Bedell Cristin sets precedent in first legal challenge to the scope of the "tout tel clause" in the context of contractual misrepresentation

25 Jun 2018

On 14 June 2018, the Deputy Bailiff handed down an eagerly awaited judgment regarding the scope of a standard conveyancing provision, known informally as the "tout tel clause", confirming that the existence of the clause in a conveyance would not automatically preclude wronged purchasers from bringing subsequent contractual claims for misrepresentation.

A team from Bedell Cristin, led by Advocate Mark Taylor and supported by Associate Scott Tolliss, appeared before the Deputy Bailiff, Timothy Le Cocq QC, to defeat a preliminary issue hearing on the applicability of the "tout tel clause", concerning the conveyance of real estate which the purchaser alleges was fashioned upon positive misrepresentations.

Background

This landmark ruling, the first of its kind in Jersey, was borne out of a claim commenced by the Plaintiff purchaser in June 2017 in which damages of approximately £1.5m are sought from the Defendant vendor for misrepresentation. The Plaintiff claims that she was induced into entering a real estate conveyance on the basis of false representations made on behalf of the Defendant vendor.

The Defendant argued, amongst other things, that the Plaintiff's claim must fail because any representations made in the course of a conveyancing transaction do not withstand the passing of a contract containing the "tout tel clause".

The "Tout Tel Clause"

The "tout tel clause" has been a standard contractual provision used routinely in all Jersey real estate contracts, reading as follows:

"The property was sold with all such rights, appurtenances and dependencies as may attach thereto, in the state in which it was at the date of sale with all its apparent or hidden defects…"

The effect of the clause, save as may otherwise be agreed between the parties, is that the purchaser takes the property in the condition in which it is found, with "all its apparent or hidden defects", at the time at which the contract is passed. The principle of the clause is arguably a mirror of the English principle of caveat emptor (or "buyer beware").

Proceedings

In October 2017, the Master of the Royal Court gave permission to the Defendant to pursue her application to strike out the Plaintiff's claim by way of a preliminary issue, on the basis that the "tout tel clause" should render abject any subsequent contractual claims for non-fraudulent misrepresentation. The basis of the Master's judgment was that the preliminary issue concerned only matters of law (and not of fact), and raised a question of legal uncertainty on which judicial scrutiny should be welcomed.

The substantive preliminary issue hearing came before the Deputy Bailiff in January 2018 and saw the Defendant argue that the "tout tel clause" should be read to place the risk of all hidden and apparent defects solely on the purchaser, irrespective of any representations made during the course of pre-contractual conveyancing enquiries.

The Plaintiff argued that to agree with the Defendant's case would render all pre-contractual enquiries nugatory, allowing the vendor to be reckless in his or her representations without fear of subsequent litigation.

Judgment

The Deputy Bailiff held in favour of the Plaintiff, disallowing the Defendant's preliminary issue application.

It was accepted that the Plaintiff's interpretation of the clause and submissions in defence of the preliminary issue were to be largely preferred. It was held that the starting point of contractual interpretation must be to take the words in their true form, remarking that:

"…those words must be taken together and mean that the purchaser is taking the property with all its apparent or hidden defects. It does not expressly deal with or cover the position where a representation has been made upon which the purchaser has relied. I do not think that it is possible to extend the meaning of the clause to cover circumstances in which the position of a hidden defect (where the risk is, as was set out by Ereaut Bailiff in the Royal Court hearing of Kwanza, on the purchaser) has been qualified by a positive representation made by the vendor."

Commentary

This judgment marks a significant development in the law of Jersey real estate and conveyancing transactions.

Ordinarily it is for purchasers to satisfy themselves on the vendor's claim of title to property and carry out their own survey to look at the general physical condition of the property. However, there are many important issues affecting the enjoyment of a property which are either not in the public domain or cannot be verified by a physical examination. Whether the property has been subjected to any flooding or whether the construction has complied with Building Bye-Laws, for example. It is for this reason that lawyers acting for a purchaser will make pre-contractual enquiries of the vendor asking various questions pertaining to the property.

The decision to purchase a property will inevitably be based on the result of the purchaser's own investigations together with the responses given by the vendor to the pre-contractual enquiries. The purchaser must be entitled to rely on the vendor's responses.

It is no exaggeration to say that thousands of properties have been bought and sold where the vendor has made pre-contractual representations to the purchaser which in turn have been relied upon by the purchaser and the purchaser's lawyers in providing a certificate of title in support of the purchaser's mortgage. All of those contracts contained the "tout tel clause". Had the Defendant succeeded in her argument, it would at stroke have driven a coach and horses through the standard practice adopted by all conveyancing firms in Jersey.

That there was room for an argument to be made by a Defendant looking to avoid responsibility for pre-contractual replies suggests that the Jersey Law Society may need to review the process of how the conveyancing profession deals with pre-contractual enquiries and binds them into the contract of conveyance registered in the public registry.

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