Top Court Rules in Favor of Villa in Lease Termination Case

On 18 April 2018, the Supreme Court of Maldives decided in favor of Villa Shipping and Trading Company Private Limited and several companies related to Villa, following a prolonged dispute originating in 2015 regarding the lease of tourism islands.

The High Court decisions appealed to the Supreme Court of Maldives by Villa Shipping and Trading Company Private Limited, Maanenfushi Private Limited, Gazeera Private Limited, Villa Hotels and Resorts Private Limited, and Villa Holidays Private Limited, were permitted to proceed as a joinder case owing to the similarity of the subject matter of the five cases.

Originally, the cases were filed with the Civil Court by the respective parties because the Ministry of Tourism terminated the amended and restated lease agreements signed between the state and the respective party, citing a violation of the settlement agreement mentioned in the recitals of the amended and restated agreements. However, the top court held in favor of the appellants, expounding that the termination of the amended and restated agreements was in violation of the terms stipulated in the agreements.

In the ratio decidendi, the courts discerned the purpose of recitals, and their place in the context of the contract as a legal instrument. The recitals, introductory in their nature, will not be relied upon unless and otherwise stipulated in the contract. With respect to this, the court also noted the importance of referring to the operative clauses of the contract in determining the obligations of parties to the contract. In tying this to the matter at hand, the court referred to a principle of contract law, “Pacta Sunt Servanda” and reiterated, as it has in the past, the crucial need for parties to the contract to obey the terms set out. The Court found that the amended and restated agreements contained clauses that clarified the basis, and procedure to invoke the right to terminate the contract.

However, the court, upon referring to the evidence and documents presented by the parties, found that the state violated the terms of respective amended and restated agreements when it invoked the right to terminate. As such, the Supreme Court set aside the decisions of the High Court of Maldives and upheld the decision made by the civil court in favor of the appellants.