Misrepresentation as to the ownership status of immovable property, lawful rescission of an agreement, and the limits of the civil courts' jurisdiction vis-à-vis the Administrative Court in contracts with public law entities
F.E. First Electric Ltd v. Cyprus Ports Authority — Action No. 2432/2017, District Court of Nicosia (judgment dated 08/09/2023)
Our firm successfully represented the Plaintiff company.
Introduction
By its judgment dated 8.9.2023, the District Court of Nicosia (T. Paraskevaidou-Karakanna, P.D.J.) in Action No. 2432/2017, F.E. First Electric Ltd v. Cyprus Ports Authority, awarded the Plaintiff the sum of €1,081,155 plus statutory interest, recognising that the Plaintiff had lawfully rescinded a licence agreement for the use of land, which it had entered into in reliance on a false representation by the Ports Authority that the latter was the owner of the licensed area. The Authority's Counterclaim for user fees was dismissed.
The judgment is of particular interest for two main reasons: first, for its analysis of the distinction between acts of management (fiscus) and acts of authority (imperium) of a public law entity, a question decisive for the jurisdiction of the civil courts, and second, for its application of the principles of misrepresentation under section 18 of the Contract Law, Cap. 149, and of the right to rescind a voidable agreement.
The facts
On 20.4.2007, the Cyprus Ports Authority granted the Plaintiff (then under the name Vouros Power Industries Ltd) a licence to use a land area of 27,000 sq.m. at Vasilikos port, for the establishment of an electricity generation plant, for a term of eighteen years (1.5.2007 – 30.4.2025). The disputed area had been created by landfill into the sea and formed part of plots 492 and 321.
The Plaintiff, in pursuit of the development, secured in 2012 construction and operation licences for the power generation plant from the Cyprus Energy Regulatory Authority, paying the relevant fees, and duly and consistently paid the Authority the licence fees, amounting in total to €1,038,980.75.
In May 2016, an application for preliminary views was submitted to the Department of Town Planning and Housing under section 25(8) of the Town and Country Planning Law of 1972 (Law 90/1972), signed by the Ports Authority as owner of the property. The Department replied in the negative by letter dated 11.7.2016, on the ground that the disputed plot constituted state land registered in the name of the Republic of Cyprus and that the application ought to have been submitted by the registered owner. Indeed, a title deed in the name of the Ports Authority was issued for the first time only on 26.6.2017, more than ten years after the signing of the agreement.
The Plaintiff, by letter of its lawyers dated 6.7.2016, rescinded the agreement and demanded the return of the fees paid. The Authority rejected its positions, called upon and collected the bank guarantee of €99,215 and, on 31.1.2017, itself terminated the agreement.
The preliminary objections — Jurisdiction of the civil courts
The Ports Authority raised preliminary objections, arguing that the acts in dispute constituted executory administrative acts, the review of which falls within the exclusive jurisdiction of the Administrative Court under Article 146 of the Constitution.
The Court dismissed the objections. It observed at the outset that the subject matter of the action was not the termination of the agreement by the Authority, but the recognition of the lawfulness of the rescission of the agreement by the Plaintiff itself. Further, the fact that the Authority is a public law entity does not mean that all of its acts fall within the domain of public law. The activities of a public authority extend also to private law, where they constitute acts of management aimed at the protection of its fiscal interest (fiscus), as opposed to acts of authority (imperium).
The Court, guided by the case law, inter alia, Republic v. Toka (1995) 3 C.L.R. 218, Nautical Club of Paphos v. Cyprus Ports Authority (1992) 1B C.L.R. 882 and The Freeshops Ltd v. The Republic (1987) 3 C.L.R. 2081, recalled that the criterion for classification is the inherent nature and purpose of the act, in conjunction with the public interest, and that what is decisive is the substance and not the type or form of the act.
Applying the above, the Court found that the licence had been granted upon the Plaintiff's own proposal and following negotiations which demonstrated equality between the contracting parties; that the purpose of the development was an incidental rather than an essential element of the agreement; and that no positive evidence linked the plant to the Authority's statutory objects or to any public need. It was a financial transaction aimed at strengthening the Authority's funds, falling within the sphere of private law, with the District Court being the competent forum.
