England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Birmingham Civil Justice Centre Priory Courts 33 Bull Street BIRMINGHAM B4 6DS
		8th September 2010

Judge Purle QC:

1. This is the trial of a preliminary issue of construction of an agreement ("the Agreement") dated 2^nd July 2009 for the sale of a property ("the Property") known as Earle's Croome Court in Worcestershire. The property is registered. The Claimant was "the Buyer". The Defendant was "the Seller", selling as mortgagee in possession. The Property was unoccupied at the date of the Agreement.
2. At the time of the Agreement, other purchasers were (the Buyer was told by the Seller's agents) interested and he was under pressure to exchange. The purchase price was £1.3 million, having been increased upwards by £100,000 on the day of exchange. The Buyer now seeks an abatement of the purchase price as a large number of items in the Property which the Buyer thought were included in the Agreement were removed by intruders shortly before exchange. There is no suggestion that the Seller removed the items in question, which would (for the main part) but for their removal have passed to the Buyer as fixtures. The remaining missing items would have passed as fittings. As will appear, all fixtures and fittings were included in the sale. The issue is as to whether only those fixtures and fittings remaining at the Property on exchange were included, which is the Seller's case, or whether the fixtures and fittings present on the Buyer's earlier inspection were included, which is the Buyer's case. The Agreement has not yet been completed.
3. The sale particulars (which the Buyer saw) expressly provided that they were not to form part of a sale contract and that "prospective purchasers must satisfy themselves by inspection or otherwise as to their correctness". They also provided:

"All fixtures, fittings, chattels and other items not mentioned, are specifically excluded unless otherwise agreed within the sale contract documentation or left in situ and gratis upon completion."

4. The Buyer carried out a detailed inspection of the Property over several hours before exchange, on 16^th June 2009. This was before the removal of the items in question. That inspection revealed that some renovation work was needed. For example, part of the fireplace in the hall had been removed and was in that sense damaged, the dining room fireplace was missing and a fender was missing from the Oak Room fireplace. Other fireplaces remained. Those fireplaces, and many of the doors, were notable features of the property. A number of the doors were oak panelled.
5. There was also a schedule of minor works to be completed under an enforcement notice, of which the Buyer was aware. Nevertheless, the property was habitable. The Buyer intended to move in and carry out renovation works while living there. He now says that the removal of the items from the Property meant that the Property was and is uninhabitable. He also says that the cost of replacing the removed items would be in the region of £300,000. The items removed after his inspection included three fireplaces (in addition to the one the Buyer saw had been removed when he inspected the Property), a large number of doors, kitchen and bathroom equipment, a hot water cylinder, copper piping, a chandelier, carpets and stair rods.
6. The question of construction I am asked to decide is (somewhat unhelpfully) not defined in the order directing the trial of the issue, which was a consent order. That order merely recited the parties' agreement that "the single issue of construction of the contract be put before the Court for determination at the subsequent trial date". The point of construction was identified by Mr Randall QC (for the Buyer) in argument by reference to a passage in the witness statement of the Seller's Solicitor as follows:-

"Whether [the Buyer] contracted to buy the fixtures and fittings which had, by the time contracts had been exchanged, been removed from the Property."

Mr Patel for the Seller did not demur from this formulation of the issue.

7. It is clear both from the evidence and the contemporaneous correspondence that what the parties had in mind was determination of this issue of construction without the Court having to resolve disputed items of fact. This has the potential to cause difficulty, as there is a dispute of fact as to what the Buyer was told by the Seller about the Property prior to exchange, and (possibly) as to the extent of the Seller's knowledge also. (When I refer here to the Seller, I am referring to its agents, who conducted all negotiations.) What was known to the parties may of course be part of the background bearing upon the issue of construction. Each of the parties contends, however, that the point of construction can be resolved in that party's favour without resolving any disputed issue of fact. In my judgment, it is only if the answer is the same whichever version of the facts is accepted that I can properly proceed to determine this issue. If resolution of the disputed factual issues is needed, then directions will have to be given for pleadings and oral evidence and (possibly) disclosure as well. The matter presently proceeds as a Part 8 claim.
8. The Agreement incorporated the Standard Conditions of Sale (Third Edition) and a number of Special Conditions, which were to prevail in case of conflict.
9. The following contractual provisions are material:

(i) The property was described as "Earl's Croome Court, Church Lane, Earl's Croome, Worcester WR8 9DE".

(ii) Special Condition 4 provided

"The Buyer admits that he has inspected the Property and agrees that he has not been induced into entering into this Contract by reason of any warranty or representation either written or oral and given to him in writing by the Seller or by any other person on the Seller's behalf other than written replies made by the Seller's Solicitors to written enquiries raised by the Buyer's Solicitors or supplied in any Property Information forms."

