Requisitions III
Cases
In re Ward and Jordan’s Contract
Chancery Division.
3 December 1901
[1901] 35 I.L.T.R 249
Porter M.R.
The question for the Court is whether the fact of one conviction being endorsed on the vendor’s licence is a material fact, for it is settled that the non-disclosure of a material circumstance would entitle the purchaser to relief. It is clear that fraudulent concealment is out of the case. The solicitor for the vendor knew of the endorsement of the conviction, but thinking it immaterial did not disclose it. Ss. 30 and 31 of the Licensing Act, 1872, have been relied on by the purchaser. S. 30 clearly does not apply to the present case, because there is only one conviction. Under s. 31 there must be two convictions against one person licensed since 1872 (and the vendor is such a person), before the premises can become affected. As there is only the one conviction against the vendor, the premises are not affected in the purchaser’s hands. Condition 13 of the Conditions of Sale provides that the vendor should hand to the purchaser the original licence certificate duly endorsed. It was the vendor’s interest in the licence that was sold. At the hearing in Chamber I thought that the endorsement of the conviction was one step towards forfeiture, but it is clear that the purchaser cannot be personally affected, nor are the premises affected by the one conviction. I, therefore, hold that the objections by the purchaser have been sufficiently answered, and that the contract is binding on him. The purchaser must pay the costs, except the costs of the hearing in Chamber, which are to be borne by the parties respectively.
Geryani v O’Callaghan
[1995] 1 JIC 2501
Court: High Court (Ireland)
Judge: Mr. Justice Declan Costello.
Judgment of
Mr. Justice Declan Costello.
This vendor and purchaser summons relates to a Contract for Sale of property known as “The Coffee Deck” in Rathmines, Dublin. The property is held under a lease of the 26 February 1993 subject to a yearly rent of £12,000 (subject to review). The purchase price was £25,000 and a deposit of £2,500 was paid. The plaintiff is the vendor and claims that the defendant purchaser wrongfully rescinded the contract, that she served a valid Notice to Complete and that the deposit was forfeited in her favour. The main (but not the only) issue in the case is whether the contract was validly rescinded.
The dispute arose because a cafe business was carried on in the premises which were as a result subject to the provisions of the 1950 Food Hygiene Regulations made under the Health Act1947( S.I. No. 205 of 1950) which provide for registration of “Food Premises” and the keeping of a Register of “Food Premises” by the Health Board. Provision is made in these Regulations for a “provisional registration”, which may be obtained pending compliance with the Health Board’s requirement, such registration being permitted only for a six month period. The Health Board is required to notify an applicant for registration that the premises have been provisionally registered and inform the applicant of the measures to be carried out before registration can be effected (Article 40 (2)). Non-compliance with a Board’s requirements will result in non-registration. It is prohibited to carry on a “food business” contrary to the regulations.
In this case the defendant discovered after she signed the Contract and Requisitions had been answered that the premises were not registered but were subject only to a provisional registration. Full registration, it transpired, dependant on satisfactory compliance with 21 conditions required by the Board. When this was discovered she rescinded the contract. The vendor contested the defendant’s right to rescind and served a twenty-eight day notice to complete. This was not complied with and these proceedings followed.
(1) The Contract of Sale incorporated the General Conditions of Sale (1991 Edition) of the Law Society. The sale was of the property described in the Particulars, namely a groundfloor shop at Lower Rathmines Road held under a lease of the 26 February 1993 at the yearly rent of £12,000 “together with the goodwill of the premises and trade name”. By special condition (7) the sale price included the inventory of contents attached to the agreement. This inventory was headed “The Coffee Deck” at 1, Lower Rathmines Road, Dublin 6 and the list was of equipment such as display fridges, microwave equipment, toasters, boilers etc. which would be used in a cafe. The evidence establishes that the agreement was one for the sale of the cafe business as a going concern.
(2) The purchaser paid the deposit of £2,500.
(3) On the 12 November 1993 “Objections and Requisitions on Title” were sent using the August 1990 (Revised) Edition of the Law Society’s Objections and Requisitions. In reply on the 16 November 1993 the vendor’s solicitor struck out a number of the Requisitions contained in the printed form, including Requisition 31.
