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Developer disputes: misrepresentation and summary judgment

We will all be familiar with the questions asked and answered by solicitors in the lead up to the purchase of a house. For commercial property the same process is carried out but the stakes, at least financially, can be even higher. Pre-contract correspondence between solicitors can be a fertile ground for possible misrepresentation claims if a development does not go well.

The recent case of Wilson & Sharp Investments Ltd v Falmouth Property Investments Ltd raises some interesting points of law concerning misrepresentation claims, particularly between developers, and also important issues of procedure for summary judgment applications.

The facts

The claimant (W&S) owned an option for a site in Falmouth. The site was a car park on which W&S proposed to build student accommodation.

In June 2017, W&S assigned the option to the defendant (FPI) who then proceeded with the planning appeal. The fee for the assignment was split between an initial up-front fee of £200,000 and a premium of £226,250 due if FPI achieved planning permission and exercised the option. In February 2018, those conditions were satisfied but FPI refused to pay the premium. W&S brought a debt claim to recover the premium.

The alleged misrepresentation

FPI admitted the premium was due but raised a set-off and counterclaim for misrepresentation. The misrepresentation was said to arise from the correspondence between the parties’ conveyancing solicitors.

Prior to the assignment, FPI’s conveyancing solicitors had asked:

“Is there a right of light report and does your client’s application take rights of light into account?”

W&S’s conveyancing solicitors had responded:

“No, my clients did not think it necessary from the location of the site.”

FPI argued that there were rights to light issues. Statements of opinion do not give rise to actionable misrepresentations. Therefore, FPI’s case relied on an implied statement of fact: it asserted that W&S had impliedly represented that it had reasonable grounds for its opinion that a rights to light report was unecessary when it did not or could not do so.

The counterclaim was pleaded for loss of profits of over £1 million calculated as the difference between FPI’s expected profits if the representation had been true compared to the profits it now expected to make. This measure of loss was, as a matter of law, incorrect. FPI was claiming loss on the contractual measure when its claim was in tort or under the Misrepresentation Act 1967. For such claims, the appropriate measure was any losses suffered by FPI as a result of the representation (normal “but for” damages).

There were other deficiencies in FPI’s pleaded case and the evidence available. Therefore, W&S applied for summary judgment.

The judgment

The one-day summary judgment hearing was heard by Master Davison (the claim being in the Queen’s Bench Division rather than the TCC). In a reserved oral judgment, the Master entered summary judgment for W&S because:

  • FPI did not have a real prospect of establishing an actionable misrepresentation.
  • There were serious credibility issues with FPI’s case on reliance.
  • There were further serious credibility issues with FPI’s case on loss and its current formulation was not pleased or supported by evidence.

On the second and third grounds, the Master would have entered judgment on the claim and required FPI to replead its counterclaim. However, on the basis of the first ground he entered judgment for W&S on both the claim and the counterclaim.

Implied statements of fact

Two important points of principle emerge from the Master’s decision:

  • Firstly, the representation that W&S “did not think [a rights to light report was] necessary” was properly to be considered a statement of fact as to W&S’s past belief. It was not a statement of opinion or a statement of W&S’s continuing or existing belief.
  • Secondly, the test for an implied statement of fact was not met because:
    • it was made between two property developers with similar skill and experience (part (a));
    • the reason for the belief was expressly given (that is, the location of the site) (part (b)); and
    • FPI had access to all the same relevant information as W&S (part (c)).

The first point is undoubtedly the correct approach to the language used. There is a difference between stating that you did not think something was necessary (past tense) and stating you do not think it is necessary (present tense). Of course, it is unlikely that a seller could deliberately use this distinction to conceal information. The key point is that in this case W&S had not reached a new, different view. Rather, given the prolonged discussions regarding the assignment, it was no longer interested in the progress of the development – it did not have a present view.

However, the significance of the first point may be limited. The Master did not accept that a statement of past belief could not, in any circumstances, give rise to an implied statement of another fact. Instead, he dealt with the question of whether there was such an implied statement by considering all the facts of the case. Therefore, the second point is potentially more important.

As to part (a) of the Master’s reasoning, cases of implied statement of fact have often arisen where there is a power or knowledge imbalance. Here, there were two commercial developers. The Master’s decision properly recognises that such parties should be entitled to assume that the other party will carry out its own due diligence. To borrow from general tort cases, W&S would not have assumed responsibility to FPI for the checking whether there were reasonable grounds to believe that a rights to light report was not necessary. Part (c) of the Master’s reasoning is in the same vein.

As to part (b), parties answering intra-solicitor pre-contract questions would be well advised to give at least a bullet point explanation for their reasoning to prevent an implication that there are reasonable, unspoken, reasons for the answers. The potentially unresolved question is whether such a statement could give rise to an implied statement that there are reasonable grounds based on the given reason for holding the view: that is, in this case whether there were reasonable grounds based on the location of the site to consider that a rights to light report was not necessary. The court should be slow to allow such a development as it would cut even further across the principle that statements of opinion do not give rise to actionable misrepresentations.

Scope of summary judgment

A first reaction to this case, and the judgment, may be that the Master went too far on a summary judgment application. Notably, however, permission to appeal from the Master’s judgment was refused on the papers and then by Mr Justice Soole at an oral hearing following a renewed application.

The Master’s approach demonstrates that, in an appropriate case (particularly where a defendant’s case is flawed or contradictory), the court can on a summary judgment application:

Parties should give proper thought to whether summary judgment is suitable in their case. The benefit of successful applications for summary judgment in saving time and costs, particularly when made at the close of pleadings before the first CMC, is obvious.

Approach to pleadings on summary judgment

At the same time, defendants may be emboldened by the liberal approach to pleadings on a summary judgment application adopted by the Master. Perhaps reflecting the guidance that a court should consider whether a defective statement of case can be cured by amendment before striking it out, the Master considered the case as formulated by the skeleton argument prepared by leading counsel for FPI ahead of the hearing, rather than its pleaded case (settled by different counsel). The same approach was adopted at the permission to appeal hearing.

It is arguable that, particularly where there is no draft amendment before the court, such an approach is unduly lenient. If the application for summary judgment had been dismissed with FPI required to amend, there could easily have been further disagreements between the parties as to the scope of those amendments and what parts of FPI’s pleaded case had survived.

James acted for the successful claimant before the Master and at the permission to appeal stage. He was instructed by BPL Solicitors.

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