Salmon Harvester Properties Ltd v Metropolitan Police Authority

Development — Agreement for lease — Ultra vires and void — Action for negligent misrepresentation without asserting validity of agreement — Whether reasonable grounds for bringing proceedings — Whether defendant entitled to have proceedings struck out or summary judgment on defence — Application dismissed A proposal was put forward for the redevelopment of the site of a former police station. An agreement was reached between the defendant, the claimant and a third entity (B), to the effect that if the claimant obtained planning permission to redevelop the property, the defendant would grant the claimant a 990-year lease at a peppercorn rent for a premium of £2m. On completion of the lease, the parties were to enter into a development agreement requiring the claimant to redevelop the property, incorporating a museum. The claimant would then grant the defendant a 60-year underlease of the museum and the defendant would, in turn, grant B a 15-year sub-underlease. When the defendant obtained a professional valuation of the property, it was clear that the monetary consideration that it would receive under the agreement was substantially less than the open market value. On legal advice, the defendant informed the claimant that the agreement was ultra vires and that it was not possible to proceed. At that point, the initial planning application had failed, but it was subsequently granted on appeal. The claimant brought an action for misrepresentation and negligent misstatement on the basis that the defendant had impliedly represented to the claimant that it had, or would obtain, the power to enter into the agreement and related lease. The claimant contended that such representations were made to induce it to enter into the agreement and to take steps preparatory to entering into the lease. It was common ground that the transaction was ultra vires and void. The defendant applied to the court to strike out the action, arguing that any promise, representation or assumption to the contrary was also void, and that to seek to rely upon the representations to found a cause of action was an impermissible attempt to subvert ultra vires doctrine. Accordingly, the causes of action in misrepresentation and negligent misstatement could not succeed as a matter of law and should be struck out or, alternatively, summarily dismissed. Held: The application was dismissed. A promise, representation or assumption was void only if it asserted the validity of the contract in issue. The causes of action in question were based upon the fact that the defendant purported to enter into transactions when it did not have the power to do so. The claimant’s submission to that effect provided a valid basis for the claims in misrepresentation and negligent misstatement. It was clearly arguable that the facts upon which the claim was based could be distinguished from those that gave rise to the line of authority upon which the defendant had relied. The critical point was that the claim was not based upon a representation or assumption that the transaction in question was a valid and enforceable contract. In the circumstances, the claimant had reasonable grounds for bringing the claim and had a real prospect of success. It followed that both the strike-out application and the application for summary judgment on the defence failed: South Tyneside Metropolitan Borough Council v Svenska International plc [1995] All ER 545 referred to. Mark Simpson (instructed by LeBoeuf Lamb Greene & MacRae) appeared for the claimant; James Goudie QC and Clive Sheldon (instructed by Field Fisher Waterhouse) appeared for the defendant. Eileen O’Grady, barrister