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Shaftsbury House (Developments) Ltd v Lee

[2010] EWHC 1484 (Ch)

Claim No: TLC/610/2009

HC09 C00967

Neutral Citation Number: [2010] EWHC 1484 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice

Strand

London WC2A 2LL

Friday, 18th June 2010

BEFORE:

MRS JUSTICE PROUDMAN

BETWEEN:

SHAFTSBURY HOUSE (DEVELOPMENTS) LIMITED

Claimant

- and -

KELLY FERNANDEZ LEE

Defendant

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Mr Conall Patton Appeared On Behalf Of The Claimant

Miss Josephine Hayes Appeared On Behalf Of The Defendant

Judgment

MRS JUSTICE PROUDMAN:

1.

The claim arises out of the Defendant’s failure to complete an agreement (“the Agreement”) exchanged on 30th April 2007 for the purchase of a lease for a term of 150 years of Apartment 308 in a development known as “The Pad” on Holloway Road, London. At the time of the Agreement the development was unfinished so that sale was what is termed “off plan.”

2.

The Defendant was served with notice to complete on 23rd February 2009, after substantial completion of the development. She was required to, but did not, pay the outstanding balance of the purchase price, £351,000 plus ground rent and service charge, on 9th March 2009.

3.

The claim was originally for specific performance of the Agreement. However, the property was sold after commencement of the proceedings and the sale was completed on 22nd December 2009 so the claim is pursued in damages only.

4.

The claim is for the difference between the price received for the resale and the price under the Agreement, plus certain costs of the resale and interest. There is a counterclaim for return of the deposit.

5.

The basic claim is for £31,500 only. Even when one takes into account the ancillary claims and the issue of forfeiture of the deposit, the total amount at stake is only some £51,000. The Defendant has given evidence that she is impecunious. I am told that the Claimant applied for the claim to be transferred to the County Court, but the Defendant successfully objected. I must place it on record that I find it shocking that this action has taken two days of High Court time when the attendant costs must be out of all proportion to the amount at stake.

6.

The defence is based on a conversation or conversations which the Defendant says she had with Mr Conrad Mazen, an estate agent at Copping Joyce. Copping Joyce were the agents instructed by the Claimant to sell the apartments at The Pad. It is pleaded that those conversations gave rise to a collateral contract binding on the Claimant, that they constituted or comprised actionable misrepresentations and assurances or that there was a form of waiver or estoppel. There is also a defence that the Claimant failed to mitigate its loss by selling the property before the market crashed.

7.

The defence is faced with the fact that the Agreement contains in clause 18 an entire agreement clause excluding liability in respect of any representations or statements not included in the Agreement itself or in written replies given by the Claimant’s solicitors to written enquiries made by the Defendant’s solicitors. Clause 18 includes an express acknowledgement on the part of the Defendant that she entered into the Agreement solely on the basis of its terms and not in reliance on any other such warranty. In this respect the Defendant relies on the Unfair Terms in Consumer Contracts Regulations 1999 implementing EC Council Directive 93/12.

The evidence about representations and assurances by Mr Mazen

7.

Mr Mazen was an equity partner at Copping Joyce before it joined forces with Chestertons, after which he continued to work as an employee out of the same offices in Upper Street, Islington. Mr Mazen met the Defendant for the first time in February 2007 on an aeroplane flight from Spain. They fell into conversation. He learned that she was a criminal barrister. She learned that he was a senior estate agent. They disagree about who initiated which parts of the conversation, but I do not find it necessary to make any findings about that. It is common ground that Mr Mazen told the Defendant about The Pad and, that there was to be a preview event the following month. The Defendant expressed interest, saying that she sometimes appeared in the nearby Magistrates’ Court and Mr Mazen said he would cause an invitation to be sent to her. He did so, together with a brochure about The Pad.

9.

Although the launch on 22nd March 2007 was by way of a preview, it was not particularly exclusive in that invitations were sent out to everyone on the Copping Joyce database. From Copping Joyce’s point of view a preview was a good marketing tactic. From the invitees’ point of view it was an opportunity to reserve apartments one day ahead of the public launch.

10.

At that time the residential property market was very buoyant, particularly for off plan sales. As the jointly instructed expert, Mr Simon Philp FRICS, puts it, “demand for property seemed insatiable”. This is borne out by the fact, recorded by Copping Joyce in photographs taken on the day, that there was a queue of people waiting in the rain for their Upper Street premises to open at 9am. Some of the people had sleeping bags. A radio station reported people outside waiting as early as 5am. Some of the photographs show the queues sheltering under Copping Joyce umbrellas and the evidence was that employees went out to the waiting crowd with umbrellas and coffee.

