England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CAMBRIDGE COUNTY COURT
His Honour Judge Yelton
Case No: 8ED03576

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/10/2010

Lord Justice Rimer :

Introduction

1. The claimant, the London Borough of Haringey ('Haringey'), and the defendant, Samantha Hines, have each appealed against the order of His Honour Judge Yelton dated 18 August 2009 in the Cambridge County Court. Nicholas Grundy represented Haringey and Ali Reza Sinai represented Ms Hines, as they both also did before the judge.
2. Haringey is a local housing authority for the purposes of the Housing Act 1985. Ms Hines was formerly its secure tenant of a flat at 26 Falconer Court, Compton Crescent, London N17 ('the flat'). In December 2001 she exercised her statutory 'right to buy' the flat and on 14 October 2002 Haringey granted her a long lease of it in completion of such exercise. The market value of the flat was £80,000, but Ms Hines bought at a price of £42,000 reflecting a discount of £38,000 to which the duration of her tenure had entitled her.
3. In 2008 Haringey formed the view that Ms Hines may not as at 14 October 2002 have been in occupation of the flat as her 'only or principal home'; and that, if so, she had not been entitled to the grant of the lease under the 'right to buy' provisions. By its particulars of claim issued in July 2008, as amended, Haringey sought rescission of the lease, alternatively a declaration that it was void, damages for a fraudulent misrepresentation said to have been made by Ms Hines on 16 May 2002, alternatively damages on the basis that that misrepresentation was made negligently or innocently. Ms Hines defended the claim, asserting that as October 2002 the flat remained her 'only or principal home' so that she had been properly entitled to the lease and denying the making of any misrepresentation.
4. Judge Yelton found that Ms Hines had ceased to occupy the flat as her 'only or principal home' in the spring of 2002 and was not so occupying it on 14 October 2002. That meant that she was not then still a secure tenant of the flat and so was not entitled to complete her right to buy it (London Borough of Sutton v. Swann (1985) 18 HLR 140, at 144, 145; Muir Group Housing Association Ltd v. Thornley & Thornley (1993) 25 HLR 89). He nevertheless rejected Haringey's case that the grant of the lease was ultra vires and void. He also rejected its case that it was entitled to rescind the lease for misrepresentation, his reasoning being that the lease was neither a contract nor a binding transaction susceptible of being so rescinded (a conclusion he considered was compelled by this court's decision in Rushton and another v. Worcester City Council [2001] EWCA Civ 367; [2002] HLR 9). He did, however, find that Ms Hines was liable to pay damages to Haringey for deceitfully misrepresenting to it that she was still living at the flat in October 2002; and he fixed the damages so payable at the amount of the discount (£38,000) plus interest. He refused permission to both parties to appeal.
5. By an order of 11 December 2009, Arden LJ permitted Ms Hines to appeal on two grounds. First, that Judge Yelton's decision that she had deceived Haringey as to her status in the flat in 2002 was unsupported by evidence and perverse. Second, that he was wrong to find her liable to Haringey in the amount of the discount. Arden LJ also permitted Haringey to cross-appeal on three grounds and adjourned to us its permission application on a fourth, relating to the judge's costs order, which in the event was not pursued. By those three grounds, Haringey was permitted to challenge (i) the judge's conclusion that the lease was not void as being ultra vires; (ii) his conclusion that, if intra vires, it was neither a contract nor a binding transaction in respect of which rescission was available; and (iii) his award of damages: Haringey claims it should have been higher.

Secure tenants and the 'right to buy'

6. Part IV of the Housing Act 1985 is headed 'Secure Tenancies and Rights of Secure Tenants'. Section 79 provides that a tenancy under which a dwelling-house is let as a separate dwelling is a secure tenancy 'at any time when the conditions described in sections 80 and 81 as the landlord and the tenant condition are satisfied.' Section 80 explains what the 'landlord condition' is and there is no dispute that it was satisfied in this case at all material times. Section 81 defines the 'tenant condition' thus:

'The tenant condition is that the tenant is an individual and occupies the dwelling-house as his only or principal home; or, where the tenancy is a joint tenancy, that each of the joint tenants is an individual and at least one of them occupies the dwelling-house as his only or principal home.'

Section 82(1) provides that a secure tenancy which is either a weekly or other periodic tenancy, or a tenancy for a term certain but subject to termination by the landlord, cannot be brought to an end by the landlord except by obtaining an order of the court for the possession of the dwelling-house or an order under subsection (3).

7. A secure tenant's 'right to buy' – in the case of a flat, a right to buy a long lease – is dealt with in section 118 and following, in Part V of the Act. Section 119 prescribes the qualifying period of occupation before the right arises. Section 122(1) provides that a 'secure tenant claims to exercise the right to buy by written notice to that effect served on the landlord'. Section 124 provides for the service by the landlord within a specified subsequent period of a written notice either admitting the right or denying it for stated reasons. In cases in which the tenant's right to buy is admitted or otherwise established, sections 125 to 129 deal (inter alia) with the fixing of the price by reference to the value of the dwelling-house at the relevant time, subject (by section 129) to the discount to which the purchaser is entitled by reference to the period to be taken into account in accordance with Schedule 4. Section 138 provides that, as soon as all matters relating to the grant have been agreed or determined, the landlord shall (in the case of a flat) grant the tenant a lease in accordance with the following provisions of the Act.

