Friday, 21st May, 1993
JUDGMENT
LORD JUSTICE RUSSELL: I shall invite Lord Justice Hoffmann to give the first judgment.
LORD JUSTICE HOFFMANN: This appeal arises out of a completed sale of building land which was subsequently discovered to be subject to an easement of drainage. Judge Roger Cooke, sitting in the Mayor's and City of London Court, held that the purchaser was entitled to rescind the sale. Against that decision the vendor appeals. It says that either the purchaser has no remedy or else that it should be confined to an award of damages. We allow the appeal, reverse the finding that the purchaser was entitled to rescind and dismiss the action.
1. The sale
In 1988, at the height of the property boom, Cambridgeshire County Council ("Cambridgeshire") decided to raise some capital by selling part of the playing fields of Netherhall School in Cherry Hinton Road, Cambridge. It registered a deemed outline planning consent for residential development subject to the approval of details by the local planning authority, which was Cambridge City Council ("the City"). It then offered the land for sale by tender.
Cambridgeshire had acquired most of the land more than 30 years earlier from the principal of a local building company which is now called William Sindall plc ("Sindall"). The tender offer produced bids from a number of developers, but Sindall fought like a tiger for the right to buy the site. It applied for judicial review, claiming that under the practice followed since the Crichel Down case it had a legitimate expectation that it would be given the first opportunity to buy it back. The result was that on 7th December, 1988, Cambridgeshire agreed to sell the land to Sindall for #5,082,500, which was the highest offer it had received from anyone else. The contract was completed on 28th March, 1989.
Over the next two years the victory turned into a disaster. The City planners were obstructive about the approval of reserved matters. It took 18 months and an appeal to the Secretary of State to obtain detailed consent for 60 houses and 30 flats. By this time the property market had collapsed. In October, 1990, the site was worth less than half of what had been paid. Sindall had borrowed the whole of the purchase price at a high rate of interest. The chairman was against investing more money to complete the development. Quicker returns could be obtained by finishing other houses already under construction. He would have preferred to sell at the best price obtainable, but buyers for large building sites had become thin upon the ground.
Before Sindall had decided anything about the future of the site, the prospect of deliverance appeared from a wholly unexpected quarter. On 30th October, 1990, it was discovered that, unknown to any of the individuals who had been concerned in the sale, there was buried in the land a nine inch foul sewer. It crossed the site diagonally from one corner to the other, draining a block of flats called Greystoke Court, which adjoined the eastern boundary of the site on Cherry Hinton Road, to a public sewer under a road called Gunhild Way to the south west. A sewer needs a six meter wide maintenance strip to be left vacant above it. That is why sewers are usually laid under roads. Such a strip would have cut a swathe through Sindall's approved housing lay out. Unless the sewer could be re routed, the detailed planning consent obtained with so much effort would be impossible to implement. Sindall would have to go back to the Cambridge planners with a different scheme. In Sindall's view, there was no way in which the sewer could be re routed. It was neither legally possible nor technically feasible. On 20th December, 1990, Sindall's solicitors therefore wrote rescinding the contract on the ground of various misrepresentations and common fundamental mistake. On 11th February, 1991, it issued a writ claiming a declaration that the contract had been rescinded and claiming repayment of the #5,082,500 price with interest.
2. Was it a serious problem?
Much of the argument of Mr. Sher QC, who appeared for Sindall, involved variations on the theme that the discovery of the sewer was such a devastating blow to the proposed development that it would be most unjust to construe the contract as excluding a remedy or to exercise a discretion against rescission. I shall therefore start by considering whether in practice the sewer would have presented a serious problem.
Sindall devoted a great deal of energy, both before and at the trial in trying to prove that the sewer was public within the meaning of the Public Health Act 1936 and the Water Act 1973. This would have meant that the sewer was now vested in the privatised Anglian Water Services Ltd ("Anglian"). It maintained this stance, despite the fact that the City, Cambridgeshire and Anglian were unanimously of the opinion that the sewer was a private easement for the benefit of Greystoke Court. Such an attitude might seem quixotic if one did not realise that Sindall thought its commercial interest lay in there being no solution to the problem. The judge found that the sewer was private and against that finding there is no appeal.
The sewer could therefore be diverted to suit Sindall's development if this was technically feasible and the City was willing to consent. The evidence showed that in principle the City was willing to accept any alternative method of draining Greystoke Court provided that it worked and did not cost the City any money. Most of the evidence at the trial was about whether one could within a reasonable time have devised a workable scheme which did not make it necessary to redesign Sindall's approved lay out.
The question had to be answered hypothetically because Sindall at the time resolutely refused to discuss alternative schemes of any kind. The reason for its refusal is perfectly understandable. If a solution was possible, it might be able to recover the additional costs as damages but would in the end be left with a site for which it paid over #5 million and was piling up interest charges at #2,000 a day but which was worth less than #2 million. If no solution was possible, it stood a better chance of being able to rescind the contract and get its money back. The chairman Mr. Mott was perfectly frank. In response to a point blank question in cross examination he said that he had no interest in a technical solution to the problem.
The person with whom Sindall would have discussed the technicalities if the market had gone up instead of down was Mr. Facer, the City's engineer in charge of sewers. One of the reserved matters in the planning consent was that Sindall had to submit a drainage scheme for its development for building regulation approval. It would also have wanted to enter into an agreement with the City under Section 18 of the Public Health Act 1936, under which the City agreed to adopt the completed sewers as public. In both cases, this would have meant satisfying Mr. Facer that the sewers had a sufficient fall to be able to drain properly, or, if this was not possible in flat and low lying Cambridge, that a pumping station would be installed.
As soon as the sewer was discovered, Mr. Facer invited Sindall to discuss what could be done. His view was that the most practical solution was to link Greystoke Court with the new sewers for Sindall's scheme. Cambridgeshire, in a response on 24th January 1991 to Sindall's rescission letter of 20th December 1990, also said that the sewer could be diverted and invited discussions. Sindall did not accept either of those invitations. Eventually Cambridgeshire decided to prove that the sewer could be diverted even without Sindall's cooperation. It constructed an underground pumping station on the land of Greystoke Court and a new sewer to a manhole in another street. The new work was entirely off the site and by the time of the trial the offending sewer had been abandoned. The total cost to Cambridgeshire was about #54,000.
At the trial, Sindall's case remained that there were no solutions. Even the diversion which had actually been constructed was for various reasons inadequate and anyway had taken too long, but the judge rejected Sindall's technical criticisms. He found that it would have been feasible to join Greystoke Court to Sindall's new sewers in the way Mr. Facer had first contemplated. Furthermore, the fall would have been sufficient to allow the system to drain without having to be pumped.
Mr. Sher has criticised these findings. He says that until the commencement of the trial, Cambridgeshire seemed content to rely upon the diversion it had actually constructed as its evidence that the problem was soluble. The alternative of diversion into the Sindall sewer had merely been mentioned as a possibility, but was neither particularised in the pleadings or supported by expert evidence of feasibility. Only in the course of the evidence of Sindall's drainage expert, Mr. Balfour, did Cambridgeshire's expert, Mr. Clasby, produce a supplementary report containing the technical calculations for a diversion into the Sindall sewer.
I do not think that there is anything in these objections. Sindall had before the trial began (i) the correspondence showing that in 1990 Mr. Facer was recommending a link with the new sewer (ii) Mr. Facer's witness statement saying that it could have been done, and (iii) the statement of Cambridgeshire's surveyor and valuer, Mr. Squier, listing this as an option and estimating what it would have cost. There was no application for adjournment when Mr. Clasby's supplementary report was produced. In my judgment there was evidence upon which the judge was entitled to find that diversion into the Sindall sewer was feasible.
But the finding that diversion would have been technically feasible takes Cambridgeshire only part of the way. It might still have taken too long or interfered too much with the approved lay out. Both of these would have meant that in commercial terms the sewer was still a serious problem. The judge considered first the question of interference with the lay out. He said that the diversion would have meant having to change the lay out with an overall loss of seven houses and three flats.
On this finding, both sides agree that the judge unfortunately made a mistake. He confused the evidence about what would happen if the sewer could not be diverted with the evidence about the consequences of a diversion. The latter would have involved at most the loss of one plot for a three bedroomed house.
This mistake led the judge into another. Because the judge thought that a diversion would involve a substantial redesign of the lay out, he also thought it would need a new application for approval of reserved matters. This would have faced Sindall with two problems; first, all applications for approval of reserved matters had to be submitted by 25th March 1991, and secondly, the Cambridge planning committee had been difficult in the past and might well be difficult again. In fact, however, there would have been no need to go back to the planning committee at all. Mr. Egerton, the Cambridge planning officer, said that he would have regarded the deletion of one house to run the sewer across the plot as a minor amendment which he could and would have approved by letter under his delegated powers. This means that it could have been done very quickly.
Sindall would of course have had to submit its engineering designs for the diverted sewer, but then it still had to submit the designs for its own system anyway. Incorporating the Greystoke Court system would have complicated these but there was no evidence to show that this would have caused substantial delay. Mr. Facer, who would have had to decide whether to commit the City to a Section 18 agreement, looked at the data produced at the trial by Mr. Clasby and said that he would have been satisfied. Laying sewers is not high technology (though lasers are now more accurate and convenient for measuring levels than pieces of string) and it therefore seems to me no more than gloomy speculation to say that a solution which the judge has found to be technically feasible would have involved undue delay.
Mr. Sher said that it was all very well for the judge to find after hearing evidence two years later that diversion was technically feasible. One must look at the matter as it appeared to Sindall at the time. Its daily interest cost of #2,200 meant that it required a speedy and certain solution. At the time, however, there was considerable uncertainty. It was not certain whether the sewer was public or private and it could not be certain that diversion was possible. In fact its managing director Mr. Fleet, who had practical experience of sewers, had considered the matter and decided that it would not work.
I do not think that it is open to Sindall to say now that there was uncertainty. Apart from an initial letter on the day after the discovery of the sewer when Mr. Facer said he thought it might be public, the consistent view of the lawyers for the City, Cambridgeshire and Anglian was that it was private. It was only Sindall who were attempting to create uncertainty, and in refusing to explore a technical solution, I think Sindall took its chance on being found to be right in its view that no diversion was feasible. The judge having found that Sindall was wrong, I do not think it can now say that it could not have been expected to know this at the time. It could have found out from Mr. Facer easily enough. If he was willing to enter into a section 18 agreement, Sindall would have had no further problem. The judge accepted his evidence that he would have done so.
