The importance of being accurate.
Published April 2016
The decision in Greenridge Luton One Ltd v Kempton Investments Ltd  EWHC 91 (Ch)
Joanne Wicks QC appeared for the Claimants.
Greenridge Luton One Ltd v Kempton Investments Ltd  EWHC 91 (Ch) is a useful reminder, both of the importance of accurate answers to pre-contract enquiries and the difficulties faced by a purchaser seeking to rescind a contract on the basis that inaccurate answers have been given.
Two Greenridge companies, for whom I acted, contracted to purchase an office block from Kempton for £16.25m, paying a deposit of £812,500. The primary tenant was a subsidiary of TUI Travel Plc. Kempton was an Isle of Man company, but its day-today administration had been delegated to UK-based Shulem Aksler and his company, Provewell Ltd. Mr Aksler relied heavily on a solicitor, Ranbir Singh Bains, but Mr Bains was not acting on the sale.
Commercial Property Standard Enquiries (“CPSEs”) were answered and stated that there were no arrears of service charge, and that there were no complaints or disputes over service charges, although TUI had “raised queries”. Newey J held that these answers were not true. TUI had withheld a sum of £95,000-odd from the service charge. Moreover, there had been lengthy correspondence between TUI and Mr Bains in relation to the service charges, from which it was apparent that Kempton and TUI were at odds over whether TUI was justified in withholding sums from the service charge account, whether Kempton was entitled to distrain for the arrears and even whether or not the parties were in “dispute” (which they saw as being relevant to the question of whether Kempton was permitted to distrain). This was more than merely “raising queries”.
It so happened that the valuer for Greenridge’s lender was in the same firm as the service charge consultant for TUI and by that means Greenridge discovered the existence of the arrears and dispute shortly before the contractual completion date. It asked Kempton for further information. Kempton refused to provide it, serving a notice to complete. Greenridge, as the Judge accepted, wanted to do the deal until the very end, but considered Kempton was being obstructive for no good reason. Greenridge served notice of rescission, which Kempton purported to accept as a repudiatory breach. It subsequently sold the property to another for £15.6m.
Greenridge claimed a declaration that it had been entitled to rescind the contract, return of its deposit and damages. To establish its entitlement to rescind, it had to show, in accordance with condition 9.1.3 of the Standard Commercial Property Conditions, not only that misrepresentations had been made to it (on which it relied), but also (a) that the misrepresentations were made fraudulently or recklessly or (b) that it would have been obliged, to its prejudice, to accept property “differing substantially (in quantity, quality or tenure)” from that which it had been led to expect.
Newey J found that the representation as to the absence of arrears was made fraudulently or recklessly and on that basis Greenridge was successful.
The first thing that Greenridge v Kempton serves to remind us of is how important answers to pre-contract enquiries are and the need to ensure that they are accurately answered. Kempton’s Isle of Man professional directors had had no involvement at all with the preparation of CPSEs. The solicitors whom they had engaged to act on the sale, Philip Ross, had no way of checking whether the answers in relation to service charges were accurate. The responses to CPSEs had been drafted by Mr Bains on Mr Aksler’s instructions and it was held that both those people knew that prospective purchasers were being told that there were no arrears of service charge when in fact there were. Kempton, which would bear the financial consequences of rescission, made a major error by putting itself into the hands of people who would not.
The second thing that Greenridge v Kempton reminds us of is just how difficult it can be to establish fraud. Greenridge had to take a decision whether to rescind the contract before it could establish who had been responsible for preparing the CPSEs and what those people knew. In the event, it could demonstrate on the evidence that Mr Bains and Mr Aksler knew that prospective purchasers were not being told the truth about the arrears. But the Judge exonerated Mr Bains and Mr Aksler of dishonesty in relation to the response about disputes. Even though a reasonable person would have concluded that Kempton and TUI were in dispute about service charges, the Judge held that Mr Bains honestly believed otherwise, because he had not received any “particulars” of the dispute. This was also the basis of his advice to Mr Aksler. The relevant legal question, we are reminded, is not whether a defendant honestly believes a representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity but whether he believes it to be true in the sense he understood it, albeit erroneously, when it was made.