Other legislation

8. A housing authority's power to dispose of property owned by it for the purposes of housing accommodation is constrained by section 32 of the Housing Act 1985, subject to the qualification contained in section 44. These provisions, also relevant to the argument, are, so far as material, as follows:

'32. Power to dispose of land held for purposes of this Part

(1) Without prejudice to the provisions of Part V (the right to buy), a local authority have power by this section, and not otherwise, to dispose of land held by them for the purposes of this part.

(2) A disposal of land under this section may be effected in any manner but, subject to subsection (3), shall not be made without the consent of the Secretary of State.

(3) No consent is required for the letting of land under a secure tenancy or an introductory tenancy or under what would be a secure tenancy but for any of paragraphs 2 to 12 of Schedule 1 (tenancies, other than long leases and introductory tenancies, which are not secure). …

44. Avoidance of certain disposals of houses without consent

(1) A disposal of a house by a local authority made without the consent required by section 32 or 43 is void, unless –

(a) the disposal is to an individual (or to two or more individuals), and

(b) the disposal does not extend to any other house…

(3) In this section "house" does not have the extended meaning of the definition of "housing accommodation" in section 56, but includes a flat.'

The facts

9. I take these from the judge's findings as supplemented by the documents. Ms Hines was born on 12 October 1975. In October 1993, when almost 18, she moved into the flat of which she became Haringey's secure tenant under a tenancy agreement dated 4 October 1993. At some point, she also became an employee of Haringey, although not in its housing department. Her son, Jelani, was born on 29 January 1997 and is now 13. His father is her former partner, David Rogers.
10. On 3 December 2001 Ms Hines exercised her 'right to buy' the flat by giving a written notice ('Form RTB1') to Haringey under section 122. She ticked the box on it indicating that she occupied the flat as her 'only or principal home'. It is agreed that at that stage she did so occupy it and that she was entitled to exercise the right to buy, as Haringey admitted by its notice dated 31 December 2001 (section 124). By reason of the length of her occupation, she was also entitled to the maximum discount.
11. On 27 February 2002 Ms Hines wrote to Haringey's payroll service and its personnel department stating that she would be going on maternity leave and asking for her payroll slips to be sent to 'my home address', saying that 'I have recently moved and my new address is 23 Little Pynchons, Harlow'. Mr Rogers had bought that property ('Little Pynchons') in January 2002.
12. On 1 March 2002 Haringey gave Ms Hines a notice under section 125 stating that the District Valuer had valued a long lease of the flat at £80,000, which Haringey proposed as the price, also informing her that she was entitled to a discount of £38,000, so reducing the price to £42,000.
13. Ms Hines's and Mr Roger's younger son, Raejan, was born on 15 March 2002 (he is now 8). On 27 March 2002 she recorded her home address on his birth certificate as Little Pynchons. In the same month she changed her general practitioner from one near the flat to one near Little Pynchons and told the doctor she was living there. In April 2002 Jelani moved to a new school in Harlow.
14. On 16 May 2002 Ms Hines accepted the terms of Haringey's offer letter of 1 March 2002 and confirmed that she wished to proceed with the right to buy. She did so by returning the form to that effect that Haringey had sent her. It is by the return of that form that she is said to have made her fraudulent misrepresentation to Haringey.
15. On 2 July 2002 she wrote from Little Pynchons to Haringey's personnel department and also to her head of unit asking for additional maternity leave. On 4 July 2002 she applied for housing benefit for the flat, claiming to be entitled to it as she was entitled to income support whilst on maternity leave. Her claim was allowed and she received housing benefit and council tax benefit for the flat for the period 8 July to 13 October 2002. On 30 July 2002 she applied for income support, which the Department of Work and Pensions ('the DWP') awarded her with effect from 3 July 2002. The DWP's records show her as moving back to the flat on 16 July 2002 and remaining there until 2005. The DWP paid her income support at that address as from 16 July 2002.
16. Ms Hines's exercise of the right to buy the flat was completed on 14 October 2002, when Haringey granted her a long lease. On 14 November 2002 she wrote to Haringey asking to extend her maternity leave, again giving her address as Little Pynchons.
17. Ms Hines and Mr Rogers decided in late 2003 that they had no future together and she moved back to the flat. Mr Rogers remained at Little Pynchons until November 2005 when she bought it from him. She has lived there ever since but has retained ownership of the flat, which she sublet following her move to Little Pynchons in 2005.
18. In 2008 Ms Hines became the subject of an investigation by Harlow council in relation to suspected housing benefit fraud concerning Little Pynchons. Harlow prosecuted her for housing benefit fraud, she pleaded guilty and was convicted.
19. On 5 March 2008 Harlow notified Haringey of its investigation. Haringey's internal audit department retrieved Ms Hines's personnel file and unearthed her letter of 27 February 2002 to Haringey notifying it of her change of address from the flat to Little Pynchons. An officer in that department (Ms Johnson) interviewed her under caution on 6 May 2008. The main purpose of the interview was to investigate whether she had wrongly claimed housing benefit and council tax from Haringey during the period 8 July to 13 October 2002; but it was in part also to see whether she had breached her employment contract with Haringey. During the interview Ms Hines twice told Harlow that she had moved to Little Pynchons in April 2002.
20. Ms Hines appealed against Haringey's decision to recoup the housing benefit and council tax benefit paid to her in the sum of £747.88 for the period 8 July to 13 October 2002. Her appeal was allowed by the Social Security Tribunal on 9 April 2009. That decision was based on a finding that Ms Hines was living at the flat for the period in question.
21. On 18 July 2008 Haringey issued its present proceeding against Ms Hines. Its case, including its claim in deceit, was based on the assertion that following her move to Little Pynchons in March 2002, she was no longer a secure tenant of the flat and so not entitled to complete the (originally valid) exercise of her right to buy the flat.

