Bridgegrove Ltd v Smith and another

Tenants induced to take lease of workshop by misrepresentation as to physical and legal suitability – Tenants incurring heavy capital losses after holding over on monthly terms after expiry of six-month contractual period – Whether misrepresentation thereafter ‘spent’ – Appropriate measure of damages under section 2(1) Misrepresentation Act 1967 – Landlord’s appeal dismissed The two defendants were brothers working as partners in a motor repairing business. On October 28 1991 they took a six-month lease of basement premises in London E8, at a monthly rent of £650, which had been advertised as ‘ideally suitable for any storage workshop use and car repair’. At the time of signing the lease they were assured by A, the owner of the plaintiff company which had bought the building at auction in 1984, that the premises had planning permission for car repairs. In fact a planning authority enforcement notice issued in 1976 had prohibited such use. Shortly after the defendants were obliged to restrict paintwork spraying following neighbours’ complaints about fumes. When the contractual period expired in April 1992 the defendants remained in occupation as monthly tenants, it being common ground that the six-month term was not automatically extended under Part II of the Landlord and Tenant Act 1954. In February 1993 the local authority served on the defendants a statutory nuisance notice and informed them of the 1976 enforcement notice. In July 1993 the defendants were convicted and fined for breach of planning controls. Over the same period judgment debts in respect of rent arrears were executed against the demised premises. Handicapped by their inability to carry out bodywork repairs the defendants ceased trading in February 1994, and gave up possession of the premises. The plaintiff claimed £8,471 arrears of rent, and the defendants successfully counterclaimed for losses incurred as a result of being induced to lease the basement by the plaintiff’s misrepresentations as to its legal and physical fitness for their purpose. The defendants were awarded £25,700 to compensate them, inter alia, for loss of money saved and borrowed, which had been applied to the business. The plaintiff appealed. Held The appeal was dismissed. 1. There was no reason for limiting ‘car repairs’, as used in the advertisement, to mechanical work: the ordinary person would read this as including bodywork and consequently paint spraying. The plaintiff had at the very least been negligent in failing to discover the 1976 notice at the time of purchase. 2. On a plain reading of section 2(1) of the Misrepresentation Act 1967, the relevant measure of damages was as for fraudulent misrepresentation, thus including allegedly unforeseeable losses flowing therefrom, (see Royscot Trust Ltd v Rogerson [1991] 2 QB 297) even though the question had been expressly left open by the House of Lords in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] 3 WLR 1051. 3. The chain of causation had not been broken by the defendants’ decision to carry on as periodic tenants at the end of the contractual period, that being reasonable given the money they had invested in the business. Accordingly, the plaintiff could not contend that the misrepresentation was thereafter spent: see Esso Petroleum v Mardon[1977] 1 EGLR 57. Romie Tager QC and Sara Benbow (instructed by Keith Goldstein) appeared for the plaintiff appellants; Jonathan Gaunt QC and John Waithe (instructed by Makanda & Co) appeared for the first defendant; the second defendant appeared in person