Gran Gelato Ltd v Richcliff (Group) Ltd and Another
| Jurisdiction | England & Wales |
| Judgment Date | 10 December 1991 |
| Date | 10 December 1991 |
| Court | Chancery Division |
Solicitor - Negligence - Landlord and tenant - Vendor's solicitor making misrepresentation to purchaser in answer to preliminary inquiries - Whether solicitor owing duty of care to purchaser - Vendor and Purchaser - Misrepresentation - Reliance on statement - Purchase of underlease - Purchaser acting on vendor's misrepresentation - Whether defence of contributory negligence available -
The plaintiff entered into negotiations for the acquisition from the first defendant of a 10-year underlease of the basement and ground floor of two adjacent properties for use for the plaintiff's business. In the course of the negotiations the plaintiff's solicitors sent inquiries before lease to the first defendant's then solicitors, the second defendant. Inquiry 3(A) asked whether there were any rights affecting the superior leases which would in any way inhibit the enjoyment of the underlease to which the second defendant replied “Not to the lessor's knowledge.” In fact the headleases of both properties contained redevelopment break clauses which, if exercised, would cause the underlease to determine after five years. In ignorance of the break clauses the plaintiff proceeded to completion of the underlease. The business did not prosper, and three years later the plaintiff ceased trading with substantial accumulated losses. The plaintiff was unable to sell the underlease because of the break clauses in the headleases, and the plaintiff ceased to pay rent. Five years from the grant of the underlease the headlessor exercised the break clause under the terms of the headleases and recovered possession of the premises.
On the plaintiff's claim against both defendants for damages for misrepresentation: —
Held, (1) that the vendor's solicitor's answer to inquiry 3(A) constituted a misrepresentation on which the plaintiff relied in proceeding with the purchase of the underlease and on proof of loss the plaintiff had a good cause of action both under a common law duty of care and under section 2(1) of the Misrepresentation Act 1967 against the first defendant; but that in normal conveyancing transactions a solicitor acting as the agent of the vendor did not owe a separate duty of care to the purchaser; and that, accordingly, the plaintiff's claim against the second defendant failed (post pp. 873B, 874A, B, 875C).
(2) That where there were concurrent claims for misrepresentation against a defendant for breach of a common law duty of care and under section 2(1) of the Misrepresentation Act 1967 the doctrine of contributory negligence applied to both; but that if the defendant made a misrepresentation intending the plaintiff to act on it and the plaintiff did so act, the defendant could not normally claim that any carelessness on the plaintiff's part should reduce the damages payable; and that, accordingly, the plaintiff was entitled on its claim to half the premium paid for the underlease and some of the legal expenses incurred and was not obliged to pay rent after the point when the existence of the break clause came to light (post pp. 878F–G, H–879B, 880H, 881D, F).
