REUTERS | Brian Snyder

Fraudulent misrepresentation in construction disputes

I thought this week that I would discuss when happens when a dispute gets out of hand. Disputes, by their very nature, can be very stressful for the parties. The outcome can affect the survival of businesses, whether people keep their jobs or even their houses. However, when crimes are involved, disputes take on a different dimension.

A few years ago I gave expert evidence for the Crown in a case against a builder who had made threats to kill the employer when a dispute arose. The CPS also decided to pursue a case against the builder for obtaining property by deception as a result of over-valuation, claiming for works not undertaken, and so on, hence my involvement. This was very stressful for the employer and, I confess, I didn’t particularly look forward to my turn in the witness box.

However, very occasionally, a dispute can have tragic consequences. I’m referring to a matter involving Mr Christopher Sear, Kingfisher Builders and Ms Francine Whale. If what the police allege is proven, Mr Sear’s solicitor, Mr James Ward, was shot dead in his office in August 2012 by Mr Michael Chudley, a partner of Kingfisher Builders. He has been charged with Mr Ward’s murder.

Last month, Ramsey J handed down his judgment on the quantum claims in the case.

Sear v Kingfisher Builders and Francine Whale

In June 2008, Mr Sear and Kingfisher Builders entered into contract for the renovation and extension of Mr Sear’s house in Esher. By December 2008, Kingfisher said that Mr Sear had underpaid. Kingfisher therefore left site prior to completing the works and started a claim for outstanding sums due, which was dismissed by Ramsey J in 2011.

Ramsey J had also found at an earlier hearing that Ms Whale had made a fraudulent misrepresentation to Mr Sear when he visited her house in May 2008. She gave the impression that she was an independent third party for whom Kingfisher had carried out work, and spoke about the good standing and abilities of Mr Chudley and Kingfisher. However, Mr Chudley was living in Ms Whale’s house and she was a partner of Kingfisher. Furthermore, she failed to disclose that Mr Chudley had a conviction for fraud and had been made bankrupt.

Subsequently, Mr Sear made a claim for overpayment together with a separate claim against Ms Whale for damages for the fraudulent misrepresentation. In his judgment, Ramsey J made some interesting comments about the recovery of financing charges under the Sempra Metals principles, particularly the relevance of a contractor being aware of how a project is going to be financed. However, I want to focus on the fraudulent misrepresentation claim.

Fraudulent misrepresentation

Ramsey J was satisfied that, had Ms Whale not committed the fraudulent misrepresentation, Mr Sear would not have entered into the contract with Kingfisher. Therefore, Mr Sear was entitled to such damages as would put him back into the financial position before the contract was made. However, unlike a claim for breach of contract (where damages are limited to what may reasonably be supposed to have been in the contemplation of the parties when they entered into the contract), damages in fraud are unlimited.

Ramsey J reviewed all of the claims and found that Mr Sear was entitled to approximately £250,000, the majority of which was the cost of selling the property in Esher and purchasing a new property in Oxshott. Mr Sear was required to do this because he was struggling to finance the loans he had taken out to complete the works, and he was also concerned about meeting the costs of the litigation.

However, while Mr Sear said that he incurred further costs after purchasing the property in Oxshott, Ramsey J was not persuaded that these had been caused by the inducement to enter into the contract. Ramsey J said that:

“…there comes a stage where the causative effect of the fraud is exhausted”.

Therefore, while the damages do not necessarily need to have been in the contemplation of the parties, they must obviously still flow from the fraudulent inducement.

Lessons for us to learn

This is an extreme example of where a reference for a builder was not just embellished, but was clearly false. However, it nevertheless shows the importance of undertaking thorough research about potential builders before appointing them, and selecting the right builder for the job.

Personally, I would always recommend appointing a member of a trade organisation such as the Federation of Master Builders, those that are quality assured, and so on. If you have engaged a professional team, they will normally be able to recommend builders suitable for the type of work. Also, as difficult as it can be, remember to look beyond the lowest price – you might think you are making a saving, but in the long run it might cost significantly more.

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