The question of delay must also be considered against the background of Sindall's plans for the site. Detailed planning consent had been obtained early in September. The architect Mr. Thomson had been instructed to proceed with the work for construction of a first phase of development, but the view of the chairman Mr. Mott was that Sindall would probably not have built any houses. Instead, he would have recommended that it sell the site. But no decision to this effect had been made by the end of October. Sindall's surveyor said that in the depressed market of the time it would have taken three to six months at least to find a purchaser at any price. On the judge's findings of feasibility and the willingness of the City to co operate, there was in my view sufficient time to find a solution before the presence of the sewer could put any difficulty in the way of whatever plans Sindall might have had for the site.
In my judgment, therefore, the sewer was a defect in title but not in practice a serious problem. I can now consider the law.
3. Contract and Transfer.
(a) General Principles
Undisclosed defects in title such as easements are a common hazard in conveyancing and the transaction traditionally provides in some detail for what is to happen if they appear. In the absence of contrary provision, the obligation of a vendor under a contract for the sale of land is to deduce a good title. Until this has been done, the purchaser cannot be required to take a conveyance and pay the price. It is customary, however, for a vendor, by means of standard and special conditions, to restrict his obligation to having to show only such title as he is confident he will be able to deduce. Such conditions require the purchaser to accept the risk that the title for which he has contracted will turn out to be in some other respect defective. This risk is mitigated by law and custom in various ways. One is that the vendor is under a duty to disclose any defects of title of which he knows or has the means of knowledge. Another is that a purchaser can search in the Land Registry and Register of Local Land Charges for registrable encumbrances and make enquiries of the local authority about others of a public nature. He will commonly also submit Enquires before Contract to the vendor, asking specific questions about possible encumbrances. The vendor's answers will constitute representations on which the purchaser will ordinarily rely when entering into the contract. If they turn out to be wrong he will have the normal remedies for misrepresentation.
At completion the purchaser accepts the title offered by the vendor and the latter's contractual obligations to deduce title are discharged. They are replaced by qualified covenants for title expressed or implied in the conveyance or transfer. Until the Misrepresentation Act 1967 the purchaser's remedy for misrepresentation was (in the absence of fraud) also extinguished by completion, and he was left with no remedy except the covenants for title. But Section 1 of the Act provides that completion shall not be a bar to rescission for innocent misrepresentation.
(b) Terms of the contract and Transfer
In this case the contract incorporated the National Conditions of Sale (20th edition) including Condition 14:
"Without prejudice to the duty of the vendor to disclose all latent easements and latent liabilities known to the vendor to affect the property, the property is sold subject to any rights of way and water, rights of common and other rights, easements, quasi easements, liabilities and public rights affecting the same."
For good measure, Special Condition 17 covered the same ground:
"The purchaser shall be deemed to purchase with full notice of and subject to: ... (e) all easements quasi easements rights and privileges (whether of a public or private nature) now affecting the Property but without any obligation on the part of the Vendor to define the same."
Prima facie, the sewer was an easement and therefore these conditions would have required Sindall to accept the title notwithstanding its existence. In any case, Sindall accepted the title at completion before it knew of the sewer. Cambridgeshire executed a transfer as a beneficial owner and thereby impliedly covenanted that the land was not subject to any encumbrances to which the transfer was not expressed to be subject: See Section 76 of the Law of Property Act 1925. But the transfer expressly provided that:
"The Property is sold subject to the following matters: ...
(f) all rights of way water and other easements (if any) affecting the property."
(c) Construction
Applying these clauses, the judge held that the presence of the sewer was not a breach of the vendor's obligations under either contract or conveyance. Mr. Sher submits that as a matter of construction he was wrong. General words such as "all easements" in the contract and conveyance should be narrowly construed. They are not, he says, intended to apply to encumbrances which substantially affect the purchaser's ability to use the land in the way contemplated by the contract.
It is, of course, a principle of construction that words capable of bearing a very wide meaning may have to be given a narrower construction to reconcile them with other parts of the document. This rule is particularly apposite if the effect of general words would otherwise be to nullify what the parties appear to have contemplated as an important element in the transaction. But I have no difficulty in reconciling Conditions 14 and 17 (e) with the essential obligations assumed by Cambridgeshire under the contract. It was selling the land with planning permission but, as in all sales of land, was not warranting that it was fit for any particular purpose. It was undertaking to disclose all easements and incumbrances of which it had knowledge or means of knowledge. Subject to that important exception, it required the purchaser to take the risk of incumbrances which might affect its ability to use the land. It is, in my view, impossible to construe the contract as also exposing Cambridgeshire to liability for certain incumbrances of which it had no knowledge or means of knowledge.
Mr. Sher suggested that the language should not be construed so as to apply to incumbrances which Cambridgeshire or its statutory predecessor had suffered to be created, or to incumbrances which seriously interfered with the contemplated use of the land, or possibly to incumbrances which satisfied both these criteria. In my judgment, neither restriction is justified. The statutory covenants for title already exclude liability for incumbrances created by a predecessor in title for value. If the exclusion in the transfer did not apply to incumbrances created by the transferor or a predecessor other than for value, it would serve little additional purpose. Nor is there any basis in the language for distinguishing between one easement and another according to how seriously they affect the use of the land. In any case, this submission would in my judgment fail on the facts, because the sewer did not seriously interfere with the use of the land.
(d) Adverse possession
Mr. Sher further submits that the sewer was more than an easement. The airspace within the pipe was a section of the land to which the City had acquired freehold title by adverse possession. If it was not an easement but a missing piece of land, then it would not fall within Conditions 14 or 17 (e) or the exclusions from the covenants for title in the transfer.
Possession for the purposes of acquiring title by limitation requires both physical possession and the intention to possess. The fact that the City has never made any claim to own the pipe or airspace is an unpromising start to showing that it had the intention to possess. In any case, allowing sewage to pass down the pipe is not, in my judgment, an act of possession. It is no more than the exercise of a right under an easement: see Littledale v. Liverpool College [1990] 1 Ch. 19. It is true that no one else used the pipe but that cannot affect the question of whether the use by the City was an act of possession. Use of land as a right of way, for example, does not become an act of possession because no one else goes upon the land.
4. Misrepresentation
In the absence of a remedy in contract or covenant, one turns to the pre contractual representations made in the Replies to Enquiries before Contract. Cambridgeshire provided Sindall with answers to enquiries in the 1984 edition of the standard Oyez Conveyancing 29 (Long) form. Did any of these answers constitute an actionable misrepresentation?
(a) The Principal Representation
The enquiry most squarely directed at encumbrances such as the sewer was No 7, of which the relevant words read as follows:
"Is the Vendor aware of any rights... specifically affecting the property, other than any disclosed in the draft contract or immediately apparent on inspection, which are exercisable by virtue of an easement... or which are in the nature of public...rights?"
Sindall also relies upon the answers to certain other enquiries, but I shall defer consideration of these until I have dealt with this critical question. Cambridgeshire's answer to Enquiry 7 was in the traditional form: "Not so far as the Vendor is aware." Was this a correct answer?
It is well established that a statement that a vendor is not aware of a defect in title carries with it an implied representation that he has taken reasonable steps to ascertain whether any exists. (compare Brown v. Raphael [1958] Ch. 636). This may require him, in the first instance, to examine his title deeds and other records, inspect the property, and obtain legal advice. If there is anything to put him on inquiry as to the existence of a defect, he may have to pursue the matter further by questioning others, or examining their documents. Thus, in Heywood v. Mallallieu (1883) 25 ChD 357, a house sold at auction by a mortgagee "subject to any easements" turned out to be subject to an easement in favour of a neighbour which entitled her to come and wash her clothes in the kitchen. The vendor's solicitor had been told that the neighbour claimed such a right but made no inquiries because he "was not going to put other people on their guard about mere claims". Vice Chancellor Bacon said that this was not good enough. The vendor was put on inquiry and had a duty to investigate the claim further. He dismissed the vendor's action for specific performance. In my judgment, therefore, the answer "Not so far as the Vendor is aware" represents not merely that the vendor and his solicitor had no actual knowledge of a defect, but also that they have made such investigations as could reasonably be expected to be made by or under the guidance of a prudent conveyancer.
(b) Cambridgeshire's Pre Contract Investigations
The answer was drafted by Mr. John Scott, a Principal Legal Executive employed by Cambridgeshire. His "client" within the Cambridgeshire organisation was Mr. Harradine of the Property Department, which had instructed Prudential Property Services ("Prudential") to market the site. For this purpose it was necessary to prepare a package for prospective tenderers which included the Sale Particulars, Special Conditions of Sale and answers to Enquiries before Contract. Mr. Scott drafted the latter two documents in consultation with Mr. Harradine and Mr. Russell of Prudential.
Mr. Scott obtained the deeds from the County Archivist and inspected them. They showed that most of the site had been acquired in about 1955 1957 by the Cambridgeshire and Isle of Ely County Council ("Cambridge and Ely") for the purposes of Netherhall School. In the local government reorganisation of 1974 Cambridge and Ely had been dissolved and its property and functions, together with those of the former County of Huntingdon and Peterborough, had been transferred to the newly created Cambridgeshire. If Cambridge and Ely or Cambridgeshire had granted an easement, one would expect a counterpart of the deed of grant to be with the other deeds.
Next, Mr. Scott obtained from the County Archivist the correspondence file relating to the Netherhall School site. This was principally to have somewhere to file his own letters concerning the transaction, but he read the earlier correspondence. Mr. Scott also walked around the site to see if there was anything apparent which might be important. He spoke to his "client" Mr. Harradine. The Property Department had its own files, going back about ten years. The practice was for earlier files to be destroyed. He looked at his current file and also inspected the site.
None of these enquiries gave any indication of the existence of a sewer across the site. Of course, Mr. Scott was not looking for a sewer. He was looking in general terms for anything which might put him on inquiry as to the existence of an incumbrance, but he found nothing. The City maintained a map of all public sewers within its area. This was compiled pursuant to a statutory duty under Section 32 of the Public Health Act 1936. Prudential examined this map. It contained no record of a sewer across the site.
