In the recent case of Patarkatsishvili and another v Woodward-Fisher, the Claimant’s successfully sued Mr Woodward-Fisher following their purchase of a £32.5 million mansion in West London after he failed to disclose information prior to the sale that there has been a severe moth infestation in the property.
What is misrepresentation?
Misrepresentation is a key concept in property litigation, often arising in the context of property sales, leases, and other transactions. Misrepresentation occurs when one party makes a false statement of fact that induces another party to enter a contract. In property transactions, misrepresentation might involve false claims about the condition of the property, its legal title, planning permissions, or even financial obligations attached to the property. This false statement, if proven, can render the contract voidable and give rise to claims for damages.
In this case, it was submitted that Mr Woodward-Fisher had failed to disclose that the Property had a moth infestation within replies to enquiries within the conveyancing process despite having engaged pest control companies to undertake several treatments. When the Claimants moved into the Property, they became aware of a severe infestation.
Misrepresentation can be classified into three types:
- Fraudulent Misrepresentation: This occurs when a false statement is made knowingly, or without belief in its truth, or recklessly as to whether it is true or false. A party making a fraudulent misrepresentation will be liable for damages, and the misrepresentation allows the misled party to rescind the contract.
This was the representation relied on against Mr Woodward-Fisher. It was found that the replies given by the seller in replies to enquiries were false because he knew there was a moth infestation, was aware of a defect in the property and did not disclose the reports which he had obtained. It was found that the claimants had relied on the replies to enquiries when making their decision to purchase the property and they were therefore entitled to rescind the contract.
- Negligent Misrepresentation: This happens when a party makes a false statement carelessly or without taking reasonable steps to ensure its accuracy. In property transactions, this might occur if a party fails to verify certain information before communicating it. The party making the misrepresentation may be liable for damages, but unlike fraudulent misrepresentation, there is no need for intent to deceive.
- Innocent Misrepresentation: When a false statement is made with honest belief in its truth but is later proven false, this is considered innocent misrepresentation. While rescission of the contract is generally available for innocent misrepresentation, damages are not awarded unless specific circumstances are met under the Misrepresentation Act 1967.
Legal Remedies for Misrepresentation
1. Rescission of Contract
One of the most important remedies for misrepresentation is rescission, which effectively cancels the contract. Rescission aims to return the parties to their original positions, as if the contract had never been made. However, rescission is not always available if the contract has already been executed or if it would cause significant hardship to the innocent party.
2. Damages
Damages are available in cases of fraudulent or negligent misrepresentation. The aim of damages is to put the claimant in the position they would have been in had the misrepresentation not occurred. In the case of fraudulent misrepresentation, the claimant may be entitled to recover all losses suffered as a result of the misrepresentation. For negligent misrepresentation, damages may be limited to actual losses suffered, and for innocent misrepresentation, damages are typically not awarded unless under the Misrepresentation Act 1967.
3. Defences Against Misrepresentation Claims
Sellers and landlords in property transactions may defend against misrepresentation claims by asserting that they did not make the false statement or by demonstrating that the claimant did not rely on the misrepresentation. Additionally, they may argue that the statement was an opinion, not a fact, or that it was a mere puff (exaggeration) not intended to induce reliance.
4. Statutory Protections under the Misrepresentation Act 1967
The Misrepresentation Act 1967 allows a party who has been misrepresented to claim damages for negligent misrepresentation even if the misrepresentation was not made fraudulently. Under Section 2(2) of the Act, the court can award damages for innocent misrepresentation, subject to the circumstances of the case.
In Patarkatsishvili and another v Woodward-Fisher, having established their case in fraudulent misrepresentation, the principal remedy was rescission of the contract of sale and purchase and with it, the transfer of the Property however, the Court used its discretion given that Mr Woodward Fisher was not in a financial position to be able to repay the £32.5 million which the Claimant’s paid for the property, and instead provided a remedy in damages for the tort of deceit. The Claimant’s had already been living in the property for several months and had made renovations. As a result, the Claimants were awarded a refund for part of the property’s purchase price, reimbursement for costs related to the infestation, and substantial damages, including £15,000 for ruined clothing.
This case is evidence of the importance of due diligence and the importance of ensuring that all information provided within a property transaction is accurate and complete. One of the common defences to misrepresentation claims in property litigation involves the inclusion of disclaimers or contractual terms that limit liability for misrepresentations. Sellers and landlords often insert terms into contracts that negate reliance on statements made outside the contract, including those in promotional materials. However, even if such terms are included, courts can still find them unenforceable if they were unfair or unreasonable.
If you require advice on misrepresentation or any other property-related legal matters, don’t hesitate to reach out to our Property Litigiation team.