[2005]JRC062
royal court
(Samedi Division)
3rd May 2005
Before:
|
Sir Philip Bailhache, Bailiff
Jurats J C Tibbo and S J Le Cornu
|
Between
|
Steelux Holdings
Limited
|
Plaintiff
|
|
|
|
And
|
Mary Martine Edmonstone, nee Hall
|
Defendant
|
|
|
|
Advocate A. J. Clarke for the Plaintiff.
Advocate O. Blakeley for the Defendant.
judgment
bailiff:
Introduction
1.
This is an
action on a simple summons for the recovery of the sum of £150,000 allegedly
due on a promissory note signed by the defendant on 13th September 1991 and registered as a charge
against the defendant’s immovable property in Jersey
on 1st August 2003. The claim is resisted on the basis that
there is no debt and that the promissory note was signed as the result of
misrepresentations made by the beneficial owner of the plaintiff company, Mr
Malcolm Hall (“Mr Hall”).
2.
The
summons also claimed interest on the alleged debt in accordance with LIBOR as
set out in the promissory note, but that claim was abandoned during oral
submissions. We revert to that below.
Background
3.
The
melancholy background to this action is the breakdown of the relationship
between the defendant and Mr Hall, who is her stepfather. It is unnecessary to describe that
breakdown in any detail. Suffice it
to say that the parties were very close until 2002 when differences arose in
relation to a joint enterprise involving the development of a property in London.
4.
The brief
history of the matter is that Mr Hall is a successful property developer living
in Jersey. In 1989 he conceived the idea of
developing properties in or near Green
Street with a business partner. One of the properties to be developed
was a house called ‘Villa des Pas’ (“the house”). Mr Hall negotiated the purchase of the
house for £200,000 and applied to the Housing Committee under the
relevant legislation for consent to the conveyance into a company called Nobel
Property Investments Limited. The
policy of the Committee at that time was not favourable towards the acquisition
of dwelling accommodation by companies, and consent was accordingly
refused. It was suggested, however,
that consent would be forthcoming if the purchase were to be taken in the name
of the defendant. The motives of Mr
Hall in acceding to this suggestion seem to have been mixed. On the one hand, it is asserted that he
intended to assist the defendant by ensuring that she acquired residential
qualifications and was enabled to live in Jersey should she wish to do so. On the other hand, it was clearly
convenient to him from an economic perspective to acquire the house for the
purposes of his intended property development. It is clear that neither of the parties
intended that the defendant should live in the house. Mr Hall wanted to knock it down, and the
defendant had never seen it before it was acquired in her name.
5.
Be that as
it may, the house was purchased in the name of the defendant, and contract was
passed on 12th January 1990. The defendant was represented in court
by a specially appointed attorney.
The whole of the consideration was provided by Mr Hall (and perhaps his
business partner) through a company controlled by Mr Hall called Moneypenny
Investments Limited (“Moneypenny”). Prior to the completion, the defendant
executed a bond in the sum £150,000 in favour of Moneypenny. She was advised by a firm of English
solicitors in relation to that bond which was in standard terms except that it bore
no interest.
6.
In 1991,
Mr Hall decided to transfer the benefit of the alleged loan from Moneypenny to
another company beneficially owned by him called Steelux Holdings Limited
(“Steelux”) which is the plaintiff in this action. Mr Hall requested his stepdaughter, in
circumstances which are in dispute, to sign the promissory note upon which this
action is founded. She did so in
the family home on 13th
September 1991, signing at the same time an undated authority to an
advocate of the Royal Court
to appear on her behalf to acknowledge the debt. As we have stated, that was not in fact
done until 1st August 2003
after the breakdown of the relationship between the parties. The promissory note was again in
standard form. The material
difference between the bond and the promissory note was that the latter carried
interest at the London Inter-Bank Offered Rate. Interest was however never paid or
indeed sought until the summons giving rise to these proceedings was
issued.
The parties’ contentions
7.
Counsel
for Steelux submitted that this was a very straightforward matter. Mr Hall had made a generous gift of the
equity in the house to his step-daughter, the defendant, but had retained the
benefit of the loan of £150,000 now secured by way of judicial hypothec
against the house. He had never
intended to make a gift of that sum of £150,000 to her. If he had had such an intention, there
would have been no need to go to the trouble and expense of having a bond, and
subsequently a promissory note, drawn up to record the debt. Mr Hall denied that he had ever represented
to the defendant that he would never take steps to recover the debt.
8.
The
defendant asserted that Mr Hall had deceived her. According to her, she had trusted him
completely. She stated that,
although she must have received legal advice in relation to the bond, it had
been immaterial to her actions because she had relied upon her stepfather. She had understood that the house was a
gift to her without reservation. The
so-called loan evidenced by the bond, and subsequently the promissory note, was
a fiction. She gave evidence that,
in relation to the bond, Mr Hall had told her that the document was merely
administrative in nature and needed for tax purposes. He had said that it would never be
enforced. The defendant stated that
the promissory note was signed in the kitchen of the family home. Again, she was told that it was needed
for tax planning purposes, but also that it would be helpful to her in
connection with her divorce from her husband. Mr Hall told her that the promissory
note was never to be used. In
short, the defendant alleges that Mr Hall fraudulently misrepresented to her
that the promissory note would never be enforced and that she signed the
document on that basis. The loan
was a fiction. She contends that
the conveyance of the house to her constituted an outright gift of the
whole.
