Court allows appeal to rescind settlement agreement due to alleged misrepresentation in maps regarding underground cables.

THE COURT OF APPEAL

Appeal No. 2014/1159

[Article 64 Transfer]

Finlay Geoghegan J.

Peart J.

Hogan J.

THE LEOPARDSTOWN CLUB LIMITED

PLAINTIFF/RESPONDENT

AND

TEMPLEVILLE DEVELOPMENTS LIMITED AND PHILIP SMYTH

DEFENDANTS/APPELLANTS

Judgment of Ms. Justice Finlay Geoghegan delivered on the 28th day of July 2015.

1. This is an appeal against a limited part of a judgment delivered by the High Court (Charleton J.) on the 2nd September, 2013, in

which inter alia, he dismissed the defendants’ counterclaim that they were entitled to rescind the Mediated Settlement Agreement

(MSA) entered into on the 26th October, 2011, upon the grounds of misrepresentation or in the alternative a claim for damages for

misrepresentation.

2. I have had the opportunity of reading in draft the judgment of Hogan J. which he will deliver. He has set out in great detail the

background facts, the relevant extracts from the High Court judgment and evidence relevant to the pursued ground of appeal. I do

not propose repeating all in this judgment. I am in agreement with Hogan J. as to the order to be made on the appeal and the purpose

of this judgment is to set out briefly the reasons for which I have come to that decision.

3. The plaintiff, (“Leopardstown”) is the owner of Leopardstown race course. Mr. Smyth, the second named defendant is the principal

shareholder and director of the first named defendant (“Templeville”). Leopardstown and Mr. Smyth have had a business relationship

in relation to the running by Mr. Smyth of a sports club at the racecourse since the 1970s. Templeville now runs a fitness, health and

leisure centre known as Westwood Club at the premises.

4. By reason of the events more extensively described in the judgment of Hogan J. the parties entered into a mediation process, with

Paul Gallagher S.C. acting as mediator, on the 27th September, 2011. At the time there were approximately nine items of actual or

threatened litigation outstanding between the parties. The mediation process led to the MSA being entered into between the parties

on the 26th October, 2011. It comprises a written agreement between the parties hereto, maps referred to and a solicitor’s note.

5. The MSA was received and made a rule of court in the High Court in proceedings between the parties on the 3rd November, 2011.

6. Regretfully disputes recommenced between the parties early in 2012. There were continuous disputes up until June 2012, and much

correspondence between the solicitors. On the 15th June, 2012, Templeville’s solicitors wrote informing Leopardstown that Templeville

had elected to terminate the MSA with immediate effect because of an alleged fundamental breach of the MSA by Leopardstown.

Following further correspondence Leopardstown issued proceedings on the 10th July, 2012, seeking a declaration that the MSA

remained in full force, judgment for liquidated sums allegedly due and other consequential reliefs including damages. A statement of

claim was delivered on the 11th July, 2012, and thereafter the proceedings were entered into the commercial list, pleadings delivered

including a defence and counterclaim and pre-trial procedures and preparations were followed in accordance with commercial list

practices and the action was listed for hearing on the 11th June, 2013.

7. The single determination of the trial judge against which an appeal was pursued at the appeal hearing was on a counterclaim which

had not been made in the original defence and counterclaim, albeit that the representation contended for had been referred to in a

letter on the 22nd July, 2012. This claim was only included in a proposed amended defence and counterclaim delivered on the 24th

May, 2013, and liberty to amend was only granted pursuant to an order of the trial judge on the second day of the hearing, i.e. the

12th June, 2013. The defendants pleaded in the amended defence and counterclaim that Leopardstown by furnishing a map, Arup

drawing number [5002] in the course of negotiations leading to the execution of the MSA represented that the “New Site” was not

materially affected by an underground ESB cable; that the representation was false; that it was made with an intention that the

defendants should rely on it and that the defendants did in fact rely upon it when executing the MSA. The defendants pleaded that

they were entitled to rescission or in the alternative damages. In reliance on the same facts, they also pleaded that the MSA was

void or voidable by reason of common mistake and also there were pleadings in relation to breach of warranties by the plaintiff.

8. It is necessary to emphasise that this additional claim added to a multiplicity of issues already in the proceedings with which the

trial judge had to grapple in the course of the hearing.

