Disclosure Duties
Cases
With v O’Flanagan
[1936] Ch 575
Romer LJ
“I agree. The only principle invoked by the appellants in this case is as follows. If A with a view to inducing B to enter into a contract makes a representation as to a material fact, then if at a later date and before the contract is actually entered into, owing to a change of circumstances, the representation then made would to the knowledge of A be untrue, and B subsequently enters into the contract in ignorance of that change of circumstances and relying upon that representation, A cannot hold B to the bargain. There is ample authority for that statement and, indeed, I doubt myself whether any authority is necessary, it being, it seems to me, so obviously consistent with the plainest principles of equity.”
William Sindall Plc v Cambridgeshire County Council
[1993] EWCA Civ 14 [1994] 3 All ER 932, [1994] 1 WLR 1016, Hoffmann LJ
3. Contract and Transfer.
(a) General Principles
Undisclosed defects in title such as easements are a common hazard in conveyancing and the transaction traditionally provides in some detail for what is to happen if they appear. In the absence of contrary provision, the obligation of a vendor under a contract for the sale of land is to deduce a good title. Until this has been done, the purchaser cannot be required to take a conveyance and pay the price. It is customary, however, for a vendor, by means of standard and special conditions, to restrict his obligation to having to show only such title as he is confident he will be able to deduce. Such conditions require the purchaser to accept the risk that the title for which he has contracted will turn out to be in some other respect defective. This risk is mitigated by law and custom in various ways. One is that the vendor is under a duty to disclose any defects of title of which he knows or has the means of knowledge. Another is that a purchaser can search in the Land Registry and Register of Local Land Charges for registrable encumbrances and make enquiries of the local authority about others of a public nature. He will commonly also submit Enquires before Contract to the vendor, asking specific questions about possible encumbrances. The vendor’s answers will constitute representations on which the purchaser will ordinarily rely when entering into the contract. If they turn out to be wrong he will have the normal remedies for misrepresentation.
At completion the purchaser accepts the title offered by the vendor and the latter’s contractual obligations to deduce title are discharged. They are replaced by qualified covenants for title expressed or implied in the conveyance or transfer. Until the Misrepresentation Act 1967 the purchaser’s remedy for misrepresentation was (in the absence of fraud) also extinguished by completion, and he was left with no remedy except the covenants for title. But Section 1 of the Act provides that completion shall not be a bar to rescission for innocent misrepresentation.
(b) Terms of the contract and Transfer
In this case the contract incorporated the National Conditions of Sale (20th edition) including Condition 14:
“Without prejudice to the duty of the vendor to disclose all latent easements and latent liabilities known to the vendor to affect the property, the property is sold subject to any rights of way and water, rights of common and other rights, easements, quasi easements, liabilities and public rights affecting the same.”
For good measure, Special Condition 17 covered the same ground:
“The purchaser shall be deemed to purchase with full notice of and subject to: … (e) all easements quasi easements rights and privileges (whether of a public or private nature) now affecting the Property but without any obligation on the part of the Vendor to define the same.”
Prima facie, the sewer was an easement and therefore these conditions would have required Sindall to accept the title notwithstanding its existence. In any case, Sindall accepted the title at completion before it knew of the sewer. Cambridgeshire executed a transfer as a beneficial owner and thereby impliedly covenanted that the land was not subject to any encumbrances to which the transfer was not expressed to be subject: See Section 76 of the Law of Property Act 1925. But the transfer expressly provided that:
“The Property is sold subject to the following matters: …
(f) all rights of way water and other easements (if any) affecting the property.”
(c) Construction
Applying these clauses, the judge held that the presence of the sewer was not a breach of the vendor’s obligations under either contract or conveyance. Mr. Sher submits that as a matter of construction he was wrong. General words such as “all easements” in the contract and conveyance should be narrowly construed. They are not, he says, intended to apply to encumbrances which substantially affect the purchaser’s ability to use the land in the way contemplated by the contract.
It is, of course, a principle of construction that words capable of bearing a very wide meaning may have to be given a narrower construction to reconcile them with other parts of the document. This rule is particularly apposite if the effect of general words would otherwise be to nullify what the parties appear to have contemplated as an important element in the transaction. But I have no difficulty in reconciling Conditions 14 and 17 (e) with the essential obligations assumed by Cambridgeshire under the contract. It was selling the land with planning permission but, as in all sales of land, was not warranting that it was fit for any particular purpose. It was undertaking to disclose all easements and incumbrances of which it had knowledge or means of knowledge. Subject to that important exception, it required the purchaser to take the risk of incumbrances which might affect its ability to use the land. It is, in my view, impossible to construe the contract as also exposing Cambridgeshire to liability for certain incumbrances of which it had no knowledge or means of knowledge.
……
4. Misrepresentation
In the absence of a remedy in contract or covenant, one turns to the pre contractual representations made in the Replies to Enquiries before Contract. Cambridgeshire provided Sindall with answers to enquiries in the 1984 edition of the standard Oyez Conveyancing 29 (Long) form. Did any of these answers constitute an actionable misrepresentation?
(a) The Principal Representation
The enquiry most squarely directed at encumbrances such as the sewer was No 7, of which the relevant words read as follows:
“Is the Vendor aware of any rights… specifically affecting the property, other than any disclosed in the draft contract or immediately apparent on inspection, which are exercisable by virtue of an easement… or which are in the nature of public…rights?”
Sindall also relies upon the answers to certain other enquiries, but I shall defer consideration of these until I have dealt with this critical question. Cambridgeshire’s answer to Enquiry 7 was in the traditional form: “Not so far as the Vendor is aware.” Was this a correct answer?
It is well established that a statement that a vendor is not aware of a defect in title carries with it an implied representation that he has taken reasonable steps to ascertain whether any exists. (compare Brown v. Raphael [1958] Ch. 636). This may require him, in the first instance, to examine his title deeds and other records, inspect the property, and obtain legal advice. If there is anything to put him on inquiry as to the existence of a defect, he may have to pursue the matter further by questioning others, or examining their documents. Thus, in Heywood v. Mallallieu (1883) 25 Ch.D. 357, a house sold at auction by a mortgagee “subject to any easements” turned out to be subject to an easement in favour of a neighbour which entitled her to come and wash her clothes in the kitchen. The vendor’s solicitor had been told that the neighbour claimed such a right but made no inquiries because he “was not going to put other people on their guard about mere claims”. Vice Chancellor Bacon said that this was not good enough. The vendor was put on inquiry and had a duty to investigate the claim further. He dismissed the vendor’s action for specific performance. In my judgment, therefore, the answer “Not so far as the Vendor is aware” represents not merely that the vendor and his solicitor had no actual knowledge of a defect, but also that they have made such investigations as could reasonably be expected to be made by or under the guidance of a prudent conveyancer.
……
Misrepresentation
I entirely agree with the judgment of Lord Justice Hoffmann, and it is unnecessary for me to repeat any of its contents here. I add only one footnote with regard to the definition of the County Council’s knowledge for the purposes of its answer to Enquiry No. 7. It was not suggested that the responsible officers had any personal knowledge of the existence of the sewer and of the City’s easement in 1988/89 when the representation was made and the land was conveyed, nor of the exchanges which took place between the City and the old County Council, Cambridge and Ely, between 1970 and 1974. The question is not, however, whether these individuals knew but whether “the Vendor”, meaning the Council, did. If, contrary to our view, Cambridge and Ely was not the predecessor in title of the defendants, and “the Vendor” therefore includes the old Council, then the answer to Enquiry No. 7 was tantamount to saying that the County Council was not aware in 1989 of facts which certainly were known to it in 1974. I should not like our decision in this case to be taken as approving either corporate forgetfulness or collective amnesia of this sort. Applied in the case of a commercial organisation, and with regard to corporate knowledge, questions as to the adequacy of records etc. might well arise. But these questions do not arise here, because Mr. Sher for the respondents accepts that the judge stated the correct test in law for the purposes of the present case: (Judgment, page 66):
“In approaching the present case what I get from the authorities is this, that knowledge may go beyond what is in somebody’s head, that it requires a solicitor to read his file and to read it properly and to make (because his side has the advantage in terms of knowledge) reasonable and prudent investigation of the grounds upon which any belief is stated. This is, of course, of the greatest importance where the vendor is, as here, a corporate body with changing staff. Very little is likely to be in anybody’s head at the critical time. Perhaps one could say that in these sort of circumstances there are three possible types of information: (a) information in somebody’s personal memory, (b) information which is in the files, and which the reasonable and proper investigations of a conveyancing solicitor when preparing his title for sale will reveal, and (c) other information which was either in an individual’s memory and has been forgotten, or is in a file which the ordinary and prudent conveyancer’s inquiries will not reveal. Of these I consider that (a) and (b) will amount to knowledge for the purpose of the answer under consideration and (c) does not.”
This sets the stage for the further analysis in Hoffmann LJ’s judgment, and as stated above I respectfully agree with his reasoning and conclusions in the circumstances of this case.
Equitable mistake
Logically, there remains the question whether the contract, notwithstanding that on its true construction it covers the situation which has arisen, and that it cannot be set aside for misrepresentation, nevertheless may be rescinded on the ground of equitable mistake, as defined by Denning LJ in Solle v. Butcher [1950] 1 KB 671, 692. It must be assumed, I think, that there is a category of mistake which is “fundamental” so as to permit the equitable remedy of rescission, which is wider than the kind of “serious and radical” mistake which means that the agreement is void and of no effect in law: see Chitty on Contracts (26th edition) Volume 1, paragraph 401; Treitel, The Law of Contract (8th edition) page 276; and Cheshire Fifoot and Furmston’s Law of Contract (11th edition) page 245). The difference may be that the common law rule is limited to mistakes with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of “fundamental” mistake. However that may be, I am satisfied that the learned Judge’s finding in the present case was vitiated by his assumption that the presence of the sewer and of the City’s easement had serious consequences for the proposed development, even if the sewer was incorporated into the public sewer that was envisaged for the development itself (Option 2A). This would not involve the loss of seven houses and three flats, as the judge appears to have thought (Judgment, page 32), but, at most, of one three bedroomed house. The additional cost of the alterations to the sewer would not have exceeded about #20,000. Given the breadth of the contract terms, in particular Condition No. 14, which on its face was intended to cover precisely such a situation as this, and the relatively minor consequences of the discovery of the sewer, even if some period of delay as well as additional cost was involved, it is impossible to hold, in my judgment, that there is scope for rescission here.
