Independent Land Co Ltd v Patel

Property development — Speculative transaction — Subsequent collapse of market — Development company suing investor for interest on borrowings — Defendant claiming misrepresentation, release and undue hardship — Judgment for plaintiffThe plaintiff was a company controlled by H, which had entered into a contract for the purchase of industrial units and commercial properties at Imberhorne Lane, East Grinstead. It was intended for speculative property development. The defendant entered into an agreement in March 1990 together with a number of other investors. The plaintiff company was to act as manager. At the time that the project had first been put forward the property market was buoyant so that there was a possibility of a presale of the whole site which was purchased for £3.52m in part on borrowed funds. After having considered the project, the defendant paid £150,000. The defendant did not seek legal advice although he had the opportunity to do so. Under clause 1.01 of the agreement the defendant agreed to pay bank interest on the loan account on the appropriate quarter days and made a first payment of £113,633.92. H assured him that he would pay the next two interest instalments. The defendant next heard about the interest payments when a statutory demand was served on him. The plaintiff claimed under the agreement. Held Judgment for the plaintiff. 1. It was well known that the property boom of the 1980s reached its peak in about the summer of 1989, but an autumn increase in interest rates began what was to become a steady and dramatic decline in property values and the onset of financially disastrous consequences for property investors who had borrowed on the expectation of rising prices and active sales. The recession then proved to be more severe than anyone could reasonably have expected. 2. Although the defendant had been assured that the deal was a very good one, the court had to apply the well known distinction between statements of fact, intention and opinion with regard to precontract statements. 3. In this context, the statements made had to be viewed with regard to a transaction which was a speculative investment in property. The heart of the issue was whether it was a “jolly good deal”, as stated to the defendant when he was considering his participation. Answering that issue, it had to be noted that other investors had also subscribed to it. It was probably true to say that thousands of people had failed to see the dangers in the market at the time. There were also hopeful signs for the particular development and one could have then expected a substantial profit left in the transaction even if less than first thought of — but substantial nevertheless. In the court’s judgment, there were no facts which were not made known to the defendant which could justify a finding of misrepresentation: see Esso Petroleum Ltd v Mardon [1976] QB 801. 4. With regard to the question of release, the defendant knew that the plaintiff company had no assets of its own and he was concerned that H was not a guarantor of the loan. 5. On the issue of undue hardship, by ordering the fulfilment of the defendant’s obligation to pay interest, he would be no worse off than he had been when he had taken on the risk attendant on the agreement. If there were sufficient assets he would be able to recoup his investment and, in any event, he was not the only loser. Bernard Weatherill (instructed by H Montlake & Co, of Ilford) appeared for the plaintiff company; Roger Smith (instructed by Hugh Cartwright & Amin) appeared for the defendant.