9. The trial was lengthy, approximately fourteen days and the order records approximately 25 witnesses who gave oral evidence. The

judgment delivered by the trial judge was required to deal with multiple issues as he did. It is fair to say that overall he found Mr.

Smyth not to be a credible witness and found in favour of the plaintiff and against the defendants on all issues.

10. The initial judgment left over a claim by Templeville for relief against forfeiture. There was a further hearing on that issue in

October 2013, and thereafter the trial judge indicated that relief against forfeiture would be granted subject to certain conditions and

a final order was made on the 14th November, 2013.

11. In February 2014, the defendants lodged a notice of appeal to the Supreme Court with multiple grounds of appeal. It was

transferred to this Court pursuant to Article 64 of the Constitution on the 29th October, 2014. Following directions given in this Court,

the submissions furnished on behalf the appellants effectively confined the appeal to the determination of the trial judge dismissing

the counterclaim to rescind the MSA by reason of the misrepresentation by Leopardstown in Arup map 5002 (and its predecessors).

12. The judgment of Hogan J. sets out in full the portion of the judgment of the trial judge in which he considered the relevant part of

the counterclaim, made his findings and reached his conclusions. As appears, he commenced this part of his judgment by stating at

para. 64:-

“Templeville and Philip Smyth complain that the mediation settlement agreement was undermined by misrepresentation by

Leopardstown as to a transverse 220kV oil-surrounded ESB cable that ran through the site of the seven new tennis

courts that would be covered by a Dome or Domes.”

13. He then continued to set out a history of the cable, the site in question, planning applications, the 2008 arbitration and then

stated at para. 70:-

“It is impossible not to be satisfied that Templeville had knowledge of the transverse ESB cable. I am satisfied that Philip

Smyth, in claiming no knowledge of the cable is giving evidence that, in these circumstances, a court could not accept.”

14. Following further consideration of events after the completion of the MSA and in particular surrounding the claim by Philip Smyth

that he first discovered the existence of the transverse ESB cable under the site on the 14th June, 2012, the trial judge ultimately

concluded at para. 75:-

“I regret that I cannot accept any evidence that the cable was first discovered on the 14th June, 2012. Nor can I accept

that Ian Roberts acted dishonestly, or gave untruthful evidence, or that there was any kind of sharp practice by

Leopardstown, or that Templeville made a mistake or that any misrepresentation of any kind was made by Leopardstown.”

Appeal

15. It is against these findings and conclusions that the appeal is pursued. The appellants contend that the trial judge was in error in

failing to consider their counterclaim for misrepresentation in accordance with law. In particular, they maintain that he failed to make

a determination as to whether Leopardstown did make a representation of fact which was false in relation to the non existence of a

second underground ESB cable (which has been termed the transverse ESB cable) affecting one of the sites to be demised under the

MSA. Further, the appellants argue that he erred in law in failing to make a finding as to whether the alleged misrepresentation

intended to and did induce Templeville and Mr. Smyth to enter into the MSA. They further submitted that he was in error in his

approach to deciding whether Templeville and Mr. Smyth had full and complete knowledge of the true position in relation to the

transverse ESB cable at the time they entered into the MSA and the inferences drawn as to the knowledge of Templeville and Mr.

Smyth of the true position was not supported by the evidence. They submit that this Court should, on appeal, find that there was

misrepresentation i.e. a representation of fact made which was false and material; that Templeville was induced thereby to enter into

the MSA and that Templeville was entitled to rescind the MSA. In the alternative, they submit that this Court should allow the appeal

and remit the matter to the High Court for further hearing.

16. Leopardstown disputes that the trial judge was in error in his approach to the determination of the relevant issues. It relies upon

the findings of fact made by him, in particular the lack of credibility of Mr. Smyth and the inferences drawn and submits that this

Court in accordance with the principles established in Hay v. O’Grady [1992] 1 I.R. 210 and subsequent judgments should not

interfere with the findings of fact made by the trial judge as to the knowledge of Templeville and Mr. Smyth of the true position in

relation to the transverse ESB cable at the time they entered into the MSA and should not interfere with his conclusion that the

counterclaim be dismissed.

