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Another ruling from Actie

High court judge Justice Agnes Actie – has had a busy schedule sitting on the bench

High court judge Justice Agnes Actie has delivered a ruling in a matter involving the Grenada Airports Authority (GAA) and one of its clients operating a coffee shop at the Maurice Bishop International Airport (MBIA).

Spice Isle Coffee approached the court to seek damages for misrepresentation and breach of warranty, as well as special damages for a refund of maintenance fee in the sum of $5,760.00 together with costs.

In papers filed, the claimant told the court that on 4th May 2016 it entered a memorandum of understanding with the defendant for the operation of a food and beverage concession, Spice Isle Coffee, located on the second floor of the Airport.

“The claimant argues that the defendant provided no air conditioning unit in its rental space but has been billing the claimant for the monthly sum totalling $5,760.00 and continuing. The claimant seeks a reimbursement,” said the documents filed in court.

As a public service, THE NEW TODAY reproduces in full the Justice Actie ruling on the matter:-

JUDGMENT
[1] ACTIE, J.: The claimant claims damages for misrepresentation and breach of warranty, special damages for a refund of maintenance fee in the sum of $5,760.00 together with costs.

The claimant’s claim
[2] The claimant, trading as Spice Isle Coffee, operates a coffee shop at the Maurice Bishop International Airport. The claimant avers that on 4th May 2016 it entered a memorandum of understanding (1st MOU) with the defendant for the operation of a food and beverage concession, Spice Isle Coffee, located on the second floor of the Airport.

[3] The claimant contends that it was induced into making the 1st MOU upon the defendant’s warranty and representation that food and beverages would only be sold on the second floor of the airport and that the main food and beverage vendor currently on the ground floor would be relocated to the second floor.

[4] The claimant avers that it prepared and presented its business plan to the defendant for approval with forecasted earnings entirely premised on representations that food and beverages would not be sold on the ground floor.

[5] The claimant states that on 2nd August 2017, the parties amended the 1st MOU and signed a 2nd MOU that lengthened the term of the proposed lease from 3 to 5 years and decreased the rental fee, since the rental unit procured was smaller than originally intended. By the terms of the MOUs, the parties were to enter into a formal lease agreement to govern their relationship.

[6] The claimant commenced operations on 23rd October 2017 before the lease was executed. The claimant states that it noticed that the gift and duty-free shops on the ground floor were selling food, namely snacks and beverages. It was also noticed that the defendant placed a cold drink vending machine on the ground floor resulting in a reduction of foot traffic to the second floor in breach of the warranty.

[7] The claimant states that the defendant in a meeting held on 12th March 2019 admitted to representing that no food and beverages would be sold on the ground floor. However, the defendant asserts that its definition of “food” and “beverages” differed from that of the claimant, in that it did not consider snacks and soft drinks to be food and beverages.

[8] The claimant states that by reason of the representation and/or breach of warranty, it suffered loss and damage as sales on the second floor were severely reduced due to the availability of food and beverages on the ground floor resulting in its projected income also being severely reduced.

[9 The claimant contends that it was agreed that the claimant would pay a monthly sum of $240.00 for air conditioning maintenance if a unit was provided by the defendant, however the defendant has not provided such service yet has billed the claimant said monthly sum from November 2016 to October 2019.

Defendant’s case
[10] The defendant contends that there was no inducement on its part and that all interactions between the parties were fairly negotiated.

[11] The defendant contends that Clause 10 of the 1st MOU identified the types of food the claimant wished to sell, and the 2nd MOU did not revise the items, however the claimant has proceeded to sell the other items without seeking the leave of the defendant.

[12] The defendant states that it removed the exclusivity on the sale of food and beverage with its long-standing tenant, Goddard’s Catering Grenada, and varied the contract with Goddard’s and other tenants to exclude snacks and soft beverages including drinks such as water. The defendant avers that snacks and soft beverages have always been sold by the tenants on the ground floor notwithstanding Goddard’s exclusivity arrangement relative to the sale of food and beverages.

[13] The defendant states that it never undertook to vary its tenancy agreements with the other tenants to prevent the sale of soft beverages and snacks, as such variation in order to facilitate the claimant would be too onerous, especially in light of this request never being specifically made and not forming part of the MOUs.

[14] The defendant states that it was only at the meeting held on the 12th March 2019, nearly three years after the 1st MOU was signed, that the claimant raised the issue of the interpretation of “food and beverage”. The defendant states that the claimant had a duty to clearly identify its requirements to the defendant.