Rescission or damages
Our finding that the builders are not, and were not, entitled to rescind the contract, as they purported to do, makes it unnecessary for us to decide the issue raised under section 2(2) of the Misrepresentation Act 1967, that is, whether in the present case it would be “equitable”, notwithstanding the actionable misrepresentation, “to declare the contract subsisting and award damages in lieu of rescission.” The issue, however, was argued before us (though Mr. Etherton QC was not called upon to reply) and like Hoffmann LJ I consider that if it had been necessary for us to review the learned Judge’s exercise of the discretion, then we would have been; indeed, bound, to do so.
Section 2(3) makes it clear that the statutory power to award damages under section 2(2) is distinct from the plaintiff’s right to recover damages under section 2(1). Quoting from section 2(2) itself, such damages are awarded “in lieu of rescission” and the court has to have regard to three factors in particular, namely, the nature of the misrepresentation, the loss that would be caused by it (sc the misrepresentation) if the contract were upheld, and the loss that rescission would cause to the other party (sc the non fraudulent author of the misrepresentation).
It has not been suggested that these three are the only factors which the court may take into account. The discretion is expressed in broad terms “If of opinion that it would be equitable to do so.” The three factors, however, in all but an exceptional case, are likely to be the ones to which most weight would be given, even if the sub section was silent in this respect.
No real difficulty arises in the present case as regards the nature of the misrepresentation, if any was made, nor as regards the loss which would be caused to the Council, if rescission was upheld. There was no blameworthiness, on the judge’s findings, so far as the Council’s officers in 1988/89 were concerned. The fault, if there was any, lay in their predecessors’ failure to note the title deeds in 1970. The consequences of the misrepresentation were not negligible, but they were small in relation to the purchase and the project as a whole. The loss caused to the Council by rescission would be very great. They would repay in excess of #5 million, together with interest, and would have restored to them land worth only a fraction of that amount. In other words, they would suffer the decline in market values which has occurred since 1988. And, even if the easement had been discovered immediately and the contract had been rescinded then, the Council would have suffered significant loss, simply by reason of the need to repeat the tendering process and find another buyer.
There is, however, much room for debate as to the “loss that would be caused if the contract were upheld.” The sub section assumes, as I read it, that this loss will be compensated by the damages awarded, if the contract is upheld. But if the measure is the same as those awarded in respect of a fraudulent misrepresentation (Doyle v. Olby Ltd [1969] 2 QB 158), or under section 2(1) (Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297), in cases where the contract continues in force, then two consequences seem to follow. First, damages under section 2(2) are co extensive with those under section 2(1), whereas section 2(3) suggests that they are, or may be, different. Secondly, an innocent and non negligent defendant will be liable under section 2(2) for damages which he is specifically excused under section 2(1). Furthermore, if the plaintiff recovers full compensation under section 2(2), if the contract is upheld, then he will not suffer any net loss, assuming that the damages are paid.
The cost of remedying the defect in the land was almost insignificant, and any delay and inconvenience suffered by the builders can be compensated by a relatively small additional sum. The real issue is whether account should be taken of the decline in market values which affects the builders if the contract stands, just as it would affect the Council if rescission was upheld.
Mr. Sher asserts that the builders would not have entered into this contract, nor would they have purchased any other developed land if the existence of the sewer had not been concealed from them. I will assume that this is correct and a fair reflection of the evidence, although I should also express my doubts. The builders went to great lengths to make the purchase. They commenced judicial review proceedings in order to assert their right to buy, and they knowingly paid a price equivalent to the highest which the tendering process had produced; substantially higher, in fact, than had emerged from the initial round. To say that they would have been deterred at that stage from surmounting the obstacle presented by the sewer seems to make a major assumption in their favour. Nevertheless, I will make it in order to consider the issue which Mr. Sher has addressed.
His argument is that the builders are entitled to recover the whole of the loss which they have suffered as a result of entering into the transaction, including the fall in market values from 1988 until at least the time of purported rescission in December 1990. The judgments in Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297
appear to be against this submission, even as regards a claim under section 2(1), because there the judge had found that the buyers, but for the misrepresentation, would not have purchased the property (page 199K), and the Court of Appeal, without altering that finding, held that the measure of damages was the difference between market values (per Bingham LJ at 201G), or the difference between the contract price and the actual market value (Per Sir Nicolas Browne Wilkinson V.C. at 200J), in both cases as the time when the contract was made.
If that applies in the present case, then the builders cannot include the subsequent decline in market values in their loss. But it may be said that the case should be distinguished from the present because no claim for rescission was involved. (See page 198B). I therefore proceed to consider as a matter of principle whether the builders are entitled to contend that the decline in market value forms part of their loss caused by the alleged misrepresentation for the purposes of section 2(2), upon the factual assumption that Mr. Sher has invited us to make.
In my judgment, it is not correct that the measure of damages under section 2(2) for the loss that would be caused by the misrepresentation if the contract were upheld is the same measure as under section 2(1). The latter is established by the common law, and it is the amount required to compensate the party to whom the misrepresentation was made for all the losses which he was sustained by reason of his acting upon it at the time when he did. But the damages contemplated by section 2(2) are damages in lieu of rescission. The starting point for the application of the subsection is the situation where a plaintiff has established a right to rescind the contract on grounds of innocent misrepresentation; its object is to ameliorate for the innocent misrepresentor the harsh consequences of rescission for a wholly innocent (meaning, non negligent as well as non fraudulent) misrepresentor, in a case where it is fairer to uphold the contract and award damages against him. Such an award of damages was not permitted in law or equity before 1967. The court, therefore, exercises a statutory jurisdiction, and it does so having regard to the circumstances at the date of the hearing, when otherwise rescission would be ordered. (The subsection envisages that the court’s order may restore a contract which has been lawfully rescinded by the innocent party at some earlier date (see The Lucy [1983 1 Lloyd’s LR 188, 202. per Mustill J.) When there has been a decline in market values since the date of the contract, then one party or the other will suffer that loss, depending on whether rescission is ordered or not. But that loss is not caused by the misrepresentation, except in the sense that the decline has occurred since the representation was made and it does not measure the loss caused by the misrepresentation either when the representation was acted upon, or when the court decides whether to order rescission or not. The “loss caused by it”, in my judgment, can be measured by the cost of remedying the defect, or alternatively by the reduced market value attributable to the defect, together with additional compensation, if appropriate, of the kind described in Cemp Properties (UK) Ltd v. Dentsply etc. [1991] 2 EGLR 196; cf. Royscot Trust Ltd v. Rogerson [1991] 2 QB 297.
When the court is required to form its own view of what is equitable between the parties at the date of the hearing, it is dangerous to lay down any hard and fast rule to the effect that no account can be taken of changed market values. Apart from the capital value of the subject matter of the contract, as here, which might rise or fall due in the intervening period, there might be relevant market trading conditions which the court could properly take into account: cf. The Lucy [1983] 1 Lloyd’s LR 188, 202. Moreover, if it is right to take account of the current market value in assessing the loss which would be sustained by the Council, if rescission was ordered, then it would be “inequitable” not to have regard to this factor in the case of the builders also. But the effect of doing so is merely to re state the issue which the court has to decide: in the circumstances of the case, should the loss of market remain where it presently lies?
Viewed this way, it would be substantially unjust, in my judgment, to deprive the County Council of the bargain which it made in 1988, albeit that the bargain was induced by a misrepresentation innocently made, but which was of little importance in relation to the contract as a whole. That misrepresentation apart, the builders made what has proved to be so so far an unfortunate bargain for them (although they remain owners of an important potential development site in what is a notoriously cyclical market). To permit them to transfer the financial consequences to the Council, in the circumstances of this case, could properly be described as a windfall for them.
For the above reasons, and taking into account the nature of the alleged representation and the history of the matter generally, including the builders’ deliberate failure to make any serious attempt to find a solution to the difficulty which arose when the sewer was discovered, the equitable balance, in my judgment, lies in favour of upholding the contract and awarding damages in lieu of rescission in this case. If there was a live issue under section 2(2) I would award damages in lieu of rescission and order the amount of such damages to be assessed.
There remains the question of whether these damages should include the decline in the market value of the land since the contract was made. As indicated above, in my judgment they should not. This conclusion may be inconsistent with the view expressed in McGregor on Damages (11th edition) paragraph 1752, and in defence to the distinguished author I should explain my reasons briefly. He suggests that the measure to be adopted is:
“the same as the normal measure of damages in tort where the plaintiff has been induced to contract by fraudulent or negligent misrepresentation…the overall result, therefore, is that the damages will be held to be the difference between the value transferred and the value received…no recovery being possible for consequential losses.”
If the “value transferred” (meaning the price paid by the plaintiff, to whom the representation was made) was the market value of the property, then there is no difference between this formula and what McGregor calls the contract measure, that is to say, the difference between the actual value received and the value which the property would have had, if the representation was true (see paragraph 1718). By adopting the tort measure, therefore, as he does in paragraph 1752 in the paragraph already quoted, the learned author impliedly rejects the contract measure, whereas in my judgment that becomes the correct measure in circumstances where the plaintiff is entitled to an order for rescission, but rescission is refused under section 2(2) of the Act. This is because the difference in value between what the plaintiff was misled into believing that he was acquiring and the value of what he in fact received seems to me to be the measure of the loss caused to him by the misrepresentation in a case where he cannot rescind the contract and therefore retains the property which he received.
As McGregor points out, the tortious measure benefits a plaintiff who made a bad bargain, that is to say, who agreed to pay more than the market value of the property in the state in which he believed it to be, more so than the contract measure would do. Conversely, it disbenefits one who paid less than the market value, because it disentitles him from recovering the whole of the difference which the contract measure would otherwise produce. Likewise, the right to rescind benefits a plaintiff who has paid, or agreed to pay more than, with hindsight, he should have done. The period of hindsight may be short or long; where it is long, and the value has fallen in line with the market and therefore for reasons unconnected with the misrepresentation, there is no justification, in my view, for holding the author of the misrepresentation liable to compensate the plaintiff for that loss, in a case where rescission is refused.
