Jersey Unreported Judgments

[2005]JRC062

royal court

(Samedi Division)

3rd May 2005

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.