Nike Real Estate Ltd v De Bruyne

• Jurisdiction: Cayman Islands
• Judge: (Kellock, Ag. J.)
• Judgment Date: 31 December 2001
• Court: Grand Court (Cayman Islands)
• Date: 31 December 2001

Grand Court

(Kellock, Ag. J.)

NIKE REAL ESTATE LIMITED

and

DE BRUYNE, DE CUYPER and INTERNATIONAL RELOCATION GROUP LIMITED

D.T.J. McCahill for the plaintiff;

R.D. Alberga, Q.C. and Mrs. L.D. DaCosta for the first and second defendants;

T.W.G. Lowe and Ms. K.M. Thompson for the third defendant.

Cases cited:

(1) Akerhielm v. De Mare, [1959] A.C. 789; [1959] 3 All E.R. 485, distinguished.

(2) Arnison v. SmithELR(1889), 41 Ch. D. 348, dicta of Lord Halsbury and Cotton, L.J. applied.

(3) Beachey v. BrownENR(1860), E.B. & E. 796; 120 E.R. 706, applied.

(4) Dawson”s Ltd. v. Bonnin, [1922] 2 A.C. 413; (1922), 91 L.J.P.C. 210, applied.

(5) Derry v. PeekELR(1889), 14 App. Cas. 337; 58 L.J. Ch. 864, distinguished.

(6) Downs v. Chappell, [1997] 1 W.L.R. 426; [1996] 3 All E.R. 344, applied.

(7) Hill v. GrayENR(1816), 1 Stark. 434; 171 E.R. 521, considered.

(8) J.E.B. Fasteners Ltd. v. Marks Bloom & Co., [1983] 1 All E.R. 583, considered.

(9) Peek v. GurneyELR(1873), L.R. 6 H.L. 377; 43 L.J. Ch. 19, referred to.

(10) Smith v. ChadwickELR(1884), 9 App. Cas. 187; [1881–5] All E.R. Rep. 242, referred to.

(11) Thomson v. WeemsELR(1884), 9 App. Cas. 671, referred to.

(12) With v. O”Flanagan, [1936] Ch. 575; [1936] 1 All E.R. 727, referred to.

Legislation construed:

Registered Land Law (1995 Revision) (Law 21 of 1971, revised 1995), s.28:

‘Unless the contrary is expressed in the register, all registered land shall be subject to such of the following overriding interests as may for the time being subsist and affect the same, without their being noted on the register-

. . .

(g) the rights of a person in actual occupation of land . . . save where inquiry is made of such person and the rights are not disclosed.’

s.58: The relevant terms of this section are set out at para. 33.

s.105(1): The relevant terms of this sub-section are set out at para. 34.

s.146: ‘Whenever any question arises with regard to the exercise of any power or the performance of any duty conferred or imposed on him by this Law, the Registrar may, and shall if required to do so by an aggrieved party, state a case for the opinion of the court; and thereupon the court shall give its opinion which shall be binding upon the Registrar.’

Land Law-registration-variation of lease-no prescribed form for registration of amendment to lease-under Registered Land Law, s.58, registration may be effected by submission of form approved by Registrar, executed by parties to lease, before expiry of current term

Land Law-overriding interests-elements-contractual right of tenant in occupation to pay rent agreed with landlord enforceable as overriding interest under Registered Land Law, s.28(g) notwithstanding inclusion of different figure as term of contract of sale between landlord and purchaser

Contract-misrepresentation-fraudulent misrepresentation-fraud assessed by nature and character of representations, maker”s knowledge or means of knowing truth, and inference of intent to produce natural and probable consequences-intention to deceive inferable from knowingly making untrue statement with intent that it be believed

Contract-misrepresentation-materiality-discrepancy between facts as represented and actual facts material if natural and probable effect on mind of normal representee is inducement to enter contract-unilateral belief of either party inconclusive-actual inducement to be separately proved

Contract-misrepresentation-incorporation in contract-need not prove materiality or inducement if representation made condition of contract-plaintiff entitled to remedy for breach in absence of other defences

The plaintiff applied for the rescission of a contract for the purchase of a building and the repayment of the purchase price on the basis of misrepresentation.

The plaintiff company agreed to purchase from the first and second defendants a two-storey building in George Town from which operated a restaurant, under a lease to S Co.

The plaintiff”s principal negotiated with the vendors” agent, the third defendant, the terms of the purchase, including provision for the restaurant business to continue under the existing lease. The lease included a rent review clause by which the annual rent could be increased but not reduced, and the purchaser took this into account when calculating the probable return on its investment and the price it could afford to offer.