It is unnecessary to explore the wider questions whether a tortious measure should ever include damages for a fall in market values, and whether this measure, as described by Lord Denning MR, in Doyle v. Olby (Ironmongers) Ltd, [1969] 2QB 158, 166, is necessarily exclusive of, or inconsistent with, the contractual measure to the extent which has been suggested. The recovery of such damages in the present case, even if the tortious measure under section 2(2) applies, appears to be barred by the following three obstacles:
(1) such damage was caused, not by the misrepresentation, but by the subsequent fall in market values, an extraneous cause;
(2) the authorities suggest that the plaintiff’s loss has to be assessed at the date when the property was transferred: McGregor, paragraph 1727, citing Waddell v. Blockley, [1879] 4 QBD 179, and
(3) if a subsequent rise, or fall, in market values is relevant at the date of trial, then a chance element enters into the calculation, whether the contract is rescinded or not.
I should add, however, that the reported authorities are sparse, as McGregor emphasises, and as I read them they do not purport to decide the question whether a decline in value until the time of discovery of the true facts is necessarily excluded.
It is sufficient for present purposes to say that an award of damages in lieu of rescission under section 2(2) should in my view be calculated as I have described above.
For these reasons, as well as those given by Hoffmann LJ, I would allow this appeal.
Stambovsky v. Ackley,
169 A.D.2d 254 (N.Y. App. Div. 1991)n
commonly known as the Ghostbusters ruling, is a case in the New York Supreme Court, Appellate Division, that held that a house, which the owner had previously advertised to the public as haunted by ghosts, legally was haunted for the purpose of an action for rescission brought by a subsequent purchaser of the house. Because of its unique holding, the case has been frequently printed in textbooks on contracts and property law and widely taught in U.S. law school classes, and is often cited by other courts.
Facts and prior history[edit]
During the course of her ownership of the property at issue, which was located in Nyack, New York, Helen Ackley and members of her family had reported the existence of numerous poltergeists in the house.[1] Ackley had reported the existence of ghosts in the house to both Reader’s Digest[2] and a local newspaper on three occasions between 1977 and 1989, when the house was included on a five-home walking tour of the city. She recounted to the press several instances in which the poltergeists interacted directly with members of her family. She claimed that grandchildren received “gifts” of baby rings, all of which suddenly disappeared later. She also claimed that one ghost would wake her daughter, Cynthia each morning by shaking her bed.[3] She claimed that when spring break arrived Cynthia proclaimed loudly that she did not have to wake up early and she would like to sleep in; her bed did not shake the next morning.
Neither Ackley nor her real estate broker, Ellis Realty, revealed the haunting to Jeffrey Stambovsky before he entered a contract to purchase the house in 1989 or 1990. Stambovsky made a $32,500 downpayment on the agreed price of $650,000 for the house.[4] Stambovsky was from New York City and was not aware of the folklore of Nyack, including the widely known haunting story.
When Stambovsky learned of the haunting story, he filed an action requesting rescission of the contract of sale and for damages for fraudulent misrepresentation by Ackley and Ellis Realty. Stambovsky did not attend the closing which caused him to forfeit the downpayment (although he was then not obligated to buy the house).[4] A New York Supreme Court (trial court) dismissed the action, and Stambovsky appealed.
The case
Majority opinion
Near the beginning of the majority opinion (three out of five justices) appears its most well-known conclusion: “having reported [the ghosts’] presence in both a national publication… and the local press… defendant is estopped to deny their existence and, as a matter of law, the house is haunted.” The court noted that regardless of whether the house was truly haunted or not, the fact that the house had been widely reported as being haunted greatly affected its value.
Notwithstanding these conclusions, the court affirmed the dismissal of the fraudulent misrepresentation action and stated that the realtor was under no duty to disclose the haunting to potential buyers. Thus, no damages were available to Stambovsky because New York, at the time, adhered to property law doctrine of caveat emptor.
The appellate court reversed the trial court’s decision regarding the rescission action, however, as it went on to note that “haunting” was not a condition that a buyer or potential buyer of real property can and should be able to ascertain upon reasonable inspection of the property. According to the court, though the doctrine of caveat emptor would normally operate to bar a rescission action, causing seller to have no duty to disclose information about the property to be sold (but also preventing the seller from affirmatively misrepresenting the condition of the property), the doctrine, in a merged law and equity system, can be modified to do justice to the parties. In this case, “the most meticulous inspection and the search would not reveal the presence of poltergeists at the premises or unearth the property’s ghoulish reputation in the community,” thus equity would allow Stambovsky the remedy of contract rescission against the seller, Ackley. The court held:
Where, as here, the seller not only takes unfair advantage of the buyer’s ignorance but has created and perpetuated a condition about which he is unlikely to even inquire, enforcement of the contract (in whole or in part) is offensive to the court’s sense of equity. Application of the remedy of rescission, within the bounds of the narrow exception to the doctrine of caveat emptor set forth herein, is entirely appropriate to relieve the unwitting purchaser from the consequences of a most unnatural bargain.
The opinion makes reference to a number of popular books and films featuring ghosts, including Shakespeare’s Hamlet and the 1984 movie Ghostbusters and uses supernatural idioms throughout (e.g., “plaintiff hasn’t a ghost of a chance”, “I am moved by the spirit of equity”, and “the notion […] is a hobgoblin which should be exorcised from the body of legal precedent”).
Dissenting opinion
The dissenting opinion argued that the doctrine of caveat emptor should be strictly applied and would affirm the trial court’s dismissal of all of the actions. Displeased by the majority’s basis for its holding, the dissent said, “Finally, if the doctrine of caveat emptor is to be discarded, it should be for a reason more substantive than a poltergeist. The existence of a poltergeist is no more binding upon the defendants than it is upon this court.”
Epilogue
The case generated considerable publicity and area real estate agents had between 25 and 50 potential buyers calling within a week of the court’s decision.[4] Among the prospective buyers to the house at 1 LaVeta Place on the Hudson River was Kreskin. Kreskin was a renowned mentalist interested in purchasing a haunted home in which to curate his collection of paranormal paraphernalia.[4] Ackley sold the house to another buyer and moved to Florida in 1991. Helen Ackley died in 2003 and her son-in-law “lays odds” that her spirit has taken up residence back at 1 Ackley Place.[3] There have not been public reports of hauntings in recent years.
Ghost Stories
The house had been vacant and was in disrepair when the Ackleys moved into the waterfront home in the 1960s.[5] Local children purportedly warned them that the house was haunted, though no prior paranormal incidents appear to have been published.[5] Helen Ackley claimed there were at least three ghosts in the residence. She described two as a married couple who lived in the 18th century, and the other as a Navy Lieutenant in the American Revolution.[4] In 1993 she was contacted by paranormal researcher Bill Merrill, and medium Glenn Johnson who claimed to have already made contact with two of the spirits at 1 LaVeta Place. The pair met with Helen and disclosed that the couple were likely the poltergeists of Sir George and Lady Margaret who lived in the region in the 18th century. In 1995 Merrill and Johnson published a book about their findings entitled Sir George, The Ghost of Nyack (Deer Publishing, Beaverton, Oregon) – still available on Amazon.[3][6]
Helen claimed to have seen Sir George:
“sitting in midair, watching me paint the ceiling in the living room, rocking back and forth… I was on an 8-foot stepladder. I asked if he approved of what we were doing to the house, if the colors were to his liking. He smiled and he nodded his head.”[4]
Helen’s daughter, Cynthia, when she was a child, reportedly would be woken most mornings by one of the spirits shaking her bed. When Cynthia was out of school for spring break she announced loudly before going to bed that she did not have school in the morning and would like to sleep in. The next morning she was not awoken by a shaking bed.[1]
Helen reported to neighbors that they heard phantom footsteps and slamming doors.[7]
Helen’s grandchildren allegedly received trinkets, such as rings, from the ghosts. These trinkets would later vanish.[1]
Helen’s daughter-in-law was gifted disappearing coins in the same manner, and Cynthia as an adult, claimed to receive silver sugar tongs.[1]
Helen claimed that her son came “eyeball-to-eyeball” with the figure of the Revolutionary Navy Lieutenant.[4]
Mark Kavanagh lived in the home briefly while engaged to Cynthia, he purported hearing converstation from a vacant room.[5]
Later Kavanagh recounted another experience:
“Cyn had already fallen asleep and I was drifting. Then I heard the bedroom door creak, and the floor boards squeak. My back was to the edge of the bed. Suddenly the edge of the bed by my mid-section depressed down, and I felt something lean against me. I went literally stone stiff! I was speechless and could hardly move. I was able to twist my neck around enough to see a womanly figure in a soft dress through the moonlight from the bay windows. I felt like she was looking straight at me. After about minute, the presence got up and walked back out of the room. I finally relaxed enough to shake my wife out of sound sleep acting like a toddler who just had a nightmare.”[5]
All but Kavanagh’s accounts were written by Helen and submitted to Reader’s Digest magazine and published in its May, 1977 issue.
Despite these somewhat unnerving tales, the Ackleys said they had a peaceful coexistence with the poltergeists, and the only account of any terrorizing events is Kavanagh’s tale reproduced above.[7] Kavanagh later reflected on the incidents that he experienced and came to the conlcusion that the ghosts were evaluating him to make sure he was a good suitor for Cynthia.[5]
Since the Ackleys moved from the home in the beginning of the 1990s there have not been any more accounts of paranormal activity reported by any of the subsequent owners of which there have been three.[7] However, Merrill and Johnson reported that Sir George and Lady Margaret expressed that the spirits were not as fond of the new owners and were thinking of moving on.[8] It is also reported that after the judgment against Helen in the lawsuit she claimed that she was moving and taking the ghosts with her.[7]
Lloyds TSB Bank Plc v Shorney & Anor
[2001] EWCA Civ 1161 [2002] Fam Law 18, [2002] 1 FLR 81, [2001] NPC 121, [2002] 1 FCR 673
Waller LJ
Authorities
The Bank is concerned that the judge has decided some key issue of principle so far as disclosure is concerned. In the way the judge expressed himself that may at first sight appear to be right in that he took the view first that even if clause 16 applied there was a distinction between notification and the obtaining of consent, and it was on that basis he would not have allowed reliance on clause 16 (p.16 E-F); he held that there would have been a duty of disclosure on the Bank if the further guarantees had been entered into before the mortgage was signed relying on Levett v Barclays Bank [1995] 1 WLR 1260 (17A-C); and he thus found there was a duty of disclosure during the currency of the mortgage relying on Phillips v Foxall [1872] LR 66. Phillips v Foxall was a case concerned with a fidelity guarantee where the circumstances are somewhat different to those existing in Bank guarantee cases and this difference has been recognised in a number of cases e.g. London General Omnibus Co Ltd v Holloway [1912] 2 KB 72. Mr Pymont for the Bank has thus expressed concern as to the duty of disclosure, which the judge held to exist.