The judge's findings and conclusions

22. The judge said that Ms Hines's factual case presented to him was a difficult one. It was to the effect that all the statements she had made in 2002 (summarised above) to the effect that she had moved from the flat to Little Pynchons were untrue, as was her double admission as to such move made in her May 2008 interview. Her case was that at all material times in 2002 she was still living in the flat. The judge held her evidence in this respect to be incapable of belief and found her to be 'deeply dishonest and unwilling to face facts.' He found that her aforesaid statements (which he called representations) and admission were true and that her claim that she was in fact living in the flat during the relevant period in 2002 was untrue. He said:

'20. I therefore find that [Ms Hines] moved to Harlow [Little Pynchons] in the spring of 2002. I also find that at that time it was her intention to live there permanently, a conclusion which I reach not only on the evidence as to school and doctor but also on her own testimony that she then saw her future as living with Mr Rogers and that, despite the difficulties in their relationship arising from infidelity on his part while she was pregnant with Raejan, she thought they could work through their problems. I find that she was there from the time of Raejan's birth until after the conveyance to her of the Tottenham flat [ie the flat] and that during that time it was her intention to remain there and not to return to live in Tottenham.'

23. There is no challenge to those findings, which were to the effect that in about March 2002 Little Pynchons became Ms Hines's home. It was, however, also Ms Hines's case that, if so, it was not her only home and the flat continued to remain her '… principal home' during the whole of 2002, because she did not sublet it and she retained some furniture and personal belongings there, which she did not remove until 2005 when she did sublet it. If that was right, she would have continued to be a secure tenant of the flat. The judge's further finding was, however, that she:

'29. … both objectively and indeed subjectively, on her own evidence ceased to occupy the Tottenham flat as her principal residence in the spring of 2002 when she moved to Harlow, as at that time she did not intend to return: Harlow thus became her principal home.

30. It follows that at the time of the lease to her, in October 2002, [Ms Hines] was no longer a secure tenant of the Tottenham property [the flat]'.

24. There is no challenge to those findings either. It followed that she was not entitled to the grant of the lease that was executed in her favour on 14 October 2002. The prior cessation of her status as a secure tenant brought with it an end to her right to buy the flat. The judge found, in paragraph 38, that the 'assertion by [Ms Hines] that she was living at [the flat] was, by the time the lease was executed, clearly untrue and was known by her to be untrue.'
25. The judge went on to consider the consequential issues argued by Haringey, namely that the lease was void as ultra vires, or could alternatively be rescinded, and that in any event it was entitled to damages. His conclusions were these. He held that, whilst the disposal of the flat to Ms Hines by the grant of the lease was outside the 'right to buy' provisions in Part V of the Housing Act 1985, sections 32 and 44 of that Act (quoted in [8] above) showed that it was nevertheless a valid disposition. He therefore rejected the case that the grant of the lease was void. The alternative argument was that Ms Hines had made a fraudulent or other misrepresentation that had induced the grant of the lease and that Haringey was entitled to rescind the lease under section 2 of the Misrepresentation Act 1967. The judge rejected that argument too, on the basis that it was precluded by this court's decision in Rushton and another v. Worcester City Council [2001] EWCA Civ 367; [2002] HLR 9. He did, however, accept that Haringey was entitled to damages against Ms Hines for common law deceit and held that the measure was the amount of the discount, £38,000, which Ms Hines must pay back with interest (assessed at £20,822.30), as he ordered. He also ordered her to pay Haringey 80% of its costs.

Ms Hines's appeal

26. Ms Hines's first ground of appeal was that the judge was wrong to have held that she had fraudulently deceived Haringey into granting the lease. The submission was that there was no basis for a finding that she had done so.
27. I refer first to how Haringey's case in deceit was pleaded in its amended Particulars of Claim. Paragraph 5 asserted that Ms Hines's Form RTB1 dated 3 December 2001 'represented that she was occupying [the flat] as her only or principal home.' That was correct: that form did make that representation and it was true. Paragraph 6 asserted that she had 'a continuing duty to inform [Haringey] of any change in circumstances which might affect her Right to Buy [the flat]', an assertion which Ms Hines admitted in her amended Defence. Paragraph 9 alleged that from about February 2002 she ceased to occupy the flat as her only or principal home; and (save that the judge found that the relevant change occurred in March 2002, an immaterial difference), the judge found that that was also correct. Paragraph 11 alleged that in breach of her duty pleaded in paragraph 6, Ms Hines failed to inform Haringey that she had moved, and that in consequence her representation in her Form RTB1 had become false. Paragraph 13 asserted that on 16 May 2002 Ms Hines responded to Haringey's offer notice of 1 March 2002 by indicating that she wished to proceed with the right to buy, and thereby represented that 'as at 16.5.02 she was occupying [the flat] as her only or principal home and was entitled to exercise her right to buy.' Paragraph 14 alleged that that representation (i.e. the paragraph 13 representation) was made fraudulently 'in that [Ms Hines] knew that by reason of her cessation of the occupation of [the flat] she was no longer entitled to exercise the right to buy [the flat]'. Paragraph 15 alleged that such representation induced Haringey to grant the lease and paragraph 16 claimed damages for the deceit effected by it. Paragraph 17 sought, in the alternative, rescission or a declaration that the lease was void, and damages on the basis that the paragraph 13 representation was a negligent or innocent one.
28. It is important to note, therefore, that despite the allegations in paragraph 6 and 11, no case was made that those allegations entitled Haringey to damages: the damages claim rested exclusively on the assertion that the paragraph 13 representation was either a fraudulent, alternatively a negligent or innocent, one that had induced Haringey to grant the lease. At the trial, the only case that was advanced was that it was a fraudulent one. It was said that it was a fraudulent representation inducing a contract. By her amended Defence, Ms Hines denied that prior to the grant of the lease she had ceased to occupy the flat as her only or principal home; and specifically denied making any representations as alleged in paragraphs 12 to 15 of the amended Particulars of Claim.
29. Success in the pleaded case of deceit therefore required a finding that when Ms Hines sent her reply to Haringey of 16 May 2002 she was dishonestly representing that she was still occupying the flat as her only or principal home. The court had to find that, at that point in the 'right to buy' exercise, she knew she was no longer entitled to buy the flat but deliberately concealed that fact from Haringey when sending her reply and did so with the intention of misleading it into continuing with the transaction; or else that she was at least reckless as to whether at that stage she was still entitled to buy the flat.
30. Ms Hines's witness statement did not deal with her mental state when sending her reply of 16 May 2002. In her oral evidence in chief she asserted that she was still living at the flat between February and October 2002, a position she maintained despite judicial questioning to the effect that such evidence was not reconcilable with her statement to Ms Johnson that she had moved to Little Pynchons in April 2002. In cross-examination she said that she 'would have never regarded it [Little Pynchons] as my principal home because I was staying more in Tottenham [the flat].' She was again taxed with the point that she had told Ms Johnson that she was living at Little Pynchons. There is no need to deal further with the oral evidence about this, because I have related the judge's findings and they are not challenged.
31. The striking feature about the cross-examination is, however, that at no point did Mr Grundy put Haringey's deceit case to Ms Hines: namely, that by her communication to Haringey of 16 May 2002 she thereby dishonestly misled it into believing that she was still entitled to buy the flat when by then she knew she was not. The closest the cross-examination came to inquiring as to that was right at its end, with this exchange:

'Q. In terms of the Right to Buy application, you knew, did you not, that you could not buy the property if you were not living at [the flat]? A. I knew that I wouldn't-----

Q. Have the right to buy it if you were not living there. A. But I was living there.

JUDGE YELTON: I appreciate that is your case, but counsel is asking that you knew you had to be living there. A. Yeah, that you had to – yeah.

MR GRUNDY: And if your position changed you understood that you had to tell the Local Authority about that. A. If it was no longer my place of residence.

Q. Yes. A. Yeah, if it was no longer my place of residence, but between that time I always saw [the flat] as my main home.

Q. Your Honour, I have no further questions.'

32. I set out next paragraphs 16, 19, 29 and 38 of the judge's judgment, the first of those paragraphs recording evidence I have earlier summarised. They read:

'16. The evidence to that effect [namely, that from about February 2002 onwards Ms Hines was living not at the flat but at Little Pynchons] is as follows:

(A) On 27^th February 2002 … [Ms Hines] wrote to [Haringey's] payroll services advising that she would be going on maternity leave and asking for her payroll slips to be sent to "my home address". She continued "I have recently moved home and my new address is [Harlow]".

(B) On 27^th March 2002 [Ms Hines] recorded her home address on Raejan's birth certificate as being that in Harlow.

(C) In March 2002 [Ms Hines] changed her General Practitioner from one in Wood Green, near [the flat], to one in Harlow, near Little Pynchons: she accepted that she told the doctor that she was living in Harlow.

(D) In April 2002 Jelani's school was changed from one in Wood Green to one in Harlow. [Ms Hines] accepted that she told the education authorities they were living at Little Pynchons.

(E) On 2^nd July 2002 [Ms Hines] wrote asking for further maternity leave, again using the Harlow address.

(F) On 14^th November 2002 she again wrote to extend her maternity leave, again giving the address in Harlow.

(G) On 6^th May 2008 [Ms Hines] was interviewed by an officer of [Haringey's] internal audit department (Ms L. Johnson, who gave evidence) and admitted to her on tape clearly and unequivocally that she had moved to Harlow in April 2002 (p85 and again at p88. At p89 she said "my stuff and everything was still [in the flat]. It's just that I wasn't". Later in the interview she recanted partly and said (p91) that she was still [at the flat] a lot of the time, but that was when it was being put to her that she had been claiming housing benefit for [the flat] in late 2002. [The emphasis in paragraphs (A) and (G) is as in the judge's judgment] …

19. I find that the representations set out by [Ms Hines] in 2002 as to where she was living, as set out in paragraph 13(A) to (F) above [sic: should be paragraph 16(A) to (F)], and the admissions made by her in 2008 in relation to 2002, as set out at 13(G) [sic: should be 16(G)], were true and that therefore her claim that she was in fact living in Tottenham [ie at the flat] during the relevant period was manifestly untrue…

29. I find that [Ms Hines] both objectively and indeed subjectively, on her own evidence, ceased to occupy [the flat] as her principal residence in the spring of 2002 when she moved to [Little Pynchons], as at that time she did not intend to return: [Little Pynchons] thus became her principal home. …

38. On my findings, the assertion by [Ms Hines] that she was living [at the flat] was, by the time the lease was executed, clearly untrue and was known by her to be untrue.'

The judge's finding was that Ms Hines's untrue assertion was one made fraudulently.

