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Flooding denial actionable under standard clauses: Appeal Court

16 October 2018

Sellers of a house who allegedly misrepresented to prospective purchasers that they had no experience of flooding at the subjects were not protected by the terms of the Scottish Standard Clauses (Edition 2) from an action seeking reduction of the sale based on the misrepresentation, the Sheriff Appeal Court has held.

Sheriff Principal Mhairi Stephen QC, Sheriff Principal Marysia Lewis and Appeal Sheriff Peter Braid gave the ruling in affirming a decision by the sheriff at Falkirk in favour of Shahzad and Aisha Anwar, who raised an action against David Britton and Linda Barclay arising from the pursuers' purchase of a property in Strathblane.

The pursuers averred that their offer to purchase was conditional on, among other things, a flood risk report in satisfactory terms being obtained, that the issue of flooding was important to them and that they made the defenders aware of their intentions regarding development of the property. A flood risk report was exhibited which classified the flood risk as low but recommended that the sellers be asked to confirm whether the property or surrounding area had flooded before. The defenders’ solicitors then confirmed by email that the defenders had no experience of flooding at the subjects, after which missives were concluded. The pursuers further averred that they subsequently discovered that the previous year the stream which passed through the subjects had overflowed and that the first defender, at least, was aware of flooding in the garden “from time to time”.

The defenders sought dismissal on the basis that (1) standard clause 27 invalidated all undertakings and representations other than those contained in the missives; (2) clause 2.1, covering awareness of circumstances including flooding within the previous five years, was expressed in the present tense and only covered continuing effects of flooding; (3) an action for reduction of a contract could not be founded on a representation that had been incorporated as a contractual term.

After debate the sheriff allowed proof before answer on the whole of the pursuers' case. The defenders appealed, arguing (1) that their solicitors' email formed part of the pursuers' understanding but did not form part of the missives, by which it had been superseded, and the pursuers were unable to rely on it; (2) that the plain meaning of clause 2.1 was that it referred to a present state of affairs ("the property is not affected by"), caused by a past state of affairs (flooding in the previous five years); (3) that if those arguments were wrong, reduction was a fundamentally different remedy from rescission, which was the means provided to enable a contract to be brought to an end because it had been breached, and a statement could not be both a term of a contract and a representation which was part of the negotiation leading up to the contract.

Refusing the appeal, the court said it was hard to see how the natural and ordinary meaning of either clause 27 or clause 2.1 was that contended for by the defenders. Clause 27 was intended to deny legal effect to something that otherwise would have that effect, rather that to surrender a potential legal remedy that would otherwise be available in respect of a wrong. If the latter effect had been intended, "one would have anticipated that it would have been made crystal clear".

On clause 2.1, following the Supreme Court's textual/contextual approach in Wood v Capita Insurance Services (2017), "circumstances" and "affected by" were both extremely broad terms, and the latter could be read as meaning "none of the following applies", as opposed to "has had a lasting effect". Thus the clause could have the effect contended for by either party, and checking these potential meanings against their consequences, "the meaning contended for by the defenders makes little sense. It is unlikely that a purchaser would wish to have a warranty that the property is not presently affected by flooding when such a circumstance might be expected to be obvious to the purchaser or his surveyor in any event. It is also unlikely that he would not wish to know about the propensity to flood. The defenders’ construction also gives rise to uncertainty, since it introduced an element of subjective assessment into what must be disclosed... Conversely, the pursuers’ interpretation not only makes sense but is easy for a seller to comply with".

The defenders' submissions on remedy also missed the point, since the pursuers did not base their case on breach of contract; further, there was "no reason in principle" why a statement could not be both a representation on which a party relied in deciding to contract and also, subsequently, a term of the contract itself: "in relation to terms which warrant a particular state of affairs, such as in clause 2.1.3, we can see no reason, in principle, why the pursuers might not have a choice of remedy, if the warranty turns out to be false, as they aver". They had sufficiently specific averments "to found a case based on reliance on the representation constituted by the issuing of the qualified acceptance. In particular the averment that 'But for the misrepresentations the pursuers would not have entered into the missives of sale'... makes the pursuers’ position clear".

Click here to view the opinion of the court.

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