In my view the conclusion reached by the judge was right and can be reached simply by the application of principles which have applied over the years. The basic principles, so far as sureties are concerned, were not in issue and are as follows:-
(1) “Equity intervenes to protect the guarantor. To protect the guarantor’s right to pay the guaranteed debt and after paying it to sue the principal debtor in the name of the creditor, a guarantor is discharged if the creditor without his consent, either releases the principal debtor or enters into a binding arrangement with him to give him time without reserving his rights against the guarantor.” (This must mean the rights “against” the guarantor. As the note indicates the principle had been “established for a long time” beginning with Rees v Berrington (1795) 2 Ves 540, an authority relied on by Mr Knox.) (See Halsbury’s Laws Volume 20 paragraph 304).
(2) “To protect the guarantor’s right on paying the guaranteed debt to have the benefit of all the securities which the creditor had, a guarantor is discharged if the creditor without the guarantor’s consent fails to make that security properly available to the guarantor.” (See Halsbury’s Laws Volume 20 the same paragraph)
(3) The creditor cannot increase the liability of the guarantor under the underlying transaction or vary the underlying contract in a way which prejudices the position of the guarantor without the consent of the guarantor. (See the same paragraph)
(4) The terms of the guarantee may contain provisions which allow the creditor to act in a way which would otherwise release the guarantor in equity and or which alter the position that the guarantor might otherwise have in equity. (See Halsbury’s Laws Volume 20 paragraph 306).
Clauses 16 and 21 are the provisions on which the Bank places reliance in relation to the principles set out in (4) above. But the clauses provide for different things. Clause 16 allows the Bank to vary the underlying transaction without consent in situations where the guarantor would otherwise have been released. Clause 21 limits the way in which the guarantor may exercise the remedies provided by equity, but clause 21 does not allow for any alteration of the underlying transaction which might otherwise affect the remedies available. Clause 16 simply does not cover what the Bank did in the instant case because the underlying transaction was a liability of Mr Shorney for the debts of the company. Clause 21 allowed the Bank to prevent Mrs Shorney exercising the rights that equity otherwise gave her, but, and this is the nub of the case, there is nothing in the clause which allows the Bank to put Mrs Shorney in a position which she would not reasonably have contemplated so far as her rights against Mr Shorney were concerned. What Mrs Shorney, on the particular facts of this case, reasonably contemplated was a liability of Mr Shorney under a guarantee itself limited to £150,000 of the debts and liabilities of the company and reliance by the Bank on clause 21 in that state of affairs.
If the Bank of course had obtained Mrs Shorney’s consent to the prejudice to her position caused by entering into further guarantees, then they would be able to enforce clause 21 against her; but if they did not then the protection she needs is that the Bank should be precluded from relying on clause 21. The cases demonstrate that the guarantor’s equitable remedy is not simply to be relieved altogether from the surety document, but will be tailored to fit the equity with which the court is concerned. (See e.g. Egbert v National Crown Bank [1918] AC 908 and Scales Trading Ltd v Far Eastern Shipping Company Public Ltd [2001] Lloyd’s Rep. (Bank) 29).
It seems to me that it is not permissible to look at the general wording of an “all monies charge” in order to suggest that Mrs Shorney should have contemplated further guarantees being entered into. The very fact that the wording of clause 16 does not cover what the Bank did here adds force to the argument that she should not have contemplated it.
In my view this case does not thus in reality raise new points relating to duty of disclosure or a continuing duty of disclosure, save in the sense that the Bank needed the consent of Mrs Shorney to increase the guarantees or needed a provision, such as clause 16, to cover what they were seeking to do without her consent. The disclosure case Levett v Barclays is however helpful since in dealing with what has to be disclosed pre guarantee it recognises what might otherwise relieve a surety from liability. The quotation relied on by the judge says this:-
“The creditor is under a duty to the surety to disclose to the surety contractual arrangements made between the principal debtor and the creditor which both, (a) make the terms of the principal contract something different from those which the surety might naturally expect and, (b) materially affect the degree of the surety’s responsibility.”
It seems to me the case recognises that without consent, including consent by virtue of the terms of the contract of guarantee itself, the Bank cannot act in a way that “materially affects” the surety’s position.
Mr Pymont had then the further arguments with which I should deal. He submitted that the Bank’s failure to notify Mrs Shorney of the increased guarantees was a non-disclosure at that time and that thus the mortgage was avoided at that time. From that point he extrapolates two further points; first he submitted that since Mrs Shorney did not rely on the non-disclosure when the Bankobtained an order for possession, Mrs Shorney is now precluded from taking the point by reference to the rule in Henderson vHenderson; second, he submitted that because the mortgage was void for non-disclosure, when she paid the £150,000 out of her own money she did so as a volunteer and thus was not subrogated to the Bank’s security in the house at all.
There are short answers to these points. First, this was not in reality a non-disclosure case. The Bank would have been entitled to increase the guarantees and not rely on clause 21. It was only when they relied on clause 21 that they were acting inequitably. It is for that reason also that this is an obvious case where if the point had been taken by Mrs Shorney when she found out about the increased guarantees, she would not have been entitled to succeed on an argument that she was released entirely from the mortgage; equity would simply have relieved her from the prejudice about which she had a justified complaint i.e. clause 21.
She was thus not bound to take any point during the possession proceedings since again she could not know whether the Bankwould in fact rely on clause 21 or not. Furthermore she was in no way a volunteer when she paid under threat of the mortgage being enforced.
I should add that in so far as Henderson v Henderson is concerned, there is in fact a dispute about whether Mrs Shorney knew at the time of the possession proceedings of the increase in the guarantees, but it is unnecessary to resolve that issue in the light of the views already expressed.
Conclusion
For reasons that differ slightly from those of the judge I would hold that the Bank are precluded from relying on clause 21 by their failure to obtain the consent of Mrs Shorney to the further guarantees. For those reasons I would dismiss the appeal.
LORD JUSTICE LATHAM: I agree.
MR JUSTICE ASTILL: I also agree.
Bank of Credit and Commerce International SA v. Munawar Ali, Sultana Runi Khan and Others
[2001] UKHL 8; [2001] 1 All ER 961; [2001] 2 WLR 735 [2002] 1 AC 251
Lord Nicholls
68. My Lords, I turn now to the question of whether BCCI is entitled to rely upon the terms of the release. Mr Jeans said that BCCI was under no obligation to disclose to Mr Naeem that it had been guilty of breaches of the implied term of trust and confidence in the contract of employment. The House of Lords decided in Bell v Lever Brothers Ltd [1932] AC 161 that the employment relationship was not a contract uberrimae fidei and that an employee negotiating the terms upon which his employment would be terminated had no obligation to disclose to the employer that he had been guilty of conduct which would have justified his summary dismissal. The same must be true of an employer.
69. My Lords, I think that this argument presses the principle in Bell v Lever Brothers Ltd too far. It was not a case which concerned a general release. A transaction in which one party agrees in general terms to release another from any claims upon him has special features. It is not difficult to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which he actually knows and which he also realises may not be known to the other party. There are different ways in which it can be put. One may say, for example, that inviting a person to enter into a release in general terms implies a representation that one is not aware of any specific claims which the other party may not know about. That would preserve the purity of the principle that there is no positive duty of disclosure. Or one could say, as the old Chancery judges did, that reliance upon such a release is against conscience when the beneficiary has been guilty of a suppressio veri or suggestio falsi. On a principle of law like this, I think it is legitimate to go back to authority, to Lord Keeper Henley in Salkeld v Vernon, 1 Eden 64, 69, where he said: “no rule is better established than that every deed obtained on suggestio falsi, or suppressio veri, is an imposition in a court of conscience”.
70. In principle, therefore, I agree with what I consider Sir Richard Scott V-C [2000] ICR 1410, 1421 to have meant in the passage in paragraph 30 of his judgment which I have quoted (ante, paragraph 11), and with Chadwick LJ, that a person cannot be allowed to rely upon a release in general terms if he knew that the other party had a claim and knew that the other party was not aware that he had a claim. I do not propose any wider principle: there is obviously room in the dealings of the market for legitimately taking advantage of the known ignorance of the other party. But, both on principle and authority, I think that a release of rights is a situation in which the court should not allow a party to do so. On the other hand, if the context shows that the parties intended a general release for good consideration of rights unknown to both of them, I can see nothing unfair in such a transaction.
71. It follows that in my opinion the principle that a party to a general release cannot take advantage of a suggestio falsi or suppressio veri, in other words, of what would ordinarily be regarded as sharp practice, is sufficient to deal with any unfairness which may be caused by such releases. There is no need to try to fill a gap by giving them an artificial construction.
72. I am therefore in complete agreement with Chadwick LJ on both the construction of the document and the principles which determine whether or not BCCI may rely upon it. Where I respectfully part company from him is on the application of the law to the facts. In my opinion, there are no grounds for holding that in July 1990 BCCI knew that Mr Naeem had or might have a claim for stigma against the bank of which he himself was unaware. The representative of the bank who negotiated the agreement was also unaware of the central fraud, but I shall for present purposes assume that the knowledge of the higher management should be attributed to BCCI. The bank would therefore have known that it had been continuously in breach of its implied obligation of trust and confidence. But that breach had not caused any damage to Mr Naeem in the past and there was nothing to suggest that, now that he was leaving the bank, it would give rise to a claim in the future. The bank was going to go on trading from Abu Dhabi and did not contemplate an imminent disclosure of the fraud which might affect Mr Naeem’s prospects of re-employment. And even if BCCI knew or ought to have known that such might be the case, any lawyer whom it consulted in 1990 would have advised that such consequences were too remote to form the subject matter of a claim. It was not until Bank of Credit and Commerce International SA Mahmud v BCCI [1998] 2 AC 20 that it would have occurred to anyone. So the concealment of the central fraud was extremely reprehensible conduct in relation to the depositors and the public at large, but there was no reason to think it in any way relevant to the bank’s dealings with Mr Naeem in 1990. Accordingly I do not think that a case of suppressio veri as been made out.
