Contracts: Importance of well written Contracts in BusinessA vaguely drafted contract led to cross-allegations of misrepresentation between two partners in a restaurant business.
Mehmut Agit Ceviz (“Ceviz”) sought to run a restaurant by leasing a shop in a mall (“Premises”) owned by Mr. Doung (“Doung”). Accordingly, THD (Doung’s company)rented a place toChai (Ceviz’s company) on a 15-year lease in 2017 (“2017 Lease”). Ceviz was required to register the 2017 Lease with the Land Registry, before he could sub-let the Premises to any third party. Despite repeated reminders, Ceviz failed to register it.
Around 2017, Ceviz met Mr. Frawley (“Frawley”) and Ms. Pope (“Pope”). In March 2018, they decided to run apizzeria together.To this end, Ceviz made abriefly-worded Agreement with Frawley and Pope in April 2018 (“Agreement”). The circumstances in which the Agreement was made ultimately led to the lawsuit.
As the 2017 Lease was never registered, Ceviz could not assign it to AL (Frawley’s and Pope’s company). Thus, in December, a new lease was made between THD and AL (“2018 Lease”) with Frawley and Pope as guarantors.Ceviz was not a party.
In 2019, Frawley accused Cevizof inducing him into making the Agreement by misrepresenting that he enjoyed a 13-year lease on the Premises and thus, sought to rescind it. Ceviz denied any misrepresentation and sued Frawley and Pope for wrongfully terminating the Agreementand claiming performance of its terms.
Ceviz admitted his fault in not getting the 2017 Lease registered but denied any connection of it with the 2018 Lease.He felt that he wassidelined by Doung and Frawley when the 2018 Lease was made. He denied ever having represented to Frawley that he enjoyed a 13-year lease on the Premises.Under the Agreement, Ceviz claimed that he was entitled to directorship and 50% shareholding in AL.
Frawley and Pope maintained that they were induced into making the Agreement based on Ceviz’smisrepresentation.They disputed Ceviz’s interpretation of the Agreement and instead, argued that only they held directorship and shareholding in AL.
The Court had to decide the correct interpretation of the Agreement, and based on that, if Frawley and Pope were entitled to terminate it.
The Court found that the Agreement was vaguely drafted and thus, it was necessary to apply legal principles for interpreting contracts.
It was found thatCeviz was entitled to be a director of AL. The Agreement granted Ceviz “an option to sell” the business and allowed Frawley and Pope to “resign as directors and give Ceviz full directorship”. These provisions implied that Ceviz was to be a director. As regards the shareholding, the net profits were agreed to be split in a specified formula between Ceviz, Frawley and Pope after paying ‘salaries of staff and directors’. This indicated that whatever was left was dividend payable to shareholders, which included Ceviz.
Frawley and Pope were in breach of the Agreement as they had failed to make weekly payments and transfer shareholding to Ceviz, as found above.
The Court also found that Ceviz never fraudulently represented that he enjoyed a 13-year lease; the only thing he said was that he was in the process of transferring the lease from Chai to another company, which was true.Moreover, Frawley never relied on Ceviz’srepresentations and he had the means of learning the truth from Doung, with whom he was quite close.
Based on the above, the Court allowed Ceviz’s claim.
A party that claims to be misled by the other must prove that he has been misled with objective facts.
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