Was there any other inquiry which Mr. Scott or Mr. Harradine should reasonably have made? Subsequent research into the creation of the sewer has shown that within the records of Cambridgeshire and elsewhere, documents existed which would have revealed its existence. Sindall says that these documents should have been found. In order to deal with these submissions, I must describe how the sewer had actually come into existence.
(c) The Laying of the Sewer.
Greystoke Court was built by the City in 1970. When the plans were drawn up in 1969, it was found that the levels did not permit a connection into the public sewer in Cherry Hinton Road. It was therefore necessary to construct a drain across the Netherhall School playing fields to the south west to Gunhild Way. The City Housing Committee, which was responsible for the development, asked the City Surveyor to negotiate with Cambridge and Ely for an easement. The City Surveyor replied that there was no need to negotiate. The City had a statutory power under Section 15(1)(b) of the Public Health Act 1936 to construct a public sewer across the land. All that was necessary was to give reasonable notice to Cambridge and Ely and afterwards restore the land to its satisfaction.
Cambridge and Ely owned the land for the purposes of its functions as local education authority, but pursuant to a scheme made under the Education Act 1944, Cambridge and Ely had delegated its educational functions within the City of Cambridge, including the provision of school buildings and playing fields, to the City. Cambridge and Ely retained ownership of the land and responsibility for paying the City's expenses. It was therefore the City which was in actual occupation of Netherhall School and its grounds. In the first instance, therefore, the City Surveyor gave the City Education Officer informal notice of the intention to lay the sewer. The minutes of the City Education Committee on 14th July 1970 record that the Chairman of the Committee and the Chairman of the School Governors had given consent.
The first indication of any notice being given to Cambridge and Ely, as owner of the land, is in June 1970, when the City Education Officer notified the Chairman of the County Education Committee. As a result the City Surveyor was instructed to enter into negotiations with the County Land Agent, who was the Cambridge and Ely predecessor of Cambridgeshire's Property Department, over the sum of compensation to be paid to Cambridge and Ely for the sterilisation of the six meter maintenance strip which would have to be kept open over the sewer. On 27th July 1970 the County Land Agent wrote asking for #225. The City Surveyor thought this was too much and after a meeting in October, #165 was agreed. This was approved by the County Education Committee and the agreement recorded in its minutes.
Although the City Surveyor had originally recommended that the City use its statutory powers to construct the sewer as a public sewer, the Town Clerk was in some doubt as to whether it had effectively done so. No formal notice under Section 15 of the Public Health Act 1936 had been served upon Cambridge and Ely. The Town Clerk therefore telephoned the County Clerk's department (the Cambridge and Ely predecessor of Cambridgeshire's Legal Section) and asked whether Cambridge and Ely would grant a formal wayleave. The County Clerk's representative did not think that this was necessary. Section 15 prescribed no form for notice of intention to construct a public sewer and in his view the notification given to the Chairman of the Education Committee and the County Land Agent was probably good enough. The Town Clerk's attitude was that if this was good enough for the Clerk of the County Council it was good enough for him. His memo to that effect dated 25th November is endorsed "No easement required. Relying on Public Health Act powers."
It would therefore appear that both the City and Cambridge and Ely thought that the City had constructed a public sewer, but although Section 20(2) of the Public Health Act 1936 defines "public sewer" to include any sewer constructed by a local authority at its own expense, there is a proviso excluding sewers which are constructed only for the purpose of draining the authority's own property. These are not public until the authority has declared them to be such. There was no evidence of any declaration by the City and the sewer was, as I have mentioned, never entered on the statutory map. The judge accordingly held that the sewer never became a public sewer and against this finding there is no appeal. He held that in one way or another the City had acquired a private easement; possibly by acquiescence or proprietary estoppel, possibly even by prescription. There is equally no challenge to the finding that an easement existed.
(d) The Documentation
The whole of the information contained in the above account of the laying of the sewer comes from research undertaken since the sewer was discovered on 30th October 1990. Most of the information is contained in old files retained by the City, but the transaction left two traces in the records of Cambridge and Ely which had been retained by Cambridgeshire. The first was in the minutes of a meeting of Cambridge and Ely's Education Sub committee, held on 24th November 1970, which recorded as item 34 that a payment of #165 had been negotiated by the County Land Agent in respect of the construction of a foul water sewer at Netherhall Secondary School. The second was a closed file of the Cambridge and Ely County Land Agent which had mysteriously found its way into the Cambridgeshire archives. It dealt principally with the negotiation of compensation for the laying of another sewer in Birdwood Road, but towards the end of the file the Birdwood Road correspondence also began to deal with the Netherhall School sewer. It was referred to in Sindall's pleadings and the evidence as "the Birdwood Road file."
The sewer made a second appearance in recorded history in 1972, when the City, as delegated Education Authority, constructed a Youth Centre on the site. It instructed architects, Messrs. Saunders Boston of Cambridge, who applied to the City for planning permission in the name of Cambridge and Ely as owners of the land. The plans first submitted showed the proposed building sited directly over the sewer. The City planners pointed this out and the building was resited, with its own drain connecting into the sewer. The City planning department and Messrs. Saunders Boston still have documents which record these events, although they left no trace in any surviving file of Cambridge and Ely.
(d) Should Cambridgeshire have found the documents?
Mr. Sher said that some at least of the documents
I have mentioned should have come to the attention of Mr. Scott or Mr. Harradine in the course of their investigation of the title. He did not urge very strongly that they should have read systematically through the minutes of the County Education Committee for the past 20 years or more. The Committee generated three or four inches thick of material each year and it could not be expected that they would reveal an encumbrance not noted with the title deeds. It would not merely be looking for a needle in a haystack but sifting the haystack in case there was a needle which no one had any reason to think had been lost.
Mr. Sher did, however, insist that Mr. Harradine should have unearthed the Birdwood Road file. He had not asked the County Archivist for any Netherhall School property files from the Property Department, ci devant County Land Agent, to be stored in the archive. This was true. Since re organisation in 1974 they were either kept in the basement of the Property Department's premises in Huntingdon, or destroyed. No one could explain how the archivist came to have the Birdwood Road file. In any case, Mr. Harradine would have had no reason to know that hidden within the Birdwood Road file were references to Netherhall School. The only way in which the file was eventually traced was by reference to its number which appeared on letters from the County Land Agent in the possession of the City.
The judge held that without any lead to go by, Mr. Harradine would have had no reason to search the archive, let alone the Birdwood Road file. I agree.
Next Mr. Sher says that Mr. Scott should have searched the City's planning files relating to the construction of the Youth Centre. These, together with the Saunders Boston files to which he would have been led would have revealed the sewer. The Youth Centre formed part of the land sold to Sindall, who were planning to demolish it. Mr. Scott therefore had no obvious reason to research the circumstances in which planning permission had been granted for its construction nearly 20 years earlier. Mr. Sher says, however, that he should have investigated the construction in order to answer another of the Enquiries before Contract. This was No. 5, of which the relevant part reads as follows:
"(a) Does the property have drainage... Services? Which of them are connected to the mains?
(c) Do any of the services (except where part of the mains) pass through or over property not included in the sale?"
Mr. Sher says that in order to answer this question properly Mr. Scott needed to know how the Youth Centre was drained. In fact, it drained into the sewer and the sewer, before reaching the public manhole in Gunhild Way, did pass through property not included in the sale, namely a retained part of Netherhall School. Mr. Scott could have obtained this information by looking at the original construction plans in the possession of Saunders Boston, which he could easily have traced through the City planning file. Instead Mr. Scott made no investigation of the drains of the Youth Centre and answered Enquire No. 5 in very general terms:
"It is understood that mains services are available to serve the land from service media in the adjoining highway. However, connection to these services cannot be guaranteed and prospective purchasers should make their own enquiries of the appropriate statutory undertakings, etc."
Mr. Scott says that he did not investigate the drainage of the Youth Centre because the building was about to be demolished and it did not seem to him to matter. Mr. Sher says that he was wrong: the site as a whole would have been entitled to a Wheeldon v. Burrows [1879] 12 ChD 31 easement to use the part of the sewer passing through Cambridgeshire's retained land and Sindall should have been told of this in answer to Enquiry 5(C). But Sindall's solicitors did not press for a specific answer to Enquiry 5(C), so it does not seem to have mattered to them either. The fact that Mr. Scott might, if pressed in relation to 5(C), have made investigations which would have turned up information relevant to Enquiry 7 does not mean that his investigations in relation to the latter Enquiry were inadequate.
(e) A representation as to adequacy of records?
Mr. Sher submitted that even if Mr. Scott and Mr. Harradine had made reasonable investigations into the records available to them, these records were inadequate. Cambridge and Ely had failed to note the construction of the sewer against its title deeds. It had destroyed the County Land Agent's files for the relevant period and misfiled the compensation correspondence with that relating to Birdwood Road. It had no files relating to the Youth Centre planning application which had been made in its name in 1972. Mr. Sher said that the answer "Not so far as the Vendor is aware" implies a representation not only that reasonable investigations have been made but also that the vendor and his predecessors in title (or at any rate those through whom he claims otherwise than for value) have kept proper records which would disclose any incumbrance3s they have suffered or created and which ought reasonably to have been recorded.
In my judgment there is no implied representation of the breadth proposed by Mr. Sher. I agree that the implied representation that reasonable investigations have been made also implies that the vendor's records are not in such a state that a reasonable conveyancer would realise that they were inadequate for the purpose of enabling him to answer the question. If it is apparent that the deeds have been eaten by mice or destroyed by enemy action, the vendor must disclose these facts, but I do not think that there is any implied representation as to the efficiency of the vendor's record keeping.
In any case, I do not think that the charge of inadequate record keeping has been made out. The Cambridge and Ely County Clerk never consented on its behalf to the creation of a private encumbrance over the land. He agreed only to accept that Cambridge and Ely had been given reasonable notice of the intention of the City to construct a public sewer. This was a pre condition to the exercise by the City of a unilateral right under section 15. Thereafter it was the City's obligation to regularise the position by making a declaration under Section 20(2) that the sewer was public and recording its presence on the statutory map. Because the powers were exercisable unilaterally, there was nothing more for Cambridge and Ely to do. It was, therefore, in my judgment reasonable for the County Clerk not to think that his Council had created or suffered any incumbrance which needed to be noted against its deeds.