73. It follows that in my opinion the stigma claim falls within the description of claims which Mr Naeem agreed to release and there is no reason why BCCI should not rely upon the release. My Lords, I do not think that there is any injustice in this result. Of course I sympathise with Mr Naeem, who, after a long and unblemished career in banking in Pakistan and then, from 1974, in this country, found himself made redundant at the difficult age of 49. But this is regrettably a very common occurrence. The claim that his subsequent difficulties in finding another job are attributable to his having worked for BCCI is however extremely speculative. In Mahmud’s case, at p 53 Lord Steyn drew attention to the formidable practical obstacles to such a claim presented by the limiting principles of causation, remoteness and mitigation. So it has turned out. In 1999 Lightman J. tried five representative cases out of the 369 which had been commenced by former BCCI employees. None of them succeeded in proving that his unemployment was attributable to stigma. Four of the cases tried by Lightman J. appear to have concerned employees who were dismissed by the liquidators when the bank collapsed in 1991. By contrast, Mr Naeem and the others made redundant in 1990 face the additional hurdle of having to explain why their unemployment is attributable to stigma when they were unable to find jobs for a year before any stigma attached to them. The present position is that this vastly expensive litigation, which has been twice to the House of Lords and given rise to two lengthy trials before Lightman J, has produced benefits for no one except the lawyers involved and has been at the expense, not of the fraudulent villains but of the public and the unfortunate creditors of BCCI.
74. Mr Naeem says that despite all his difficulties, he should be entitled to have his day in court. He should not be struck out merely because he accepted £2,772 for a general release in 1990. In Mahmud’s case Lord Nicholls of Birkenhead said, at pp 41-42, that he was:
“conscious that the outcome of the present appeals may be seen by some as opening the door to speculative claims, to the detriment of admitted creditors. Claims of handicap in the labour market, and the other ingredients of the cause of action now under consideration, may give rise to lengthy and costly investigations and, ultimately, litigation. If the claims eventually fail, liquidators may well be unable to recover their costs from the former employees . . . I am aware of the dangers here, but it could not be right to allow ‘floodgates’ arguments of this nature to stand in the way of claims which, as a matter of ordinary legal principle, are well founded.”
75. In general, I would respectfully agree. Justice is a matter of individual right which cannot be subjected to an ordinary utilitarian calculation. But there are limits. There are some people who assume that life itself is literally priceless; that no expense for the purpose of saving a life can possibly be too much. But the fact is that resources even for these purposes are not unlimited. Choices have to be made: see the judgment of Sir Thomas Bingham MR in R v Cambridge Health Authority, Ex parte B [1995] 1 WLR 898. Similarly there comes a point at which the object of achieving perfect justice for everyone has to be tempered by some consideration of the resources required to investigate every possible claim. In the present case, this point does not arise. The House has decided that the stigma claims should go forward and so they must. But I see no reason in justice to add to the expense by giving the language of the release a strained construction which will require BCCI to answer claims from which it paid to be free.
76. I would allow the appeal and restore the judgment of Lightman J.
Carter v Boehm
(1766) 3 Burr 1905
Lord Mansfield
“ Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary. ”
…..
“ either party may be innocently silent, as to grounds open to both, to exercise their judgment upon…. An under-writer can not insist that the policy is void, because the insured did not tell him what he actually knew…. The insured need not mention what the under-writer ought to know; what he takes upon himself the knowledge of; or what he waives being informed of. The under-writer needs not be told what lessens the risque agreed and understood to be run by the express terms of the policy. He needs not to be told general topics of speculation. ”
….
“ There was not a word said to him, of the affairs of India, or the state of the war there, or the condition of Fort Marlborough. If he thought that omission an objection at the time, he ought not to have signed the policy with a secret reserve in his own mind to make it void. ”
Aro Road and Land Vehicles Ltd. v. I.C.I.
[1986] IR 403
Henchy J. S.C.
I accept without question that it is a general principle of the law of insurance that a person seeking insurance, whether acting personally or through a limited company, is bound to disclose every circumstance within his knowledge which would have influenced the judgment of a reasonable and prudent insurer in fixing the premium or in deciding whether to take on the risk. Carroll J., while personally of opinion that Mr. Mansfield’s non-disclosure of his convictions and imprisonment was not material, deferred to the expert opinion given in the High Court (which she accepted and considered to transcend her personal opinion) that a reasonable and prudent underwriter would regard that matter as material and would have regarded its non-disclosure as a good reason for refusing to underwrite the risk. Accordingly, she held that the insurers were entitled to avoid the policies in question and to repudiate liability. On the assumption that full disclosure of all known material facts was obligatory, I consider that the judge’s conclusion could not be interfered with by this Court: see Northern Bank Financev. Charlton [1979] I.R. 149.
It emerged, however, in the course of the hearing of this appeal, that a particular aspect of the case was not adverted to, either in the pleadings or in the argument in the High Court. This was whether the circumstances of the case showed it to be an exception to the usual requirement of full disclosure. Normally, a departure in an appeal from the case as pleaded, or as argued in the court of trial, or as circumscribed by the notice of appeal, is not countenanced. However, in view of the trial judge’s expression of her personal opinion as to the effect of the evidence, and having regard to the technical nature of the defence and the general importance of this point in the law of insurance, I consider that this point should be entertained.
Generally speaking, contracts of insurance are contracts uberrime fidei,which means that utmost good faith must be shown by the person seeking the insurance. Not alone must that person answer to the best of his knowledge any question put to him in a proposal form, but, even when there is no proposal form, he is bound to divulge all matters within his knowledge which a reasonable and prudent insurer would consider material in deciding whether to underwrite the risk or to underwrite it on special terms.
That is the general rule. Like most general legal rules, however, it is subject to exceptions. For instance, the contract itself may expressly or by necessary implication exclude the requirement of full disclosure. It is for the parties to make their own bargain subject to any relevant statutory requirements and if the insurer shows himself to be prepared to underwrite the risk without requiring full disclosure, he cannot later avoid the contract and repudiate liability on the ground of non-disclosure.
An example of a contract of insurance which excludes full disclosure is where the circumstances are such as to preclude the possibility of full disclosure; or where the requirement of full disclosure would be so difficult, or so impractical, or so unreasonable, that the insurer must be held by his conduct to have ruled it out as a requirement. This is exemplified by many forms of what I may call “over-the-counter insurance”. Because this case is concerned only with fire and theft cover, I am addressing myself only to property insurance. Many concerns, such as airlines, shipping companies and travel agents acting as agents for an insurance company and usually under the umbrella of a master policy are prepared to insure travellers or consignors of goods in respect of luggage or of goods consigned, in circumstances in which full disclosure is neither asked for nor could reasonably be given effect to. The time factor, if nothing else, would rule out the requirement of full disclosure in many instances: an air traveller who buys insurance of his luggage in an airport just before boarding an aeroplane could not be expected to have time to make disclosure of all material circumstances. Insurance sold in that way obviously implies a willingness on the part of the insurer to provide the cover asked for without requiring disclosure of all material circumstances. The question in this case is whether this insurance, which the judge has held was entered into by Mr. Mansfield’s company in good faith and without any intention to defraud, was attended by circumstances which show that the insurers are precluded from claiming that full disclosure was a prerequisite of a valid contract of insurance.
Consider the relevant circumstances. Mr. Mansfield, through his company, was sold this insurance. He did not look for it. It was suggested by C.I.E. He was reluctant to take it out; he considered it a waste of money. C.I.E. as agents for the insurers arranged the rates and filled in the relevant certificates of insurance. Once that was done, C.I.E. were ready to transport the goods. They sought no further information from Mr. Mansfield and apparently deemed none necessary. Before collecting and transporting the goods, they did not furnish the certificates of insurance to Mr. Mansfield or his company. They did not even inform Mr. Mansfield or his company of the identity of the insurers. It is conceded by counsel for the insurers that if Mr. Mansfield was to make full disclosure he would have to make such inquiries as would bring the identity of the insurers to his knowledge or alternatively to pass the relevant information to C.I.E. as their agents. C.I.E. as well as being the insurers’ agents, were to be the carriers of the goods insured. Everything points to the conclusion that when, as carriers of the goods, they got the information necessary for their purposes as carriers, and then arranged insurance of the goods during transit, the insurance was for all practical purposes concluded, so that no further information could have thereafter been asked for.
The circumstances of this case seem to me to show that C.I.E., acting as agents for the insurers, accepted this insurance without expecting or requiring disclosure of all relevant circumstances. The informal, almost perfunctory, way in which C.I.E. effected this insurance, their readiness to collect the premium and proceed to carry the goods to their destination as soon as they had ascertained the premium, showed a failure or unwillingness to give the insured company an opportunity to make full disclosure before the contract of insurance was concluded. The relevant circumstances indicate an indifference on the part of C.I.E. as agents for the insurers as to matters such as the personal circumstances of the managing director of the insured company.
It may well be the law that even in a case such as this certain types of information may not be knowingly withheld by the insured, but this case calls only for an answer to the question whether in the circumstances of the case an innocent non-disclosure of an incident in the past life of the managing director of the insured company entitled the insurers to avoid the policy. In my opinion it did not. Insurers who allow agents such as shippers, carriers, airlines, travel agents and the like to insure on their behalf goods being carried, and to sell that insurance to virtually all and sundry who ask for it, with minimal formality or inquiry, and with no indication that full disclosure is to be made of any matter which the insurers may ex post factodeem to be material, cannot be held to contract subject to a condition that the insured must furnish all material information.
I would allow the plaintiff’s appeal and remit the case to the High Court for the assessment of damages.
Griffin J.
I agree with the judgment of Henchy J.
Hederman J.
I agree with the judgment about to be delivered by McCarthy J.
McCarthy J.
In my view, if the judgment of an insurer is such as to require disclosure of what he thinks is relevant but which a reasonable insured, if he thought of it at all, would not think relevant, then, in the absence of a question directed towards the disclosure of such a fact, the insurer, albeit prudent, cannot properly be held to be acting reasonably. A contract of insurance is a contract of the utmost good faith on both sides; the insured is bound to disclose every matter which might reasonably be thought to be material to the risk against which he is seeking indemnity; that test of reasonableness is an objective one not to be determined by the opinion of underwriter, broker or insurance agent, but by, and only by, the tribunal determining the issue. Whilst accepted standards of conduct and practice are of significance in determining issues of alleged professional negligence, they are not to be elevated into being an absolute shield against allegations of malpractice – see O’Donovan v. Cork County Council [1967] I.R. 173 and Roche v.Peilow [1985] I.R. 232. In disputes concerning professional competence, a profession is not to be permitted to be the final arbiter of standards of competence. In the instant case, the insurance profession is not to be permitted to dictate a binding definition of what is reasonable. The learned trial judge depended part of her judgment upon the decision of this Court in Chariot Inns v. Assicurazioni Generali [1981] I.R. 199. In his judgment, with which Henchy and Griffin JJ. agreed, Kenny J. stated at p. 225:
“A contract of insurance requires the highest standard of accuracy, good faith, candour and disclosure by the insured when making a proposal for insurance to an insurance company. It has become usual for an insurance company to whom a proposal for insurance is made to ask the proposed insured to answer a number of questions. Any misstatement in the answers given, when they relate to a material matter affecting the insurance, entitles the insurance company to avoid the policy and to repudiate liability if the event insured against happens. But the correct answering of any questions asked is not the entire obligation of the person seeking insurance: he is bound, in addition, to disclose to the insurance company every matter which is material to the risk against which he is seeking indemnity.