11.

The preview was evidently a very successful event and one that was skilfully marketed. The court was told that most of the 50 apartments in The Pad were reserved on that day, that is to say reserved for 28 days by payment of a non-refundable fee of £2,000. The rest of the apartments were all successfully reserved within a very few days. The effect of the payment was that the reservation would lapse and the fee would be lost if contracts were not exchanged at the end of a 28 day period. If contracts were exchanged, credit would be given for the reservation fee and the deposit. Completion of a contract was to be after practical completion of the development, about a year after contract.

12.

The Defendant arrived at the preview at noon, by which time there was no queue outside the premises but it was very busy inside with queues of people waiting at the desks. More photographs had been taken of the inside of the premises so one has a good idea of what the event was like. Photographs of the queues were placed strategically. The Defendant says her attention was also drawn to newspaper clippings, but she has been unable to identify which ones she means and the existence of newspaper articles is denied by the Claimant and its witnesses. The Defendant says that as soon as she arrived she asked for Mr Mazen. It is then common ground that he came up from his basement office to the ground floor to speak to her.

Direct evidence of the conversation

13.

The major conflict of evidence is as to what happened thereafter. Mr Mazen says that the conversation was a short one, taking only some three or four minutes. He says he made no representations to the Defendant and the conversation was confined to, “Hello again, how are you?” and general social remarks. The Defendant says that the conversation took far longer than three or four minutes. Her version of events in oral evidence was that Mr Mazen said that, although he was involved in a number of projects this one was his “baby”. She got the impression from this that he had a personal interest in it, in other words that Copping Joyce, the Claimant and Mr Mazen were pretty much one and the same entity, although Mr Mazen denies this and no evidence was adduced of any such connection. The Defendant says that Mr Mazen assured her that the flats were going to go up in value, because they were being sold off plan and that if the Defendant bought one she was likely (or indeed very likely) to make a profit. She says that when she expressed a concern that she had not yet got a mortgage Mr Mazen replied that she need not worry about it because he would sell the flat on for her before it was built. She was adamant that his participation was crucial to her and she trusted him and relied upon what he said.

14.

The specifically pleaded representations are as follows: (1) If the Defendant had difficulty getting a mortgage or if she no longer wanted to buy the flat, then it could be sold on before it was even built and she was not to worry about it. (2) The flats were bound to go up in value, because they were being sold off plan. (3) She would be likely to make a profit in any event.

15.

In oral evidence the Defendant said that it was Mr Mazen who showed her the model of The Pad and the available apartment in it. She also said that she went outside where it was quieter to telephone her mother, who was putting up the deposit. She then came back to the shop floor where Mr Mazen was still waiting, and he continued his reassurances in terms that the only risk she was taking was as to the £2,000 registration fee. After this he handed her over to his colleague Chris Jones. She then asked to see a draft contract but none was yet available. Her case is that in reliance on what Mr Mazen had said and in the belief that her exposure was limited to the £2,000 reservation fee, she not only signed the reservation form but went on in due course to enter into the Agreement.

16.

Mr Mazen said in evidence that he was sure that he did not use the words “my baby” about The Pad, because that is not his turn of phrase. He also said that he would not have made extravagant representations about The Pad, because he was well aware of his duties and of the law about misrepresentation. He also said that he did not say that the value of the flat was bound to go up, as that would have been manifestly untrue. My difficulty with his evidence, however, is that he has little specific recollection of the details of the conversation.

17.

The Defendant, on the other hand, might be expected to remember what was said with more clarity than Mr Mazen because the preview was a special and unusual event for her. However there were very many inconsistencies in her evidence. I will mention some of them. In her written evidence she puts the “my baby” conversation as happening on the aeroplane. Mr Mazen was cross-examined on that basis, suggesting that this was the case relayed by the Defendant to her counsel, Miss Hayes. By contrast, in oral evidence the Defendant was firm that Mr Mazen referred to The Pad as his baby at the launch and only at the launch.

18.

The Defendant said in oral evidence for the first time, that she had two conversations with Mr Mazen, one each side of the telephone call to her mother. Again, he was not cross-examined about this, so it is to be inferred that Miss Hayes did not have instructions to that effect either. It was impossible to get a coherent account from the Defendant of precisely what she now says she told her mother in the telephone call. The Defendant did not even seem to appreciate that there was any distinction between the various accounts she gave. Thus, in one account she said she told her mother that she had spoken to Mr Mazen and she thought it was likely that the value of the apartment would go up so there was therefore no risk to her money. In another she said that she told her mother everything that Mr Mazen had said and all the assurances he had given. When this was queried in cross-examination she said that she had not told her mother what Mr Mazen had said, but only that she had spoken to him. But then in answer to a question from the court she said, as though there were no difference, that she had told her mother the gist of the conversation with Mr Mazen.

