Vol 11 (2014) - Issue 1

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Prime Sight Limited v Edgar Charles Lavarello (Official Trustee of Benjamin Marrache, a Bankrupt) [2013] UKPC 22

Summary
The notions that the law should enable someone to rely on an untruth as a defence, or that it should hold a person to an untruth, might appear counter-intuitive. However, in Prime Sight v Lavarello the Privy Council confirmed that (in the absence of fraud, mistake, misrepresentation or illegality) parties to an agreement in which it has been agreed to treat certain untrue facts as true will be held to that agreement.
It is not unusual for parties to a transaction to agree as between themselves that certain facts are true for the purposes of that particular transaction. Examples include agreement that a payment has been made by one party to another or that certain things have been done. Such an agreement will, the Privy Council confirmed, establish an estoppel. The estoppel will prevent the other party from relying on the actual rather than the deemed facts in an action brought on that agreement. The Privy Council’s decision should serve as a reminder to practitioners generally, and to officeholders in insolvency proceedings in particular, that such deeming provisions may well be upheld, preventing the assertion of claims which would otherwise be available on the basis of the facts.

Background
Benjamin Marrache was adjudicated bankrupt on 26 November 2010. He had been a partner in a law firm, Marrache & Co., which had collapsed earlier that year. Mr Marrache’s debts were estimated by his Official Trustee to amount to about GBP 40,000,000, including GBP 28,000,000 owed to former clients of the firm.
On 4 March 2011, the Official Trustee sought to recover GBP 499,950 which he said was owed to Mr Marrache by Prime Sight Limited under a deed of assignment between them dated 14 May 2007. The company had been formed some two weeks before the transaction with an issued share capital of 1,000 shares of GBP 1.00. The beneficial owner of 999 of the shares was Anjette Marrache, Mr Marrache’s wife. The remaining share was held in trust for Mr Marrache, who according to Mrs Marrache held it in trust for her.
The assignment related to an underlease of an apartment. The preamble to the deed of assignment recited that:
'The Assignor [Mr Marrache] has agreed to sell and the Assignee [the company] have [sic] agreed to purchase the Premises … for all the unexpired residue of the Term for the sum of £499,950 and on terms hereinafter appearing.'

Clause 1 of the underlease stated:
'In consideration of the sum of £499,950 now paid by the Assignee to the Assignor (receipt and payment of which the Assignor hearby acknowledges) the Assignor as beneficial owner hereby assigns under the Assignee all and singular the Premises … to hold the same unto the Assignee for the unexpired residue of the Term …'
It was common ground that no payment was in fact made by the company to Mr Marrache. The Official Trustee’s case was that the company therefore remained indebted to Mr Marrache for the agreed purchase price.
On 25 May 2011 the Official Trustee served a statutory demand for that debt. The company’s lawyers replied, denying liability on the basis that Mr Marrache was liable to it for an amount greatly in excess of the debt claimed. On 15 March 2012 the Official Trustee presented a winding-up petition. The company argued that it was not liable to Mr Marrache because he had agreed to waive his claim against it and because Mrs Marrache had an equitable interest in the property. The argument that the deed gave rise to an estoppel was not raised before the judge. She held that there was no substantial dispute as to the debt and ordered that the company be wound up.

Arguments
The company appealed to the Court of Appeal of Gibraltar and from there to the Privy Council. It relied on three grounds. First, that the Official Trustee was estopped by the terms of the deed of assignment from asserting that there was any debt owed by the company.