High Court awards damages to Buyer for fraudulent replies to enquiries

In Greenridge Luton One Ltd and another v Kempton Investments Ltd [2016] EWHC 91 (Ch), the High Court considered a claim for fraudulent misrepresentation and held that a buyer was entitled to have its deposit returned because of an untrue representation made recklessly or fraudulently by the seller that there were no service charge arrears, when in fact there were such arrears. The buyer was also entitled to damages for deceit in the sum of £395,948.

Misrepresentation was proved in relation to the service charge arrears. The seller's replies to the Commercial Property Standard Enquiries given to the buyer were inaccurate. They contained misrepresentations that gave a false impression.

An action for fraudulent misrepresentation is founded in the tort of deceit. It occurs where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth. The remedies for fraudulent misrepresentation include the right to rescind the contract, or claim damages in the tort of deceit (not under the Misrepresentation Act 1967) or both. The damages seek to put the claimant into the position he was in before the misrepresentation was made.

On the facts of this case, the judge had no difficulty in finding reliance and that the buyer was induced to enter the contract by the misrepresentation.

This case provides a useful reminder of how the courts will deal with fraudulent misrepresentation in a routine commercial situation. The damages awarded by the court were for costs incurred in the prospective purchase which had been wasted as a consequence of the misrepresentation, that is, professional and survey fees and other costs relating to the proposed structuring of the purchase, rather than any form of punitive damages.

It is important that sellers and their advisors ensure that buyers are provided with up-to-date replies to enquiries and kept informed of changes in circumstances that will affect the accuracy of the replies. It is also essential to ensure that information that should be revealed is, in fact, revealed to avoid a claim for fraudulent misrepresentation and is not glossed over in an attempt to make the property more attractive.