Gordon v Selico Ltd (1986) 18 HLR 219
Fraudulent misrepresentation in leases
Facts
The claimants purchased a long lease of a flat from the first defendant; the second defendant was the managing agent. The flats were already in poor repair at the time of the purchase and subsequently the second defendant made no attempts to fulfil its maintenance obligations. The building was ultimately found to be badly affected by dry rot and the local authority served a dangerous structure notice. The claimants sought damages for deceit on the basis that a contractor had fraudulently hidden details of the dry rot at the time of the purchase when carrying out work ordered by the second defendant on the first defendant’s behalf. This claim was successful at first instance and the judge also found breaches of repairing obligations under the lease. The Housing Act 1974 was relevant to the court’s power to order specific performance of a repairing covenant, rather than being the source of those lease obligations. The defendants did not appeal on the basis that there had been no deceit, but rather that this should not be imputed to them.
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Issues
The issue in this context was whether the deceit of the contractor instructed and employed by the defendants could be imputed to them.
Decision/Outcome
The Court of Appeal dismissed the defendants’ appeal, but on different grounds from those found at first instance. The defendants remained liable for the fraudulent concealment carried out in connection with the work on the property. Concealing active dry rot amounted to a knowingly false representation that the flat did not suffer from it. The purchasers and their surveyor were in fact misled by the cover-up, as intended. It was no defence that a closer inspection might have revealed the defect or that the purchasers had bought without a warranty as to the property’s condition. The principle of caveat emptor did not protect a vendor who had induced the purchase by fraud. The defendants were also found to be in breach of their maintenance obligations under the lease. The court ordered damages in respect of both areas of the claim together with the making of orders for specific performance to be worked out by the Chief Chancery Master.
Judgment extract. Parallel citations: [1986] 1 EGLR 71; (1986) 278 EG 53.
