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

A property developer purchased land from a council for over £5 million. After completion, a private sewer easement was discovered crossing the site. The developer sought to rescind the contract on grounds of misrepresentation and mistake. The Court of Appeal held that contractual conditions allocated the risk of unknown easements to the purchaser, precluding rescission.

Facts

In 1988, Cambridgeshire County Council sold 6.71 acres of land, formerly school playing fields, to William Sindall Plc for £5,082,500. Sindall intended to develop the site for residential housing. The contract incorporated National Conditions of Sale (20th edition), including Condition 14, which provided that the property was sold subject to any easements not known to the vendor. The transfer was completed in March 1989.

In October 1990, during a property market collapse, a nine-inch foul sewer was discovered crossing the site diagonally. The sewer, unknown to either party at the time of sale, served a neighbouring block of flats owned by Cambridge City Council. By this time, the land’s value had fallen to less than half the purchase price. Sindall purported to rescind the contract in December 1990, claiming misrepresentation and common mistake.

Issues

Construction of Contract Terms

Whether Condition 14 of the National Conditions of Sale and Special Condition 17(e) operated to allocate the risk of unknown easements to the purchaser, thereby precluding any remedy for the existence of the sewer.

Misrepresentation

Whether the answers given to Enquiries before Contract constituted actionable misrepresentations, particularly regarding Enquiry 7 (awareness of easements) and Enquiry 3 (notices affecting the property).

Common Mistake

Whether the contract could be rescinded for common fundamental mistake as to the existence of the sewer.

Section 2(2) Discretion

If misrepresentation were established, whether the court should exercise its discretion under section 2(2) of the Misrepresentation Act 1967 to award damages in lieu of rescission.

Judgment

Construction

Lord Justice Hoffmann held that Condition 14 and Special Condition 17(e) clearly provided that the property was sold subject to any easements other than those known to the vendor. The sewer fell within these conditions, which allocated the risk of unknown easements to the purchaser.

Misrepresentation

The Court found no actionable misrepresentation. Regarding Enquiry 7, the answer “Not so far as the Vendor is aware” was held to be accurate because Cambridgeshire had made reasonable investigations. The Council’s officers had examined title deeds, correspondence files, and inspected the site. There was no duty to search all archived files without any lead suggesting their relevance.

Regarding Enquiry 3 concerning notices, Lord Justice Hoffmann held that the section 15 notice under the Public Health Act 1936 was not a “notice” within the meaning of the enquiry because its effect was wholly spent by 1988. Furthermore, Cambridge and Ely County Council was a predecessor in title, and Cambridgeshire had no knowledge of notices served upon it.

Mistake

The Court held that where the contract expressly allocates risk by its terms, there is no room for rescission on grounds of mistake. Lord Justice Evans noted that the contract on its true construction covered the situation which had arisen.

Section 2(2) Discretion

Although unnecessary to decide given the findings on misrepresentation, the Court indicated it would have exercised discretion to award damages in lieu of rescission. Lord Justice Hoffmann stated that damages under section 2(2) should never exceed what would have been awarded if the representation had been a warranty. The gross disparity between the loss caused by the misrepresentation (approximately £18,000 to divert the sewer) and the loss rescission would cause to the Council (returning over £8 million for land worth under £2 million) favoured upholding the contract.

Implications

This case establishes important principles regarding:

Allocation of Risk

Standard contractual conditions in conveyancing transactions can effectively allocate the risk of unknown defects in title to the purchaser, leaving no room for rescission on grounds of mistake even if the mistake would otherwise be considered fundamental.

Vendor’s Knowledge

The representation that a vendor is not aware of defects implies that reasonable investigations have been made, but does not extend to guaranteeing the adequacy of predecessors’ record-keeping systems.

Damages under Section 2(2)

Damages in lieu of rescission under section 2(2) of the Misrepresentation Act 1967 are distinct from damages under section 2(1) and should reflect the loss caused by the property not being what it was represented to be, rather than all consequential losses from entering the transaction.

Verdict: Appeal allowed. The purchaser was not entitled to rescind the contract. The action was dismissed. The contractual conditions allocated the risk of unknown easements to the purchaser, there was no actionable misrepresentation, and there was no basis for rescission on grounds of mistake.

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