During negotiations, the plaintiff was provided with a copy of the lease, disclosing the entire arrangement between the vendors and S Co. at that time. However, the third defendant subsequently agreed with S Co., on behalf of the vendors, to reduce the rent payable under the lease for six months, as a contribution by the vendors to the cost of renovations to the restaurant. The agreement was set out in an addendum to the lease which was never executed, but was put into effect a short time before the plaintiff signed the contract.

In a fax to the plaintiff”s principal one week before the signing of the contract, the third defendant”s agent presented the forthcoming closure of the restaurant for renovation as a positive sign for the future. He stated that the failure by the owner of S Co. to guarantee its obligations under the lease could be addressed in ‘lease renewal negotiations’-impliedly the rent review process-the following year, but omitted to say that the renovations were being funded not by S Co.”s owner but by the vendors. He did not disclose the existence or terms of the rent reduction agreement. The vendors were aware that the plaintiff”s principal had concerns about the restaurant”s solvency.

The contract contained a clause stating that it represented the entire agreement between the parties, and the purchaser had received no prior representation, warranty or agreement.

Shortly after the signing of the contract, the restaurant closed for the renovations but none were performed, and S Co. ceased paying any rent some months later. The plaintiff”s principal wrote purporting to rescind the contract on the ground that he had been induced to enter it on the basis of a misrepresentation as to the rental income due from the property, because of the concealment of the rent reduction agreement.

The plaintiff applied for summary judgment against the defendants, for rescission of the contract or a declaration that it had been rescinded, together with restitution of the purchase price and a retransfer of the property. Alternatively, it sought damages for deceit. The defendants applied for summary judgment dismissing the plaintiff”s claims.

The defendants submitted that (a) the plaintiff could not rescind the contract on the basis of the earlier representation as to rental income,

since the misrepresentation had been innocent or negligent, rather than fraudulent, and the contract contained an ‘entire agreement’ clause; (b) the third defendant had failed to disclose the addendum because the real estate agent acting for it believed (i) it would not be signed and executed by S Co. and the vendors, (ii) it was unenforceable, or (iii) it would not affect the plaintiff, as the vendors had agreed to make good the difference between the original rent and that subsequently agreed with S Co.; (c) the representation as to rent payable was indeed correct, since the addendum was unenforceable under s.58 of the Registered Land Law, not having been executed by both parties and registered in the prescribed form; (d) alternatively, the agreement could not harm the plaintiff, since as a purely contractual matter, it did not create a right enforceable as an overriding interest under s.28(g) of the Law; (e) they had always intended to make good any shortfall in the rent received if the sale were completed before the end of the rent reduction period; (f) the court had to consider the sense in which the vendors themselves understood the representation and whether, subjectively, they believed it to be true; (g) as a businessman, the plaintiff”s principal was not entitled to assume from reading the lease that the vendors had not agreed a reduced rent with the lessee; and (h) the misrepresentation, viewed objectively, was not material, no matter how it had been regarded at the time, and the difference between the two rents was not great enough to have induced the plaintiff to complete the purchase.

The plaintiff submitted in reply that (a) the defendants could not rely on the ‘entire agreement’ clause, since the failure to disclose the rent reduction agreement was a fraudulent inducement to enter a contract on terms which did not reflect the true situation as agreed with S Co.; (b) the third defendant”s agent had not genuinely believed that the rent reduction agreement would not be signed, was unenforceable, or would be compensated for by the vendors; (c) the requirement of registration under s.58 applied only to the variation of a lease and not to an addendum to a lease, and there was no prescribed form for such a variation, since the Registrar had no authority to prescribe one; (d) as a person in actual occupation for the purposes of s.28(g), S Co. enjoyed an enforceable right against the vendors to pay rent at the reduced rate stated in the addendum; (e) the vendors had repeated the misrepresentation, by concealing that they were themselves funding S Co.”s renovations through the rent reduction, and by making the stated rent a term of the contract, when the reduction had been agreed and partially implemented without the plaintiff”s knowledge; (f) they had acted fraudulently by making a deliberate statement which they knew to be untrue, with the intention that it be believed and knowing that it was relied on; (g) the test of materiality was an objective one, depending on the natural and probable effect of the representation on the ordinary representee, and on the nature of the term misrepresented; and (h) in any event, since the terms of the lease had become conditions...