this.

And ought not to be permitted to rely on its own said breach to deny the validity of that Novation Agreement and/or the effects pleaded above“.

Following from the above the court rejected this.

This blog is posted as a matter of general interest. It does not replace the need to get proper legal advice in individual cases.

Property Deal: 4 out of 5 Alleged Misrepresentations Actionable

A recent decision underlines the importance of due diligence. If it sounds to good to be true it probably is.

In that case the past “unblemished” reputation of the “introducer” of the investment counted for little as the facts unfolded.

In Banwaitt v Dewji [2014] the claimant had lost a lot of money on a foreign property investment. He alleged at the trial that he had been victim of a number of non-disclosure and the following misrepresentations made at June meetings:

(1) that but for a narrow shortfall which Mr Banwaitt’s investment would fill, Dr Dewji had gathered investors to buy the land for $14m;

(2) that a French hotel chain had paid a 20% deposit to purchase for $21m and was locked in to the purchase;

(3) that the purchase and sale would be back-to-back;

(4) that the purchase monies were urgently needed, otherwise a deposit of $50,000 already paid in connection with the purchase would be forfeited; and

(5) that the land already had full planning permission

In making further payments the next month, Mr Banwaitt relied on the continuing effect of those uncorrected representations and a further representation from Dr Dewji’s that he still needed another $3m to complete the purchase.

The trial judge found that each of those representations had been made; was materially false when made and had induced Mr Banwaitt to put $1.75m into the Scheme. When the initial meetings occured, Dr Dewji had not assembled a syndicate of investors to buy the land for $14m (one of them had withdrawn); no hotel chain had put down a deposit of 20% of the $21m sale price or had even agreed to purchase the hotel land for that amount; so there was no back-to-back transaction in place; no deposit $50,000 had yet been paid on the main transaction; and no planning permission was in place for the development of the land.

The judge also said that it was unclear to what extent Mr Banwaitt relied on the information contained in a later e-mail. However that email did not correct the false representations already made to him verbally.

The only reservation the judge had about the allegations of misrepresentation concerned the second allegation of representation i.e a French hotel chain had paid a 20% deposit and was locked in. The judge thought Mr Banwaitt had misremembered the nationality of the hotel chain in question!

In relation to the July payments amounting to $750,000, the judge found that the gap in funding was much greater than the $2m/$3m he was told about. By that stage Dr Dewji had only received the initial $1m from Mr Banwaitt and put in $506,816 of his own. A further $3m was received from Jardines, another investor, in August.

The judge concluded by saying that Dr Dewji materially misrepresented the investments which he was inviting Mr Banwaitt to make intentionally with the aim of making the investments seem safe when they were far from safe. Those representations had induced Mr Banwaitt to pay over his moneys by reason of them. Had he known the truth in late June – the first payments, or in the latter part of July – the second payments, he would not have paid.

In summary the Court of Appeal upheld the trial judge as follows:

(1) $14m of investors

The judge had been entitled to find that Dr Dewji did not then (or at any time) have investors to the tune of $14m; that the funding gap had not been caused by people dropping out; and that Dr Dewji had not himself invested $1m in the Scheme.

(2) The hotel chain disposal

It had been open to the judge on the evidence to find that the payment of a deposit of 20% was discussed in June as having been paid prior to any purchase by the Scheme.

(3) Back-to-Back Deal

Dr Dewji had conceded in cross-examination that the availability of a back to back transaction depended upon their being planning permission for a development. Therefore he had misrepresented that the back to back transaction would be in place prior to the (completed) purchase

(4) The purchase moneys were needed urgently or the deposit paid by the purchasers would be forfeited.

The history of Dr Dewji’s cheque account made it improbable it would have had sufficient liquidity to meet the deposit cheque even if it had been written.

There had been sufficient reason for the trial judge to find it had never been paid.

(5) Full Planning Permission had been Granted

It was likely that what Dr Dewji said fell short of saying that there was full planning permission. But Mr Banwaitt had been deliberately given the impression that all that was required for the development of the land had been obtained. Whether or not it was objectively made clear by the 2nd July e-mail that no planning consent as such had yet been granted the other June misrepresentations, afforded sufficient to conclude that Mr Banwaitt may have a right to cancel and a right to damages for the tort of deceit.