[15] The defendant states that the claimant’s projections were made on the claimant’s erroneous interpretation. The defendant further avers that the claimant is not the only vendor of food and beverage on the second floor, and that none of the other tenants have raised an issue of the sale of snacks and soft beverages on the ground floor or on any floor affecting their bottom line.

[16] The defendant states that the vending machine complained was not placed in breached of warranty, but was placed in the interest of customer service on the ground floor as all food and beverage outlets closed by 9:00pm. There being times where the last scheduled airline departure is delayed creating a necessity for the availability of snacks and drinks as part of international airport standards. The defendant states that in any event, the vending machine was eventually moved to the second floor to placate the claimant and as a good will gesture.

[17] The defendant avers that clause 16 of the MOU requires the parties to enter into a lease agreement and to date the claimant has failed to respond to the fulsome comments on the lease agreement sent to the claimant’s attorney on 2nd April 2019.

[18] The defendant states that the claimant agreed to contribute towards the payment of air-conditioning in both MOUs and while there may not be an actual vent in the claimant’s unit, it benefits from centralised air conditioning.

The Evidence

Zofia Malisiewicsz
[19] Zofia Malisiewicsz, Director of the claimant’s company, in her witness statement states that she approached the representative of the defendant in 2014 to discuss her interest in opening a coffee shop to sell snacks, coffee and other beverages, however there were no units available for rent at the time. She states that the departure lounge was located solely on the ground floor with a few shops such as Goddard’s Catering Group, Snack Bar and other shops selling snacks, beverages and ice creams. She said that in 2016, she explicitly sought and was given the assurance that no food and beverages would be sold on the ground floor so as to drive passenger traffic to the second floor. Thereafter she formulated the coffee shop business plan that included the coffee shop’s forecasted earnings, which was a mandatory part of the approval based on the representation.

[20] She states that Goddard’s Catering “Snack Bar” was relocated to the second level and renamed Island Deli but the rest of the establishments selling food and beverages were left downstairs where they have the greatest possible exposure to passenger traffic. She states that access to the second floor was not exposed to passenger traffic and proved difficult as the escalator which was convenient for passengers carrying baggage was frequently out of service. She contends that the claimant’s coffee shop suffered loss and was unable to meet its forecasted earnings.

[21] On 26th March 2018, the claimant wrote to the defendant requesting an expansion of the product range offered by the coffee shop in effort to boost sales and meet the forecasted earnings. By letter dated 4th May 2018, the defendant approved her request for the sale of additional products save the request for the sale of alcohol. By email dated 7th June 2018, permission was given to sell bottled beers.

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[22] An email dated 14th October 2018 from the claimant to the defendant highlighted a myriad of issues and requested that the rent be adjusted to 6% of the claimant’s gross earnings and a credit be issued for the excess paid, together with suggested lease amendments. On 9th November 2018, she emailed the defendant notifying of the payment of the 6% of the claimant’s gross sales to which the defendant responded by email dated 12th November 2018 informing that no approval had been given for the reduced amount.

[23] By email dated 19th November 2018, the defendant informed that should the claimant continue the breach of the MOU by making the adjusted payments, a replacement tenant would be found for the coffee shop.

Mr. Lenworth Gordon
[24] Mr. Lenworth Gordon, Marketing and Property Manager of the defendant, in his witness statement said that he was told by the former general manager that a meeting was held on 7th October 2014 with Gearld Rothaus on behalf of the claimant, with a proposal to only sell coffee. The parties signed the 1st MOU with the agreed items listed at clause 10. The 2nd MOU did not revise any of the items that the claimant wished to sell, however, the claimant proceeded to sell other items. The terms of both MOU’s required the parties to enter into a formal lease agreement to govern their landlord/tenant relationship.

[25] Mr. Gordon said he was advised by the former general manager that the exclusivity was removed on the sale of food and beverage held by their long-standing client, Goddard’s catering. He states that snacks and soft beverages have always been sold by the tenants on the ground floor notwithstanding Goddard’s exclusivity arrangement relative to the sale of food and other beverages including alcoholic drinks.

[26] With respect to the vending machine, he states that the claimant complained, and the defendant responded that there was nothing wrong in the placement of the vending machine as all food and beverage outlets including the claimant’s coffee shop closed before or by 9.00 pm. The vending machine was in the interest of customer service in keeping with international standards as there are times that the last scheduled airline departure is delayed. Nonetheless, the vending machine was eventually removed to the second floor to placate the claimant as a good will gesture.