33. With respect to the judge, I regard as unsound his conclusion from those findings that Haringey had made good its narrowly pleaded case against Ms Hines in deceit. First, it is unclear to me to what 'assertion' by Ms Hines he was referring in paragraph 38, being one he found to be untrue. It appears to me, however, probable that he was there referring simply to the case that she was advancing before him: that is, he was finding that she was untruthfully asserting in 2009 that by 14 October 2002 she was still living at the flat. But if that interpretation is wrong, and the judge was suggesting that at some point prior to 14 October 2002 Ms Hines untruthfully asserted to Haringey that she was still living at the flat, he nowhere explained when and how he found that she did so.
34. On my interpretation of it, the judge's finding in paragraph 38 is substantially irrelevant to Haringey's fraud case. That is because that case was not based on an assertion that Ms Hines was lying in 2009 as to where she was living in 2002. It was based on the assertion that by her communication of 16 May 2002 she dishonestly – and thus knowingly – misrepresented to Haringey that she was still entitled to buy the flat even though by then she knew that she was not. If the judge was to accept that case, he therefore had to be satisfied, and to find expressly, that as at 16 May 2002 Ms Hines (i) knew, as a matter of law, that the flat had to remain her 'only or principal home' throughout the 'right to buy' process; (ii) knew that by then it was not; and (iii) dishonestly intended her acceptance of Haringey's terms of 1 March 2002 to mislead Haringey about the change of position so that she could acquire an interest in the flat to which she by then had no right. The judge, however, made no such findings, or at any rate did not do so expressly. He nowhere expressly addressed the only case in deceit that was before him.
35. Was there any evidence that might have justified any findings to that effect? The passage I have quoted from the cross-examination is the only part of the oral evidence in which Mr Grundy came close (although not very) to asking the right questions of Ms Hines. But, so it seems to me, if anything that passage hinders rather than helps Haringey. First, Mr Grundy posed what was strictly the wrong question to Ms Hines: her right to buy did not depend on whether or not she was 'living' at the flat, but on whether the flat was her 'only or principal home': she could have been 'living' at Little Pynchons, whilst still retaining the flat as her 'principal home'. Second, Mr Grundy did not allow her to answer his inaccurate question but answered it for her himself. Third, in her final answer to him, she explained that if the flat had ceased to be 'her place of residence' then she recognised that she had to tell Haringey about it, whilst adding that '… between that time [which I read as meaning at the material time] I always saw [the flat] as my main home'.
36. The reference to her 'place of residence' was legally inapposite in the present context, but her last statement was close to being an accurate reflection of the statutory test for the exercise of a right to buy: if at the time she honestly (whether rightly or wrongly) perceived the flat as being her 'main home', it is difficult to see how her communication of 16 May 2002 could be regarded as having been a dishonest misrepresentation to Haringey that she was still entitled to buy the flat: on that basis, she would have believed (albeit wrongly) that she was so entitled.
37. Mr Grundy did not challenge Ms Hines as to the truth of her last answer; and the judge made no express finding that it was untruthful. He found no more than she was lying when asserting to him that she was 'living' at the flat during the relevant period (paragraphs 19 and 38). He did, however, also make his findings in paragraph 29, in which he found that by the spring of 2002 (and therefore by 16 May 2002) she did not intend to return to the flat and that Little Pynchons had become her 'principal home'. That finding is obviously important in the present context, but it still appears to me to leave a material gap in the case in deceit that Haringey was seeking to make. The fact that the judge found on the evidence (including by reference to Ms Hines's subjective intentions in the spring of 2002) that Little Pynchons was by 16 May 2002 her 'principal home', does not necessarily carry with it the further conclusions (i) that she also then knew that it was and that, in consequence, the flat was no longer her 'principal home', or (ii) that she knew that her move to Little Pynchons had extinguished her right to continue with her purchase of the flat, or (iii) that, by not telling Haringey of the fact of her move, she was dishonestly intending to mislead it. The judge made no findings on any of these matters.
38. Having set out to make the particular case in fraud that it did, Haringey had, however, to prove all its necessary ingredients and required the judge to make findings on them. It was no doubt quite a difficult case to make good on the facts; but without even putting it to Ms Hines in cross-examination and obtaining her response to it, Haringey had no realistic prospect of establishing it. Moreover, as the court put to counsel during the course of the hearing, it was in principle unfair for Haringey to expect the judge to make a finding that Ms Hines had deceived it in the particular way it alleged without putting the alleged deceit to her expressly in cross-examination and giving her the opportunity to answer it. That would not only have been the fair way in which to advance Haringey's case in deceit, it would also have put the judge in the best position to assess on the facts whether the case was made good. Had the case been conducted in that way, and the judge been given that opportunity, he could and would no doubt also have factored into his assessment of the fraud allegation whether, if Ms Hines had knowingly set out to mislead Haringey on 16 May 2002, why it was that she apparently had no qualms about telling Haringey (albeit a different department) on 22 February 2002 that she was moving to Little Pynchons; or of asking Haringey on 14 November 2002 to extend her maternity leave, again giving her address as Little Pynchons. Is that the sort of thing that a fraudster such as Ms Hines was alleged to be would have done?
39. Haringey's omission so to put its deceit case to Ms Hines in cross-examination was in my judgment a serious omission. It is a basic principle of fairness that if a party is being accused of fraud, and is then called as a witness, the particular fraud alleged should be put specifically to that party so that he/she may answer it. That was never done in this case, as Mr Grundy accepted. As it happens, on 30 July 2010 (the day after we reserved judgment), that principle was expressly endorsed by Lewison J in his judgment in Abbey Forwarding Ltd (in liquidation) v. Hone and others [2010] EWHC 2029 (Ch). He said this:

'46. As May LJ observed in Vogon International Ltd v. The Serious Fraud Office [2004] EWCA Civ 104:

"It is … elementary common fairness that neither parties to litigation, their counsel, nor judges should make serious imputations or findings in any litigation when the person against whom such imputations or findings are made have not been given a proper opportunity of dealing with the imputations and defending themselves."

