The Misrepresentation of Moths – Lessons from a Yarn

It is the stuff of nightmares. Dr Yevhen Hunyak, described by the Judge in the case as "a cautious person", and Iya Patarkatsishivili were careful to visit their prospective home more than half a dozen times between Spring and November 2018. Ultimately, they agreed to buy the Notting Hill mansion for £32.5 million and the purchase completed on 2 May 2019. 

Within days of moving in, however, they noticed moths in the house; not just the moderate irritation experienced by other London homes, but (as it turned out) millions of moths which were hatched in the insulation. Moths would fly into the Claimants' faces, fall into wine glasses, land on their toothbrushes and destroy their clothes. 

The infested insulation contained a large proportion of lamb's wool and had been installed by the developer seller (the Defendant) as part of an extensive renovation project, in order to gain some environmental points with the planning authority. Unsurprisingly, given the Claimants’ subsequent experience, he and his wife then experienced issues with moths. Environ visited the house a number of times in 2018 to deal with the problem, each time emailing a report to the Defendant's wife. Unfortunately for the Defendant, as a result of enquiries made of local pest control companies, in September 2020 the Claimants discovered that Environ had carried out moth treatment work and were presented with the associated reports.

The claim form was issued in December 2021, seeking a recission of the sale contract and damages for fraudulent representation. 

The Claimants had to demonstrate that they were induced to buy the house through knowledge of misrepresentations made by the Defendant in his replies to pre-contract enquiries, and that the Defendant knew of (or suspected) the untruthfulness of his replies. Mr Justice Fancourt found in the Claimants' favour.

The case has drawn considerable media intrigue. But it also raises some useful reminders to sellers on the importance of answering pre-contract enquiries considerately, as well as offering some tips on interpretation and perhaps softening the general principle of caveat emptor ("buyer beware"):

1. The Claimants' knowledge of the misrepresentations did not need to be specific – The Defendant's three relevant pre-contract replies were given in general and negative form (namely, he had no knowledge of prior infestation by vermin, had no reports concerning infestation and was unaware of any hidden defects in the property). All the pre-contract replies were appended to the Report on Title prepared by the Claimants' lawyers. The Claimants admitted they did not read the Report on Title. The Judge held, however, that the substance of the replies was sufficiently communicated to the Claimants by the following summary sent by the Claimants' agent – "no red flags with the property and safe to proceed". The actual words of the replies did not need to be shown or communicated to them.
2. The Claimants' knowledge could be imputed via an agent – The above summary was given to the Claimants by their agent rather than their lawyers. The Judge held that "it cannot be right that a buyer, who engages a team of experts to act on their behalf in assessing the appropriateness of a transaction and making a recommendation, cannot rely on misrepresentations made by the seller that were read by the team and fed into the advice given, just because the buyer did not read the misrepresentations personally".
3. A lawyer's awareness is the awareness of their clients – This is established law, but the Judge asserted that, even if the Claimants' lawyers had simply told the Claimants directly that they had considered the documents, that there were no red flags and that it was safe to proceed, and the Claimants then followed that advice, this would show sufficient reliance on the replies. There was no need for a Report on Title containing the replies at all; the lawyers having read them was sufficient.
4. Knowledge that a statement is false can include recklessness as to truth – The question was whether the Defendant either knew that the answers he gave were false, or he did not honestly believe in their truth, which included giving an answer recklessly as to its truth. Recklessness was said to mean that the maker does not know whether a statement is true or false and does not care, or where they deliberately take the risk that it could be false.
5. Might silence be an alternative? – Relevant to the question of inducement was whether the Claimants would have acted in the same way if the misrepresentations had not been made (rather than if they had known the truth). Dr Hunyak said that, if issues with moths had been reported to him, he would not have bought the house, but he did not say what he would have done if the enquiries had not been answered. A failure to answer ought to raise suspicion in itself. But this serves as a reminder to lawyers to check that all questions have been answered when receiving the standard pack of enquiries on an acquisition.
6. Reports need not be formally labelled as such – Reports envisaged by the pre-contract enquiries are significantly more expansive than surveys or formal condition reports. The context will be key in determining what is relevant, but, in this case, a quotation for a treatment plan was considered to be a report. It contained the technician's findings and an expression of his opinion as to the required treatment.
7. Rescission was possible even though the Defendant could not repay £32.5 million – The principal remedy for fraudulent misrepresentation is rescission, meaning the restoration of the parties to their original positions, as nearly as may be. Among other defences, the Defendant claimed that rescission was impossible as he could not pay for the property, but the Claimants were willing to transfer the house back to the Defendant subject to a lien for outstanding monies. There appears to be no case in which a Court has ordered restitution subject to an equitable lien, so this was a surprising outcome.
8. Delay did not defeat the Claimants' claim – The Judge believed that there was a delay of 7 ½ months from the Claimants knowing of their right to rescind until their solicitors’ letter electing to do so. He did not consider this to be the kind of long delay that could make it inequitable to grant rescission. He raised several reasons for this, including that the Claimants would have wished to consider carefully their rights and take further advice, perhaps for a period of up to 4 months.
9. Fabric of the property is not only what is visible – A weak argument was made by the Defendant that the fabric of the property is only what can be seen. The judge clarified that the word "fabric" is just a general, non-specific term to describe the physical make-up of the house.
10. Moths can be vermin! – As part of his defence, the Defendant claimed that moths are not vermin (and therefore he did not need to disclose their presence). Various definitions of vermin were considered and the conclusion was that, while a moth is probably not the first example of vermin that anyone would give, insects are nevertheless capable of being regarded as vermin.

The Defendant is seeking grounds for appeal, so it remains to be seen how many of the above points will be upheld.