What is to be regarded as material to the risk against which the insurance is sought? It is not what the person seeking insurance regards as material, nor is it what the insurance company regards as material. It is a matter or circumstance which would reasonably influence the judgment of a prudent insurer in deciding whether he would take the risk, and, if so, in determining the premium which he would demand. The standard by which materiality is to be determined is objective and not subjective. In the last resort the matter has to be determined by the court: the parties to the litigation may call experts in insurance matters as witnesses to give evidence of what they would have regarded as material, but the question of materiality is not to be determined by such witnesses.”
These observations were made in a case in which there was a proposal form, there were questions asked by the insurer and, as this Court held, there was a non-disclosure of a matter material to the risk. In the High Court (inChariot Inns) Keane J., at p. 209, said:
“The most widely accepted test of materiality in all forms of insurance on property and goods appears to be that set out in s. 18, sub-s. 2, of the Marine Insurance Act, 1906, which is in the following terms:
‘Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.’
That test has been frequently stated to be applicable to non-marine insurance as well: see Joel v. Law Union & Crown Insurance Co . and March Cabaret v. London Assurance . Another test has sometimes been proposed, i.e., the test of whether a reasonable man in the position of the assured and with knowledge of the facts in dispute ought to have realised that they were material to the risk. But this test has been confined normally in its application to cases of life see MacGillivray & Parkington on Insurance Law (6th ed. paras. 749, 750). It was not suggested by any of the parties as the appropriate test in the present case and, accordingly, I propose to apply the test set out in s. 18, sub-s. 2 of the Act of 1906.”
Kenny J. did not expressly advert to this proposition but it reflects the argument advanced by the plaintiff here touching on what the insured might consider relevant or material. Keane J., at p. 207, referred to the judgment of Fletcher Moulton L.J. in Joel v. Law Union & Crown Insurance Co. [1908] 2 K.B. 863 at p. 892. There it was said:
“Over and above the two documents signed by the applicant, and in my opinion unaffected by them, there remained the common law obligation of disclosure of all knowledge possessed by the applicant material to the risk about to be undertaken by the company, such materiality being a matter to be judged of by the jury and not by the Court.”
The same Lord Justice, at p. 885, had some critical comments to make on the practices on the part of insurance offices of requiring that the accuracy of the answers to the proposal form should be the basis of the contract. I point to this so as to emphasise that Joel v. Law Union & Crown Insurance Co. [1908] 2 K.B. 863 was a case concerned with a proposal form and insurance effected on foot of it as was Chariot Inns [1981] I.R. 199. This is not such a case, but the test remains one of the utmost good faith. Yet, how does one depart from such a standard if reasonably and genuinely one does not consider some fact material; how much the less does one depart from such a standard when the failure to disclose is entirely due to a failure of recollection? Where there is no spur to the memory, where there is no proposal form with its presumably relevant questions, how can a failure of recollection lessen the quality of good faith? Good faith is not raised in its standard by being described as the utmost good faith; good faith requires candour and disclosure, not, I think, accuracy in itself, but a genuine effort to achieve the same using all reasonably available sources, a factor well illustrated by Fletcher Moulton L.J. at p. 885 of Joel. If the duty is one that requires disclosure by the insured of all material facts which are known to him, then it may well require an impossible level of performance. Is it reasonable of an underwriter to say: “I expect disclosure of what I think is relevant or what I may think is relevant but which a reasonable proposer may not think of at all or, if he does, may not think is relevant?”. The classic authority is the judgment of Lord Mansfield in Carter v. Boehm (1766) 3 Burr. 1905 where, in terms free from exaggeration, he stated at p. 1911:
“The Reason of the Rule which obliges Parties to disclose, is to prevent Fraud and to encourage good Faith. It is adapted tosuch Facts as vary the Nature of the Contract; which One privately knows, and The other is ignorant of, and has no Reason to suspect.”
The Question therefore must always be “Whether there was, under all the Circumstances at the time the Policy was underwritten, a fair Representation; or a Concealment; fraudulent, if designed;Or, though not designed, varying materially the Object of the Policy, and changing the Risque understood to be run.”
If the determination of what is material were to lie with the insurer alone I do not know how the average citizen is to know what goes on in the insurer’s mind, unless the insurer asks him by way of the questions in a proposal form or otherwise. I do not accept that he must seek out the proposed insurer and question him as to his reasonableness, his prudence, and what he considers material. The proposal form will ordinarily contain a wide ranging series of questions followed by an omnibus question as to any other matters that are material. In the instant case, if Mr. Mansfield had ever had the opportunity of completing a proposal form, which, due to the convenient arrangement made between the insurers and C.I.E., he did not, there is no reason to think that he would have recounted petty convictions of about 20 years before the time. For the reasons I have sought to illustrate, in my view, the learned trial judge failed correctly to apply the very stringent test; in my judgment, the insurers failed to discharge the onus of proof that lay on them.
There is a second ground upon which, also, in my view the plaintiff is entitled to succeed. Without detracting from what I have said in respect of the general law of insurance, in my judgment, that law is materially affected by over-the-counter insurance such as found in cases of the present kind, in other forms of transit and in personal travel, including holiday insurance. If no questions are asked of the insured, then, in the absence of fraud, the insurer is not entitled to repudiate on grounds of non-disclosure. Fraud might arise in such an instance as where an intending traveller has been told of imminent risk of death and then takes out life insurance in a slot machine at an airport. Otherwise, the insured need but answer correctly the questions asked; these questions must be limited in kind and number; if the insurer were to have the opportunity of denying or loading the insurance one purpose of the transaction would be defeated. Expedition is the hallmark of this form of insurance. Mr. Whelehan suggested that the whole basis of insurance could be seriously damaged if there was any weakening in the rigidity and, I must add, the severity, of the principle he sought to support. The force of such an argument as a proposition of law is matched by the improbability of the event.
Mr. Gleeson sought leave of the Court to argue as an alternative proposition that Chariot Inns [1981] I.R. 199 was wrongly decided in being an elaboration in a particular direction; that the reasonably prudent test is inherently unreasonable, biased and productive of unfairness, producing unjust results and, consequently, is not part of the common law. The issue of arguing this point was postponed until the main grounds of the appeal were determined; having regard to the outcome of the appeal, it is not necessary to elaborate further on the matter.
Keating v. New Ireland Assurance Co. plc
[1990] 2 IR 383
Egan J.
The plaintiff is the widow of James Joseph Keating who died on the 14th December, 1985. Exactly six months prior to his death he and the plaintiff had entered into a life insurance policy with the defendant dated the 14th June, 1985, under the terms of which upon the death of the plaintiff or the said James Joseph Keating the survivor would be entitled to receive from the defendant the sum of £35,000 or the encashment value of the policy whichever would be the greater.
Following on the death of the said James Joseph Keating the plaintiff demanded payment of the said sum of £35,000 but the defendant has repudiated liability to pay the same.
The policy provided under the heading “Legal Basis” that “The Policy is conditional upon full and true disclosure having been made in the proposal and medical statement, if any, of all material facts of which the Company ought to have been informed for the purpose of the contract of assurance”.
It was also provided that “The Contract of Assurance expressed in this Policy is based on the proposal made in that regard to the above-named Company by the assured and on the medical statements, if any, made to the Company’s medical examiner in connection with the proposal”.
The proposal was signed by the parties on the 16th May, 1985, and the replies to questions on the form were written in by Mr. J. Smyth on foot of information given to him by the plaintiff and her deceased husband. In reply to “Names and addresses of doctors attended” the answer was “None”. I am not too clear as to what information was required in reply to this query as to “Names and addresses of doctors attended”. Does it mean “ever attended” or “recently attended”? It is not clear but it does not matter in this case as a medical examination of the parties was carried out on the 28th May, 1985, (a couple of weeks before the policy was executed) and in reply to the question “What is the name and address of your present attendant” James Keating replied “Dr. G. Kidney, Harbour Street, Tullamore”. At this examination he also disclosed a complaint of “Epigastric discomfort” and that he had spent two days in Baggot Street Hospital, Dublin, under the care of Dr. Gearty, a well known cardiologist and known to be such by Dr. Duffy who carried out the examination on behalf of the defendant. Dr. Duffy knew that tests had been done in Baggot Street from his discussion with James Keating and, having questioned James Keating, he wrote “Nil abnormal discovered”in relation to the stay in Baggot Street. Furthermore, in reply to a question as to whether he had “now or ever had any affection of the heart” James Keating replied in the negative.
These replies were not accurate and, if they were known to be so by James Keating they would quite clearly have constituted non-disclosure, even misrepresentation. The Baggot Street tests had, in fact, revealed a condition of angina and this on an objective test within the meaning of the judgment of the Supreme Court as delivered by Kenny J. in Chariot Inns Ltd. v. Assicurazioni Generali Spa [1981] I.R. 199 would have been a “material” matter entitling the company to repudiate. It would not have mattered, in my opinion, that the company could have ascertained the true position if they had sought information (with James
Keating’s consent) from either Dr. Kidney or Dr. Gearty as is often done in such cases.