47. Thus it is the case that before a finding of dishonesty can be made it must not only be pleaded, but also put in cross-examination. In Dempster v. HMRC [2008] STC 2079 HMRC alleged that certain alleged transactions were a dishonest sham. On appeal from the VAT Tribunal HMRC argued that because their statement of case before the tribunal had constituted a case of dishonesty, it was unnecessary for it to be put specifically in cross-examination to the taxpayer either that he was a knowing party to a VAT fraud, or that he knew, or turned a blind eye to the fact, that the software which he traded was fake or worthless. Briggs J said (paragraph 26):

"I emphatically disagree with that submission. First, the tribunal's summary of what was not put in cross-examination is stated with clarity on no less than three occasions in the decision and I was provided neither with a transcript, nor notes (whether by the tribunal itself or the by the parties) of the cross-examination with which to be in any position to conclude that the tribunal's summary of the cross-examination was other than fair and accurate. Secondly, it is a cardinal principle of litigation that if a serious allegation, in particular allegations of dishonesty are to be made against a party who is called as a witness they must be both fairly and squarely pleaded, and fairly and squarely put to that witness in cross-examination. In my judgment the tribunal's conclusion that it was constrained, notwithstanding suspicion, from making the necessary findings of knowledge against Mr Dempster (necessary that is to permit the consequences of the alleged sham to be visited upon him) was nothing more nor less than a correct and conventional application of that cardinal principle."

48. I respectfully agree. These principles have had an important effect in the present case; because a number of essential building blocks in the claimant's case depend on allegations that, in the case of witnesses, were never put to them; or, in the case of third parties, on conclusions based on allegations that were never made.

49. Mr Shaw [counsel for the claimants] made a sustained attack on Mr Hone's veracity. It is the case that Mr Hone has told lies in the past (as he himself accepts). It is also the case that, as will be seen, I found some of his evidence untruthful. However, I must remind myself that even where a witness lies about a matter of importance, that does not necessarily mean that he is guilty of whatever it is that he is accused of doing. People tell lies for a number of reasons, including attempting misguidedly to bolster a genuine case (cf. R v. Lucas [1981] QB 720).'

40. I respectfully agree with all of that. The points Lewison J there made mirrored the points that the court put to counsel in the course of the argument in this case.
41. Mr Grundy nevertheless advanced a skilful argument to us to the overall effect that, by the time of the trial, Ms Hines properly understood all the issues in the case and that the nature of her – so the judge found – dishonest assertion to him that the flat remained her principal home justified us in interpreting the judge's somewhat obscure judgment as implicitly finding that Haringey's case in fraud (to which he never expressly referred) had been made good. I would not accept that submission. Mr Grundy never grasped the critical nettle when cross-examining Ms Hines and the judge failed to grasp it when making his judgment. It may perhaps be, I do not know, that Mr Grundy's omission was a deliberate forensic choice: he may have considered that he had scored enough palpable hits on the facts to enable success in a difficult case to be achieved and that to focus too specifically upon Ms Hines's mental processes as at 16 May 2002 could risk exposing a fatal flaw in the edifice. If so, however, the choice was the wrong one.
42. In my judgment, therefore, there was no justification for the judge's finding of fraud against Ms Hines or, as follows, for the award of damages that he made against her for such fraud. I would allow Ms Hines's appeal against the judge's fraud decision. It follows that it is unnecessary to consider Ms Hines's second ground of appeal that, even if the judge was entitled to find her guilty of deceit, he was wrong to award the damages that he did.