Rescission on grounds of misrepresentation

17. Notwithstanding the difference in submissions the test for rescission on grounds of misrepresentation is not in dispute. As

McCracken J. said in Colthurst v. Colthurst [2000] IEHC 14, High Court, 9th February, 2000, the parties alleging misrepresentation in

such a case must show that:

“…there was a representation of a fact, that that representation was untrue and that the [parties in question] were

induced to enter into the settlement by reason of the representation.”

18. As appears the onus is on the party alleging the misrepresentation to establish each of the above on the balance of probabilities.

There must also be an intention that the other party rely upon the representation of fact. It must be a representation of a material

fact. Materiality is an objective test to be applied by the court as determined by Murphy J. in the High Court in Gahan v. Boland

[1983] IEHC 43, High Court, 21st January, 1983. It is relevant to this appeal to note that silence may constitute an actionable

misrepresentation where it distorts a positive representation. In Doolan v. Murray (Unreported, High Court, Keane J. 21st December,

1993) [1994] WJSC-HC 414, Keane J. at p. 42, adopted as a correct statement of the law in this jurisdiction, the following statement

in Cheshire, Fifoot and Furmston’s “Law of Contract” (12th Ed.) at p. 273:

“Silence upon some of the relevant factors may obviously distort a positive assertion. A party to a contract may be

legally justified in remaining silent about some material fact, but if he ventures to make a representation upon the matter

it must be a full and frank statement, and not such a partial and fragmentary account that what is withheld makes that

which is said absolutely false. A half truth may be in fact false because of what it leaves unsaid and although what a man

actually says may be true in every detail, he is guilty of misrepresentation unless he tells the whole truth.”

19. It is irrelevant that the representation was made innocently as is clear from the decision of the Supreme Court in Gahan v. Boland,

[1984] IESC 6 (Supreme Court, 20th January 1984). While it was accepted in that case that the representation was made innocently,

the Supreme Court noted that the evidence had also established that this representation was false; that it was a material one “with

the intention of inducing the plaintiff to act on it” and that it was “one of the factors that induced the plaintiff to enter into the

written contract on the following Monday to purchase the property.” It follows from this judgment that the fact that a

misrepresentation was made innocently is not a bar to relief by way of rescission.

20. The defendants in GAHAN had also argued that the purchaser should have pursued his enquiries regarding the proposed route of

the motorway “in quarters where he would have been reliably informed as to the true position”. But Henchy J. would not accept that

the doctrine of constructive knowledge could have any application in this situation:

“For that reason, it is submitted, he should be held disentitled, for the purposes of rescission, to rely on the

misrepresentation made and should be deemed to have constructive knowledge of the true position as to the route of the

motorway.

I was unable to accept this argument. I consider it to be well-settled law that the only knowledge that will debar a

purchaser from repudiating a contract he has been induced into by the vendor’s misrepresentation is actual and complete

knowledge of the true situation. It does not lie with a vendor, who has by his misrepresentation induced the purchaser to

enter into a contract to purchase, to have his misrepresentation excused or overlooked and to have the purchaser

deprived of a right to rescind because he did not ignore the misrepresentation and pursue matters further so as to

establish the truth of what was misrepresented. That would be unconscionable and unfair.”

21. The logic of the defence of actual and complete knowledge is that the person to whom the false representation is made cannot

complain if he knows the misrepresentation to be false and knows the true position: Strover v. Harrington [1988] Ch. 390, 407, per

Browne-Wilkinson V.C., Cheshire, Fifoot & Furmston’s “Law of Contract” (16th Ed. 2012) explains it well at p. 348:-

“Knowledge of the untruth of a representation is a complete bar to relief, since the plaintiff cannot assert that he has

been misled by the statement, even if the misstatement was made fraudulently. . . .

It must be carefully noticed, however, that relief will not be withheld on this ground except upon clear proof that the

plaintiff possessed actual and complete knowledge of the true facts – actual not constructive, complete not fragmentary.

The onus is on the defendant to prove that the plaintiff had unequivocal notice of the truth.”

22. Templeville and Mr. Smyth submit that it follows that the person who makes a misrepresentation must establish that the other

party had such “actual and complete knowledge of the true facts ” at the time he entered into the contract. This submission appears

correct. It is actual and complete knowledge of the true position and, hence, the falsity of the representation at the relevant time

which precludes the party to whom the misrepresentation was made from asserting that he was misled and induced thereby to enter

into the contract.

