UK: The misrepresentation mousetrap - A lesson for vendors and purchasers
Background The claimant purchased a flat in a development managed by the defendant developers for £240,000 in January 2012. Prior to exchange of contracts, the defendant was sent standard form pre-contractual enquiries to complete but failed to disclose information relevant to a dispute concerning the heating and hot water system at the property. At trial, the County Court Judge found that the defendant had made misrepresentations by implying that it was not aware of the dispute and that, consequently, the claimant suffered loss when purchasing the property. Key Principles The defendant appealed this finding in the Court of Appeal, which in turn dismissed the appeal and affirmed the decision of the County Court. Three particularly interesting points of discussion arose from the Court of Appeal decision; namely:- Whether a general increase in market value of the property after a cause of action has arisen should be deducted from any damages awarded to the claimant The claimant re-sold the property in 2014 for £275,000. The key legal question for the Court was to what extent the claimant should have to give credit to the defendant for any profit achieved on re-sale of the property. The Court of Appeal has now provided clarity on this issue, establishing that the “normal measure” of damages is applicable where an individual benefits from a market rise in the value of a property about which misrepresentations are made.In this case, the “normal measure” of damages meant the difference between the actual value of the property (being £225,000 having regard to the defects) and the purchase price of £240,000 paid by the claimant. The difference of £15,000 awarded to the claimant by the County Court was upheld by the Court of Appeal, on the basis that the claimant would have obtained £15,000 more profit on a re-sale had she initially paid the appropriate price for the property.The Court stated that the claimant “did not get what she bargained for and should be compensated accordingly”. She adopted the risk as to changes in the market and was entitled to retain the benefit of any related increase in value.
- To what extent the claimant should be obliged to mitigate her loss by reselling the property Having regard to the claimant’s re-sale of the property, the Court of Appeal also established principles in relation to the requirement for claimants to mitigate their losses. The defendant sought to rely on the recent Court of Appeal decision in Bacciottini and another v Gotelee & Goldsmith (A firm) [2016] EWCA Civ 170, in which damages were reduced because the claimant was able to mitigate its losses relatively easily and cheaply.