Dr. Kidney had seen James Keating on the 23rd March, 1985, when he was complaining of pain in the upper part of the abdomen which was worse after meals or on exertion. He was concerned that the condition might be angina but he did not mention his suspicion to Mr. Keating but referred him to Dr. Taaffe who in turn referred him to Dr. Gearty. Dr. Gearty saw Mr. Keating on the 11th April, 1985, and arranged for him to come into Baggot Street for tests. He was admitted on the 25th April, 1985, and his consent was obtained to undergo an angiogram. This revealed considerable narrowing in some of the coronary arteries and the condition was moderately severe. Dr. Gearty stated that cardiac conferences in the hospital were common and that a patient should get the gist of his condition from one of the team before his discharge and be given suitable advice, e.g., reducing his work-load. Dr. Gearty stated that this would be the proper routine but that there could possibly be a weakness in the extent to which the routine might be adhered to. In actual fact the deceased’s discharge note (undated but written on the 26th or 27th April) contained under the heading “Diagnosis” the words following: “Initial report good. Full report to follow”. I am not prepared to hold, therefore, that the deceased knew at the time of his discharge from Baggot Street that he was suffering from angina.
I also hold as a matter of fact that he did not know of this condition at the time of the execution of the policy on the 14th June, 1985, even though a report dated 7th May, 1985, had been sent to Dr, Kidney by Dr. Gearty disclosing moderately severe angina. I make this finding in the light of the fact that Dr. Kidney did not see the deceased until the month of July i.e. after the policy had been executed. Dr. Kidney had assumed that Dr. Gearty would have told the deceased of his condition but this assumption as already stated was not, in my view, factual. Neither was it suggested during the course of the case that the plaintiff, who was the beneficiary under the policy, was informed at any time prior to the execution of the policy of her husband’s condition.
Non-disclosure can only be relevant to some fact of which the person has knowledge at the relevant time. It was also contended that, as a matter of contract, once the answers were actually untrue, the policy was void. I cannot accept this argument. The “legal basis” of the policy require disclosure of all material facts of which the company “ought to have been informed”. How can it be said that a person “ought” to disclose some fact which he does not know about? How could he do so?
There must accordingly be judgment for the plaintiff.
Keating v. New Ireland Assurance Co. plc
Finlay C.J.; Hamilton P.; Walsh J. Supreme Court
Finlay C.J.
I agree with the judgments about to be delivered by Walsh and McCarthy JJ.
Hamilton P.
I agree with the judgment about to be delivered by McCarthy J.
McCarthy J.
The insurer appeals against a judgment and order of the High Court (Egan J.) that the plaintiff do recover from the insurer the sum of £35,000.00 together with interest on foot of a claim made by the plaintiff pursuant to a policy of insurance dated the 14th June, 1985, on the life of her husband who died on the 14th December, 1985. The insurer repudiated the claim on two grounds:
(1) The non-disclosure by the insured, now deceased, of a material fact, to wit, that he was suffering from angina.
(2) That the policy being conditional upon full and true disclosure having been made in the proposal for insurance that, irrespective of non disclosure, the existence of the condition of angina at the time of the proposal and of the issue of the contract of insurance invalidated the policy.
…..
Non-disclosure of a material fact
The materiality of the condition of angina is not in doubt; the deceased died from the underlying condition. The insurer contends, however, that there is further evidence of such non-disclosure in that:
1. The deceased had been seen by Dr. Taaffe at Tullamore Hospital.
2. He had undergone certain tests the stress E.C.G. and the angiogram.
3. He had been prescribed medication.
4. He had been instructed to come back for a check-up in six months.
5. He had angina.
The deceased did tell Dr. Duffy of his visit to Baggot Street Hospital under the care of Dr. Gearty and Dr. Duffy concluded that there had been a clear cardiac assessment. There is no positive evidence that the deceased had been given any drugs consequent on Dr. Gearty’s direction much less that he, the deceased, knew the nature and/or purpose of such drugs. The answers recorded by Dr. Duffy must be read in the light of the insurer’s decision to have a medical examination which obviated the need to answer the questions I have quoted earlier in this judgment.
The insurer might well contend that the deceased ought to have known that there was some problem arising with his heart; the onus, however, of proving that he did know lies upon the insurer; it is not sufficient to prove that he ought to have known. The fact that the three doctors concerned did know does not impute knowledge to the deceased, to whom the medical examiner for the insurer (Dr. Duffy), was enjoined by the examination form to give no information as to the result of the examination.
The insurers were not informed of these material facts; was it a non-disclosure? One cannot disclose what one does not know, albeit that this puts a premium on ignorance. It may well be that wilful ignorance would raise significant other issues; such is not the case here. If the proposer for life insurance has answered all the questions asked to the best of his ability and truthfully, his next-of-kin are not to be damnified because of his ignorance or obtuseness which may be sometimes due to a mental block on matters affecting one’s health.
Support for this view is to be found in my judgment, with which Walsh and Hederman JJ. agreed, in Aro Road and Land Vehicles Ltd. v. Insurance Corporation of Ireland Ltd. [1986] I.R. 403. In that case, as in this, reliance was placed on the observations of Kenny J., in Chariot Inns Ltd. v. Assicurazioni Generali Spa [1981] I.R. 199. Chariot Inns was, like this, a proposal form case; the decision turned upon the determination of what is material; such is not the issue here. The Aro Road and Land Vehicles Ltd. case was decided upon a preliminary point as to materiality and, accordingly, the expressed challenge to the reasonably prudent test as outlined in Chariot Inns did not arise.
The legal basis
Section 2 of the policy reads:
“1. Legal Basis
(a) The Policy is conditional upon full and true disclosure having been made in the proposal and medical statement, if any, of all material facts of which the Company ought to have been informed for the purposes of the contract of assurance.
(b) The allocation of Units to the Policy shall not constitute the Company or any other person a trustee of such units on behalf of the owner of the Policy.”
Accepting, as he does for the purpose of this part of the argument, that neither the deceased nor the plaintiff were aware of the heart condition, counsel for the insurer contends that on the true construction of the policy, combined with the proposal form, there was an absolute warranty by the deceased as to the state of his health; that his health was not as warranted and, accordingly, the insurer was entitled to repudiate liability under the policy. In short, he says, the deceased warranted the answer to be correct it was not correct. It is argued that it is immaterial that the insured believed his health to be satisfactory save as to the stomach upset, if the fact was that he had a heart condition. He points to the declaration contained in the proposal form:
“We, the proposer/s and the life/lives proposed, have read the statements and answers written in this proposal and we declare that they are true and complete.
I/We, the proposer/s, agree that they, together with the written statements and answers, if any, made or to be made by the life/lives proposed to the Company’s medical examiner in connection with the proposal and together also with this declaration, shall form the basis of the proposed contract between me/us and the Company.
I/We, the proposer/s, hereby apply for a policy subject to such privileges, terms and conditions as are contained in the policy ordinarily used by the Company for a contract of the kind proposed.
I, the life proposed and I, the second life proposed, hereby respectively consent to the Company seeking information from any Doctor who at any time has attended me and from any insurance office to which at any time a proposal of insurance of any kind on my life has been made and I authorise the giving of such information.”
Such declarations and provisions are known as “basis of the contract” clauses. The contention is that their effect in law is that all answers in the proposal form are incorporated into the contract as warranties and that, if any one of them is inaccurate, the insurer may repudiate the contract for breach of warranty without regard to the materiality of the particular answer to the risk; Thomson v. Weems (1884) 9 App. Cas. 671 at page 689. The corollary is that the fact that the insured may have answered the questions in good faith and to the best of his knowledge and belief is irrelevant if the answers are in fact inaccurate. It is not difficult to think of instances where a serious symptomless condition exists affecting the life expectancy of a proposer for insurance and is unknown and unknowable; yet if he were to die and it be discovered that such condition had existed at the time of the creation of the contract of insurance, the contract, it is said, is vitiated. In support of this argument, counsel for the insurer relied upon a wealth of authority as cited in MacGillivray and Parkington on Insurance Law (8th Edition) at paragraphs 732 and 737 and cited some of the authority (namely, Duckett v. Williams (1834) 2 Cr. & M. 348; MacDonald v. Law Union Fire and Life Insurance Co. (1874) L.R. 9 Q.B. 238; Thomson v. Weems (1884) 9 App. Cas. 671 and Reid v. Employers’ Accident Assurance Co. [1898] S.C. 1031). In Duckett v. Williams an insurance company in proposing a re-insurance of its risk on a life policy stated in the proposal that it agreed that if any untrue answers were contained in the proposal or if the facts require to be set forth therein were not truly stated the insurance would become void. It was held that “untrue” did not mean untrue to the knowledge of the party but simply “inaccurate” without reference to his knowledge. But in Joel v. Law Union and Crown Insurance Co. [1908] 2 K.B. 863, Fletcher Moulton L.J. appeared to question this when he said:
“To make the accuracy of these answers a condition of the contract is a contractual act, and, if there is the slightest doubt that the insurers have failed to make clear to the man on whom they have exercised their right of requiring full information that he is consenting thus to contract, we ought to refuse to regard the correctness of the answers given as being a condition of the validity of the policy. In other words, the insurers must prove by clear and express language the animus contrahendi on the part of the applicant; it will not be inferred from the fact that questions were answered, and that the party interrogated declared that his answers were true.”
It was in the course of that judgment that Fletcher Moulton L.J., said:
“Unfortunately the desire to make themselves (insurance companies) doubly secure has made them depart widely from this position by requiring the assured to agree that the accuracy, as well as the bona fides, of his answers to various questions put to him by them or on their behalf shall be a condition of the validity of the policy . . . I wish I could adequately warn the public against such practices on the part of the insurance offices.” (885)
In Zurich General Insurance Company v. Morrison [1942] 2 K.B. 53 Lord Greene M.R. at p. 58 described such clauses as being traps for the insured. In Anderson v. Fitzgerald (1853) 4 H.L.C. 484 Lord St. Leonards (the dual Lord Chancellor) was of opinion that to give effect to such a clause would render the policy not worth the paper upon which it was written and liable to produce a result whereby:
“No prudent man (would) effect a policy of insurance with any company without having an attorney at his elbow to tell him what the true construction of the document is.
A policy ought to be so framed that he who runs can read. It ought to be framed with such deliberate care that no form of expression by which, on the one hand, the party assured can be cut, or by which, on the other, the company can be cheated shall be found upon the fact of it. Nothing ought to be wanting in it, the absence of which may lead to such results.”
Whilst acknowledging that parties are free, subject to legislative interference, to make such lawful contracts as they may wish, in my view there are certain clear principles that must be applied in construing a contract of insurance of the kind with which the court is presently concerned. Some of these may be stated as follows:
1. Parties of full age and competence are, subject to any statutory impediment, entitled to contract as they wish,
2. Whilst acknowledging the right of parties to express the pre-contract representations as being the basis of the contract, same must be read in the light of the actual terms of the contract subsequently executed. The contract, so to speak, takes over from the proposal.
