Corporate Law Legal Updates

Corporate Law - Sale Agreement – Breach of Contract - Misrepresentation

In the case of Morrell and another v Stewart and another [2015], the Chancery Division upheld claims for breach of contract and misrepresentation against the defendants who had made misstatements regarding the flow of sewage on land.

In December 2007, the claimants purchased a boarding kennels and cattery business and the surrounding land (the property) for a total price of £320,000. Subsequently, they discovered that there were problems with the foul drainage on the property. Sewage ran into a tank, and overflow from the tank ran into a dyke, from which it was pumped away by a pumping station. The Environmental Agency (EA) advised that this was unlawful and had to cease.

· The defendants accepted that they had had visits from the EA, and had received a requirement to cease the discharge of sewage in that manner.

· The claimants commenced proceedings for misrepresentation, contending that

o the issue with the drainage had not been disclosed to them before the contract had been made to purchase the property, and

o that it had specifically not been mentioned in replies to enquiries before the contract was entered into.

The court considered the responses to a letter of enquiry sent by the claimants' solicitors, in which the defendants stated that no recent replumbing work had taken place. The claimants also relied on certain provisions of the sale and purchase agreement (SPIF) relating to the business.

· Under Clause 8 of the SPIF, the vendor made warranties to the purchaser as to the information provided.

o Clause 8.7 replied to written enquiries and stated that the responses were true.

o Clause 8.8 stated that the defendants had complied with all statutory regulations, legislation and requirements in connection with the running of the business, and that no prosecution or warning had been received by them for any contravention thereof.

The claim was allowed.

· The court held that in the circumstances, there had been misrepresentation by the defendants in:

o stating that no recent replumbing work had been done; and

o failing to state that the EA had imposed a requirement on the property.

On the evidence, the misrepresentations had been made fraudulently:

· On the evidence, there was a contractual warranty in relation to Clause 8.7 of the SPIF, to the effect that the information provided was true and accurate. The parties spoke on the date of exchange of the contract and the defendants had the chance to update the answers in the SPIF up to the date of exchange.

· The warranty given in Clause 8.8 had been untrue at the date of exchange. At that point, the defendants had known that their discharge of sewage had not complied with the relevant legislation and that they had been required to rectify it. It remained the case that those warranties had been untrue, since they had referred to past events, even if the defendants had believed that the work they had done corrected the problem at the date of exchange. There had been no similar express warranty in the standard terms of sale relating to the property.

Damages were assessed at £33,000in favour of the claimant.

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© RT COOPERS, 2015. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.