The following cases are referred to in the judgment:
Al-Kandari v. J.R. Brown & Co. [
Allied Finance and Investments Ltd. v. Haddow & Co. [
Caparo Industries Plc. v. Dickman [
Cemp Properties (UK) Ltd. v. Dentsply Research & Development Corporation [
Esso Petroleum Co. Ltd. v. Mardon [
Forsikringsaktieselskapet Vesta v. Butcher [
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [
Nocton v. Lord Ashburton [
Redgrave v. Hurd (
Resolute Maritime Inc. v. Nippon Kaiji Kyokai [
Reynell v. Sprye (
Rowe v. Turner Hopkins & Partners [
Smith v. Eric S. Bush [
The following additional cases were cited in argument:
Brown v. Raphael [
Clarke v. Bruce Lance & Co. [
Curran v. Northern Ireland Co-ownership Housing Association Ltd. [
Doyle v. Olby (Ironmongers) Ltd. [
Englefield Holdings Ltd. and Sinclair's Contract, In re [
Hill v. Harris [
Howard Marine and Dredging Co. Ltd. v. A. Ogden & Sons (Excavations) Ltd. [
Langley v. North West Water Authority [
Laurence v. Lexcourt Holdings Ltd. [
Naughton v. O'Callaghan [
Owens v. Brimmell [
Ross v. Caunters [
Royscot Trust Ltd. v. Rogerson [
Walker v. Boyle [
Wilson v. Bloomfield (
Yuen Kun Yeu v. Attorney-General of Hong Kong [
ACTION AND COUNTERCLAIM
By an amended statement of claim dated 4 June 1990 Gran Gelato Ltd. sought against Richcliff (Group) Ltd., Gershon Young Finer & Green (now Finers) and Eagle Star Insurance Co. Ltd. damages and an inquiry into damages on the grounds that the second defendant's answer to inquiry 3(A) of the inquiries before lease which the plaintiff by its solicitor put to the first defendant by its solicitor, the second defendant, prior to acquiring an underlease of Nos. 7 and 9, Montpelier Street, London S.W.7 constituted a representation that there was no provision for early termination in the two headleases, that the representation was intended to induce the plaintiff to take the underlease and that it was false and made negligently whereby the plaintiff suffered loss and damage. The first defendant counterclaimed for unpaid rent from June 1987 to 4 August 1989.
The claim against Eagle Star was decided as a preliminary issue in favour of Eagle Star in June 1989 and Eagle Star did not participate in the trial of the action.
The facts are stated in the judgment.
Christopher Pymont for the plaintiff.
Ralph Wynne-Griffiths for the first defendant.
Dirik Jackson for the second defendant.
10 December. The following judgment was handed down.
SIR DONALD NICHOLLS V.-C. This case arises out of the circumstances in which the plaintiff, Gran Gelato Ltd. (which I shall refer to as “Gran Gelato”) acquired from the first defendant, Richcliff (Group) Ltd. (“Richcliff”) an underlease dated 26 June 1984 of the basement and ground floor of Nos. 7 and 9, Montpelier Street, London S.W.7. The underlease was expressed to be for a term of almost 10 years, that is, until 24 March 1994. The underlease was carved out of two headleases. The headlease relating to No. 7 was due to expire on 24 June 1995 and the headlease relating to No. 9 was for a term expiring on 29 September 1997. Unknown to Gran Gelato and its solicitors, both headleases contained redevelopment break clauses exercisable by 12 months' notice expiring in or after June 1989. Thus, if the headlessor, Eagle Star Insurance Co. Ltd., exercised the break clauses at the first opportunity, the term granted to Gran Gelato by the underlease would be reduced by about one-half, to five years. In the event, Eagle Star did exercise the break clause options, by giving 12 months' notice in November 1988.
In the course of the negotiations and steps leading up to the grant of the underlease, Gran Gelato's solicitors, Mackenzie Mills, sent “inquiries before lease” in the usual way to Richcliff's then solicitors, Gershon Young Finer and Green. They are the second defendant in the action. Those inquiries, together with the answers supplied by Gershon Young on 10 May 1984, included the following:
“Q. 1(C) If the landlord does not own the freehold, please supply a copy of the superior lease or leases and deduce title thereto and confirm that an unqualified receipt for the latest rent due under the superior lease will be produced on completion.
“A. 1(C) The superior title is not being deduced.
“Q. 3(A) Are there any covenants, restrictions or rights affecting the freehold or superior leasehold titles which would impose a greater obligation on the tenant than contained in the present draft lease or in any way inhibit the enjoyment of the property by the tenant in accordance with the terms of the present draft lease?
“A. 3(A) Not to the lessor's knowledge.”
In this action Gran Gelato claims that the answer to inquiry 3(A) constituted a representation that there was no provision for early termination in the two headleases; that the representation was intended to induce Gran Gelato to take the underlease; and that in reliance on that representation Gran Gelato did so. Gran Gelato asserts that the representation was false and made negligently. Gran Gelato claims damages in negligence against both defendants and also, against Richcliff, damages under the...
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