[27] Further, he states that a lease agreement was prepared and sent to the claimant and the claimant in email dated 14th October 2018, listed 21 amendments of the draft lease agreement including a reduced rental. Thereafter, the claimant unilaterally reduced the monthly agreed rental and instead of paying the fixed monthly sum of $3,500.00 which was the minimum guaranteed payment together with electricity and a monthly service charge, paid 6% of the gross sales together with water and electricity, but did pay the agreed monthly service charge. The claimant in response to queries stated that the payment was being made because it adhered to the requested corrections in the lease agreement.

[28] Mr. Gordon surmised that the claimant was never induced into signing any agreement and acted on its own free will. Further, the refusal to sign the lease agreement and the claimant still negotiating the terms signals that the parties are not ad idem on the terms of the said lease as to date. Furthermore, the claimant has failed to respond to the fulsome comments on the lease agreement made

Legal Analysis
Whether the defendant misrepresented to the claimant that food and beverage was only being sold on the second floorby the defendant.

[29] The claimant’s claim is predicated on the Memoranda of Understanding (hereafter referred to as “the MOUs”) signed by the parties and representations made prior to the signing of the MOUs. A Memorandum of Understanding (MOU) is an agreement between parties outlining the terms and understanding before entering into a formal document.

[30] In the case of Gearing Up Limited v Fdl Consult Inc Justice Cadie St. Rose-Albertini at paragraphs 53 and 54 said:

“53. A memorandum of understanding is a form of agreement which may or may not create binding contractual obligations between parties. It is typically referred to as a preliminary agreement, letters of intent; pre-contract protocol or term sheet. In that context it provides a broad outline of the mutually accepted expectations of the parties, based on mutual respect. It may also signal that the parties intend to enter into a binding contract, in relation to a particular transaction, at some future date.

  1. The case of Walford and others v Miles and another establishes that the law does not recognize a contract to enter into a contract, when there are fundamental terms yet to be agreed, for the simple reason that it is too uncertain to have any binding force. Thus, whenever fundamental terms are left undecided, and are to be the subject of subsequent negotiations, there is no binding contract.”

[31] The starting point is that a lease for a term of years must be either by deed or evidence in writing and must contain the material terms of the contract. Accordingly, the MOUs govern the terms of the arrangement between the parties , subject to the parties entering into a mutually acceptable lease agreement setting forth the terms and conditions contained in the MOUs.

[32] The claimant alleges that she was induced in signing the 1st MOU based on the defendant having warranted and represented that food and beverages would only be sold on the second floor and based its forecasted earnings on that premise.

[33] One of the main factors to be taken into consideration when deciding the enforceability of a MOU is the intention of the parties to be interpreted from the terms and the conduct of the parties post the execution of the MOU. The onus rests on the claimant to prove that it entered the MOUs as a result of the alleged representation.

[34] What constitutes an inducement was in issue in Esso Petroleum Co. Ltd v Mardon, where reference was made to Hedley Byrne & Co. Ltd v Heller & Partners Ltd in the following terms:

“It seems to me that Hedley Byrne & Co. Ltd. v Heller & Partners Ltd., properly understood, covers this particular proposition: if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another – be it advice, information or opinion – with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages.”

[35] The defendant denied the purported representations and contends that the claimant’s forecasted earnings were all made of its own freewill. The editors of Halsbury’s Laws of England define a misrepresentation as:

“a positive statement of fact or law, which is made or adopted by a party to a contract and is untrue. It may be made fraudulently, carelessly or innocently. Where one person (‘the representor’) makes a misrepresentation to another (‘the representee’) which has the object and result of inducing the representee to enter into a contract or other binding transaction with him, the representee may generally elect to regard the contract as rescinded.”

[36] In East Pine Management Ltd v Tawney Assets Ltd & Ors it was stated that:

“For a misrepresentation to vitiate a claimant’s consent to a transaction there must be a causal link between the representation and the representee’s conduct. The representee must enter into the transaction in reliance on the misrepresentation; conversely, the transaction must be induced by the misrepresentation.

Although a distinction is drawn between reliance and inducement, they are closely related concepts that are both concerned with causation. Reliance signifies the required causal link between the representee’s conduct and the representation, viewed from the representee’s perspective.

Inducement signifies that causal link, but from the representor’s point of view. It is not possible for there to be inducement without reliance. … What is relevant here is what the claimant would have done had no representation at all been made. In particular, if the making of the representation in fact influenced the claimant, it is not open to the defendant to argue that the latter might have acted in the same way had the representation been true.”

TO BE CONTINUED

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