Haringey's cross-appeal

43. I turn to Haringey's cross-appeal, the pursuit of which required Mr Grundy to tread a path strewn with obstacles. His first ground was directed to achieving a setting aside of the lease. His argument was that as Ms Hines had no right to its grant under the 'right to buy' provisions in Part V of the Housing Act 1985, Haringey's grant of the lease was void and that the judge was wrong to hold that it was validly granted under sections 32 and 44 of the Act. That was, said Mr Grundy, because Haringey never addressed its mind to a disposal under those provisions and so they could not be in point. It followed, said Mr Grundy, that the lease was ultra vires Haringey and was void and the court should so declare.
44. It appeared to the court that, even if Mr Grundy was right in his submission, a declaration of voidness would be a worthless exercise unless the court could proceed in consequence also to rectify the registered title of the flat so as to extinguish Ms Hines's lease, an exercise which would have a consequential effect upon the two chargees of the flat of whose existence we were told, and no doubt also on the sub-lessee occupying it. Mr Grundy recognised that, without such rectification, Haringey could not rid itself of the burdens of the lease or the charges. Haringey was, however, faced with two problems in relation to achieving any rectification. First, it had never claimed it. Secondly, it had not joined the chargees as defendants and had not even given them notice of the proceedings. Mr Grundy recognised that, in those circumstances, the court could and would not order any rectification of the title and he specifically disclaimed any bid to pursue a rectification claim before us.
45. He did, however, still press us briefly with the submission that we should at least declare the lease to be void, his point being that, if we did not, Haringey would remain fixed with a county court judgment to the effect that it was not void. In the event, I understood Mr Grundy also to abandon that submission, which I consider was a proper concession. It appears to me that it would be most unjust for this court to make a declaration of voidness in relation to a registered lease, whilst nevertheless leaving the lease and charges intact. It would be quite likely to raise questions as to the soundness of the title to the lease and charges, which would be a likely recipe for unwarranted trouble in the future. Even if Mr Grundy had not abandoned this submission, I would not have been prepared to consider it further. I should add that we also had submissions from Mr Sinai as to why the lease and charges were not void. I say no more on this ground of Haringey's cross-appeal than that in the event it was unnecessary for us to make any decision upon it. Haringey's first ground of appeal falls to be dismissed.
46. The second ground upon which Haringey was permitted to appeal was against the judge's alternative conclusion that, if he was right that the lease was intra vires, he was wrong to conclude that it was neither a contract nor a binding transaction in respect of which rescission was available. Haringey wished to submit that rescission was available. I will explain in a moment why the judge came to that conclusion but, in response to this ground of appeal, need say no more than that Mr Grundy also abandoned it. That is because it was tainted with the same problems as his first ground of appeal: there is no point in this court making an order to the effect that the lease must be regarded as rescinded if it is not going to make any consequential rectification orders.
47. That formally left Mr Grundy only with one other permitted ground of appeal, namely that the judge's damages award for the deceit he found was too low. He addressed us briefly on that, submitting (wrongly, it seems to me) that the judge could and should also have required Ms Hines to account for the profits she had made from the flat since 14 October 2002. He did not, however, press that submission; and, as I would anyway reverse the judge's decision on the deceit claim, no question arises as to the applicable measure of damages had he been right in his decision.
48. That ought to have meant the end of Haringey's cross-appeal but Mr Grundy nevertheless also deployed before us an argument that featured neither before the judge nor in Haringey's appellant's notice nor in any respondent's notice. It was to the effect that the judge's damages award could nevertheless be justified on the basis that Ms Hines was anyway liable to Haringey for the innocent misrepresentation pleaded in the alternative in paragraph 17 of the amended Particulars of Claim. Mr Grundy's development of this argument served only to satisfy me that it was also one that did not deserve to succeed.
49. The case was tried before the judge on 6 July 2009, following which he reserved judgment and then on 8 July 2009 produced the first of two draft judgments, the second draft being dated 28 July and the final form of judgment being dated 31 July 2009. The judge had, between 6 and 8 July 2009, done some research of his own which had led him to the decision of this court in Rushton and another v. Worcester City Council [2001] EWCA Civ 367; [2002] HLR 188, of which neither counsel had been aware at the trial. The judge pointed out, in paragraph 28, that Haringey's case was pleaded largely in misrepresentation and that it had relied on the:

'… well-known principle that where in pre-contract negotiations a party makes a representation which is true at that time, but which then ceases to be true before the contract is entered into, the representor must inform the representee of the new circumstances ….'

There is no dispute that that is the way the case was pleaded and the way in which the case in fraud was presented to the court at the trial. In the context, the relevant 'contract' was said to be the lease dated 14 October 2002, as the judge explained in paragraph 29.

50. The judge, however, then explained that the effect of Rushton was 'that a lease or conveyance entered into pursuant to the right to buy legislation is not a contract within s2 of the Misrepresentation Act 1967 or at all.' He summarised Rushton and explained why, in the context of the case before him, he regarded it as precluding any claim for damages for misrepresentation on the basis on which the case had been presented. That, as I read the judge's first draft judgment, precluded not only the claim for damages for fraudulent misrepresentation that was pursued at the trial, but also the alternative claim for damages based on innocent misrepresentation that had been pleaded but not expressly argued at the trial. The judge also did some further research on the ultra vires point, which took him to section 123(1) of the Local Government Act 1972 (which had also not been the subject of argument before him) and concluded in his draft that the lease was ultra vires Haringey. He issued his first draft judgment to the parties and indicated that he would consider further submissions from them, or even allow them to restore the case for further argument.
51. Mr Grundy sent an email to the judge on 9 July 2009 in response to his draft judgment, which included an apology for not referring him to Rushton. So far as material, his email pointed out that Haringey's amended Particulars of Claim

'alleges fraud, not restricted to contractual fraud under the Misrep. Act. Fraud (or deceit) as a tort entitles the innocent party to damages (Doyle v. Olby (Ironmongers) Ltd [1969] 2 QB 158).'

He said nothing to the effect that it was, or remained, Haringey's case that it was entitled in the alternative to damages for innocent misrepresentation. If anything, the email tacitly recognised that Haringey was not so entitled: it appeared to accept that the judge was right that Rushton ruled out any argument that Haringey could assert that there had been a material misrepresentation that had induced a contract; and such acceptance tacitly excluded any alternative claim based on an alleged innocent misrepresentation under section 2(1) of the Misrepresentation Act 1967.