(iii) Special Condition 13 provided:

"The sale shall include all fixtures and fittings therein."

(iv) Special Condition 16 provided:

"The property is sold in its present state and condition."

(v) Standard Condition 3.2.1. provided:

"The buyer accepts the property in the physical state it is in at the date of contract unless the seller is building or converting it."

(vi) There was no schedule of fixtures and fittings.

10. These were not the only provisions of the Agreement referred to in argument, but they seem to me to be the material ones.
11. Mr Patel, founding himself on Special Condition 13, argued that the fixtures and fittings could only include those still at the Property at the date of exchange, as no contract came into existence until then. This conclusion is apparently reinforced by Special Condition 16, which referred to the "present state and condition" of the property, an expression somewhat wider than Standard Condition 3.2.1. The reference to "state and condition" and not merely "physical state" suggested that something more than condition of repair (or disrepair) was referred to, and was apt to embrace a property from which fixtures had been removed by intruders between inspection and exchange.
12. In answer to these points, Mr Randall QC placed reliance on the decision of the Court of Appeal in Taylor v Hamer [2002] EWCA Civ 1130; [2003] 1 EGLR 103. In that case, the seller's husband removed 282 square yards of old flagstones from a dog garden after the buyer's initial inspection but before exchange of contracts. He successfully concealed this fact by seeding over the area so that, by the time of a further inspection by the buyer's solicitor, the removal was not obvious. The solicitor, whilst not appreciating that the flagstones had been removed, saw a pile of flagstones on his inspection, and raised an inquiry about them. He was told (deceitfully) that these had not been taken from the property. He was also told that they were not included in the sale, but were to be removed by the seller, as in fact happened.
13. The agreement in that case contained a deemed inspection clause and Standard Condition 3.2.1 in the same form as it appeared in the Agreement I am considering, but no precise equivalent of Special Condition 16. There was an incomplete (described as "motley") schedule of fixtures and fittings said to be included or excluded (as the case may be) which did not mention the flagstones. Standard Condition 5.1.1 (which also referred to "physical state … at the date of the contract") was incorporated. In the present case it is excluded and replaced by something else, which does not shed any light on the issue I have to decide.
14. There was also an entire agreement clause which precluded reliance on statements or representations other than those contained in written replies to preliminary inquiries. The clause in question, though differently worded, was the broad equivalent of Special Condition 4 in the present case. No issue arises in this case, however, as it did in Taylor v Hamer, in relation to replies to preliminary inquiries.
15. The Court of Appeal by a majority held that the buyer in Taylor v Hamer had a contractual claim, as the reference to the property being sold should, in the circumstances of that case, be interpreted as meaning the property with the fixtures which the buyer saw on his inspection, or reasonably believed to be included in his sale when he made his initial offer. If that applies to the present case, the Buyer wins, as the Property when inspected, and when he made his initial offer, included the removed items.
16. The essential reasoning is to be found in the judgment of Sedley LJ at paras [90] ff :-

"90. In the manner seminally described by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-3, the meaning to be ascribed to 'the Property' … is the meaning it would be given by a reasonable person who knows what the parties knew at the time they contracted. … It includes the facts that the claimant had been shown premises which included the flagged dog garden and that he had not been told before contract that this was no longer part of the realty. In my judgment such facts are not within the exclusion zone of prior negotiation and subjective intent described in Lord Hoffmann's third principle … They are the normal means by which the subject matter of any offer and acceptance is identified.

91. This would probably be enough … to make the flagstones part of 'the Property' for which the parties went on to exchange contracts. But here, additionally, the vendor deliberately induced the buyer, through his solicitor, to believe that there had been no such alteration. To Arden LJ's question: why tell this lie? Ms Hargreaves [Counsel for the Seller] had no answer

92. Against this background of fact any reasonable person, in my judgment, would have understood the property which was being bid for and contracted for to include the flagstones in the dog garden. The case falls outside the caveat emptor paradigm … because the vendor, by his conduct in inviting an offer for the property as shown to the purchaser and without any explicit subtraction from it, represented that it was to include the flagged garden.

93. In everyday house purchases people are entitled to be confident that, unless some different agreement is reached and recorded, the property which is to pass includes its fixtures. If before the sale takes place the seller has given the buyer no reason to think that the fixtures (at least those the buyer knows of) are not part of the premises for which an offer is being invited, simple morality says that he cannot remove them without telling the buyer that they are no longer for sale. To fail to do so is to invite a bid for something which is no longer what the bidder still reasonably believes it to be; not to put too fine a point on it, it is cheating. Surreptitiously removing fixtures does not mean that the seller is stealing them, for they are his. It means that if the sale goes through he will be failing to convey what the eventual buyer has become entitled to have conveyed."

