Clinicare Ltd (formerly known as Strasbourgeoise UK Private Health Insurance Services Ltd) v Orchard Homes & Developments Ltd

Lease — Pre-contract enquiries — Dry rot — Fraudulent misrepresentation — Negligent misrepresentation — Implied representation that defendant made such representations as reasonably expected of it — Whether defendant liable in damages — Claim allowed The claimant entered into an agreement with the defendant for a lease of a three-storey mid-terrace building with a basement that imposed upon the claimant a full repairing obligation. The claimant’s solicitor sent standard pre-contract enquiries to the defendant’s solicitor, asking, inter alia, whether the property had ever been affected by dry rot. The defendant’s solicitor replied, confirming that the defendant was not aware of any such matters but advising the claimant to make, and to rely upon its own inspection and survey. During the course of that survey, the defendant’s construction director indicated that the staircase had been replaced owing to dry rot. The survey reported dry rot in the roof space, which prompted the parties to enter into a side agreement whereby the defendant undertook to carry out a number of specified remedial works. Approximately 18 months after the lease had been executed, substantial dry rot was discovered around the staircase, resulting in the claimant having to vacate the premises while this was being eradicated. The claimant claimed damages for misrepresentation, contending that it had entered into the lease in reliance upon the defendant’s assertion in the pre-contract enquiries that it was not aware of any dry rot. The defendant contended that the pre-contract enquiries did contain a misrepresentation, but this had been corrected; and, in any event, the claimant placed no reliance upon that representation before entering into the lease. The trial dealt solely with the issue of liability. Held: The claim was allowed. The written reply to the pre-contract enquiries contained a fraudulent misrepresentation, which carried with it an implied negligent misrepresentation that reasonable steps had been taken to ascertain the existence of dry rot. Furthermore, subsequent oral information given by the defendant’s construction director did not correct the implied representation. The representation that the defendant was not aware of dry rot was plainly false. Although the evidence suggested that the defendant was not directly responsible for the misleading answer, it was, nevertheless, vicariously responsible for it. It was well established that a statement indicating that a vendor was unaware of a defect in title carried with it an implied representation that it had taken reasonable steps to ascertain whether any existed. There was no reason why the principle should not apply to defects in the physical condition of the property. Therefore, in the instant case, the representation carried with it the implication that the defendant had made such investigations as could reasonably be expected of it to reach the conclusion that there was no dry rot. That representation was negligent in that no such reasonable enquiries had been made, despite advice to undertake them: William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 applied. A partial or inadequate subsequent statement was not sufficient to cure an original misrepresentation, and the implied representation contained in the oral correction that the dry rot had been cured was false, particularly when, on the facts, the defendant had deliberately declined to carry out the recommendations of its own expert: Morris v Jones [2002] EWCA Civ 1790 applied. In all the circumstances, the representations were not only material but also an inducement to the claimant to enter into the lease and side agreement. John de Waal (instructed by Reed Smith, of Coventry) appeared for the claimant; Paul Emerson (instructed by Moore & Blatch) appeared for the defendant. Eileen O’Grady, barrister