Welcome to the second edition of RED Alert of 2025.
Also featuring in this month's update:
Patarkatsishvili v Woodward-Fisher [2025] EWHC 265 (Ch)
Summary
The High Court handed down its judgment in this widely report case where the Claimants (the buyers) sought rescission of contract and damages from the Defendant (the seller) on the basis that the Defendant had misrepresented a moth infestation in its replies to pre-contract enquiries.
The High Court found in the Claimants' favour, and the judgment provides a stark reminder to sellers that they should give full, honest, disclosure when replying to pre-contract enquiries and that the concept of ‘buyer beware’ does not provide fool-proof protection.
Facts
Whilst the Defendant was renovating his large Victorian mansion in Notting Hill (the Property) in early 2018, the Defendant's wife became aware of a problem with clothes moths in the Property. It transpired that insulation in the internal walls and ceiling of the Property had a high wool content which had attracted the moths and caused an infestation. Various pest control treatments were carried out, and at least two reports from pest control companies, stated the need to remove the insulation in order to get rid of the infestation.
During this time, the Defendant was also marketing the Property for sale. The Defendant's solicitors produced replies to pre-contract enquiries in which the Defendant stated that he was not aware of any vermin infestation or latent defects and had not had the Property surveyed in respect of such matters. The Claimant's subsequently completed the purchase of the Property in May 2019, paying £32.5 million. Within days of moving in, the Claimants noticed moths in the Property and spent upwards of £300,000 on treatments and reports over the next few months during which time it was discovered by the Claimants that the Defendant had commissioned a report into the moth infestation. In May 2021, the Claimants' solicitors wrote a letter of claim to the Defendants, alleging fraudulent misrepresentation. The claim for rescission of the sale contract on the basis of fraudulent misrepresentations was issued in December 2021.
Decision
Fancourt J allowed the Claimants' claim for rescission based on fraudulent misrepresentation in the replies, noting the following:
- The interpretation of 'vermin' includes a moth infestation. The infestation was also a latent defect in the property.
- Reliance on the replies was established despite the Claimants having not read the replies. The replies to enquiries had been read by the Claimant's solicitors, who were taking instructions from Claimants' advisor who had read the replies and understood there to be no issue that would prevent B from proceeding with the purchase. The Claimants were therefore induced by those misrepresentations.
- The Defendant's argument that restitutio in integrum for both parties was impossible did not bar rescission. The court held that restitutio in integrum meant 'counter restitution' by the Claimant, which, was the return of the property to Defendant. The court held that the Claimants would return the title to the Property to Defendant, subject to a lien or equitable charge in favour of Claimants. This would allow the Defendant to deal with the moth infestation before selling the Property to realise sufficient funds to repay the liability to the Claimants.
Our comments
Caveat emptor or "buyer beware" is a concept that gets thrown around a lot in property transactions, and whilst there is a minimal duty of disclosure on the seller, this case clearly highlights that the concept cannot be used as a shield when the failure to disclose information leads to the buyer being misled into a transaction it could have otherwise avoided.
With this in mind, a seller's solicitors should warn them to provide full and honest responses to pre-contract enquiries. However, the finding of misrepresentation in this case does not mean that all sellers will need to disclose any and all issues to a buyer - each case will be fact-specific.
Nonetheless, this judgment serves as a warning of the potential outcome if responses are found to be misleading. Had the seller simply replied, "please rely on survey", the court may have had more difficulty in reaching a decision.