19.

The details of the conversation as to what Mr Mazen is said to have told her about the risk of the transaction were different when one compares the accounts given in the pleading, the witness statements and the oral evidence. Miss Hayes asked the court to treat paragraph 5 of the Defendant’s second witness statement as her case on the issue. That reads:

“I told him that I liked the plans and the area the development was in, but I was not sure because I had not spoken to my bank or confirmed that I could get a mortgage. Conrad told me that if I had difficulty getting a mortgage or if I no longer wanted the flat then it could be sold on before it was even built and that I was not to worry about it; if I changed my mind I would get my deposit back once the property was sold on, minus the holding deposit. This was the deciding factor for me, because I accordingly considered my exposure to be limited to £2,000. He went on to say that they were bound to go up in value because they were being sold off plan and that I would be likely to make a profit in any event. He assured me that there was no risk.”

20.

In oral evidence, however, the Defendant was adamant that it was Mr Mazen himself who said that the risk would be limited to £2,000. I also observe that what the Defendant said in her witness statement was the deciding factor for her, getting her deposit back and limiting her exposure to £2,000, was not pleaded. She seemed less sure about whether Mr Mazen had said that the value was “bound” to go up. She used the expressions, “likely” and “very likely” to go up instead, blurring the line between “likely to make a profit” and, “bound to go up”.

21.

Miss Hayes’s submission, based on the paragraph of the witness statement I have quoted, was that what Mr Mazen said in effect was that if the Defendant could not proceed with the transaction, either she could sell and take the profit herself or, (if the property did not rise, or rise sufficiently, in value) the Claimant would sell in mitigation of loss and the Defendant would at least get her deposit back “minus the holding deposit”. In other words, in the latter event, the Claimant would bear the risk of loss. That is not the pleaded case. I would add that it seems inherently unlikely and is at variance with the spirit of the Defendant’s oral evidence in which she spoke throughout of Mr Mazen assuring her that he would sell the property for her, meaning on her behalf.

22.

The Defendant’s own evidence was that she was unclear about dates and again on her own evidence she had forgotten about negotiations towards a possible sale conducted by Mr Entwistle of Chestertons on her behalf in late 2007. She was also quite immoderate in her language, calling Mr Mazen a liar several times without being able to sustain such a serious allegation.

23.

Both Mr Mazen and the Defendant are respectable people of good character and they were in my estimation honest witnesses, in the sense that neither was deliberately telling lies.

24.

However I was left with the distinct impression that the Defendant thought she had remembered details which simply did not reflect the true facts of the conversation. As I have said, I have no doubt that her account was an honest one, but I am equally sure that her memory has played tricks on her and the account she now gives is much embellished. In her mind she has conflated what she believed with what Mr Mazen said to such an extent that I am unable to determine what it was he did say. She is plainly someone for whom detail is unimportant. She blamed the inconsistencies between her witness statement and her oral evidence on the fact that her statement had been drafted by her lawyers. This is despite the fact that she is a barrister who, on her own evidence, knows and understands the importance of sworn evidence and has put previous inconsistent statements to witnesses in cross-examination on many occasions.

25.

At one point in her closing submissions Miss Hayes submitted that it was obvious what Mr Mazen had said at the preview. I do not find it obvious at all and it is evident that fine points of the legal issues, such as construction, understanding and reliance, turn on the detail.

Extrinsic Evidence about the Conversation

26.

That is the direct evidence about the conversation. There are also a number of other factors which I should take into account. Miss Hayes submitted that if Mr Mazen’s evidence were correct, nothing but some strange, and I quote, “collective hysteria” could account for the Defendant’s behaviour, (indeed she said “of the young people in Islington”) on the day of the preview. The Defendant is an intelligent young woman. She was called to the Bar in 2002. It is evident that her practice at the criminal Bar has never been a particularly lucrative one and that even in 2007, when she was practising from chambers (her chambers has collapsed and she now practises from home) her income was uncertain. She had no mortgage plan, she had a flat, as yet unsold in Ipswich with a very large mortgage on it, and she was thinking of committing herself to pay a purchase price of £370,000 in a year’s time. Of course all that the Defendant committed herself to on 22nd March was the reservation fee of £2,000, and she accepted that she knew that was at risk. However, Miss Hayes said that the “collective hysteria” would have extended for six weeks up to the signing of the Agreement. The Defendant’s entry into that agreement (and her mother’s agreement to lend her the amount of the deposit) is only explicable on the basis that the Defendant’s version of events is the true one.