17. Mr Randall QC says that the reasoning in those passages applies here. The Buyer inspected the Property, having been exhorted by the sale particulars to do so, and was reasonably entitled to believe that what he saw was what he was contracting for. The same applied, too, to fittings, which were included in the sale. The Agreement itself reinforced this by referring to the inspection. The references to "the Property" and to the "fixtures and fittings" should therefore be taken as a reference to the property with the fixtures and fittings as inspected. Whilst there was no equivalent of the deceitful reply to the written inquiry in this case, there was an inspection which led the Buyer reasonably to believe that what he was getting was what he saw, and that is enough, even (presumably) if the Seller did not know of the removal of the items before exchange of contracts. Fraud is not essential to the argument, and it would be wrong in principle to impose a requirement of fraudulent representation for Taylor v Hamer to apply, as that takes us into the exclusion zone of contractual negotiations. What is required is an objective assessment of what the reasonable buyer would take as being comprised within the expressions "the Property" and "fixtures and fittings".
18. I cannot accept Mr Randall QC's submissions without more. Leaving to one side the deceitful reply to the preliminary inquiry, Sedley LJ was concerned with the removal of fixtures by a domestic seller who by his conduct in inviting offers on the basis of an inspection represented that the flagstones were included. The surreptitious removal of those flagstones without telling the Buyer that they were no longer there was itself deceitful, characterised by Sedley LJ as "cheating". The earlier representation continued and became deceitful because of the deliberate concealment of the changed state of affairs of which the Seller was aware, and which her husband had brought about. It seems to me that, in the absence of fraud, that reasoning does not apply. In the ordinary case of a domestic seller who removes fixtures and fittings himself (or has them removed), saying nothing will ordinarily amount to deceit on ordinary principles, because of the continuing effect of the earlier representation, coupled with what will inevitably be the seller's knowledge of the removal: compare Lord Blackburn in Brownlie v Campbell (1880) 5 App Cas 925 at 950 and With v O'Flanagan [1936] Ch 575.
19. Fraud is also necessary because clauses such as Special Condition 4 disclaiming reliance ordinarily present an insuperable obstacle: see, for example, Peekay Intermark Ltd v ANZ Banking [2006] 2 Lloyds Rep 511 at para 57 in particular. The unravelling effect of fraud, however, when present, will in turn preclude reliance on such clauses. Moreover, knowledge of the removal of the items in question must be a pre-requisite of any obligation on the part of the Seller to correct his earlier representation based on inspection. Simple morality does not require the Seller to disclose that which he does not know.
20. The requirement of a fraudulent misrepresentation is not inconsistent with the exclusion zone of prior negotiations as explained in the Investors Compensation case. Negotiations cannot in general be prayed in aid to ascertain the subjective intentions of the parties, because subjective intention is irrelevant to the issue of what the parties must (judged objectively) be taken to have meant by the language they used. The ascertainment of the material background may nevertheless require the Court to identify what it is that the parties knew and the making of a false representation which is relied upon by the other party (for example by entering into a contract without checking further on the facts as represented) may preclude the representor, on estoppel principles, from asserting the facts known to both parties to be other than what he represented them to be. The facts so represented then become part of the relevant background. Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1121 (para 42) noted that prior negotiations might be relevant for purposes other than the drawing of inferences about what the contract means.
21. The approach of Sedley LJ was specifically approved by Wall J in Taylor v Hamer at [54] and [76], and I am bound by the decision of the majority unless constrained by higher or subsequent authority to depart from it. For the reasons I have given, far from feeling so constrained, the approach of the majority towards the Investors Compensation case is consistent with Chartbrook.
22. Wall J's judgment concentrated in the main upon the deceitful answer to the preliminary inquiry, a feature not present in this case. Nevertheless, he specifically approved also the approach of Sedley LJ, in the passages I have mentioned, and also concluded, in para [69], that the removal of the flagstones had been deliberately concealed. He was at this stage of his judgment considering clause 8(1) of the contract, which provided:-

"The Buyer is deemed to have inspected the Property whether or not the Buyer has in fact done so."

23. He concluded at para [70]:-

"If a vendor surreptitiously makes a material alteration to a property and then both seeks to conceal it from, and lies about it to, the purchaser in answer to pre-contract enquiries, he cannot, in my judgment, rely on a clause such as 8(1) to protect him from the consequences of his dishonesty."