(4) On the 22 November 1993 a telephone conversation took place between the parties solicitors in the course of which the purchaser’s solicitor stated that they would make enquiries with the Health Authority relating to the property and required the vendor’s authority to inspect the Health Authority’s files relating to registration.
(5) This conversation was followed by a letter to the vendor’s solicitors in which the purchaser’s solicitors stated “Requisition 31 must be replied to in full”. The vendor’s solicitor replied on the 22 of November and referred to Requisition 30.21. This reads:-
“State whether the property has been registered with the Local Health Authority pursuant to the Food Hygiene Regulations 1950 as amended. If so, furnish evidence of such registration”.
The reply was “property has been registered with the Local Authority pursuant to the Food Hygiene Regulations 1950”. This was not correct.
“State whether any notice has been served by the Health Authority or whether the vendor or his agents have any information of an intention to serve any such notice”.
“No notice has been served by the Health Authority. Neither the vendor nor her agent has any information of an intention to serve any such notice.” This was also incorrect, as notification of 22 conditions has been served.
Requisition No. 31.22 reads:-
The reply was:-
(6) In addition to replying to Requisitions number 31.21 and 31.22 the purchaser’s solicitor referred in their letter to the telephone conversation which had taken place on the 22 of November and stated:-
“We confirm that our client is registered with the Eastern Health Board to run a coffee shop at the premises herein. We further confirm that there is no license attaching to the premises.
Our client has discharged the registration fee and has complied fully with the Food Hygiene Regulations. We note that you wish to take up an extract from the Food Hygiene Register of the Eastern Health Board and enclose herewith a copy of our client’s authority to enable you to do so”.
The letter went on go give the name of the official in the Health Board who should be contacted. This letter was incorrect. The premises were not registered and there was not full compliance with the Regulations.
(7) Requisition number 11 was headed “Notices” and asked the vendor whether any notice had been served or any notice of intention to serve any notice relating to the property under the Public Health Acts. The answer to this Requisition was “not to vendor’s of agents knowledge”. Sub-paragraph 2 require the vendor to furnish any notice so served and this was replied stating “none”. Sub-paragraph 3 required the vendor to state if notices had been complied with and the reply to this was “N/A” which presumably means “not applicable”. This information was also incorrect as the vendors application for registration had been answered by the notice requiring compliance with 21 conditions.
(8) After the telephone conversation on the 22 November the purchaser’s solicitor contacted the Health Board and ascertained that the restaurant was only registered provisionally, that provisional registration lasted only six months and the vendor was now in the second three months period of the provisional term. They were told that when provisional registration expired trading from the restaurant would be illegal. The Health Board confirmed that a notice had been served on the vendor which required that a number of matters be complied with. In the light of this information the purchaser instructed her solicitor to rescind the contract.
(9) By letter of the 24 November 1993 the purchaser’s solicitor rescinded the contract and requested a refund of the deposit.
2 (10)By letter of the 25 November 1993 (written before the letter of rescission was received) the vendor’s solicitor wrote correcting the information previously given. It was confirmed that the vendor was registered with the Board and “has received a three months provisional registration … same has been extended by an additional three months from the week commencing the 15 November 1993.” It confirmed that additional work should be done before full registration and went on:-
“We understand that these works are as follows: ”
A toilet and wash-hand basin must be installed in the premises together with a deep double sink”.
The letter went on to state that the vendor would carry out these works immediately. The information was also incorrect as a great deal more work was required to be done than that specified in it.
2 (11)By notice dated the 13 December 1993 the vendor purported to require the purchaser to close the sale. The purchaser refused to comply with this notice because of her claim that the contract had been rescinded.
3 (12)In addition to claiming rescission of the contract the purchaser claims to be entitled to the sum of £744.15 being professional fees incurred in relation to the sale.