Conclusions

23. It is an inescapable conclusion of a consideration of the relevant portion of the trial judge’s judgment that he did not make

findings of fact as to whether Leopardstown in the presentation of the maps series 1000, 2000 and 5000 for use in the mediation

process and ultimately in the MSA did or did not make a representation of a fact which was untrue, was material and upon which it

intended Templeville and Mr. Smyth to rely.. Nor did he make a finding as to whether or not if such a false representation of fact was

made, it was intended to and did induce Templeville and Mr. Smyth to enter into the MSA.

24. I have noted that in the final sentence of paragraph 75 of his judgment, the trial judge stated that he could not accept that “any

misrepresentation of any kind was made by Leopardstown”. However, that appears to be in the nature of an overall conclusion on the

issue rather than a finding of fact in relation to a specific representation which was untrue. I have also noted his earlier consideration

and acceptance of the evidence of Ian Roberts who prepared the maps and the reasons he gave for not including the second

transverse ESB cable. The trial judge further determined that Ian Roberts did not act dishonestly or give untruthful evidence or that

there was any sharp practice by Leopardstown. In accordance with the foregoing principles, those findings were not sufficient. It is

irrelevant to the question as to whether or not there was a misrepresentation that a representation was made innocently.

25. The failure of the trial judge to consider and decide the relevant questions of fact in accordance with law in relation to whether or

not Leopardstown made a misrepresentation by production of the maps relied upon does not, of itself, require the appeal to be

allowed. It is necessary to consider, in accordance with the principles set out above, whether there are findings, supported by the

evidence, that Templeville and Mr. Smyth had actual and complete knowledge at the time of the MSA of the true situation in relation

to the underground ESB cables relevant to the tennis court site sufficient to uphold the defence of Leopardstown.

26. I accept the submission made on behalf of Templeville and Mr. Smyth that the relevant portion of the trial judge’s judgment does

not disclose that he ever asked himself the question as to whether or not Leopardstown had established that at the time of the

negotiations leading to the MSA and on entering into the MSA, Templeville and Mr. Smyth had “actual and complete knowledge of the

true situation” in relation to two ESB cables potentially affecting the tennis court site over which it was agreed Dome 3 might be built.

A consideration of this question was of course difficult in the absence of prior findings as to the allegedly untrue representation made,

its materiality and the fact that it induced the other party to enter into the agreement.

27. It must be recalled what is the nature of the alleged representation which it was contended by the appellants was untrue. It is a

combination of the positive representation made in the Arup maps series 1000 to 5000 showing the existence of one ESB underground

cable by a red broken line with an attached legend “ESB underground cable approximate position” and the failure to show on the maps

the second ESB underground cable approximately parallel to the one shown but in parts running inside the proposed tennis court site

to be covered by Dome 3. The contention of Templeville is that Leopardstown having chosen to show or represent one ESB

underground cable on the maps, but failing to show the second ESB cable has misrepresented the true position in relation to the two

ESB cables relevant to the tennis court site, the subject of the MSA.

28. For the reasons set out below I am not making any finding as to whether or not the production of the maps showing only one ESB

cable running outside the tennis court site did or did not constitute a representation of a material fact which was false. Similarly I am

not making any findings that it was intended that Templeville rely on same and was induced thereby to enter into the MSA. If

however such findings were made in favour of Templeville, it appears to follow that for Leopardstown to succeed on a defence that

Templeville and Mr. Smyth had actual and complete knowledge of the true situation in accordance with the principles set out above it

had to establish that Templeville or Mr. Smyth had actual and complete knowledge of the existence of two (and not only one)

underground ESB cables and knew that one of the underground cables was underneath or traversed in part the tennis court site. If

the misrepresentation contended for were to be made out, knowledge of only one ESB cable appears unlikely to constitute complete

knowledge in accordance with the authorities.