27.

The Defendant wanted a home in London and she had in the past managed to get a very large mortgage, of the full amount other than the deposit, on her flat in Ipswich. It would not be surprising, let alone inexplicable, in the financial climate of the spring of 2007 to find that a young professional woman was interested in buying a flat in Islington and believed the risk of market downturn was worth taking. She herself in answer to a question from the court said that because of the longer period between contract and completion she considered there would be time for the market to recover from any fluctuations.

28.

Mr Patton for the Claimant asked me to take into account that the preview was so popular and successful that Mr Mazen had no need to make extravagant representations and promises to the Defendant. While true, that is not a complete answer. The mood of optimism was such on 22nd March 2007 that all sorts of things might have been said in the enthusiasm of the moment.

29.

More pertinently, Mr Patton pointed to the fact that the Defendant did not at any stage put her allegation about Mr Mazen’s alleged assurances and representations in writing. She did not tell her own solicitors when the Agreement was being considered, even though, if her account is true, and if what Mr Mazen said bears the interpretation for which Miss Hayes contends, those assurances would have totally undermined the effect of the Agreement. A promise that the Claimant would return the deposit in the event of a market collapse is not an additional collateral matter wholly separate from the contract; it runs counter to the express terms and obvious effect of the contract. Although the Defendant was not an expert in contract law, she had a law degree and was not a total innocent in conveyancing matters. The Defendant accepted that she knew by late 2008 that the market had fallen but she still did not write to the Claimant to say that she had been misled. It is true that she says that at an early stage she tried to contact Mr Mazen and alleges that Chestertons were obstructive in allowing her to contact him. However in those circumstances one would have expected her to have put her concerns to him and to the Claimant in writing but she did neither.

30.

I have found that the Defendant was an honest witness and it seems to me that Mr Mazen must have said something to her to reassure her about the potential risks of entering into the contract, or at least of reserving an apartment, but the unresolved question is as to what he did say. The Defendant has not satisfied me that the gist of the conversation was as pleaded in the amended defence, nor am I satisfied that it was as set out in paragraph 5 of the Defendant’s witness statement, or indeed in her oral evidence. The Defendant needs to prove the representations, assurances and promises as pleaded, or at least in such a manner that I would, after giving permission to amend, make findings in terms of that amendment.

31.

I cannot safely assume on the evidence I have heard and seen, and I do not therefore find, that Mr Mazen said that the value of the apartment was “bound to go up”. I cannot assume and do not find that he said anything to the effect that the Defendant would inevitably get her deposit back if she wished to withdraw from the purchase. I believe he must have said something about the rise in property prices which had the effect of reassuring the Defendant that there was little or no risk to her money and that she would be able to sell her interest between contract and completion. However, so much turns in law on the details of what was said that I cannot make findings of relevant fact without satisfactory evidence.

32.

For the reasons I have given, the evidence falls short of that required to make out the Defendant’s case in misrepresentation, warranty, collateral contract or estoppel.

The Effect of the Representations

33.

Much of the submissions made to me was concerned with the law and I ought to go on to consider what would be the effect of the alleged representations if I have been wrong in my findings of fact. It is difficult to consider this question in the absence of firmly rooted findings of fact, which I have been unable to make. However I proceed on the basis that, contrary to what I have decided, representations and assurances were made as pleaded in the amended defence or as asserted in paragraph 5 of the Defendant’s witness statement.

34.

The law as to actionable representations has been usefully summarised recently by Christopher Clarke J in Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland PLC [2010] EWHC 1392(Comm). He said at paragraph [81] and following:

81.

RZB must show that RBS made to it a statement which amounts to a representation, that is to say a statement of fact upon which RBS was entitled to rely. Whether any and if so what representation was made has to be “judged objectively according to the impact that whatever is said may be expected to have on a reasonable representee in the position and with the known characteristics of the actual representee”. MCI WorldCom International Inc v Primus Telecommunications Inc[2004] EWCA Civ 957, per Mance LJ, [30]. The reference to the characteristics of the representee is important. The Court may regard a sophisticated commercial party who is told that no representations are being made to him quite differently than it would a consumer.

82.

In the case of an express statement, “the court has to consider what a reasonable person would have understood from the words used in the context in which they were used”: IFE Fund SA v Goldman Sachs International[2007] 1 Lloyd's Rep 264, per Toulson J at [50] (upheld by the Court of Appeal at [2007] 2 Lloyd's Rep 449). The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them…

87.