Equally, there was in my view nothing unreasonable about the destruction of the old records. The place for the record of any transaction of permanent significance relating to the title is with the deeds. If, for the reasons I have explained, this did not need to be done, I think that after a lapse of years Cambridgeshire were entitled to destroy the ephemeral correspondence files on the subject. The judge held that if Cambridge and Ely had owed Sindall any duty of care in keeping and maintaining its records, he would have held that it has been negligent. I do not agree.
(f) A representation as to notices
Sindall relies in the alternative on the answer to Enquiry 3. This reads as follows:
"Please give particulars of all notices relating to the property, or to matters likely to affect its use or enjoyment, that the Vendor (or, to his knowledge, any predecessor in title) has given or received."
The answer was "None, except notices required in respect of the deemed planning approval."
Sindall says that this answer failed to disclose the deemed notice which Cambridge and Ely had been given by the City in 1970 under section 15 of the Public Health Act 1936. At the trial Cambridgeshire conceded that this was a "notice" within the meaning of the question which," other things being equal", it should have disclosed. In this court, Mr. Etherton QC, who appeared for Cambridgeshire, asked leave to withdraw that concession. Since the point is entirely one of construction and independent of evidence which could have been called at the trial, we gave leave.
What in the context of this question is meant by a "notice"? In my judgment it means a notice, whether oral or in writing, which affected and continues to affect the legal rights of the vendor as owner of the land. It does not include a notice which once affected his rights but no longer does so. So, for example, a notice to quit served many years before upon a departed tenant would not ordinarily fall within the scope of the question. On the other hand, a notice exercising a rent review clause would be for this purpose a notice until the rent period for which it had been given had expired.
The effect of the notice under Section 15 was to permit the City to come upon the land and construct a public sewer. It legitimated an act which would otherwise have been a trespass. But by 1988 the effect of the notice was wholly spent. The sewer had been laid and any remedy for the trespass, which apart from the notice would have been committed was long since statute barred. The notice no longer had any effect whatever upon the rights of Cambridgeshire as owner of the land. Mr. Sher said it was the notice which had created the easement. I do not agree. The easement would have been created by the construction of the sewer and the acquiescence of Cambridgeshire, whether a notice had been given or not. It formed part of the history of these events, but had in itself no effect upon the rights of the parties.
For this reason, the answer to Enquiry 3 involved in my judgment no misrepresentation. There was, however, lengthy argument, both before the judge and in this court, as to whether, even on the basis of the original concession, the terms of the question required the notice to be disclosed. The question was unqualified as to notices served upon the vendor itself, but qualified as to notices served upon a "predecessor in title" by a requirement of knowledge. The judge held, consistent with his view on the answer to Question 7, that Cambridgeshire had no knowledge or reasonable means of knowledge of the giving of the notice. If, therefore, Cambridge and Ely was for this purpose a "predecessor in title", the question was correctly answered. If it was not, or the notice must be treated as having been served upon Cambridgeshire, then, on the basis of the concession, the answer was wrong.
Mr. Etherton took a new preliminary point on this answer. He pointed out that the standard form prefaced all the answers with the words: "They are believed to be correct but the accuracy is not guaranteed and they do not obviate the need to make appropriate searches, enquiries and inspections." Mr. Etherton said that the effect of these words was that all answers must be treated as if they were qualified by reference to the vendor's knowledge or reasonable means of knowledge. They cannot be taken as unqualified representations.
I do not agree. If this were the case, a question like Enquiry 3 would not distinguish, as it does, between notices served on the vendor (as to which an unqualified answer is required) and notices served on his predecessor in title, where the answer is qualified as to knowledge. In my judgment the words in question mean only that the answers do not constitute collateral warranties. They are mere representations, for which he may be liable in damages under Section 2 of the Misrepresentation Act 1967 if he was negligent, but not otherwise. This is in my view the effect of the decision of this court in Cremdean Properties Ltd v Nash, (1977) 244 E.G. 547.
Was Cambridge and Ely a "predecessor in title" of Cambridgeshire? Section 1 of the Local Government Act 1972 and its schedules brought Cambridgeshire into existence and provided that Cambridge and Ely (and Huntingdon and Peterborough) should cease to exist. Section 254 gave the Secretary of State power to make consequential provision with respect, inter alia, to the transfer of property. Under this power the Secretary of State made the Local Government Authorities (England) (Property etc.) Order, S.I. 1973/1861. Article 16(3)(a) provided that:
"All property...vested in... [Cambridge and Ely]... shall by virtue of this order be transferred to and vest in... [Cambridgeshire]."
This is a straightforward transmission by operation of law. Cambridge and Ely was therefore the predecessor in title of Cambridgeshire.
Mr. Sher says that while this might be true as a matter of law, the answers given by Cambridgeshire must be read in the light of the "Additional Information" appended to the answers which drew the attention of tenderers to the possibility of the claim to pre emptive rights (or legitimate expectations) which Sindall made in its judicial review proceedings. It spoke of the previous owners from whom the Council acquired the land under its statutory powers as the education authority" and said that these owners were claiming that "the Council" should first offer the land to them. Here, says Mr. Sher, Cambridgeshire was using "the Council" to refer indifferently to itself and Cambridge and Ely. This amounted to a private dictionary which entitled other answers to be read on the assumption that "the vendor" included Cambridge and Ely.
I do not agree. It seems to me that in the context of the Additional information it would have been pedantic to distinguish between Cambridgeshire and Cambridge and Ely. But Enquiry 3 expressly requires such a distinction to be made. I therefore do not think that the answer to Enquiry 3 and still less the question itself can be construed by reference to the Additional Information.
Sindall says next that the notice served upon Cambridge and Ely is deemed by statute to have been served upon Cambridgeshire. It prays in aid the general policy of the Act and regulations which effected the local government reorganisation to:
"ensure that the reorganisation would not affect events which would otherwise have occurred further than is absolutely necessary because of that reorganisation. That the public should be able to look to the new authority precisely in respect of those matters which it could look to the old authority; that the public's position should be no better or no worse."
(Per Woolf J. In Walters v. Babergh District Council, (1983) 82 LGR, 235, 242). In this case, however, the parties have framed a question of fact which expressly distinguishes between the new authority and its predecessor and it would therefore be not altogether surprising if this produced a different answer. The new councils inherited all the rights and duties of the old councils but not their histories.
For the proposition that the notice must be deemed to have been served upon Cambridgeshire Sindall relies upon various transitional provisions in the Act and regulations. The first is section 192(5), dealing specifically with education. The relevant parts read as follows (the words relied upon being underlined):
"Subject to sub section (6) below any instrument made by an existing local education authority for an area outside Greater London in connection with the discharge of any of their functions, and any other thing done by or in relation to such an authority in connection therewith, shall be treated as having been made or done by or in relation to the new local education authority to whom those functions are transferred by or by virtue of this Act, and any instrument relating to the exercise of those functions, or to things done in their exercise or property held or maintained for the purposes of those functions, shall, so far as it so relates, have effect as if any reference to a specified existing local authority...were a reference to the new local education authority..."
Sindall says that the giving of the Section 15 notice was a thing done in relation to Cambridge and Ely, the former education authority, which thing must therefore be treated as having been done in relation to Cambridgeshire, the local education authority to which its functions were transferred. But the deeming provision applies only to things done to a local education authority "in connection with the discharge of any of [its] functions." Further, the section distinguishes between the exercising of the authority's functions and the holding or maintaining of property "for the purposes of those functions." In other words, the holding of property is not in itself an educational function.
The section 15 notice was not given to Cambridge and Ely in connection with the discharge of any of its educational functions, but simply as owner of the land. In view of the clear distinction made between the discharge of educational functions and the holding of property for the purposes of those functions, it seems to me that the fact that Cambridge and Ely held the land for the purpose of discharging educational functions does not necessarily entail that the notice was given in connection with those functions. In my judgment it was not.
A similar analysis applies to the next provision upon which Sindall relies, and upon which the judge found in its favour. This is Section 254(3), of which the relevant parts read as follows:
"Subject to sub section (5) below any of the following things done...to or in relation to an existing local authority outside London in connection with the discharge of any of their functions, that is to say
...
any notice...given or treated as given...to such an authority
...
shall, as from 1st April 1974, be treated as having been done...to or in relation to the new local authority by whom those functions become exercisable on or after that date..."
This provision is also confined to notices given to Cambridge and Ely "in connection with the discharge of any of [its] functions." But this notice was also not in my view given in connection with the discharge of any local authority function. It was given to Cambridge and Ely as owner of land which it held for the purposes of its educational functions.
The provision as to notices in Section 254(3) may be contrasted with Article 16(3)(b) of the Local Government Authorities (England)(Property etc.) Order to which I have already referred. This says:
"...all notices in force which were given or have effect as if they were given...to [Cambridge and Ely] shall be of full force and effect...against [Cambridgeshire]."
These provisions clearly apply to local authorities in their capacity as owners of land and Sindall relies upon them. But they are confined to notices "in force" and for the reasons I have already given, the section 15 notice was not in my judgment in force at the material time.
It follows that even if, contrary to my view, the section 15 notice was a notice within the meaning of Enquiry 3, the answer involved no misrepresentation. Cambridgeshire had not been served and was not deemed to have been served with the notice and had no knowledge or means of knowledge of the notice served upon Cambridge and Ely.
(g) Other misrepresentations
Sindall alleges a further misrepresentation in the answer to Enquiry before Contract 6A:
"...what rights are there for the use of the following facilities, whether enjoyed by the owner or occupier of the property, or over the property for the benefit of other property"
...
Pipes and wires for services not dealt with in Enquiry 5..."
The answer was "None so far as the Vendor is aware, except as may be revealed in the Particulars of Sale and the Conditions of Sale." Since Enquiry 5 dealt with drainage, I am not sure that Enquiry 6A had any application to the sewer, but in any case, the answer takes the matter no further than the answer to Enquiry 7. For similar reasons it was not in my judgment a misrepresentation.
