Ceviz v Frawley & Anor

The court construed a written agreement for a joint business venture in a pizzeria and decided related claims about misrepresentation, rescission and contractual remedy. On construction the agreement entitled the claimant to be a director of the trading company and to a 50% entitlement to profits, which the court treated as reflecting a 50% shareholding by necessary implication. The defendants were found not to have been induced to enter the agreement by fraudulent misrepresentations and, in any event, had not relied on any false implied representations concerning the lease but rather on the landlord's apparent consent. Equity would not order rescission because restitutio in integrum was not practicable, the defendants had affirmed the arrangement by conduct and delay, and it would be equitable to declare the contract subsisting and leave any damages nominal. Accordingly the claimant’s claim for performance or damages succeeded and the defendants’ counterclaim for rescission and repayment failed.

This is a first-instance Chancery hearing about an oral and partly-written commercial arrangement to operate a Neapolitan pizzeria at Unit 6, The Globe Centre, Wellfield Road, Cardiff. The claimant, Mahmut Agit Ceviz, asserted that a written agreement reached with the defendants, Anthony Frawley and Anna Pope, created rights in him to weekly payments, to be a director of the operating company and to a 50% share in that company; he sought specific performance or damages. The defendants accepted the agreement existed but alleged they had been induced to enter it by misrepresentations about the status and term of the existing lease of the premises and counterclaimed for rescission, repayment of sums paid and damages under the Misrepresentation Act 1967 and for deceit.

Procedural posture and evidence:

• The written agreement dated 12 April 2018 contained no express reference to shareholdings or to the existing lease. The claimant had been the occupant through a company called Chai Central (Cardiff) Ltd and had later incorporated Caroce Ltd; the landlord was THD Properties Ltd. A licence to assign, subsequent correspondence and events about registration of the earlier lease and the dissolution of companies were disputed.
• The court made detailed credibility findings: it found the claimant an imprecise but not dishonest witness; the first defendant an artful and not fully honest witness; the landlord (Mr Duong) not impartial; and the second defendant dependent on her husband.

Issues framed:

1. What the Agreement meant when construed and whether terms as to directorship and a 50% shareholding should be implied.
2. Whether, if the Agreement remained effective, the defendants had breached it.
3. Whether the defendants validly rescinded the Agreement for misrepresentation and, if misrepresentations existed, whether they were fraudulent or negligent and whether damages were recoverable under section 2(1) or rescission available in equity, including under section 2(2) of the Misrepresentation Act 1967.

Court reasoning and conclusions:

• On construction the court read the Agreement objectively and concluded that clause 5 and clause 4 (the option to sell and the consequences of the defendants’ resignation as directors) indicated that the claimant was to be a director. Clause 3 (the sharing of net profit and reference to directors’ salaries) was interpreted as most coherently reflecting a 50% shareholding for the claimant, with 25% each for the defendants, or at least that such an outcome was necessary to give business efficacy to the profit sharing clause.
• The court found that the claimant had represented that he was in the process of transferring the lease from Chai to a new company and that that representation carried implied assurances that the existing lease was not vulnerable to imminent extinction or incapable of being assigned. Those implied statements were false because the 2017 lease had not been registered, no assignment had been completed and the tenant company had been dissolved. The court rejected any finding of fraudulent misrepresentation by the claimant: his understanding was practical rather than technical and he had no reasonable grounds to believe the implied statements true in law, but there was no deliberate deception.
• The court found the defendants had not relied on the claimant's representations about the lease: they were aware or should have been aware of the landlord’s role and, in particular, had relied on discussions with the landlord. Even if reliance were assumed, rescission in equity was refused because restitution was impossible in practice, the defendants had affirmed the contract by conduct and delay, and it would be equitable to allow the contract to remain subsisting rather than to unwind it.
• Accordingly, the claimant’s contractual and equitable remedies were upheld and the defendants’ counterclaim for rescission and damages failed.

At first instance the court held that the claimant’s claim succeeds and the defendants’ counterclaim fails. The judge construed the written Agreement as entitling the claimant to be a director and to a 50% economic interest (or shareholding) in the operating company by necessary implication; the alleged misrepresentations were not fraudulent and the defendants did not validly rescind because they had not relied on the false implied aspects and, alternatively, rescission would be refused as impracticable, affirmed by conduct or inequitable. The claimant is therefore entitled to relief for breach of the Agreement; the counterclaim for rescission and repayment/damages is dismissed.