Lastly the claimant must show that he in fact understood the statement in the sense (so far as material) which the court ascribes to it: Arkwright v Newbold (1881) 17 Ch D 301; Smith v Chadwick (1884) 9 App.Cas 187; and that, having that understanding, he relied on it.”

Mere Puff

35.

Mr Patton’s first submission is that any remark made by Mr Mazen to the effect that property prices were bound to go up, that there was no risk to the Defendant and she was not to worry, that she would be able to sell the flat between contract and completion and was bound to make a profit, would have been mere puff. The fact that Mr Mazen does not recall saying anything of the sort to the Defendant does perhaps suggest that it did not cross his mind, at any rate, that a professional woman would take his remarks literally and seriously. However, in my view, such statements could only have been made with the intention of allaying any fears that the Defendant might have had about the imprudence of the transaction. I adopt what Bryson AJ said in the New South Wales case of Jainran Property Limited v. Boyana Property Limited [2008] NSWSC, (cited in Zhang v. VP302 SPV and Others [2009] NSWSC 73 (another New South Wales case cited to me by Miss Hayes) that the expression “puffery” does not include communications which the recipient is expected to take seriously. In those circumstances representations in the alleged form would not in my judgment have been mere puffs.

Objective meaning of the representations and how they were to be understood

36.

Miss Hayes submitted that the alleged representations should properly be regarded as a promise by the Claimant not to sue the Defendant for damages. In my judgment that is going much too far in ascertaining the objective meaning of the pleaded statements. There is no basis for construing what was alleged to have been said to mean, “If the market goes up you will take the benefit, but if it goes down the Claimant will absorb the loss.”

37.

It was also the effect of the Defendant’s evidence that she did not understand Mr Mazen’s remarks as a promise that she would not be pursued for damages in the event of a fall in the market. That was plain when she said that this was something she hoped for after the notice to complete. She volunteered that her solicitors had told her that this was what they thought would happen in practice.

38.

Further, it was put to the Defendant in cross-examination that if she had suggested that the proposed contract should be drafted so as to guarantee her the return of her deposit in any event, the Claimant’s solicitors would have treated the suggestion as risible. She very fairly agreed.

39.

Mr Patton submitted that, if Mr Mazen’s remarks constituted an actionable representation or warranty bearing the construction Miss Hayes sought to ascribe to it, there would also be an issue as to Mr Mazen’s authority to give it on behalf of the Claimant. Passages were cited from textbooks on both sides on this issue but neither side had researched the point in detail. In the circumstances of my other findings it would be disproportionate for me to say anything more about it.

40.

In my judgment the allegations are in terms of an assurance that the value of the property would rise at least enough for the Defendant to cover her contractual outlay before completion of the transaction.

41.

However in construing statements to that effect I take into account the ordinary understanding of the reasonable consumer with the characteristics of the Defendant. She was a barrister of some education and understanding. Miss Hayes pressed the facts of Zhang, also a sale of off plan property, as being similar to the present case. However, the Defendant is very different from the representees, Mr Zhang and Miss Liu, who were uneducated immigrants with poor English and no real understanding of property matters. That was an important factor in the Court’s decision that the contract, induced by misrepresentation (for which there was no evidence for reasonable basis in fact) that the value of the property would double in a five year period, was unjust.

42.

I find it hard in all the relevant circumstances to construe the meaning of the words objectively as some sort of guarantee that the value of the property was bound to go up. Importantly, that was not the Defendant’s own understanding. She accepted that she knew there had been property crashes in the past and readily agreed in cross-examination that she knew also that there could be no guarantee of price rises.

43.

It is not alleged that Mr Mazen told the Defendant at any stage that the Claimant would not pursue a damages claim against her. Indeed, she said in evidence that it was only after the event that this is what she thought and indeed was advised would be the effect of her withdrawing from the transaction.

44.

On the Defendant’s evidence, she came away from the preview with two things firmly in mind. First that the market was going to rise. However, she also said, equally firmly, that she knew that there was no guarantee it would rise. So on her case she was making a value judgment reinforced by the assurances of Mr Mazen. Secondly, that if she could not raise the money for completion, Mr Mazen would market the property for her. Unlike her pleading and her witness statement, in both of which she said that the property “could be sold on”, she emphasised several times in oral evidence her reliance on and trust in Mr Mazen himself giving assurances and selling the property for her. Again, an issue of authority may arise since she has now moved away from her pleading in alleging an assumption of personal responsibility by Mr Mazen. I stress that she does not allege any duty of care or duty to advise or make any claim in the tort of negligence.

Forecast

45.

