In the recent case of Cleaver and another v Schyde Investments Limited [2001] EWCA Civ 929, the Court of Appeal upheld the County Court decision that a buyer who had entered into a contract to purchase land with development potential was entitled to rescind the contract on the basis of ‘innocent misrepresentations’ made by the seller in failing to update the buyer when new planning information had come to light.
Background
- The buyer intended to purchase the site specifically in order to develop it as a block of flats and entered into the contract on that basis.
- However shortly after the seller had issued its Commercial Property Standard Enquiries (CPSEs) to the buyer, and before exchange of contracts, the seller was issued with a notice of a planning application made by a local doctor to develop the site as a medical centre.
Innocent Misrepresentation
- The CPSEs included the standard confirmation that the seller would update the buyer if it became aware that any of the replies had become incorrect since the date of their issue to the buyer. The seller notified its solicitor of the planning application but the CPSEs were not updated and the buyer did not find out about it until after contracts had been exchanged between the parties.
- The buyer’s main concern was that the community wanted a medical centre, rather than the flats, and it would therefore not have entered into the contract had it known before exchange. The doctor refused to withdraw the planning application, which was subsequently accepted by the local planning authority.
Claim and counterclaim
- The buyer wanted to rescind the contract and recover its deposit back from the seller, who had served notice to complete, and so put in its claim to the County Court. The seller counterclaimed, seeking specific performance of the contract or alternatively damages for breach of contract.
- The contract had incorporated the Standard Conditions of Sale (Fourth Edition) (SCS) which at condition 7.1.3 allows for rescission due to an error of omission only if it results from fraud or recklessness or where the buyer would have to accept property substantially different from what the error or omission had led him to expect. The seller relied on this condition in its counterclaim against the buyer.
Judgement and appeal
- The County Court judge ruled in favour of the buyer, holding that the buyer had acted in reliance on the CPSEs and would otherwise not have entered into the contract and also that condition 7.1.3 of the SCS was not fair and reasonable in the context. A clause that restricts claims for remedies for misrepresentation is not enforceable if it is unfair and unreasonable. There are specific criteria against which this can be assessed and in this case the judge felt that condition 7.1.3 could not be enforced.
- The seller made a detailed appeal against the County Court decision but it was dismissed by the Court of Appeal. No error in the judgement of the County Court could be found and so it was ordered that the contract was rescinded and the deposit should be returned.
Reminder
Sellers and their advisors should keep in mind the continuing duty to update the buyer once it emerges that any information given in the CPSEs or additional replies to enquiries is incorrect before exchange of contracts (or completion of the transaction where no contract is being entered into).
As a result of this case, there is no guarantee that, on similar facts, condition 7.1.3 of the SCS could be relied upon in the event of innocent misrepresentation on the part of the seller.
