Tag 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.