3 August 2012

Auctioneer counts cost in case of mistaken identity

The message: Auctioneers need to double-check the true ownership of properties they sell

The case: The High Court considered how to properly assess the liability of auctioneers who sell properties without proper authority, in Greenglade Estates v Strettons (12.07.12).

In September 2009, Greenglade agreed to purchase at a Strettons auction a large detached house in south London for £670,000. Strettons signed the contract as the vendor’s agent. The sale never proceeded because the house was being sold fraudulently. Its true owner, Mr Chana, had never instructed Strettons to sell the property and knew nothing about the sale. Someone had used his identity to obtain monies by fraudulent transactions.

Greenglade, a consortium of property investors, was keen to purchase the property, as it believed it was worth about £1m.

It pursued proceedings against Mr Chana and Strettons.

Unfortunately for Strettons, once Mr Chana established he had never instructed them to act for him, they had no defence to the claim that they were in breach of their implied warranty of authority that they acted as agent for the true owner of the property. It did not matter that the fraudster had provided documentation to satisfy them that he was Mr Chana. The case centred on when the damages payable to Greenglade should be assessed.

Strettons did not admit liability until the trial, when Chana made clear his innocence

Damages awarded for breach of a warranty of authority are based on the amount that the claimant would have gained had the warranty been true. Accordingly, Greenglade was entitled to the same damages as if Mr Chana had authorised but failed to complete the sale. Such damages would be the difference between the property’s valuation and the price achieved at auction. At the time of the auction, Greenglade thought that difference was £330,000.

However, Greenglade clearly considered that the value of the house had increased since then. It argued the damages should be assessed at a later date, citing Suleman v Shahsavari in 1988, in which it was held that the appropriate date for assessment was not when any sale would have completed, but when it became evident it would never complete.

The judge expressed doubt over the correctness of the decision in the Suleman case. He thought the obvious date for valuing the loss was the intended completion date, as damages are based on the presumption the sale was authorised and, if it had been, it would have completed in late 2009. However, he proceeded to follow the Suleman decision and determine when it would have been evident that the sale was really a fraud and could not possibly be enforced.

Strettons argued that it was clear by January 2010 the sale would never complete as it was known by then that the identification the solicitors previously acting for the vendor had relied upon was counterfeit. However, Strettons did not admit liability or accept there had been a fraud until the trial, when Mr Chana attended and made clear his innocence and lack of any involvement.

In the circumstances, the judge thought it had not been unreasonable for Greenglade to pursue Mr Chana to trial, even though it had known by 2011 that the passport held by Mr Chana was different to the one produced to the solicitors purportedly instructed to act on his behalf. Therefore the value of the property will be assessed at the date of the recent trial and Strettons will be liable for the difference between that value and the price of £670,000 at which they agreed to sell the property.

Summing up: Greenglade v Strettons

  • Greenglade agreed to purchase a property at auction, but the sale never proceeded as Strettons had been instructed by a fraudster, not the true owner of the property
  • Greenglade wanted to buy the property so brought a damages claim against the true owner and Strettons
  • The judge ruled that Strettons should pay damages amounting to the difference between the property’s value and the price at which it was for sale.

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