4 (13)In fact the requirements of the Health Board were not accurately summarised in the letter of the 25 November. By a notice dated the 22 November 1993 the Board granted provisional registration for a further three months subject to compliance with outstanding conditions. Attached to the notice was a notice of “requirements for registration”. Numbers 1, 2 and 4, 8, and 9, 11 to 19 and 21 inclusive of these conditions were required to be met. These included the provision of a suitable stainless steel canopy with means of mechanical extraction, the provision of a smooth hard and durable surface on the floors, the making of the wall surface behind the cooking equipment heat resistent, the provision of shelving and a deep double sink, the provision of conduits for the electrical wiring and a wash-hand basin for use of food workers, the provision of male/female patrons sanitary accommodation and staff sanitary accommodation with mechanical ventilation, the walls to be provided with smooth durable cleanable surfaces and a staff cloakroom. In addition suitable facilities had to be provided for storage of cleaning equipment and self-closing devices were required to be fixed on the doors of water-closets.
The purchaser does not claim rescission-rights arising from incorrect replies to Requisitions. Her argument in support of her right to rescind is based on Clause 33 of the Contract of Sale (although a claim to rescind at common law was also advanced). This is headed “Errors” and provides in sub-paragraph (a) as follows:-
“Nothing in the Memorandum, the Particulars or the Conditions shall:-”
(i) Entitle the vendor to require the purchaser to accept or entitle the purchaser to require the vendor to assure (with or without compensation), property which differs substantially from the property agreed to be sold whether in quantity, quality, tenure or otherwise, if the purchaser or the vendor (as the case may be) would be prejudiced materially by reason of any such difference,
or,
(ii) Affect the right of the purchaser to rescind or repudiate the sale where compensation for a claim attributable to a material error communicated to him by or on behalf of the vendor cannot be reasonable assessed”.
I draw attention to the following aspects of this clause:-
(a) The purchaser’s right to rescission will arise when there is a difference “in quantity, qualify, tenure or otherwise” between the property agreed to be sold and the property which will be conveyed. Effect must be given to the words “otherwise” and this means that the misdescription or non-disclosure which has produced the difference on which the purchaser relies is not limited to matters of quantity, quality or tenure.
(b) The difference between the property agreed to be sold (whether in quantity, quality, tenure or otherwise) and the property to be assured must be substantial.
(c) The difference must materially prejudice the purchaser.
It seems to me that in this case the purchaser is entitled to rely on this clause for two separate reasons.
Firstly, there is a difference between the property which the purchaser agreed to buy and that which would be assured in that a considerable amount of work will have to be done to the premises if it is to be registered under the Regulations. The difference is substantial in that customer space will be reduced, which will have a substantial effect on the business carried on in the premises. This difference was materially prejudicial to the purchaser in that her financial position would be adversely effected, bearing in mind the very high rent of the premises and the considerable purchase price payable for them.
Secondly, the purchaser agreed to buy a property and a business in the property as a going concern. The purchaser could reasonably assume that the property was one in which the business could lawfully be carried on. Subsequent to the contract it transpired that the purchaser was required to accept a property in which in three months time it would be illegal to carry on such a business, unless substantial work was done to the satisfaction of the officials of the Health Board. This seems to me to be a difference of substance between the property which the purchaser agreed to buy and the property she was asked to take in that the property is subject to a risk that the cafe business she purchased could not be carried on in it. This risk was significant because the purchaser could not be certain that the vendor was financially capable of carrying out the requirements of the Health Board, or that she could be relied on to carry out the work to the satisfaction of the officials of the Board, particularly in the light of the untrue statements made in the course of the transaction. The purchaser was materially prejudiced by this difference because she was asked to make a substantial payment for a property which might prove useless to her and involve her in very substantial financial loss.
I am of the opinion, therefore, that the purchaser was entitled to rescind under the provisions of Clause 33. It is therefore unnecessary for me to consider whether, apart from the contract, the purchaser had a right at common law to rescind this contract.
In arriving at the conclusions outlined above I have impliedly rejected an argument advanced on the vendor’s behalf based on the doctrine of caveat emptor. It was said that there was no duty imposed on the vendor to disclose the fact that the premises were only provisionally registered under the 1950 Regulations, that the purchaser cannot complain, therefore, if the provisional registration is not what she wanted as had pre-contract inquiries been made by her solicitor she could have ascertained the situation.