In this context I turn to the issue of whether any representation made by Mr Mazen was false. Again, it is important to bear in mind that negligence is not alleged. Miss Hayes expressly disavowed any assumption of a duty of care, either by Mr Mazen or by the Claimant. Thus the Claimant’s only duty was not to make a false representation.

46.

Miss Hayes relied on Esso Petroleum Co Limited v. Marden [1976] 1QB 801 as authority for the proposition that a prediction made by a person with special knowledge and skill, relied on by the other party, is liable if that prediction turns out to be untrue. Liability was held by the Court of Appeal to arise both as a matter of contractual warranty and as a matter of negligent misrepresentation. As to the former, Lord Denning MR said, at 818:

“... it was not a warranty - in this sense - that it did not guarantee that the throughput would be 200,000 gallons. But, nevertheless, it was a forecast made by a party - Esso - who had special knowledge and skill. It was the yardstick … by which they measured the worth of a filling station. They knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a forecast - intending that the other should act upon it and he does act upon it - it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill.

...

If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty. ... In the present case it seems to me that there was a warranty that the forecast was sound, that is, Esso made it with reasonable care and skill.”

47.

Miss Hayes submitted that there was just such a forecast in the present case. The Defendant relied on Mr Mazen’s expertise and experience, not just in property matters generally, but in properties in the Islington area. Thus he, and as principal the Claimant, were liable for breach of warranty, because the forecast turned out to be inaccurate.

48.

Miss Hayes’s submission is too bold. It leaves out an important part of the decision in the Esso case, one which is pleaded in the defence and which underpins the decision in Zhang: see paragraph 75 of that case. The warranty is not absolute. Lord Denning said in terms that it was not a warranty in the sense of a guarantee that the throughput would be 200,000 gallons. The warranty was that the forecast was sound and reliable in that it was made with reasonable care and skill. He also put it the other way round, that there was a breach of warranty if there was an unsound forecast such as no person of skill or experience should have made.

49.

In the present case, the answer to the claim in breach of warranty and indeed in misrepresentation lies in the unchallenged expert’s report. This demonstrates that in March 2007 there were reasonable grounds for holding the view (which was I should emphasise honestly held) that the value of the property was very likely to rise. His opinion was that it was not until much later in the year that the implications for the property market of sub-prime debts in America became apparent.

50.

In summary, it seems to me that the alleged representation, as I have construed it, that the property was very likely to rise, was not false but (adopting the analysis of Rix J in Avon Insurance v. Swire Fraser [2000] 1AER (Comm) 573[17] referred to in the Raiffeisen case at [149]), substantially correct.

Reliance

51.

The Defendant plainly trusted Mr Mazen and believed that he had let her down. However, it is hard to see where the reliance is that would give rise to actionable misrepresentation. She admitted that she knew there was no guarantee that the value of the property would rise. She admitted that she knew there had been property crashes in the past. She appeared to accept that she did not rely on any representation that the Claimant would not pursue a claim in damages against her. She accepted that she understood the significance of the Agreement and that she gave instructions to her conveyancing solicitors to exchange on her behalf. In those circumstances I find that she cannot have relied on the alleged representations as pleaded. The most that can be said is that she took comfort from Mr Mazen’s opinion, honestly held and not false at the time, that the property market was booming and apartments in The Pad were likely to appreciate in value.

Entire Contract and Acknowledgment Provisions of Clause 18

52.

As I have said, clause 18 of the Agreement, if it stands, prevents the Defendant from relying on any matter extraneous to the agreement itself unless such matter has been dealt with in writing between solicitors during the enquiries before contract.

53.

The purpose of such a clause was explained by Lightman J in Inntrepreneur v. East Crown [2000] 2 Lloyd’s Rep 611, 614[7]:

The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly, any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document.”

54.

The Defendant seeks to exclude clause 18 as an unfair term under the provisions of the Unfair Terms in Consumer Contract Regulations 1999. Those Regulations, unlike the Unfair Contract Terms Act 1977, apply to contracts for the sale of land: see R on the application of Katun v. Newham LBC [2004] EWCA Civ 55 [2005]QB37.

55.

The regulations apply to contracts concluded between a seller or supplier and a consumer: see regulation 4(1). A consumer for this purpose is any natural person acting for purposes outside his trade, business or profession: regulation 3.1. A seller or supplier is any natural or legal person acting for purposes related to his trade, business or profession whether publicly or privately owned: regulation 3.1. The Defendant thus is a consumer, the Claimant a seller.

56.

The core provision relied on is regulation 5(1), which provides:

“a contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.”

57.

It is common ground in this case that clause 18 was not individually negotiated within the meaning of Regulation 5(2).

