Gordon v Selico Ltd (1986) 278 EG 53

Fraudulent misrepresentation in leases

Facts

The claimant purchased a long lease of a flat from the first defendant and of which the second defendant was the managing agent. The flats were already in poor repair at the time of the purchase and subsequently the second defendant made no attempts to fulfil its maintenance obligations. The building was ultimately found to be badly affected by dry rot and the local authority served a dangerous structure notice. The claimant sought damages for deceit on the basis that a contractor had fraudulently hidden details of the dry rot at the time of the purchase when carrying out work ordered by the second defendant on the first defendant’s behalf. This claim was successful at first instance and the judge also found that the defendants were both in breach of their maintenance obligations under the Housing Act 1974. The defendants did not appeal on the basis that there had been no deceit, but rather that this should not be imputed on them.

Issue

The issue in this context was whether the deceit of the contractor instructed and employed by the defendants could be imputed on them.

Held

The Court of Appeal dismissed the defendants’ appeal, but on different grounds from those found at first instance. The second defendant had become a party to the contractor’s fraudulent misrepresentation as a result of its controlling shareholding in the property, and the authority for this was conferred on the second defendant by the first. The defendants were therefore liable for this fraudulent misrepresentation. The defendants were also found to be in breach of their maintenance obligations under the lease. The court ordered damages in respect of both areas of the claim together with the making of orders for specific performance to be worked out by the Chief Chancery Master.