52. On 21 July 2009 Mr Grundy submitted full written submissions to the judge in consequence of his first draft judgment. Paragraph 1.1.3 highlighted that Haringey's claim included, inter alia, an assertion that Ms Hines 'had fraudulently misrepresented to Haringey that she was still living in [the flat] in order to qualify for the right to buy the flat.' (My emphasis). Paragraph 1.2.2 said that the claimed relief included a claim for damages. No reference was made to Haringey also relying in the alternative on a claim in innocent misrepresentation. Paragraph 2 advanced submissions on the consequences of the judge's conclusion that the lease was ultra vires Haringey. Paragraph 3, headed 'Deceit and Fraud', acknowledged that, in light of Rushton, 'the transaction was not a contract', but asserted that Ms Hines's 'misrepresentation was a tortious deceit'. Further submissions went to the quantum of damages recoverable for such deceit. The submissions therefore advanced a case why, despite the judge's conclusions in his first draft judgment, Haringey was still entitled to damages for deceit in tort. It advanced no case to the effect that Haringey was entitled, in the alternative, to damages for innocent misrepresentation. By inference, any such alternative claim, which does not appear to have been alive at the trial, was still not alive. Mr Sinai submitted responsive submissions to the judge on 23 July 2009. Needless to say, he did not deal with any case based on innocent misrepresentation, none having been advanced by Mr Grundy.
53. Following those submissions, on 28 July 2009 the judge issued a second draft judgment to counsel, in which he recorded in paragraph 34 Mr Grundy's acceptance that Rushton disposed of any claim by Haringey that there had been an actionable misrepresentation inducing a contract and his assertion that there was nevertheless still a claim in 'deceit and fraud at common law and [Haringey] are entitled to succeed on that basis even if the claim based on fraudulent misrepresentation is unsustainable.' The judge held that Haringey was so entitled, as he also did in his final judgment dated 31 July 2009.
54. It is, therefore, apparent to me that an alternative claim for damages for innocent misrepresentation under section 2(1) of the 1967 Act was not only not argued at the trial, it was silently accepted by Haringey in its submissions following the first draft judgment that no such claim was available to it.
55. Before us, Mr Grundy set about injecting life into the argument that Haringey is entitled to damages for innocent misrepresentation. Although his primary argument to us under his first ground of appeal (which he abandoned only for procedural reasons) was that the lease was ultra vires and void, this argument proceeded on the basis that that submission was wrong and that the judge was right to hold that the lease was validly granted under sections 32 and 44 of the Housing Act. If so, it was not a grant under the 'right to buy' provisions in Part V and so the transaction induced by Ms Hines's alleged misrepresentation was not caught by the decision in Rushton, which was concerned only with Part V transactions. Therefore there was no conceptual problem in regarding the misrepresentation alleged as inducing a contract in the nature of the lease, and nothing in Rushton precluded such a conclusion. This court, so the argument runs, should therefore make the finding that the judge did not make, namely that on his own analysis of the legal basis of the transaction there was no logical difficulty in treating Ms Hines's misrepresentation as one inducing a contract; and no difficulty in finding that that misrepresentation was an innocent one under section 2(1).
56. I follow the argument, and pay tribute to Mr Grundy's ingenuity in advancing it, but I have no hesitation in rejecting the proposition that this court should now consider whether Haringey has any claim against Ms Hines for innocent misrepresentation. The reason the judge never dealt separately with any innocent misrepresentation claim under section 2(1) is that at the trial no such claim was canvassed; and any such claim that might still have been lurking in the shadows after his first draft judgment was tacitly abandoned by Haringey's case then made to the judge that, despite Rushton, Haringey was still at least entitled to damages for deceit in tort. No case such as is now advanced to us in relation to innocent misrepresentation was ever advanced to the judge.
57. Moreover, if (as it should have done but did not) Haringey had actually put to Ms Hines in cross-examination the particular fraud it was alleging against her, and she had been given the opportunity to make a reasoned response to it, it is quite possible that that would have resulted in two things. First, her answers might have resulted in a further investigation of her mental state at 16 May 2002 in re-examination. Second, there would or might have been a properly focused argument before the judge in counsel's closing submissions as to whether there was any basis for a finding of fraud at all; and at that point, if the fraud case was beginning to look less certain, Haringey might perhaps have been moved to promote its hitherto unmentioned alternative case in innocent misrepresentation. Had it done so, it might then have been open to Mr Sinai to submit that, even if an innocent misrepresentation had been made, the evidence showed that Ms Hines was entitled to the protection of the saving proviso at the end of section 2(1).
58. None of this, however, happened. It did not happen because both at the trial and subsequently Haringey appears to have had its sights on a fraud case and on that alone. As a result there was no finding by the judge on any innocent misrepresentation case; and no opportunity for a factual investigation as to whether the proviso to section 2(1) might be in point. Mr Grundy's bid to raise this case for the first time before this court – without raising it in a respondent's notice or in Haringey's grounds of appeal – is one that I would not permit. He is effectively asking the court to act as if it were the trial judge, whereas the fair resolution of the question depends at least in part upon a consideration of evidence that was never adduced. I would therefore reject this part of Mr Grundy's submissions as well.
59. I add only two other points. First, although Rushton was included in our bundle of authorities, it was not cited to us and the correctness of the judge's application of it to the present case was not the subject of any argument before us. Second, the judge's research into the applicable law led him into areas which had not been the subject of argument or discussion at the trial, and he was of course entirely right to give the parties the opportunity to address him on those points before making his final decision. The only observation I would make in relation to that is that I would respectfully question whether, before receiving any further submissions on the new points, it was appropriate for the judge to issue a draft judgment that reflected the fruit of his own research. In my view, the better course for him to have adopted, which I would regard as the more conventional course, would be for him simply to have notified counsel of the new points on which he invited their further submissions and to have given appropriate directions for the making of such submissions. Once that exercise had been completed, the judge could then have produced a single draft judgment which, subject only to the correction of any typing mistakes and other obvious like errors, would have been his judgment in the case. With respect, I consider that this would have been a better course for him to have adopted than the one he did.

Disposition

60. I would allow Ms Hines's appeal against Judge Yelton's order dated 18 August 2009, set that order aside and make an order dismissing Haringey's claim. I would dismiss Haringey's cross-appeal.

Mr Justice Peter Smith :

61. I agree.

Lord Justice Pill :

62. I also agree.