The Tooth, The Whole Truth and Nothing But The Truth?
In this blog we look at the recent English judgement of Dhaliwal v Hussain and another  EWHC 2655 (CH), where the claimant was awarded significant damages for misrepresentation in relation to statements made in response to pre-contract enquiries which the defendants had known to be false.
The claimant entered into a sale agreement with the defendants in December 2007 to buy their dental practice. The transaction was completed in 2008 when the claimant paid the agreed price of £625,000 – with £245,000 for the freehold premises, £80,000 for fixtures, equipment and stock, and £300,000 for goodwill.
However, despite having received replies to her due diligence enquiries from the defendants, the claimant was unaware that in January 2005 the dental practice had been raided by the NHS dental fraud team. The result of the raid was that no further contracts were to be awarded to the dental practice by the local NHS Wolverhampton Primary Care Trust.
Had the claimant been aware of this fact, it may have considerably reduced the price she was willing to pay for the business.
The claimant alleged that false representations had been made by the defendants concerning the turnover of the dental practice, which she had relied on in agreeing to purchase it. As a result the claimant brought a claim for damages alleging fraudulent misrepresentation, or alternatively misrepresentation under section 2(1) of the Misrepresentation Act 1967, breach of an express warranty and breach of contract.
The Court ruled that the defendants had known their statements in response to the pre-contract enquiries to be false and were made with dishonest intent to deceive the claimant.
The Court awarded the claimant damages of £140,000 for misrepresentation, £94,643.78 in damages for consequential loss, held that there had been a breach of an express warranty and damages of £1,000 for a breach of contract in relation to the removal of stocks.
Stuart Sproule from MKB Law’s Corporate Team comments: “This case reinforces the importance of the due diligence process in the sale of a business. A buyer needs to be able to rely on the information provided by the seller and it is in all the parties’ interests for the seller to be upfront and honest.”