24. That passage demonstrates the significance attached to the fraudulent behaviour of the seller and her husband.
25. I now turn to consider the facts of this case to see whether (fraud apart, and leaving aside Special Conditions 13 and 16) there is anything in the admissible background facts resolving the issue of construction. This takes us into the realm of disputed fact. As I have said, it is only if the result is the same irrespective of the outcome of that dispute that I can properly answer the preliminary issue.
26. The Buyer's evidence is that he was telephoned by a representative of the Seller's agents on 2^nd July 2009. The main purpose of the call was to increase the previously agreed price of £1.2 million to £1.3 million, and to press for an early exchange (which in fact happened later that day). The Buyer reluctantly agreed to exchange at the higher price. The agents' representative then mentioned, in passing: "By the way we have had reported to us by a person looking in from outside that they had looked through a window and saw that a fireplace had been damaged". This comment, according to the Buyer, was "as of a new matter she was mentioning and not in any way as something she had mentioned or drawn my attention to previously". He also said that the agents' representative spoke of it as being something of little importance only.
27. In describing this as a new matter, the Buyer in his evidence was responding to a suggestion in correspondence that there had been earlier phone calls that day from the agents' representative in question communicating her concerns as to a break-in and further damage to the Property. The Buyer denied the earlier phone calls to that effect.
28. The Buyer also said this in his witness statement in relation to the damage to the fireplace which was reported to him:-

"I assumed this to be in the hall where part of the fireplace had been removed. The Agent asked if I wanted to inspect the fireplace before exchange of contracts as they had not been there themselves and this was [the] message they had received."