Misrepresentation and the implied term of ownership
On the merits, the Court held that it was an implied and material term of the agreement that the Authority was the registered owner of the licensed area, a term which the Authority's own witness admitted under cross-examination. However, at the time of signing of the agreement, the registered owner was the Republic of Cyprus and not the Authority, a fact which the latter concealed, while being aware that the ownership status of the Vasilikos landfills had been contested for a number of years. It is noted that the opinions of the Attorney General of 2009 and 2012 distinguished between landfills which "constitute the port itself", which passed to the Authority, and additional landfills, such as plot 492, which did not pass into its ownership.
The Court subsumed the facts under section 18 of the Contract Law, Cap. 149: there had been a positive assertion of an untrue fact, in a manner not warranted in the circumstances, and the Plaintiff's consent to the agreement was the result of that misrepresentation. The agreement was therefore rendered voidable at the election of the innocent party, which had the discretion to rescind it or to affirm it (Georgiou v. Alpha Concrete Ltd (2009) 1 C.L.R. 1040, Johnston v Agnew (1980) A.C. 367).
The materiality of the term was self-evident: since every application to the competent planning authorities had to be submitted by the registered owner, the Authority's lack of ownership rendered the establishment of the plant impossible.
The manner of exercising the right of rescission
Particularly instructive is the Court's analysis of the manner in which the right of rescission is exercised. The innocent party must communicate its decision to the party at fault, whether verbally, by conduct, or by the assertion of rights incompatible with the subsistence of the agreement, such as, characteristically, a demand for the return of sums paid (Clough v London and North Western Railway (1871) L.R. 7 Ex. 26, Car and Universal Finance Co Ltd v Caldwell (1965) 1 Q.B. 525, Re Eastgate (1905) 1 K.B. 465, as well as the treatise by Andrews, Clarke, Tettenborn & Virgo, Contractual Duties: Performance, Breach, Termination and Remedies).
The Plaintiff's letter dated 6.7.2016, by which it declared that performance of the agreement had become impossible and demanded the return of the fees and of the bank guarantee, was held to constitute a clear and lawful rescission. The fact that the same letter left open the possibility of a new arrangement, on condition that the Authority would furnish a title deed for the property, did not negate the rescission, it amounted, in the Court's view, to a proposal for what was in substance a new agreement.
The outcome
The Court held that the Plaintiff had lawfully rescinded the agreement and was entitled to be restored to the position in which it stood prior to its conclusion. It entered judgment in favour of the Plaintiff for the sum of €1,081,155, namely the licence fees paid (€1,038,980.75) and the costs of securing the licences from the Energy Regulatory Authority (€42,175.27), plus statutory interest from the filing of the action. The Authority's Counterclaim for user fees of €142,242.69 was dismissed, since, the agreement having been lawfully rescinded, the Plaintiff was released from any further obligation to perform it. The costs of the action and of the Counterclaim were awarded in favour of the Plaintiff.
Significance of the judgment
The judgment confirms and systematises a number of important principles. First, that contracts of public law entities aimed at strengthening their funds constitute acts of management governed by private law, subject to the jurisdiction of the civil courts, irrespective of the public nature of the contracting body. Second, that a representation of ownership on the part of the grantor constitutes, as a rule, an implied and material term of an agreement for the licensed use of immovable property, and its untrue assertion amounts to a misrepresentation under section 18 of Cap. 149, rendering the agreement voidable. Third, that rescission is exercised by any clear manifestation of intention, including a demand for the return of sums paid, with the legal consequence of full restoration of the innocent party to its pre-contractual position and its release from all future contractual obligations.
The judgment constitutes a useful precedent for any business contracting with public bodies for the use or development of immovable property, and highlights the importance of verifying the ownership status of the property before entering into such agreements.
This article is for informational purposes only and does not constitute legal advice. For specialised guidance on similar matters, please contact our firm.