58.

The time for applying the test is the time when the contract is made. The nature of the goods or services for which the contract was concluded, the circumstances attending its conclusion and all other terms of the contract or of another contract on which it is dependent must be taken into account: see Regulation 6(1), reflecting Article 4 of the Directive which the Regulations implement.

59.

Miss Hayes referred me to the observations of Lord Bingham in Director General of Fair Trading v. First National Bank Plc [2001] UKHL 52 at [17], [2008] 1 AC 481, the further elucidation in Office of Fair Trading v. Abbey National Plc [2009] UKSC 6, [2010] 1 All ER 671, and several parts of the Office of Fair Trading publication “Unfair Contract Terms Guidance” of September 2008.

60.

Schedule 2 to the Regulations contains an indicative and non-exhaustive list of terms which may be regarded as unfair. Of particular importance in the present case is paragraph 1(n), which is obviously directed at entire agreement clauses:

“Terms which have the object or effect of (n), limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality.”

61.

The regulations view fairness principally from the viewpoint of the consumer in order to redress imbalance in bargaining power. Entire agreement clauses may be sought to be defended in line with the statement by Lightman J which I have cited on the basis that they achieve certainty and clarity. However as the Office of Fair Trading has observed, the cost of certainty may be too high where it is achieved at the unacceptable price of excluding the consumer’s rights to redress misrepresentation and breach of obligation.

62.

Miss Hayes submitted on the Defendant’s behalf that Mr Mazen undertook a commitment which the Claimant should be obliged, as a matter of fairness, to respect. She relied on analogies with the Zhang case, City of Westminster Properties (1934) Limited v. Mudd [1959] Ch 129 and Brikon Investments v. Carr [1979] 1QB 467. In summary, she submitted that the Defendant was led through clever marketing and active misrepresentation into making an obviously imprudent bargain she could not afford. The purchase of a home is the biggest transaction that most consumers ever undertake. The court should protect the Defendant by striking down clause 18 as unfair.

63.

Mr Patton submitted that the clause was not unfair in all the circumstances of the case. It was clearly expressed and prominent in the contract, unlike the incorporated standard traditions of sale. The Defendant was a barrister with some understanding of contract law and was not therefore an unsophisticated consumer. The fact that she asked to see the contract even at the preview shows that she understood its significance and would have understood its terms. She had a cooling off period of several weeks between the date of the alleged misrepresentation and the date of exchange, during which the draft agreement was sent to her for her observations. She was represented by solicitors and could have raised the representations she said were made to her at the stage of enquiries before contract. The answers to those enquiries could be relied on under the express terms of clause 18.

64.

It is a difficult and perhaps sterile exercise to judge the fairness of a term excluding the effect of hypothetical misrepresentations in circumstances where I have found that there were no actionable misrepresentations. However, taking all the circumstances in to account I do not believe that clause 18 falls foul of the Regulations as being unfair.

65.

In this context I need to deal with a further submission made by Mr Patton, namely that the Regulations have no application to the acknowledgement contained in clause 18 that the Defendant:

“has entered into this agreement solely on the basis of the terms of this agreement and not in reliance on any representational warranty, either oral or written and whether express or implied made by or on behalf of the Landlord.”

66.

He submitted that such an acknowledgement constituted an estoppel by representation which did, but need not, have formed part of the Agreement. He pointed out that the unchallenged evidence was that the Claimant relied on the acknowledgement in that, without it, the Claimant would not have entered into the Agreement at all. He relied as support for this proposition on a comment (admittedly on a rather different point and in a different context) by Christopher Clarke J in the Raiffeisen case at 284 to 286, (citing Chadwick LJ in Watford Electronics v. Sanderson CFL Limited [2001] EWCA Civ 317), to the effect that there is a difference between contractual and evidential estoppel for the purposes of s.3 of the Misrepresentation Act 1967.

67.

It seems to me in principle that where an acknowledgement of this kind is comprised within a contract as a term of that contract it is subject to the provisions of the Regulations. Indeed, it would be strange if a contracting party could get round the Regulations by such a device. That is my preliminary view, but the issue does not arise in the circumstances of this case and has not to my mind been fully argued in any event.

Affirmation

68.

From 2007 onwards the Defendant sought to sell the flat on her own behalf. She says that was because she understood that the arrangement with Mr Mazen was that she was to revert to Mr Mazen at Copping Joyce, by then Chestertons, to effect a sale if she was unable to proceed with the Agreement. However the evidence shows that she signed terms as the client with Chestertons and even at one stage took preliminary steps, with the consent of Chestertons, to instruct another firm of estate agents to market the property on her own behalf. The Defendant was still seeking to market her flat in late 2008 after the market had crashed. Miss Hayes accepted that such conduct was capable of constituting an act of affirmation.