The law
9.
Counsel
for the defendant submitted that the law was clear and that the applicable
legal principles were agreed between the parties. Counsel for Steelux did not demur. Counsel referred us to passages from Chitty
on Contracts as to what constitutes a misrepresentation under English
law. While English law and Jersey law may often arrive at the same conclusion in
relation to the effect of a false or fraudulent misrepresentation upon a
contract, the process of reasoning, and the route by which the journey is
taken, are sometimes different. We
find it necessary therefore to set out what we conceive to be the law in this
area.
10. Fraudulent conduct, including the making of a
fraudulent misrepresentation, can be a “moyen de nullité”,
or a cause of the nullity of an agreement.
The underlying principle of fraud, which we may say embraces both
“dol” and “fraude” is bad faith. Fraud is a “vice du
consentement”, that is to say, a defect which nullifies the apparent
consent between the parties and allows the defrauded party to treat the
contract as void. If therefore a
party knowingly makes a false statement which induces the other party to sign a
document and thereby to enter a contract, there is a defect of consent which
allows the other party to treat the contract as void. It may not be necessary that the
statement is, at the time it is made, knowingly false; if the statement is in
fact false, and the other party acts upon it, there is nonetheless a defect of
consent (“vice du consentement”) because the other party enters the
contract under the mistaken impression that the statement or representation was
true. It may be seen therefore,
that the distinction between mistake (“erreur”) and fraud
(“dol”) as defects of
consent may sometimes be blurred.
There is in either event a defect of consent which allows the injured
party to treat the contract as void.
The burden of proof lies upon the party who asserts that there is in law
a defect of consent.
Conclusion
11. It is therefore for the defendant to prove, on
a balance of probabilities, that (1) false or fraudulent misrepresentations
were made by Mr Hall and (2) she was induced to enter into the contract of loan
as a result of those false misrepresentations. If the Court is satisfied on these two
points, there will have been no consent, no meeting of minds, between the
parties. The fraudulent
misrepresentations will have given rise to a defect of consent with the result
that the contract is void ab initio.
12. Although it is not material to our decision in
relation to the alleged inefficacy of the promissory note, it is perhaps
desirable to refer in passing to the abandoned claim for interest. We have stated above that the promissory
note was interest-bearing whereas the bond was expressed to be free of
interest. There was, therefore, a
material difference between the provisions of the two documents. The defendant was legally advised in
relation to the execution of the former, but not the latter. Mr Hall conceded that he was aware of
the material difference in terms, but that he did not draw attention to it
before asking his step daughter to sign the promissory note.
13. As a matter of general principle, under the law
of Jersey, the parties to a contract are
expected to defend their own interests.
The maxim is “La convention
fait la loi des parties”.
But fraud is a flexible notion.
Silence can, in certain circumstances, amount to fraud. If one party, particularly a party who
is more experienced and worldly-wise than the other, is silent as to a material
fact which, if it had become known to the other party, would have led to a
refusal to enter into the contract, that may well amount to fraud which may
lead to a setting aside of the contract.
In French law, the concept is known as “réticence dolosive”. We would characterise it as dishonest or
fraudulent silence. Although
Poingdestre did not expressly refer to dishonest silence, he did state that, in
the context of a contract between persons of unequal bargaining power, “tout contract ou transaction extorqué par
… persuasions indirectes est presumé fraudeux principallement
quand la personne induite est foible de jugement ou d’aage” (Poingdestre,
Les Lois et Coutumes de L’ile de Jersey, pub. J T Bigwood Ltd,
1928, page 206). In this case, it
is unnecessary to decide whether or not there was dishonest silence, but if
there had been, the obligation to pay interest would have been set aside.
14. We are however only concerned with the alleged
obligation to pay the capital sum of £150,000. There is no doubt that the defendant knew
what she was signing. She was aware
that it was an acknowledgement of debt.
We have considered carefully the evidence given by the parties. We think that Mr Hall may well have
explained that the execution, both of the bond and of the promissory note, was
an administrative matter. We doubt
that he would have said that the execution of the acknowledgements of debt was
for tax purposes. No evidence has
been led of any alleged tax advantage, and we can see no such obvious fiscal
purpose. We also doubt that Mr Hall
would have referred to the execution of the promissory note as being helpful to
the defendant in a context of her divorce from her husband. The promissory note was executed on the 13th September 1991. According to her affidavit, the
defendant’s marital problems only began “towards the end of
1991”. As to the alleged
promise never to enforce the obligation evidenced by the promissory note, it
seems to us unlikely that any such promise was made. It would seem surprising that Mr Hall
should go to the trouble of ensuring that first the bond and secondly the
promissory note were executed by the defendant if he intended to make a gift of
the house to her without any reservation.
This seems to us inconsistent, both with the evidence and with our
impression of the character of Mr Hall as it emerged during the trial. We do not wish to suggest that the
defendant has deliberately falsified her evidence. On the contrary, we think that her
evidence was given honestly and in good faith and in the genuine belief that it
was true. We think that her recollection
of these events, which took place nearly fourteen years ago, is mistaken. It is sufficient, however, for us to
record our conclusion that the defendant has not satisfied the burden of
proving to us that false misrepresentations were made upon which she placed
reliance in executing the promissory note.
15. It follows that the plaintiff succeeds in its
action and that judgment must be given against the defendant for
£150,000.