Sindall also claims that two of the Special Conditions of Sale amounted to implied misrepresentations. They were 28 ("The Vendor sells as Beneficial Owner") and 29 ("The Property is sold with vacant possession on completion.") It is said that these promises carried an implied factual representation that the vendor had a good right to convey free from incumbrances and that there was nothing physically on the land which was inconsistent with vacant possession. I have some doubt as to whether either of these promises amounted to implied representations of any existing fact. I have even more difficulty with the proposition that the existence of an easement of drainage through a pipe which has been laid in and become part of the land in any way detracts from vacant possession. But in my judgment the short answer is that the Conditions must be read as a whole and that they incorporated National Condition 14 and Special Condition 17(e), both of which made the sale subject to any easements. I have already explained why in my judgment the sewer fell within these conditions. It is in my judgment quite impermissible to ignore these provisions and construe the general promises in conditions 28 and 29 as representations that there are no such easements. The judge accepted this argument in respect of condition 28, but, for reasons which I do not understand, rejected it in respect of condition 29.
The judge also treated National Condition 14 and Special Condition 17(e) as exclusion clauses which have to satisfy the test of reasonableness in accordance with Section 3 of the Misrepresentation Act 1967. In my judgment they are nothing of the kind. Section 3 deals with provisions which exclude or restrict a party's liability for "any misrepresentation made by him before the contract was made." The clauses in question do not exclude a liability for misrepresentation but go to the question of whether there was a misrepresentation in the first place. They qualify the obligations to convey as beneficial owner and give vacant possession and therefore qualify any representation which could be implied from having undertaken these obligations.
(h) Conclusions on misrepresentation
The judge found that there was no misrepresentation in the answers to Enquiries 6A and 7. I agree. He found that there had been a misrepresentation in the answer to Enquiry 3 only because he considered that by virtue of Section 254(3) of the Local Government Act 1972 the notice under section 15 of the Public Health Act 1936 must be deemed to have been given to Cambridgeshire. I do not think that section or any other statutory provision had this effect. I would therefore hold that there was no misrepresentation in the answer to Enquiry 3. The judge also held that the offer to contract upon Special Conditions 28 and 29 prima facie involved misrepresentations. In my judgment it was wrong to construe the proposed contract in this way. I therefore reject altogether the claim based upon misrepresentation.
4. Mistake.
The judge found that in the absence of any actionable misrepresentations Sindall was entitled to rescind the contract for a common mistake as to the existence of a sewer. This is at first sight a startling result. As Steyn J. said in Associated Japanese Bank [International] Ltd v. Credit du Nord SA, [1989] 1 WLR 255, 268:
"Logically, before one can turn to the rules as to mistake, whether at common law or in equity, one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary. Only if the contract is silent on the point is there scope for invoking mistake."
When the learned judge speaks of the contract allocating risk "by express or implied condition precedent or otherwise" I think he includes rules of general law applicable to the contract and which, for example, provide that, in the absence of express warranty the law is caveat emptor. This would, in my view, allocate the risk of an unknown defect in goods to the buyer, even though it is not mentioned in the contract. Similarly, the rule in Hill v. Harris, [1965] 2 QB 601, that a lessor or vendor does not impliedly warrant that the premises are fit for any particular purpose means that the contract allocates the risk of the premises being unfit for such a purpose. I should say that neither in Grist v. Bailey,
[1967] Ch. 532, nor in Laurence v. Lexcourt Holdings Ltd, [1978] 1 WLR 1128 did the judges who decided those cases at first instance advert to the question of contractual allocation of risk. I am not sure that the decisions would have been the same if they had.
In this case the contract says in express terms that it is subject to all easements other than those of which the vendor knows or has the means of knowledge. This allocates the risk of such incumbrances to the buyer and leaves no room for rescission on the grounds of mistake.
5. Discretion.
My conclusion that there are no grounds for rescission, either for misrepresentation or mistake, means that it is unnecessary to consider whether the judge correctly exercised his discretion under Section 2(2) of the Misrepresentation Act 1967 not to award damages in lieu of rescission. But in case this case goes further, I should say that in my judgment the judge approached this question on a false basis, arising from his mistake about the seriousness of the defect. This vitiated the exercise of the discretion and would have made it necessary, if we thought that Sindall would otherwise have been entitled to rescind for misrepresentation, to exercise our own discretion under Section 2(2).
The section reads as follows:
"Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be, or has been, rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party."
This provision was adopted as a result of the Tenth Report of the Law Reform Committee, (1962) Cmnd. 1782, which also recommended abolishing the bar on rescission after completion. The relevant paragraphs of the Report were 11 and 12:
"11. A more fundamental objection which may be advanced against our recommendation [to abolish the bar on rescission after completion] concerns the drastic character of the remedy to which the plaintiff would be entitled. Unless the court's power to grant rescission is made more elastic than it is at present, the court will not be able to take account of the relative importance or unimportance of the facts which have been misrepresented. A car might be returned to the vendor because of a misrepresentation about the mileage done since the engine was last overhauled, or a transfer of shares rescinded on account of an incorrect statement about the right to receive the current dividend. In some cases the result could be as harsh on the representor as the absence of a right to rescind under the current law can be on the representee. Moreover, the conflict between remedies for misrepresentation and those for breach of contract would be aggravated. There is already the anomaly that a statement embodied in the contract and constituting a minor term of it is treated as a warranty, the breach of which gives only a right to damages, whereas the same statement as a representation inducing the contract enables the latter to be rescinded. Before the contract is executed and at a time when the parties can be relatively easily restored to their original positions, this anomaly may not matter very much, but the position would be very different if the court had no option but to order rescission after the contract had been executed.
12. To meet these objections we recommend that wherever the court has power to order rescission it should, as an alternative, have a discretionary power to award damages if it is satisfied that these would afford adequate compensation to the plaintiff, having regard to the nature of the misrepresentation, and the fact that the injury suffered by the plaintiff is small compared with what rescission would involve. The courts were given power to award damages in addition to or in substitution for an injunction or a decree of specific performance by Section 2 of Lord Cairns' Act (the Chancery Procedure Amendment Act 1858) and since the decision of the House of Lords in Leeds Industrial Co operative Society Limited v. Slack [1924] AC 851, the power has been exercised on principles similar to those we have just mentioned."
The discretion conferred by Section 2(2) is a broad one, to do what is equitable. But there are three matters to which the court must in particular have regard.
The first is the nature of the misrepresentation. It is clear from the Law Reform Committee's Report that the court was meant to consider the importance of the representation in relation to the subject matter of the transaction. I have already said that in my view, in the context of a #5 million sale of land, a misrepresentation which would have cost #18,000 to put right and was unlikely seriously to have interfered with the development or re sale of the property was a matter of relatively minor importance.
The second matter to which the court must have regard is "the loss that would be caused by it (sc. the misrepresentation) if the contract were upheld." The section speaks in terms of loss suffered rather than damages recoverable, but clearly contemplates that if the contract is upheld such loss will be compensated by an award of damages. Section 2(2) therefore gives a power to award damages in circumstances in which no damages would previously have been recoverable. Furthermore, such damages will be compensation for loss caused by the misrepresentation, whether it was negligent or not. This is made clear by Section 2(3), which reads as follows:
"Damages may be awarded under subsection (2) of this section whether or not he is liable to damages under subsection (1) thereof, but where he is so liable any award under sub section (2) shall be taken into account in assessing his liability under the said sub section (1)."
Damages under Section 2(2) are therefore damages for the misrepresentation as such. What would be the measure of such damages? This court is not directly concerned with quantum, which would be determined at an inquiry. But since the court, in the exercise of its discretion, needs to know whether damages under Section 2(2) would be an adequate remedy and to be able to compare such damages with the loss which rescission would cause to Cambridgeshire, it is necessary to decide in principle how the damages would be calculated.
The Law Reform Committee drew the analogy with Lord Cairns' Act and in some respects this analogy is a good one. But it breaks down when one comes to decide the measure of damages. Under Lord Cairns' Act, the plaintiff who is refused specific performance or an injunction is left to his damages in contract or tort. The measure of such damages is exactly what it would be at common law (see Johnson v. Agnew [1980] AC 367, 400). The only change made by the Act was to give a remedy for purely equitable rights, such as breach of a restrictive covenant to which the plaintiff was not a party. But in such cases the common law analogy enabled a suitable measure of damages to be devised. Section 2(2), on the other hand, creates a power to award damages in a wholly new situation.
Under Section 2(1), the measure of damages is the same as for fraudulent misrepresentation i.e. all loss caused by the plaintiff having been induced to enter into the contract ( Cemp Properties (UK) Ltd v. Dentsply Research and Development Corporation [1991] 2 EGLR 197). This means that the misrepresentor is invariably deprived of the benefit of the bargain (e.g. any difference between the price paid and the value of the thing sold) and may have to pay additional damages for consequential loss suffered by the representee on account of having entered into the contract. In my judgment, however, it is clear that this will not necessarily be the measure of damages under Section 2(2).
First, section 2(1) provides for damages to be awarded to a person who "has entered into a contract after a misrepresentation has been made to him by another party and as a result thereof (sc. of having entered into the contract) he has suffered loss." In contrast Section 2(2) speaks of "the loss which would be caused by it
(sc. the misrepresentation) if the contract were upheld." In my view, Section 2(1) is concerned with the damage flowing from having entered into the contract, while Section 2(2) is concerned with damage caused by the property not being what it was represented to be.
Secondly, Section 2(3) contemplates that damages under Section 2(2) may be less than damages under Section 2(1) and should be taken into account when assessing damages under the latter sub section. This only makes sense if the measure of damages may be different.
Thirdly, the Law Reform Committee Report makes it clear that Section 2(2) was enacted because it was thought that it might be a hardship to the representor to be deprived of the whole benefit of the bargain on account of a minor misrepresentation. It could not possibly have intended the damages in lieu to be assessed on a principle which would invariably have the same effect.