29. It was not in dispute on appeal that Templeville and Mr. Smyth did have actual knowledge in 2007 and 2008 (in the context of the

2007 planning application and the 2008 arbitration) of the existence of one ESB cable which traversed the tennis court site. The

finding of the trial judge that they had knowledge in 2007/2008 of one transverse ESB cable is supported by the evidence. However,

insofar as the trial judge appears to have concluded that they had knowledge even in 2007/2008 of two cables then, for the reasons

set out by Hogan J., I agree such finding is not supported by the evidence. Further, the evidence related to the knowledge in

2007/2008. Even at that point in time it does not appear to constitute complete knowledge of the true situation.

30. In accordance with the authorities the relevant question is whether Templeville and Mr. Smyth had actual and complete

knowledge of the true situation in 2011 at the time of entering into the MSA. Gahan makes clear constructive knowledge is not

sufficient it must be actual knowledge. The trial judge did not make findings supported by evidence from which such inferences could

be drawn. Part of the difficulty undoubtedly was the failure by the trial judge to identify what was (if he so thought) the

misrepresentation made and consequently what was the true situation of which Templeville and Mr. Smyth had to have actual and

complete knowledge.

31. I would also like to add that I have very carefully considered the submission of Leopardstown that having regard to the credibility

findings of the trial judge in relation to Mr. Smyth that the appeal should be dismissed. There was inter alia, ample evidence to

support the conclusion of the trial judge to reject the evidence of Mr. Smyth that he first discovered the existence or location of the

transverse cable on the 14th June, 2012. Further, the subsequent complaints and delay in alleging misrepresentation are not

consistent with the position of a person who was surprised to learn of the second cable and its position. Nevertheless it does not

appear permissible on the evidence to draw an inference from this behaviour in 2012/2013 that Leopardstown had established that Mr.

Smyth had actual and complete knowledge at the time of the completion of the MSA in October 2011. There is no obvious answer to

the question (not considered by the trial judge) as to why Mr. Smyth, if he had actual and complete knowledge of two ESB cables in

October 2011, one in a position, it is agreed, prevents (at least without a move at significant cost) the erection of Dome 3 (which

was sought as important and conceded in negotiations), would have entered into the MSA. The onus on this issue of actual and

complete knowledge is on Leopardstown and it does not appear that it can be considered as discharged by such credibility findings of

the trial judge.

32. It follows in my judgment that the appeal against the dismissal by the trial judge of the counterclaim on grounds of

misrepresentation must be allowed.

33. The final question is what order this court should make as a consequence of the conclusions reached above. Leopardstown

submitted that this Court should find that there was no misrepresentation made in the sense that there was no representation of a

material fact which was untrue made by the production of the drawings. Alternatively it submitted that even if there was Templeville

was not induced by any representation in the maps to enter into the MSA.

34. Templeville and Mr. Smyth submit in the alternative that the court should make the findings to the opposite effect and allow the

counterclaim to rescind.

35. I am in agreement with Hogan J. that this Court regrettably, given the extent of prior litigation between the parties, should not

now determine whether or not Leopardstown was guilty of actionable misrepresentation by the maps. The parties have each made

substantial arguments for and against the relevant findings of fact which a court would have to make in accordance with the

principles set out above. They include findings of primary fact which should be made by a judge who has had the benefit of oral

testimony and is in a position to assess the credibility of witnesses.

36. Further there is the issue as to whether or not having regard to the facts subsequent to the MSA, Templeville should or should

not be entitled to rescind or whether it is entitled to damages. As I have indicated, there was ample evidence to support the

conclusion of the trial judge to reject the evidence of Mr. Smyth that he first discovered the existence or location of the transverse

cable on the 14th June, 2012. This and the subsequent behaviour whilst not capable of supporting the dismissal of the appeal may be

relevant to the remedy in the event Templeville were to succeed on its claim for misrepresentation on a retrial.

Relief

37. I would allow the appeal of Templeville and Mr. Smyth against so much of the judgment of the trial judge as dismissed the

counterclaim of the defendants to rescind the Mediated Settlement Agreement of the 26th October, 2011, upon grounds of alleged

misrepresentation in the map referred to as Drawing No. 5002 (and prior 1000 and 2000 versions) showing only one ESB cable and

failing to show a second cable which transverses part of a site proposed to be demised pursuant to the Agreement and the

alternative claim for damages.

38. I would remit to the High Court for retrial before a different judge the single issue on the counterclaim and the defence thereto in

relation to the above alleged misrepresentation by Leopardstown.