Failing to disclose disputes in replies to pre-contract enquiries

A recent case has highlighted the importance of disclosing disputes in pre-contract enquiries, Stacey Birchard,-property litigation expert, explains the details.

In Quilter v Hodson Developments Limited, the Court of Appeal upheld a lower court’s decision to award damages to a purchaser. Hodson had not disclosed disputes in its replies to the pre-contract enquiries and thus, the purchaser had suffered a loss.

Facts:

Hodson Developments Limited (the developer) sold an apartment to Alison Quilter (the purchaser). The property was on a development site comprising of 54 dwellings, and contained a communal central heating and hot water system, which was a biomass system that served them all.

Prior to the exchange of contracts, standard pre-contract enquiries were sent to Hodson. Within these, Hodson was asked whether it was aware of any past or current dispute relating to the property, or any circumstances which could give rise to such a dispute. Disputes had arisen in relation to the working of the biomass system and the adequacy of the provision for heating and hot water. However, Hodson did not disclose these matters. Quilter argued that Hodson had implied that it was not aware of the four disputes (only two of which related to the biomass system and the adequacy of the provision for heating and hot water).

Lower Court decision

  • The judge in the lower court, found that there were issues with the boiler and that there was a dispute in relation to this. He found that Hodson had made two misrepresentations by implying that it was not aware of these matters
  • The judge applied the ‘normal measure’ of damages and assessing the damages at the date of transaction (i.e. date of purchase) awarded Quilter the difference between the actual value of the property, and the price she’d paid- totaling £15,000
  • The judge then considered the fact that Quilter had subsequently sold the apartment for £35,000 more than she’d paid for it and concluded that she was entitled to take advantage of the market value increase, as the profit would’ve been greater if she’d paid the correct price to begin with
  • Hodson denied that there was a dispute about the performance of the biomass system
  • It also argued that the judge had wrongly assessed loss as at the date of the purchase and should have considered the profit made on the subsequent sale.

Court of Appeal

  • The Court of Appeal held that the judge had been correct to find that there was a dispute
  • In relation to the measure of damages and loss, the Court of Appeal accepted that there is authority for the proposition that if a subsequent sale is ‘all part and parcel of the transaction”[1] that gives rise to the claim, any resulting profits can be brought into account
  • However, drawing support from other and later authorities, the Court of Appeal said that Quilter had sold her apartment in the ordinary course of her life – not because of the defects with the heating system or as part of any duty to mitigate, and that the increase in value had arisen from market forces. The Court of Appeal said that this was a benefit which she was entitled to retain, rather than a benefit to which she should account to the Hodson
  • The fact that the purchaser could rely on an NHBC guarantee to rectify the heating defects and therefore reduce or extinguish her loss, was not to be considered.

Practical outcomes

The case emphasises the importance of providing accurate responses when replying to pre-contract enquiries and disclosing disputes, even if you think that those disputes have been resolved.

It also confirms that where there has been a misrepresentation in relation to a property, purchasers can benefit from an increase in value (because of market forces) in addition to recovering damages (i.e. between the amount they paid for the Property at the purchase date and the actual value of the Property at the purchase date).

The fact that a claimant has an insurance policy or an NHBC guarantee does not reduce or extinguish their loss and should not be brought into account.