29. What is evident from that is that the Buyer was aware that some damage had been reported, but assumed, even though told by the agents that "they had not been there themselves", that this was pre-existing damage of which he was already aware. Though he assumed this, he was not told this, and he declined the opportunity of a further inspection.
30. His witness statement also dealt with his visit to the Property on 3^rd July 2009, in the presence of another representative of the agents, when he discovered that there had been a very serious burglary. He claimed that the representative in question was as shocked as he was, and that she telephoned others from her mobile telephone reporting the break in and the damage caused. Despite this, he went on to say that it now appeared that the agents knew considerably more and hid it from him.
31. The Buyer's solicitors also asserted at an early stage (6^th July 2009) that all he was told was that "something had happened to a fireplace". The answer of 15^th July 2009 from the Seller's solicitors (now formally confirmed by a witness statement of the Seller's Head of Finance, though he was not in fact a party to any relevant conversation) was that on 1^st July 2009 the agents received information from another interested party that the Property appeared to have been broken into, and that fire places and panelling appeared to have been removed from the ground floor. The agents' representative was said to have told the Buyer the next day in the morning what she had learnt, namely that fireplaces had been removed, and warned of the possibility of further damage to the Property. She was said also to have told the Buyer that she would visit the Property that afternoon and report her findings back to him. She was finally said to have telephoned him again later that morning to further discuss details of the damage she had discovered, though whether she had by then inspected the Property (presumably not, as her planned visit was for the afternoon) or discovered anything further was not stated. The letter did not deal with the increase of £100,000 which the Buyer said was imposed on him that day, or the pressure which the Buyer said he was under to exchange. The attitude of the Buyer was said to have been that he intended to exchange that day or the next, and had already obtained insurance in anticipation.
32. Subsequently, in a letter dated 24^th July 1989, the Seller's solicitors stated that the Buyer acknowledged to the agents' representative on 3^rd July 2009 that notice of break-in damage had been received by him prior to exchange, and that he had willingly proceeded to exchange contracts notwithstanding. This version was challenged by the Buyer's solicitors in their reply dated 29^th July 2009, observing that the only information their client had received prior to exchange was "as to something having happened to a fireplace (which, of course, he assumed was the damage to the hall fireplace …)".
33. If, as the Seller alleges, the Buyer was told of a break-in and of the possibility of further damage, it does not seem to me that it can be said that the parties were proceeding on the basis that the Property that was being contracted for was in the same state as (or included the fixtures and fittings) previously inspected. This was an unknown. On the footing that there had been a break-in, and no further inspection by the agents, the prudent course was for the Buyer to re-inspect.
34. However, the Seller's version of the alleged phone calls is disputed by the Buyer. He claims that there was only one phone call which was more limited in its scope than the phone calls asserted by the Seller. I cannot resolve this dispute. Nevertheless, even on the Buyer's version, he was aware that something had happened to a fireplace which was damaged, but assumed that this was the fireplace he already knew was damaged. I must presently proceed on the basis that this was indeed the Buyer's belief at the time, but this was only an assumption. What he accepts he was told also raised the possibility that a different fireplace was damaged, which in turn raised the questions: how, by whom, and was there any further damage? He was also told that the agents had not carried out a further inspection following the message they had received about damage to a fireplace. Knowing that, the reasonable buyer would have carried out his own inspection and could not reasonably have taken the agents as saying that the Property was just as it was when he inspected it earlier. The Buyer was given (on his own version of the phone call) the opportunity to inspect before exchange, but did not take that opportunity
35. In those circumstances, whichever version of the phone call or calls is accepted, it seems to me that the parties cannot be said (in the absence of a fraudulent misrepresentation) to have proceeded on the basis that nothing had changed since the Buyer's inspection, as a further inspection was (as both parties knew) required to establish the true facts. In my judgment, on that basis, the expressions "the Property" and "fixtures and fittings" in the Agreement should be read as meaning the property, including its fixtures and fittings, as at the date of exchange.
36. I have reached this conclusion without explicit reliance on Special Conditions 13 and 16. For the reasons advanced by Mr Patel as set out in paragraph 11 of this judgment, those Special Condition are strong pointers in the Seller's favour. If, however, there had been fraudulent misrepresentations inducing the Buyer to exchange on the footing that nothing had changed from the inspection date, I do not think those Special Conditions would necessarily be conclusive, as the essential reasoning in Taylor v Hamer would apply. The Seller could not in that event be heard to say that the Property, including its fixtures and fittings, was any different from the Property as inspected.
37. This being a Part 8 claim, fraud was not pleaded (there were no pleadings when the preliminary issue came before me). Nor, on my then understanding of both versions of the telephone call or calls was I persuaded that such a case was sustainable. Nevertheless, the point had not been fully debated at that stage, as each side's case was that fraud was irrelevant to the construction issue. For the reasons I have given, I do not agree.
38. The Buyer's skeleton argument expressly proceeded on the basis that if I considered that fraud was an essential element in the Buyer's case, that issue would have to be determined subsequently. Though the skeleton argument was not Mr Randall QC's, I did not understand him to be saying anything different. When I asked him during the course of the hearing whether he was alleging fraud, his answer was: "not yet".
39. As the point had not been fully argued, I did not think I should deprive Mr Randall QC of the opportunity of advancing a sustainable case of fraud, if those were his instructions and it was thought appropriate to do so. In that event, I required Points of Claim to be formulated so that I could consider whether such a case could realistically be advanced. I accordingly circulated a draft judgment, gave directions for the preparation of draft Points of Claim and listed the case for further argument. I indicated that my draft judgment should be regarded as provisional and subject to revision in the light of any further argument on the draft pleading.
40. Following the preparation of a draft pleading and a further hearing, I allowed Mr Randall QC to advance a case of fraud and gave directions for the claim to proceed as a Part 7 claim. In broad outline, the Buyer's case as now pleaded is that the agents' representative to whom he spoke on the day of exchange said as little as possible knowing and intending (or at least being reckless in this regard) that the Buyer would assume that the fireplace she mentioned was a reference to the hall fireplace, which the Buyer already knew had been removed. The representative in question knew more than that – namely that there had been a break-in and further damage, but chose not to mention this. If the agents' representative deliberately or recklessly misled the Buyer by the choice of guarded language which concealed as much as (and possibly more than) it revealed, this arguably amounted to fraud. The fact that the Buyer may have acted imprudently in not inspecting further is irrelevant, as contributory negligence on the part of the person deceived does not excuse the deceiver from the consequences of his or her success. As was observed in Redgrave v Hurd (1881) 20 Ch D 1 at 13-14:-

"Nothing can be plainer, I take it, on the authorities in equity than that the effect of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence."

41. Further, if (putting the case at its highest) the agents' representative intended the statement, though not explicit on the point, to be taken one way, and it was so taken, it is (at least arguably) no answer to say that the statement should not have been taken in that way. Ambiguity is in general no defence in the case of a statement intended to mislead: see Low v Bouverie [1891] 3 Ch 82 at 113.
42. That way of putting the case therefore seemed to me to result in a properly arguable case of fraud, having the potential to affect the construction issue, as well as founding a damages claim in deceit. Self-evidently, I could not resolve any question of fraud on this application. I therefore declined to make any final ruling on the construction issue. The case will now proceed to trial in the ordinary way as a Part 7 claim.
43. I will formally hand down (and then circulate) this judgment in final form on 8^th September 2010. No-one need attend the handing down.