The Law Reform Committee drew attention to the anomaly which already existed by which a minor misrepresentation gave rise to a right of rescission whereas a warranty in the same terms would have grounded no more than a claim for modest damages. It said that this anomaly would be exaggerated if its recommendation for abolition of the bar on rescission after completion were to be implemented. I think that Section 2(2) was intended to give the court a power to eliminate this anomaly by upholding the contract and compensating the plaintiff for the loss he has suffered on account of the property not having been what it was represented to be. In other words, damages under Section 2(2) should never exceed the sum which would have been awarded if the representation had been a warranty. It is not necessary for present purposes to discuss the circumstances in which they may be less.
If one looks at the matter when Sindall purported to rescind, the loss which would be caused if the contract were upheld was relatively small: the #18,000 it would have cost to divert the sewer, the loss of a plot and interest charges on any consequent delay at the rate of #2,000 a day. If one looks at the matter at the date of trial, the loss would have been nil because the sewer had been diverted.
The third matter to be taken into account under Section 2(2) is the loss which would be caused to Cambridgeshire by rescission. This is the loss of the bargain at the top of the market (compare The Lucy [1983] 1 Lloyd's LR 188): having to return about #8 million in purchase price and interest in exchange for land worth less than #2 million.
Having regard to these matters, and in particular the gross disparity between the loss which would be caused to Sindall by the misrepresentation and the loss which would be caused to Cambridgeshrie by rescission, I would have exercised my discretion to award damages in lieu of rescission.
Sindall, of course, claimed to be entitled to damages under Section 2(1) on the grounds that all of some of the alleged misrepresentations were negligent. If Sindall were to succeed on this point, it might be able to establish on the inquiry as to damages that it was entitled not merely to the difference between price and market value at the date of contract, but to the subsequent drop in market value as well. In that case, the award of damages will put Sindall in much the same position as if its rescission and taken effect. But I do not think that the possibility of this result should be anticipated by refusing to exercise the discretion under Section 2(2).
LORD JUSTICE EVANS: This could be a text book case on the law of mistake in contract. The County Council sold 6.71 acres of land, which had been used for nearly 20 years as a school playing field, to a firm of builders who intended to develop an estate of about 70 houses and 30 flats. The sale was duly completed in March 1989 but then the builders' troubles began. Obtaining detailed planning permission took longer than had been expected, and by October 1990 that process was far from complete. Meanwhile, the value of the land, even with planning permission, had fallen dramatically due to the general decline in market prices. The contract price in 1988 was #5,082,000. The value in 1990 was less than half that figure. The builders had borrowed the whole of the amount which they had paid, and interest rates were high.
Then came the chance discovery in October 1990 of a sewage pipe crossing the land diagonally about two metres below the surface. Because the land had been used as a playing field the manhole which would have revealed its existence had been covered and grassed over. The pipe carried foul sewage, as opposed to surface water drainage, from a neighbouring block of flats owned by the Cambridge City Council. It discharged into a public sewer outside the boundary on the far corner of the site. It also served a building, the Youth Centre, which had been constructed on that part of the site but which would inevitably be demolished in order make room for the housing development planned.
Neither the builders nor the officers of the County Council at the time of the sale knew of the existence of the sewer. The builders seek to set aside the contract and thus to recover the sum of #5,082,000 which they paid in 1989, on grounds of misrepresentation and mistake. The learned judge held that they are entitled to do so, and the Council now appeals, contending that the builders are not entitled to any remedy, or alternatively, that the builders should be restricted to a claim for damages under section 2(1) of the Misrepresentation Act, 1967.
First, mistake. There are certain circumstances in which the courts will hold that an agreement made between two parties, each labouring under a fundamental mistake, is invalid as a contract, that is to say, it has no legal effect. The learned Judge applied the test established by the majority judgments of the House of Lords in Bell v. Lever Brothers [1932] AC 161, as defined by Steyn J. in Associated Japanese Bank (International) Ltd v. Credit du Nord SA [1989] 1WLR 255, and he reached the following conclusion, at page 47:
"...there are undoubtedly important differences between what was contracted for and what was purchased. They do not, as it seems to me, meet the essential test of being essentially and radically different."
There is no appeal against that finding, or against the learned Judge's conclusion that the builders failed to establish any common law remedy on the basis of mistake. I would add merely this, that the concept of a factual situation "essentially and radically different" from that by reference to which the parties made their agreement is the same concept, in my view, as that which may lead to frustration of the contract where there has been a change in circumstances due to a supervening event. Before 1956, there was much debate as to the legal basis for the discharge of contracts by frustration, but this was authoritatively settled by the House of Lords in Davis Contractors Ltd v. Fareham UDC [1956] AC 696, and in particular by the speech of Viscount Radcliffe, at page 729:
"...frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do."
The learned Judge proceeded to consider the builders' claim for rescission on the ground of mutual mistake, that is to say, for the equitable remedy which is available in circumstances like those described by Denning LJ in Solle v. Butcher [1950] 1 KB 671, 692. He found in this context that there was "such a mistake as would entitle equity to order rescission," at page 51. This implies that the mistake was "fundamental" (per Denning LJ at page 693) and the question arises whether simultaneously the mistake can be fundamental, yet the land not "essentially and radically different" from what it was supposed to be, but it is unnecessary and inappropriate, in my judgment, to consider this issue at this stage, because on any view of the matter, as Mr. Sher QC I think accepts, the first question is whether the contract on its true construction covers the new situation which has arisen by reason of a change of circumstances (frustration) or the emergence of a factual situation different from that which was assumed (mutual mistake). If the scope of the contract is wide enough to cover the new, or newly discovered, situation, then there is no room either for discharge by frustration or for rescission in equity on the grounds of mistake. Put another way, if the agreed terms provide for this situation, then the parties have "allcoated the risk" as between themselves, as Mr. Etherton QC submits that they did in the present case.
Construction
The construction arguments turn upon clause 14 of the National Conditions of Sale (20th edition 1981) and clause 17(e) of the Special Conditions applied to the contract in this case:
"14. Property sold subject to easements, etc.
Without prejudice to the duty of the vendor to disclose all latent easements and latent liabilities known to the vendor to affect the property, the property is sold subject to any rights of way and water, rights of common and other rights, easements, quasi easements, liabilities and public rights affecting the same.
Special Conditions
17. The purchaser shall be deemed to purchase with full notice of, and subject to:
(e) all easements, quasi easements, rights and privileges (whether of a public or private nature) now affecting the Property, but without any obligation on the part of the Vendor to define the same."
It is common ground that clause 17(e) adds nothing to clause 14 for present purposes and the argument has centres on clause 14 alone.
Reference was made by both counsel to the long history of conveyancing law and practice; by Mr. Etherton QC for the notorious difficulty of proving an unencumbered title to land, registration apart, and Mr. Sher QC for the distinction drawn between defects in title which the vendor has himself created or suffered by his own act, and others which he inherited from his own predecessors, but these considerations provide only slender grounds for qualifying the apparently clear words of Clause 14, unless it be on the basis that something akin to the frustration test applies. But that test involved a situation emerging which is essentially and radically different from what both parties mistakenly envisaged when the contract was made, and Mr. Sher's main authority (Jackson v. Union Marine Insurance Co. Ltd [1874] LR 10 CP 125) was a case of that type. Here, the learned Judge's finding, which the appellants accept, is fatal to that submission, and it follows in my judgment that the attempt to limit the scope of condition 14 as a matter of construction must also fail.
A supplementary issue raised by Mr. Sher QC under this head involved the proposition that, on the facts of the present case, the defect in title was not an easement, properly so called, but rather an adverse property right. The City Council, he submitted, had title to the sewer pipe and the ground space occupied by it, acquired by adverse possession against the County Council from 1972. Therefore condition 14 relating to easements etc. does not apply. In my judgment the property claim fails; and in any event the essential difficulty was not the physical presence of the pipeline, which it was not suggested before us would cause any serious disruption of the builders' development plans, but rather its continued use by the City Council for foul sewer drainage from its Greystoke Court property. That use was claimed as of right, notwithstanding the City Council's failure to declare the pipeline as a public sewer under section 20 of the Public Health Act 1936, and the right so claimed does constitute an easement to which condition 14 applies.
Subject, therefore, to the claims for rescission based on actionable misrepresentation, the contract for sale as a matter of construction requires the builders to accept the property notwithstanding the presence of the pipeline and the City Council's easement.
Misrepresentation
I entirely agree with the judgment of Lord Justice Hoffmann, and it is unnecessary for me to repeat any of its contents here. I add only one footnote with regard to the definition of the County Council's knowledge for the purposes of its answer to Enquiry No. 7. It was not suggested that the responsible officers had any personal knowledge of the existence of the sewer and of the City's easement in 1988/89 when the representation was made and the land was conveyed, nor of the exchanges which took place between the City and the old County Council, Cambridge and Ely, between 1970 and 1974. The question is not, however, whether these individuals knew but whether "the Vendor", meaning the Council, did. If, contrary to our view, Cambridge and Ely was not the predecessor in title of the defendants, and "the Vendor" therefore includes the old Council, then the answer to Enquiry No. 7 was tantamount to saying that the County Council was not aware in 1989 of facts which certainly were known to it in 1974. I should not like our decision in this case to be taken as approving either corporate forgetfulness or collective amnesia of this sort. Applied in the case of a commercial organisation, and with regard to corporate knowledge, questions as to the adequacy of records etc. might well arise. But these questions do not arise here, because Mr. Sher for the respondents accepts that the judge stated the correct test in law for the purposes of the present case: (Judgment, page 66):
"In approaching the present case what I get from the authorities is this, that knowledge may go beyond what is in somebody's head, that it requires a solicitor to read his file and to read it properly and to make (because his side has the advantage in terms of knowledge) reasonable and prudent investigation of the grounds upon which any belief is stated. This is, of course, of the greatest importance where the vendor is, as here, a corporate body with changing staff. Very little is likely to be in anybody's head at the critical time. Perhaps one could say that in these sort of circumstances there are three possible types of information: (a) information in somebody's personal memory, (b) information which is in the files, and which the reasonable and proper investigations of a conveyancing solicitor when preparing his title for sale will reveal, and (c) other information which was either in an individual's memory and has been forgotten, or is in a file which the ordinary and prudent conveyancer's inquiries will not reveal. Of these I consider that (a) and (b) will amount to knowledge for the purpose of the answer under consideration and (c) does not."
