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Credit where credit is due……..

Quilter v Hodson Developments Limited [2016] EWCA Civ 1125 and Bacciottini v Gotelee and Goldsmith [2016] 4 WLR 98

Stephen Pritchett, Barrister and Accredited Commercial Mediator

If a claimant takes a step “arising out of the transaction” which has the effect of diminishing the loss then that reduction should be brought into account if “it formed part of a continuous dealing with the situation in which they found themselves, and was not an independent or disconnected transaction”: British Westinghouse Electric and Manufacturing Company Ltd v Underground Electric Railways Company of London Ltd [1912] AC 673, per Viscount Haldane.

To what extent should a party who has acquired property after a misrepresentation has made to him, be obliged to disgorge or give credit for any profit which he achieves on a resale of that property?

The issue was considered by the Court of Appeal in Quilter on appeal from the Central London County Court. The Claimant had purchased property in reliance upon pre-contractual misrepresentations about the water heating system. After 2 years she sold the property. She made a profit on the resale. The Defendant argued that the profit should be brought into account on the issue of damages.

The Court of Appeal said that the “contention that a wrongdoer should be able to take advantage of a rise in the market value of an apartment when he had induced the purchase by a misrepresentation is, at first sight, rather surprising. It would be natural to suppose that such rise was something with which his wrong has nothing to do.”

However, there is some support for the proposition and the Court had to look at the authorities. In Hussey v Eels [1990] 2 QB 227, a party had purchased a bungalow after misrepresentations had been made. The buyer applied for and obtained planning permission and thus unlocked development potential. Mustill LJ said:-

“Did the negligence which caused the damage also cause the profit – if profit there was? … To my mind the reality of the situation is that the plaintiffs bought the house to live in and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored, and six months later still that this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development value of their land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception.”

The Court of Appeal in Quilter however said, pragmatically:

“Many people buying property with a defect will not want to move for a while and, if any subsequent sale is not undertaken as part of their obligation to mitigate their loss, should be able to recover loss calculated on the traditional basis of the difference in value between the value of the property as represented and the property’s true value at the date of purchase.”

Thus, if the sale is divorced from the misrepresentation in the sense that it arises in the ordinary course of life and is not part of a victim’s attempt at mitigating loss and extricating himself from the transaction, then the buyer should be entitled to retain the profits which ordinarily flow from the sale.

In another recent decision, Bacciottini v Gotelee and Goldsmith [2016] 4 WLR 98, the Court of Appeal upheld an award of only £250 damages in a professional negligence case against solicitors where the claimants discovered that planning consent for a property which they had bought was subject to a restrictive use condition unknown to them at the time of purchase. The effect of the condition was to reduce the value of the property but by the time of trial they had had the restriction lifted at a cost of only £250.

That case is an example of one where events after the purchase are taken into account so as to reduce the damages payable. It is a clear example however of the innocent party mitigating his loss and being able to recover only the costs of extricating himself from the dilemma by procuring the release. The process of seeking the removal of the restriction was part of the same transaction derived from the misrepresentation and part of the obligation to mitigate.

Where, as in Quilter, the post contractual event (there the sale) was not part of a process of mitigation and arose in the ordinary course of domestic life, there was no reason why she should disgorge the profit she achieved upon the resale.

The Court also confirmed that then fact that the defect in the water heating may have been cured under the NHBC guarantee did not go in diminution of the damages claimable. That was the nature of insurance. As the Court said:-

“On well-established principles, the fact that a claimant has been able to use an insurance policy to reduce or extinguish her loss is not to be brought into account, see Bradburn v Great Western Railway (1874) LR 10 Exch 1 and Parry v Cleaver [1970] A.C. 1”

Stephen J Pritchett
Commercial and Property Counsel
23 Essex Street Chambers

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