William Sindall Plc v Cambridgeshire County Council [1993] EWCA Civ 14 (21 May 1993)

A developer purchased land and later discovered a sewer, seeking to rescind the contract for misrepresentation and mistake. The court held there was no misrepresentation or operative mistake and, obiter, that damages in lieu of rescission would have been appropriate.

Facts

William Sindall Plc (the purchaser) agreed to purchase land from Cambridgeshire County Council (the vendor) for over £5 million for a housing development. After completion, the purchaser discovered a private foul sewer running across the land, which was not known to either party at the time of the contract. The presence of the sewer hampered the planned development. The purchaser issued a writ seeking rescission of the contract on the grounds of misrepresentation and/or common mistake, and the return of the purchase price. The claim for misrepresentation was based on the vendor’s reply to a pre-contract enquiry, in which they stated they were ‘not aware’ of any easements affecting the land, other than those discoverable by inspection. The contract itself incorporated the National Conditions of Sale (20th edition), which provided under Condition 14 that the property was sold subject to any easements, and the purchaser was deemed to purchase with full knowledge of them.

Issues

The Court of Appeal considered three primary legal issues:
1. Did the vendor’s statement that it was ‘not aware’ of any easements constitute a misrepresentation, either by asserting that no such easement existed or by implying that it had carried out reasonable investigations to inform itself?
2. Was there a common mistake of a sufficiently fundamental nature regarding the existence of the sewer to render the contract void at common law?
3. If there was an actionable misrepresentation, should the court exercise its discretion under section 2(2) of the Misrepresentation Act 1967 to award damages in lieu of rescission, particularly given the dramatic fall in the property’s market value since the sale?

Judgment

The Court of Appeal unanimously dismissed the appeal, upholding the first instance decision in favour of the vendor, Cambridgeshire County Council.

Lord Justice Hoffmann

Lord Justice Hoffmann gave the leading judgment. On the issue of misrepresentation, he concluded that the vendor’s reply was not a misrepresentation. He stated:

In my judgment, a statement that the vendor is not aware of a matter is not a representation that he has made inquiries about it… It is simply a statement about the vendor’s state of mind.

He found that the Council had not represented that there was no sewer or that they had undertaken reasonable enquiries; they had only represented their actual state of knowledge, which was true. On the issue of mistake, he held that the doctrine of common mistake did not apply. The mistake as to the existence of a sewer was not fundamental enough to void the contract, as it did not render the subject matter ‘essentially and radically different’ from what the parties believed it to be, following the test in Bell v Lever Bros Ltd [1932] AC 161. Crucially, he held that where the contract itself allocates the risk of a particular eventuality (as Condition 14 did by placing the risk of unknown easements on the purchaser), the doctrine of mistake cannot be invoked to supersede that allocation.

…a party cannot be allowed to vitiate a contract on the ground of a mistake which consists in a mistaken belief that he is not taking a certain risk, if the other party thinks he is and the contract allocates that risk to him.

Although obiter, Hoffmann LJ then delivered a highly influential analysis on the discretion to award damages in lieu of rescission under s.2(2) of the Misrepresentation Act 1967. He set out a framework for exercising this discretion by comparing the loss the misrepresentation caused the representee against the loss rescission would cause the representor. Here, the cost of dealing with the sewer was around £18,000, whereas rescission would force the vendor to return £5 million for land that had since plummeted in value to around £2 million. He concluded it would be grossly inequitable to permit rescission in such circumstances and that this was a ‘classic case for damages in lieu’.

Lord Justice Russell and Lord Justice Evans

Both Lord Justice Russell and Lord Justice Evans agreed with Hoffmann LJ’s reasoning and conclusion. Russell LJ described the basis for the misrepresentation claim as weak and agreed that there was no operative mistake. Evans LJ emphasised that the terms of the contract were paramount in allocating risk, and that the purchaser had contractually accepted the risk of such defects. Both also concurred with Hoffmann LJ’s obiter analysis that, had a misrepresentation been established, damages under s.2(2) would have been the appropriate remedy rather than rescission.

Implications

The decision is a significant authority in the law of contract. It clarifies that a statement of being ‘not aware’ of something in a pre-contract enquiry is a representation as to the speaker’s actual knowledge, not a warranty that reasonable enquiries have been made. It reinforces the high threshold required for a common mistake to vitiate a contract, especially where the contract explicitly allocates the risk of that mistake to one of the parties. Most importantly, Hoffmann LJ’s obiter dicta on section 2(2) of the Misrepresentation Act 1967 is widely cited as the leading guidance on how a court should exercise its discretion to award damages instead of rescission, balancing the gravity of the misrepresentation against the financial consequences of rescission for both parties.

Verdict: The appeal was dismissed.

Source: William Sindall Plc v Cambridgeshire County Council [1993] EWCA Civ 14 (21 May 1993)