This sets the stage for the further analysis in Hoffmann LJ's judgment, and as stated above I respectfully agree with his reasoning and conclusions in the circumstances of this case.
Equitable mistake
Logically, there remains the question whether the contract, notwithstanding that on its true construction it covers the situation which has arisen, and that it cannot be set aside for misrepresentation, nevertheless may be rescinded on the ground of equitable mistake, as defined by Denning LJ in Solle v. Butcher [1950] 1 KB 671, 692. It must be assumed, I think, that there is a category of mistake which is "fundamental" so as to permit the equitable remedy of rescission, which is wider than the kind of "serious and radical" mistake which means that the agreement is void and of no effect in law: see Chitty on Contracts (26th edition) Volume 1, paragraph 401; Treitel, The Law of Contract (8th edition) page 276; and Cheshire Fifoot and Furmston's Law of Contract (11th edition) page 245). The difference may be that the common law rule is limited to mistakes with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of "fundamental" mistake. However that may be, I am satisfied that the learned Judge's finding in the present case was vitiated by his assumption that the presence of the sewer and of the City's easement had serious consequences for the proposed development, even if the sewer was incorporated into the public sewer that was envisaged for the development itself (Option 2A). This would not involve the loss of seven houses and three flats, as the judge appears to have thought (Judgment, page 32), but, at most, of one three bedroomed house. The additional cost of the alterations to the sewer would not have exceeded about #20,000. Given the breadth of the contract terms, in particular Condition No. 14, which on its face was intended to cover precisely such a situation as this, and the relatively minor consequences of the discovery of the sewer, even if some period of delay as well as additional cost was involved, it is impossible to hold, in my judgment, that there is scope for rescission here.
Rescission or damages
Our finding that the builders are not, and were not, entitled to rescind the contract, as they purported to do, makes it unnecessary for us to decide the issue raised under section 2(2) of the Misrepresentation Act 1967, that is, whether in the present case it would be "equitable", notwithstanding the actionable misrepresentation, "to declare the contract subsisting and award damages in lieu of rescission." The issue, however, was argued before us (though Mr. Etherton QC was not called upon to reply) and like Hoffmann LJ I consider that if it had been necessary for us to review the learned Judge's exercise of the discretion, then we would have been; indeed, bound, to do so.
Section 2(3) makes it clear that the statutory power to award damages under section 2(2) is distinct from the plaintiff's right to recover damages under section 2(1). Quoting from section 2(2) itself, such damages are awarded "in lieu of rescission" and the court has to have regard to three factors in particular, namely, the nature of the misrepresentation, the loss that would be caused by it (sc the misrepresentation) if the contract were upheld, and the loss that rescission would cause to the other party (sc the non fraudulent author of the misrepresentation).
It has not been suggested that these three are the only factors which the court may take into account. The discretion is expressed in broad terms "If of opinion that it would be equitable to do so." The three factors, however, in all but an exceptional case, are likely to be the ones to which most weight would be given, even if the sub section was silent in this respect.
No real difficulty arises in the present case as regards the nature of the misrepresentation, if any was made, nor as regards the loss which would be caused to the Council, if rescission was upheld. There was no blameworthiness, on the judge's findings, so far as the Council's officers in 1988/89 were concerned. The fault, if there was any, lay in their predecessors' failure to note the title deeds in 1970. The consequences of the misrepresentation were not negligible, but they were small in relation to the purchase and the project as a whole. The loss caused to the Council by rescission would be very great. They would repay in excess of #5 million, together with interest, and would have restored to them land worth only a fraction of that amount. In other words, they would suffer the decline in market values which has occurred since 1988. And, even if the easement had been discovered immediately and the contract had been rescinded then, the Council would have suffered significant loss, simply by reason of the need to repeat the tendering process and find another buyer.
There is, however, much room for debate as to the "loss that would be caused if the contract were upheld." The sub section assumes, as I read it, that this loss will be compensated by the damages awarded, if the contract is upheld. But if the measure is the same as those awarded in respect of a fraudulent misrepresentation (Doyle v. Olby Ltd [1969] 2 QB 158), or under section 2(1) (Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297), in cases where the contract continues in force, then two consequences seem to follow. First, damages under section 2(2) are co extensive with those under section 2(1), whereas section 2(3) suggests that they are, or may be, different. Secondly, an innocent and non negligent defendant will be liable under section 2(2) for damages which he is specifically excused under section 2(1). Furthermore, if the plaintiff recovers full compensation under section 2(2), if the contract is upheld, then he will not suffer any net loss, assuming that the damages are paid.
The cost of remedying the defect in the land was almost insignificant, and any delay and inconvenience suffered by the builders can be compensated by a relatively small additional sum. The real issue is whether account should be taken of the decline in market values which affects the builders if the contract stands, just as it would affect the Council if rescission was upheld.
Mr. Sher asserts that the builders would not have entered into this contract, nor would they have purchased any other developed land if the existence of the sewer had not been concealed from them. I will assume that this is correct and a fair reflection of the evidence, although I should also express my doubts. The builders went to great lengths to make the purchase. They commenced judicial review proceedings in order to assert their right to buy, and they knowingly paid a price equivalent to the highest which the tendering process had produced; substantially higher, in fact, than had emerged from the initial round. To say that they would have been deterred at that stage from surmounting the obstacle presented by the sewer seems to make a major assumption in their favour. Nevertheless, I will make it in order to consider the issue which Mr. Sher has addressed.
His argument is that the builders are entitled to recover the whole of the loss which they have suffered as a result of entering into the transaction, including the fall in market values from 1988 until at least the time of purported rescission in December 1990. The judgments in Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297
appear to be against this submission, even as regards a claim under section 2(1), because there the judge had found that the buyers, but for the misrepresentation, would not have purchased the property (page 199K), and the Court of Appeal, without altering that finding, held that the measure of damages was the difference between market values (per Bingham LJ at 201G), or the difference between the contract price and the actual market value (Per Sir Nicolas Browne Wilkinson V.C. at 200J), in both cases as the time when the contract was made.
If that applies in the present case, then the builders cannot include the subsequent decline in market values in their loss. But it may be said that the case should be distinguished from the present because no claim for rescission was involved. (See page 198B). I therefore proceed to consider as a matter of principle whether the builders are entitled to contend that the decline in market value forms part of their loss caused by the alleged misrepresentation for the purposes of section 2(2), upon the factual assumption that Mr. Sher has invited us to make.
In my judgment, it is not correct that the measure of damages under section 2(2) for the loss that would be caused by the misrepresentation if the contract were upheld is the same measure as under section 2(1). The latter is established by the common law, and it is the amount required to compensate the party to whom the misrepresentation was made for all the losses which he was sustained by reason of his acting upon it at the time when he did. But the damages contemplated by section 2(2) are damages in lieu of rescission. The starting point for the application of the subsection is the situation where a plaintiff has established a right to rescind the contract on grounds of innocent misrepresentation; its object is to ameliorate for the innocent misrepresentor the harsh consequences of rescission for a wholly innocent (meaning, non negligent as well as non fraudulent) misrepresentor, in a case where it is fairer to uphold the contract and award damages against him. Such an award of damages was not permitted in law or equity before 1967. The court, therefore, exercises a statutory jurisdiction, and it does so having regard to the circumstances at the date of the hearing, when otherwise rescission would be ordered. (The subsection envisages that the court's order may restore a contract which has been lawfully rescinded by the innocent party at some earlier date (see The Lucy [1983 1 Lloyd's LR 188, 202. per Mustill J.) When there has been a decline in market values since the date of the contract, then one party or the other will suffer that loss, depending on whether rescission is ordered or not. But that loss is not caused by the misrepresentation, except in the sense that the decline has occurred since the representation was made and it does not measure the loss caused by the misrepresentation either when the representation was acted upon, or when the court decides whether to order rescission or not. The "loss caused by it", in my judgment, can be measured by the cost of remedying the defect, or alternatively by the reduced market value attributable to the defect, together with additional compensation, if appropriate, of the kind described in Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297.
When the court is required to form its own view of what is equitable between the parties at the date of the hearing, it is dangerous to lay down any hard and fast rule to the effect that no account can be taken of changed market values. Apart from the capital value of the subject matter of the contract, as here, which might rise or fall due in the intervening period, there might be relevant market trading conditions which the court could properly take into account: cf. The Lucy [1983] 1 Lloyd's LR 188, 202. Moreover, if it is right to take account of the current market value in assessing the loss which would be sustained by the Council, if rescission was ordered, then it would be "inequitable" not to have regard to this factor in the case of the builders also. But the effect of doing so is merely to re state the issue which the court has to decide: in the circumstances of the case, should the loss of market remain where it presently lies?
Viewed this way, it would be substantially unjust, in my judgment, to deprive the County Council of the bargain which it made in 1988, albeit that the bargain was induced by a misrepresentation innocently made, but which was of little importance in relation to the contract as a whole. That misrepresentation apart, the builders made what has proved to be so so far an unfortunate bargain for them (although they remain owners of an important potential development site in what is a notoriously cyclical market). To permit them to transfer the financial consequences to the Council, in the circumstances of this case, could properly be described as a windfall for them.
For the above reasons, and taking into account the nature of the alleged representation and the history of the matter generally, including the builders' deliberate failure to make any serious attempt to find a solution to the difficulty which arose when the sewer was discovered, the equitable balance, in my judgment, lies in favour of upholding the contract and awarding damages in lieu of rescission in this case. If there was a live issue under section 2(2) I would award damages in lieu of rescission and order the amount of such damages to be assessed.
There remains the question of whether these damages should include the decline in the market value of the land since the contract was made. As indicated above, in my judgment they should not. This conclusion may be inconsistent with the view expressed in McGregor on Damages (11th edition) paragraph 1752, and in defence to the distinguished author I should explain my reasons briefly. He suggests that the measure to be adopted is:
"the same as the normal measure of damages in tort where the plaintiff has been induced to contract by fraudulent or negligent misrepresentation...the overall result, therefore, is that the damages will be held to be the difference between the value transferred and the value received...no recovery being possible for consequential losses."