The general rule of contract law is that a vendor is under no duty to disclose defects in the physical condition of the premises and is only required to disclose defects in the title which are latent. The purchaser, accepts that this is so and does not make the case that the general principles of contract law imposed any duty on the vendor to disclose either the notices served on her by the Health Board or the existence of the facts concerning the registration of the premises. The claimed right to rescission is based on the contract. In construing Clause 33 it is to be borne in mind that it is in a standard form which has been developed by the Law Society over the years. It establishes a contractual arrangement between the parties independent of any obligations imposed by general legal principles. As construed by me it imposes no new requirement of disclosure of any statutory notices issued under the Public Health Acts because such notices are required to be disclosed under the standard Requisitions published by the Law Society. But it does mean that if a vendor has knowledge of facts where non disclosure might confer contractual rescission-rights under Clause 33 prudence would suggest either pre-contract disclosure or that they be made the subject of special contractual conditions.
The general rule is that a purchaser who rescinds is entitled to recover his deposit and any legal expenses incurred in investigating the title to the property (McMahon -v- Gaffney 1930 IR 576, 587). But this general rule is subject to any agreed contractual terms. Clause 33 on which the purchaser relies in this case provides that:-
“(c) The Purchaser shall be entitled to be compensated by the Vendor for any loss suffered by the Purchaser in his bargain relative to the sale as a result of an error communicated by or on behalf of the Vendor” …
(An entitlement which is subject to a proviso which is not relevant in this case.)
“Error” is defined in sub-paragraph (d), but there was in this case no “Communication” of an “error” by the vendor to the purchaser which caused loss to the purchaser in this case. The purchaser cannot therefore rely on Clause 33 to recover the legal costs incurred.
Clause 37 is headed “Rescission” and provides that upon rescission in accordance with the provisions of the Contract that “the purchaser shall be entitled to a return of his deposit (save where it has been lawfully forfeited) but without interest thereon”. But this clause gives no right to recoupment of legal costs if rescission is made under Clause 33.
I must conclude that the contract does not permit the purchaser to claim her costs of investigating the title prior to rescission.
Zahedi v McCann
[2008] IEHC 233
Ms. Justice Laffoy
In reliance on the decisionIn Re Flynn and Newman’s Contract [1948] I.R. 104, counsel for the defendants submitted that the change in the designated status of the Management Company in the CRO did not affect the defendants’ title, in that, notwithstanding that change, they were no less entitled to occupy the Premises and enjoy the easements over the common areas and to give title to a third party. On the closing date they were in a position to give to the plaintiffs what they had contracted to give.
Counsel for both parties informed the Court that they could not find any authority either in this jurisdiction or in the United Kingdom which dealt with the type of issue which has arisen in this case, involving a second or subsequent sale of a unit in a multi-unit development.
As I have stated, the core issue for determination is whether, given the status of the Management Company as listed for strike off on the agreed closing date, the defendants were in a position on that date to furnish title to the Premises to the plaintiffs in accordance with the contract. It seems to me that that issue falls to be determined by the application of first principles to the particular facts of this case. Kingsmill Moore J. in his judgmentIn Re Flynn and Newman’s Contract set out (at p. 112) the relevant principles governing contracts for the sale of land as follows:-
“In the absence of any express provision to the contrary, the vendor undertakes and is bound, in law, to show a good title to the property to be sold and to convey land corresponding substantially, in all respects, with the description contained in the contract. If he fails to do these things, the purchaser may rescind and recover his deposit. The vendor may, of course, limit his obligation to show good title by suitable special conditions but, if he does so, he must fairly indicate what is the defect in his title to which the purchaser must submit, and must take care that he is not guilty of any misrepresentation. A liability to ejectment for forfeiture, crystallised by service of a repairing notice by the landlord, is clearly a defect in title to which the vendor must call attention. Mere disrepair which may involve an action for breach of covenant, but which, in the absence of a proviso for re-entry, cannot be a ground for forfeiture, is not a defect of title, but a defect in subject matter. Provided that the terms of the lease were known to the purchaser before signing the contract, and inspection of the property was open to him if he so desired, it seems to me that no breach of any legal obligation would be involved in failure to disclose the state of repair or the letter from the landlord …”.
