Cleaver & Ors v Schyde Investments Ltd (2011)
The judge was entitled to hold that the Standard Conditions of Sale (4th edition) 7.1.3 was not fair and reasonable in the circumstances and was therefore of no effect by virtue of the Misrepresentation Act 1967 s.3 and the Unfair Contract Terms Act 1977 s.11 with the result that a purchaser of land was entitled to rescind the contract of sale.
The appellant sellers (C) appealed against a decision that a contract for the sale of land to the respondent (S) should be rescinded on the ground of innocent misrepresentation. The property was used for a garage business. C had orally agreed to sell the property to S with a view to residential development. A local doctor (W) was interested in purchasing the property for development as a medical centre. C had replied to the commercial property standard enquiries from S's solicitors to the effect that there was no planning application, letter or notice outstanding in relation to the property. C then received notice from W that he had made a planning application for the erection of a health centre and four flats on the property. C informed their solicitor but the latter failed to correct the answers to the enquiries. Contracts were exchanged incorporating the Standard Conditions of Sale (4th edition). W pursued his planning application notwithstanding that the property had been sold and that came to the attention of S. S thought that W's application, if successful, would create real difficulties in the way of any application for purely residential development. S therefore gave notice to rescind. It was accepted that C's replies to the standard enquiries had contained innocent misrepresentations which would have entitled S to rescind but for standard condition 7.1.3 which excluded error or omission except in the case of fraud or recklessness or where the property differed substantially in quantity, quality or tenure from what the purchaser had been led to expect. The judge held that standard condition 7.1.3 was not fair and reasonable in the circumstances and was therefore of no effect by virtue of the Misrepresentation Act 1967 s.3 and the Unfair Contract Terms Act 1977 s.11. Therefore S was entitled to rescind. C submitted that the judge had not given sufficient weight to the facts that the parties were represented by solicitors, the standard conditions had been varied by a number of special conditions, the standard conditions were endorsed by the Law Society and standard condition 7 had a long history.
(1) There was nothing self-evidently offensive, in terms of reasonableness and fairness, in a contractual term which restricted a purchaser's right to rescind in the event of the vendor's misrepresentation to cases of fraud or recklessness or where the property differed substantially in quantity, quality or tenure from what the purchaser had been led to expect, and to confine the purchaser to damages in all other cases. The argument in favour of upholding such a provision was particularly strong where, as in the instant case, the term had a long history, it was a well established feature of property transactions, it was endorsed by the Law Society, both sides were represented by solicitors and the parties had negotiated variations of other standard provisions (see para.38 of judgment). (2) The issue, however, on the appeal was whether the judge had erred in principle or was obviously wrong, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd (1983) 2 AC 803 HL followed (para.39). (3) It would require some exceptional feature or combination of features to enable a court to conclude that standard condition 7.1.3 failed to satisfy the test of reasonableness. The judge was entitled to find that W's planning application had a significant negative impact on S such that had it known of the application it would not have exchanged contracts for the purchase. At the date of the contract C knew of the planning application and that it would be material to S's intentions. C had that knowledge and failed to disclose the fact that the application had been made at the very time that they were entering into a contract which would remove the right that S would otherwise have to rescind for misrepresentation. Moreover, they were doing so notwithstanding their express promise in the standard enquiries to notify S on becoming aware of anything which might cause any reply they had given to be incorrect and notwithstanding the fact that the replies to pre-contract enquiries were excluded by agreement from the entire agreement clause in special condition 12. The judge was entitled to regard that combination of circumstances as taking the case out of the general run and to hold that C failed to show that standard condition 7.1.3 was fair and reasonable in the instant case (paras 50-52).