69.

However Miss Hayes cited the decision of the Court of Appeal in Peyman v. Lanjani [1984] Ch 457 as authority for the proposition that in order to make an irrevocable election to affirm the person concerned had to have knowledge not only of the facts which gave rise to the election but of the right of election itself. She submitted that as soon as the Defendant was advised of her right to rescind the Agreement she did so.

70.

I observe that in cross-examination the Defendant fairly acknowledged that she knew that it was an elementary matter of contract law that a misrepresentation gives rise to a right to rescind. It is thus hard to say that she was ignorant of the legal consequences of her actions, at any rate if she had stopped to think about them. I add to that the fact that she did not seek to write to the Claimant until May 2009 and made no attempt to rescind the Agreement until after an application had been made in this action for summary judgment.

71.

In those circumstances it seems to me that the Defendant affirmed the Agreement in any event.

Other Claims

72.

The defence and counterclaim make claims for collateral warranty (not to enforce the strict terms of the Agreement) and in estoppel. However, the case before me focused almost exclusively on misrepresentation.

73.

Because of the factual findings I have made I do not propose to say anything further about these additional aspects of the defence and counterclaim.

Mitigation

74.

I do however have to deal with the assertion that the Claimant should have mitigated its loss by selling the property at a much earlier stage. It is said that the Defendant approached Chestertons in 2007 to ask for the flat to be sold on, and if the Claimant had mitigated at that stage there would have been no loss as the property market was still stable.

75.

The Defendant faces the difficulty that the duty to mitigate cannot arise until there is a breach; at earliest, and I deal with this point later, an anticipatory breach. The Defendant says she repudiated the contract in 2007 by telling Chestertons that she was not going to perform it.

76.

However in 2007 she was still seeking to sell the land for herself. The purchase price quoted (on the advice of Mr Entwistle of Chestertons, but the Defendant accepted it) was in excess of the price payable under the contract even taking expenses into account. Accordingly, even if the Claimant had personally known of the Defendant’s difficulties, which it did not, it could not have sold the property elsewhere as the Defendant was treating the agreement as still on foot. In other words she had affirmed it, not repudiated it. In any event, repudiation was not pleaded.

77.

Secondly, the general rule is that an anticipatory breach does not have to be accepted; the innocent party can wait until the time for performance arrives. Miss Hayes prayed in aid the decision of Lloyd J in Clea Shipping v. Bulk Oil International Limited (“The Alaskan Trader”[1984] 1 All ER 129). It was held in that case that although an innocent party had in general an unfettered right to elect whether to accept repudiation of a contract, the court would, in an exceptional case, in the exercise of its general equitable jurisdiction, refuse to allow an innocent party to enforce his full contractual rights if he had no legitimate interest in performing the contract rather than claiming damages.

78.

Miss Hayes submitted that there were such exceptional circumstances in this case, namely the assurances by Mr Mazen that the property could be sold without loss to the Defendant and the fact that the Defendant was impecunious and could not perform the Agreement. Even assuming that such assurances were given (and as I have said, I have made no finding to that effect) I am very doubtful whether the principle of the Alaskan Trader is capable of application to a contract for the sale of land.

79.

Be that as it may (and again the matter has not been argued as fully as I would like) it seems to me that there were no such exceptional circumstances on the facts of this case. The property was marketed by Chestertons for the Defendant. The property would have been marketed by Chestertons for the Claimant. The Defendant said that she had no criticism of Mr Entwistle's handling of that marketing. Chestertons were unable to sell the flat for her. It is true that she is critical of the matter in which they took the flat off the market while there was a skirmish over the question whether a Home Information Pack was necessary. However, it is impossible to say that the Claimant would have acted unreasonably in taking the same course that the Defendant did in trying, and failing, to sell the flat. Only one realistic purchaser presented himself, although Chestertons sent the particulars out to everyone on their database, and in the event the Defendant took Mr Entwistle’s advice that he did not seem to be a serious purchaser.

80.

In those circumstances it is my view that the Claimant, even if it had known, or must be taken to have known, of an anticipatory breach, cannot be shown to have had a legitimate interest in not seeking to proceed with the Agreement. Even if it could, it cannot be shown to have acted unreasonably in not selling the flat in the relevant period.

Conclusion

81.

I therefore give judgment for the Claimant and dismiss the counterclaim.

Shaftsbury House (Developments) Ltd v Lee

[2010] EWHC 1484 (Ch)

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