The letter from the landlord referred to was, in effect, a schedule of dilapidations which the lessor had served and of which the vendor lessee was aware before signing the contract but had not been disclosed to the purchaser. The Lease was for a term of one hundred and fifty years of which about seventy years were left to run. Although the Lease contained a covenant to keep and yield up and repair, there was no proviso for re-entry in the event of breach of the covenant to repair. Kingsmill Moore J. held that the state of disrepair which, in the absence of a proviso for re-entry, could not be a ground for forfeiture, was not a defect in title but a defect in subject matter. The vendor was not under any legal obligation to disclose the defective state of repair or the schedule of dilapidations.
Although the affidavits filed on behalf of each side in these proceedings have sought to highlight perceived shortcomings of the other side, there are a number of facts which are not in dispute on the basis of which deductions can be made which are crucial to the determination of the core issue. First, on the evidence of the two copies thereof exhibited, it would appear that there were no special conditions whatsoever in the contract presented by the defendants’ solicitor for execution and as ultimately executed by both sides, so that the defendants’ obligation to show good title was neither specifically limited nor expanded. Secondly, while the plaintiffs’ solicitors raised the pre-contract requisitions in the form of requisition 37, they were not replied to prior to the coming into existence of the contract, so that the replies thereto neither induced the plaintiffs to enter into the contract nor did they become terms of the contract. Thirdly, while I am of the view that the replies furnished on 22nd February, 2007 must be regarded as the replies of the defendants’ solicitors and must be stood over by them, there was no incorrect or misleading information or misrepresentation contained in the replies, because the Management Company was still registered in the CRO and the CRO printout furnished, although a few days out of date, correctly showed the status of the Management Company on 16th February, 2007. Fourthly, at all times prior to the closing date the status of the company in the CRO and its position in relation to filing of annual returns was a matter of public record. It follows that there was no material nondisclosure on the part of the defendants. There was no obligation on them, either at common law or under condition 15 of the General Conditions of the contract to disclose the change in the status of the Management Company in the CRO prior to the plaintiffs assuming contractual liability. Finally, and most significantly, the Management Company was still registered in the CRO as of the closing date, and, although it was under the threat of strike off, strike off was not inevitable.
That the change in the status of the company recorded in the CRO on 18thFebruary, 2007 did not constitute a defect of title is obvious when one analyses the defendants’ position on the closing date. On the closing date the defendants were in a position to give to the plaintiffs the title to the Premises they had contracted to give. They were in a position to assign to the plaintiffs the leasehold interest created by the Lease in the Premises. The defendants, in fact, executed such an assignment and it was delivered to the plaintiffs. Such assignment passed the right of possession to the Premises to the plaintiffs for the residue unexpired of the term created by the Lease and the benefit of all of the appurtenant easements and of the lessor’s covenants contained in the Lease. As things stood, the obligation to perform the lessor’s covenants was still vested in the lessor, Cruson Developments Limited. Moreover, the Management Company was still in being as a corporate entity. The assignment also passed to the plaintiffs the entitlement to membership of the Management Company. Accordingly, the defendants were in a position to pass, and they did pass, to the plaintiffs everything they were contractually bound to pass.
It is true that, with the benefit of hindsight, we know that, as regards the Management Company, as counsel for the plaintiffs put it, “the path was already mapped out” to dissolution, which occurred approximately two months later. It is also true that dissolution of a Management Company in a multi-unit development may, and frequently does, give rise to adverse consequences for individual unit owners, in that they may incur accountancy fees, penalties and legal fees in having the Management Company restored. Some prospective purchasers may be wary of purchasing a unit in such circumstances. However, as a matter of contract, in this case the defendants, as vendors, were under no obligation to ensure that the status of the Management Company was designated as “normal” at the closing date. Its designation as listed for strike off did not render the defendants’ title defective.
While I will hear the parties on the precise form of order which will be made, it seems to me that, having regard to the manner in which the proceedings were conducted at hearing, there should be a declaration that, notwithstanding the designation of the status of the Management Company in the CRO as “Strike Off Listed” on 18th February, 2007, on the closing date the defendants were in a position to furnish title to the Premises to the plaintiffs in accordance with the contract.