If the "value transferred" (meaning the price paid by the plaintiff, to whom the representation was made) was the market value of the property, then there is no difference between this formula and what McGregor calls the contract measure, that is to say, the difference between the actual value received and the value which the property would have had, if the representation was true (see paragraph 1718). By adopting the tort measure, therefore, as he does in paragraph 1752 in the paragraph already quoted, the learned author impliedly rejects the contract measure, whereas in my judgment that becomes the correct measure in circumstances where the plaintiff is entitled to an order for rescission, but rescission is refused under section 2(2) of the Act. This is because the difference in value between what the plaintiff was misled into believing that he was acquiring and the value of what he in fact received seems to me to be the measure of the loss caused to him by the misrepresentation in a case where he cannot rescind the contract and therefore retains the property which he received.
As McGregor points out, the tortious measure benefits a plaintiff who made a bad bargain, that is to say, who agreed to pay more than the market value of the property in the state in which he believed it to be, more so than the contract measure would do. Conversely, it disbenefits one who paid less than the market value, because it disentitles him from recovering the whole of the difference which the contract measure would otherwise produce. Likewise, the right to rescind benefits a plaintiff who has paid, or agreed to pay more than, with hindsight, he should have done. The period of hindsight may be short or long; where it is long, and the value has fallen in line with the market and therefore for reasons unconnected with the misrepresentation, there is no justification, in my view, for holding the author of the misrepresentation liable to compensate the plaintiff for that loss, in a case where rescission is refused.
It is unnecessary to explore the wider questions whether a tortious measure should ever include damages for a fall in market values, and whether this measure, as described by Lord Denning MR, in Doyle v. Olby (Ironmongers) Ltd, [1969] 2QB 158, 166, is necessarily exclusive of, or inconsistent with, the contractual measure to the extent which has been suggested. The recovery of such damages in the present case, even if the tortious measure under section 2(2) applies, appears to be barred by the following three obstacles:
(1) such damage was caused, not by the misrepresentation, but by the subsequent fall in market values, an extraneous cause;
(2) the authorities suggest that the plaintiff's loss has to be assessed at the date when the property was transferred: McGregor, paragraph 1727, citing Waddell v. Blockley, [1879] 4 QBD 179, and
(3) if a subsequent rise, or fall, in market values is relevant at the date of trial, then a chance element enters into the calculation, whether the contract is rescinded or not.
I should add, however, that the reported authorities are sparse, as McGregor emphasises, and as I read them they do not purport to decide the question whether a decline in value until the time of discovery of the true facts is necessarily excluded.
It is sufficient for present purposes to say that an award of damages in lieu of rescission under section 2(2) should in my view be calculated as I have described above.
For these reasons, as well as those given by Hoffmann LJ, I would allow this appeal.
LORD JUSTICE RUSSELL: I agree with both of the judgments which have been delivered, and there is nothing which I can usefully add.
MR. KOVATS: May it please your Lordships, there are two matters I would wish to address your Lordships on. One is the question of costs, which I will come to in a moment, but the other is this; as a condition of a stay of execution of the judgment below #8 million was paid into the Mayor's and City of London Court, and I would ask your Lordships for leave to withdraw that amount, plus interest, from that court.
LORD JUSTICE RUSSELL: Cambridgeshire were not thought good for the money?
MR. KOVATS: My Lord, unfortunately the learned Judge below refused leave, in his discretion. There is an automatic right to a stay, under Order 59 Rule 19, of an appeal in the County Court provided you pay into court a sum of money equitable to judgment.
LORD JUSTICE RUSSELL: Mr. Sher, you cannot resist that?
MR. SHER: No, of course not, my Lord.
LORD JUSTICE RUSSELL: So be it.
MR. KOVATS: My Lord, as far as the costs are concerned, we ask for costs in this court and below, and I understand from Mr. Sher that he intends to oppose that application, at least in part, and I understand he will be seeking to argue that although the costs in this court should be allowed to counsel, the costs below should be on the basis that each party bear their own. Mr. Sher also will be making an application, I understand, to your Lordships for leave to appeal, but I shall not deal with that at all, unless called upon to do so. It may be appropriate to say something very briefly on the issue of costs.
LORD JUSTICE RUSSELL: They normally follow the event. Had we not better hear what Mr. Sher has to say?
MR. KOVATS: My Lord, so be it.
MR. SHER: I will take it very briefly, my Lord. We cannot resist an order that Sindall should pay the costs of appeal. We invite your Lordships to order there be no order for costs below, that each side pay their own, for the following reasons briefly; condition 14 of the National Conditions loomed extremely large in this case, much larger than it had below. The whole concept of the allocation of risk, and its capacity in that regard to undermine the operation of the doctrine of mistake, as well as to exclude, your Lordships will remember, Conditions 28 and 29 from carrying the implied representation of fact inconsistent with the sewer, that runs like a thread through your Lordships' judgments in this court. The allocation of risk was a new point raised for the first time in the skeleton argument of counsel for the County Council in this case. We are not asking your Lordship to let us keep the order that we won below, but simply to make no order in respect of those costs in recognition of the way the matters developed in this court.
There is also, your Lordships will know, the new point of whether the section 15 notice was a notice within the meaning of Enquiry 3 in the Enquiries Before Contract. That was a new point raised after the concession below, although it is true to say we lost on other points which would have made that point redundant in any event.
Finally my Lords, even had Sindall lost below Sindall would have had a strong case for saying that there should be no order for costs of the trial below because of the lateness with which Option 2A, on which the Council has finally won, was developed at the trial. My Lord Lord Justice Hoffmann says "of course you could have asked for an adjournment" and that is absolutely right, but asking for an adjournment in the course of a trial is something the parties are very, very reluctant to do. It is not a very practical course to adopt.
I cannot take it any further. That is my application so far as costs are concerned. I have an application in relation to leave to appeal.
LORD JUSTICE RUSSELL: We will deal with the question of costs first. I suppose you would say, Mr. Kovats, there is nothing sufficiently exceptional about this case to deprive you of the costs here and below?
MR. KOVATS: My Lord, I would say that, and the other point
I make is this; for each of the new points, and there are two my learned friend has mentioned, none the less your Lordships went on to consider the matters had those new points not been there on the severity of the presence of the sewer in relation to mistake, as my learned friend accepts, on misrepresentation. Your Lordships dealt with it on the basis that the learned Judge did.
LORD JUSTICE RUSSELL: The appeal will be allowed with costs here and below.
MR. SHER: I am much obliged to your Lordships. May I now make my application for leave to appeal to the House? There are in this case a few extremely important legal issues which justifies the attention of the House. The first is condition 14 of the National Conditions, and the allocation of risk idea, which as I say has been fairly central to your Lordships' judgment.
There are many transactions likely to be affected by your Lordships' comments on the scope of that provision in the National Conditions and, of course, in other standard conditions there are similar provisions. These standard conditions are used in almost all property transactions.
I made the submission in the course of the trial, my Lord, and I will make it again, that the conveyancing profession would be surprised to hear that condition 14, which is merely a general condition contained in the standard printed form, has the wide impact that your Lordships has accorded to it, namely, that it is an allocation of risk provision which, even if mistake is fundamental, would preclude the operation of the doctrine of mistake.
My Lord, as my Lord Lord Justice Hoffmann has indicated, this judgment may, for example, throw doubt on the validity of cases such as Grist v. Bailey decided in the 1960's by Mr. Justice Gough, Laurence v. Lexcourt Holdings Ltd, decided by Mr. Justice Dillon, then sitting as a deputy judge in the 1970's, which cases have stood for a long time, and have been accepted by the profession. If the allocation of risk point was taken in those cases your Lordships have indicated the results might have been different. That is the first legal issue, my Lord, the allocation of risk. That, we say, deserves the attention of the House of Lords.
The second important area is section 2(2) of the Misrepresentation Act. This is the first case in which anything like the analysis your Lordships have given to us in these judgments has been reported on the scope of the discretion under section 2(2), or the measure of damages under section 2(2). The only other case is of course
The Lucy. As the text books show, guidance is sorely needed in this area as to the measure of damages, and as to the exercise of the discretion to refuse rescission, particularly in a falling market. There is then, thirdly, the legal issue as to the scope
LORD JUSTICE RUSSELL: What we said about that, of course, is all obiter.
MR. SHER: That is absolutely right. What I would say about that is this, there being no authority in this area, those obiter comments are bound to be referred to by the profession, and other cases, again and again in the future. Obiter or not, those comments will carry an enormous amount of weight. Ought the House of Lords,
I urge your Lordship, not to be given the opportunity, even if it were to become obiter in the House of Lords, to express
LORD JUSTICE RUSSELL: Mr. Sher, it may be you would be able to excite their Lordships' interest, but we think you ought to do that directly with them. I make no secret of the fact that we anticipated you would make this application.
MR. SHER: I am obliged. Can I then take it very, very briefly, by telling your Lordship of the only other issue? There were a number of implications so far as the representation was concerned. Your Lordships have held that it goes a certain distance. The words "so far as the Vendor is aware" are uttered daily in conveyancing transactions. Exactly what the number of implications those words carry is a matter of some importance. That was one matter that I wanted to put before your Lordships as a further possibility.
Finally, the conveyancing form 29, which contains that Question 3, which asks the question "Have you received any notices relating to the property?", your Lordships' construction of the clause, a standard document used in all property transactions, again is going to have a considerable impact on the profession, and your Lordships' construction there is a matter of some public importance, which we say ought to receive the attention of the House of Lords.
Your Lordship has indicated to me that your Lordships anticipated this application, and I do not want to trespass unreasonably and unnecessarily on your Lordships' time. I only remind your Lordships that in addition, if the House of Lords were to take a different view of the facts, and after all the learned Judge took this view of the facts, namely that while option 2A would work, it would have taken an unreasonable amount of time it is that second feature that we had judgment in our favour if the House of Lords were to say that the mistake of the learned Judge did not impair his finding in that area and of course they are in as good a position to examine that as your Lordships have been in this appellant court then they would not only open up the legal issues
I have indicated to your Lordships, but also the issue as to whether one can get rescission for mistake after completion, which in any event would have been very probably a matter that was more apposite to the House of Lords, in the light of the very long line of authorities, starting from the middle of the 19th century. I do not think it would be right for me to trespass on your Lordships' time any further.
LORD JUSTICE RUSSELL: I am grateful to you. Leave to appeal will be refused.