3. If insurers desire to found the contract upon any particular warranty, it must be expressed in clear terms without any ambiguity.
4. If there is any ambiguity, it must be read against the persons who prepared it (see Anderson v. Fitzgerald (1853) 4 H.L.C. 484 at 503, 507, 514 and Thomson v. Weems (1884) 9 App. Cas. 671 at 682, 687.
5. Like any commercial contract, such a policy must be given a reasonable interpretation.
“The Policy is conditional upon full and true disclosure” means that it is a condition of the policy that there has been full and true disclosure. Disclosure can, plainly, be only of matters within the knowledge of the person making the disclosure. What are to be disclosed are “all material facts of which the company ought to have been informed for the purposes of the contract of assurance.” This must be construed as related to the questions asked in the proposal form and in the answers to the examining doctor. As the learned trial judge said in his observation of enviable brevity when dealing with this matter “How can it be said that a person ought to disclose some fact which he does not know about?” How is the proposer for life insurance to comply with the requirement of full and true disclosure in answer to questions in a proposal form and from the medical examiner of all material facts of which the company ought to have been informed, if he does not know of some fact of which the company might well say it ought to have been informed? To read s. 2 of the policy (The legal basis) as conveying a warranty that the proposer is accepting a contract on the basis that he has disclosed something of whose existence he was wholly ignorant is demonstrably an irrational interpretation. It is neither irrational nor inappropriate in seeking to find a reasonable interpretation of a commercial contract to pose the question as to how the casual onlooker or, indeed, the officious bystander, would react if told of the construction favoured by one party or another. I would think such an individual would react in more forceful terms than those used by Fletcher Moulton L.J., as I have quoted. An alternative test of reasonable interpretation may be to extend Lord St. Leonards’ observation thus. If the proposal form were to contain a statement by the proposer that the statements and answers written in the proposal together with the written statements and answers made to the company’s medical examiner shall form the basis of the proposed contract “even if they are untrue and incomplete for reasons of which I am wholly unaware”, would there be any takers for such a policy?
In my judgment, upon a reasonable interpretation of what is called the legal basis of the policy, the insurer has failed to establish either material non-disclosure or a breach of warranty as alleged. I would dismiss the appeal and affirm the order of the High Court.
Flynn & Anor -v- Breccia & Anor
Neutral Citation:
[2017] IECA 74
Finlay Geoghegan J
Implied Term of Good Faith and Fair Dealing
94. As already stated, the trial judge considered in some detail that he termed to be a ground breaking judgment of the English High Court in Yam Seng Pte. Ltd. v. International Trade Corporation Ltd.
95. In that judgment Leggatt J. stated (at para. 131):-
“I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.”
96. The trial judge gave much greater consideration to the judgment of Leggatt J.and the submissions made on behalf of the appellant to the effect that there is no general duty of good faith in Irish or English contract law. In particular, they relied upon the statement of the English Court of Appeal in Mid Essex Hospital v. Compass Group [2013] EWCA Civ. 200, where it stated:-
“In addressing this question, I start by reminding myself that there is no general doctrine of ‘good faith’ in English contract law, although a duty of good faith is implied by law as an incident of certain categories of contract . . . if the parties wish to impose such a duty they must do so expressly.”
97. The trial judge having considered in particular the nature and what he perceived as the “relational” nature of the Shareholders’ Agreement ultimately concluded “insofar as it is necessary to make such a finding it is my decision that it is implied in the Shareholders’ Agreement that Breccia and Benray owed each other mutual duties of good faith and fair dealing”.
98. By reason of the interpretation placed by the trial judge on clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement and his conclusion on the implied term already referred to, the general implied term of owing each other mutual duties of good faith and fair dealing does not appear from his judgment to impose additional specific restrictions or obligations on Breccia. Nevertheless, as appears from the declarations ultimately made in the order of the High Court, the implied term that Breccia and Benray as promoters and shareholders owed each mutual duties of good faith and fair dealing is referred to as an alternative basis for the declaration made at para. II of the order of the High Court set out at paragraph 28 above. As the trial judge only relied upon such implied term to support the specific implied terms already considered, I only propose addressing the submissions on his conclusion briefly.
99. I accept the submission that there is no general principle of good faith and fair dealing in Irish contract law. There are, of course, certain types of agreements and contracts to which a duty of good faith applies, such as in a partnership agreement or the principle of uberrima fides in insurance contracts.
100. The Shareholders’ Agreement is not, however, an agreement of a type to which any such general duty of good faith applies in accordance with authority. I have already set out the commercial nature of the agreement. Undoubtedly, certain of the parties were related to each other, some were medical colleagues and they all for the most part relied upon a single solicitor to draw up the Shareholders’ Agreement. Nevertheless it is a Shareholders’ Agreement which expressly includes a “no partnership” clause in clause 10.3. A partnership would, of course, bind the parties by obligations of good faith. The parties in clause 3.1 furthermore agree “to cooperate as provided in this agreement for the purpose of the operation and development of Blackrock Clinic . . .”[emphasis added]. The Agreement includes at Clause 10.5 an “entire agreement” clause. The parties also expressly at Clause 10.9.2 identified one matter which they would do “in good faith” namely in the event that any provision of the agreement was found to be void, invalid or unenforceable that they would forthwith “negotiate in good faith” in order to agree terms of a mutually satisfactory provision . . .”.
101. The submissions on appeal on behalf of Breccia point out that at the time of the Shareholders’ Agreement in 2006 there was no decision of an English or Irish court which implies a general obligation of good faith and fair dealing into a Shareholders Agreement.
102. It must be recalled that even if the judgment in Yam Seng were to be followed in this jurisdiction (and I am not deciding that it should be) in accordance with the judgment of Leggatt J. such a term is to be implied “following the established methodology of English law for the implication of terms”. Having regard to the matters set out in the preceding paragraphs, it appears to me that the conditions identified by Lord Simon in BP Refinery already referred to in this judgment could not be satisfied by an implied term of a general duty of good faith and fair dealing in the Shareholders’ Agreement. It is not a term which could be considered necessary to give business efficacy to the Shareholders’ Agreement; it cannot be considered so obvious that “it goes without saying” and it is not capable of clear expression in the sense that it lacks certainty. In any event, I do not consider that in accordance with the well established principles set out and considered above, any such general duty of good faith and fair dealing could in turn form a basis for the specific implied term included in the declaration at para. II of the order of the High Court.
Yam Seng PTE Ltd v International Trade Corporation Ltd
[2013] EWHC 111 [2013] 1 CLC 662, [2013] EWHC 111 (QB), [2013] 1 All ER (Comm) 1321, [2013] 1 Lloyd’s Rep 526, 146 Con LR 39, [2013] BLR 147
Leggatt J
An Implied Duty of Good Faith?
As pleaded in the Particulars of Claim, it is Yam Seng’s case that there was an implied term of the Agreement that the parties would deal with each other in good faith.
The subject of whether English law does or should recognise a general duty to perform contracts in good faith is one on which a large body of academic literature exists. However, I not am aware of any decision of an English court, and none was cited to me, in which the question has been considered in any depth.
The general view among commentators appears to be that in English contract law there is no legal principle of good faith of general application: see Chitty on Contract Law (31st Ed), Vol 1, para 1-039. In this regard the following observations of Bingham LJ (as he then was) in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433 at 439 are often quoted:
“In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face upwards on the table.’ It is in essence a principle of fair open dealing… English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.”
Another case sometimes cited for the proposition that English contract law does not recognise a duty of good faith is Walford v Miles [1992] 2 AC 128, where the House of Lords considered that a duty to negotiate in good faith is “inherently repugnant to the adversarial position of the parties when involved in negotiations” and “unworkable in practice” (per Lord Ackner at p.138). That case was concerned, however, with the position of negotiating parties and not with the duties of parties who have entered into a contract and thereby undertaken obligations to each other.
Three main reasons have been given for what Professor McKendrick has called the “traditional English hostility” towards a doctrine of good faith: see McKendrick, Contract Law (9th Ed) pp.221-2. The first is the one referred to by Bingham LJ in the passage quoted above: that the preferred method of English law is to proceed incrementally by fashioning particular solutions in response to particular problems rather than by enforcing broad overarching principles. A second reason is that English law is said to embody an ethos of individualism, whereby the parties are free to pursue their own self-interest not only in negotiating but also in performing contracts provided they do not act in breach of a term of the contract. The third main reason given is a fear that recognising a general requirement of good faith in the performance of contracts would create too much uncertainty. There is concern that the content of the obligation would be vague and subjective and that its adoption would undermine the goal of contractual certainty to which English law has always attached great weight.
In refusing, however, if indeed it does refuse, to recognise any such general obligation of good faith, this jurisdiction would appear to be swimming against the tide. As noted by Bingham LJ in the Interfoto case, a general principle of good faith (derived from Roman law) is recognised by most civil law systems – including those of Germany, France and Italy. From that source references to good faith have already entered into English law via EU legislation. For example, the Unfair Terms in Consumer Contracts Regulations 1999, which give effect to a European directive, contain a requirement of good faith. Several other examples of legislation implementing EU directives which use this concept are mentioned in Chitty on Contract Law (31st Ed), Vol 1 at para 1-043. Attempts to harmonise the contract law of EU member states, such as the Principles of European Contract Law proposed by the Lando Commission and the European Commission’s proposed Regulation for a Common European Sales Law on which consultation is currently taking place, also embody a general duty to act in accordance with good faith and fair dealing. There can be little doubt that the penetration of this principle into English law and the pressures towards a more unified European law of contract in which the principle plays a significant role will continue to increase.
It would be a mistake, moreover, to suppose that willingness to recognise a doctrine of good faith in the performance of contracts reflects a divide between civil law and common law systems or between continental paternalism and Anglo-Saxon individualism. Any such notion is gainsaid by that fact that such a doctrine has long been recognised in the United States. The New York Court of Appeals said in 1918: “Every contract implies good faith and fair dealing between the parties to it”: Wigand v Bachmann-Bechtel Brewing Co, 222 NY 272 at 277. The Uniform Commercial Code, first promulgated in 1951 and which has been adopted by many States, provides in section 1-203 that “every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.” Similarly, the Restatement (Second) of Contracts states in section 205 that “every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.”
In recent years the concept has been gaining ground in other common law jurisdictions. Canadian courts have proceeded cautiously in recognising duties of good faith in the performance of commercial contracts but have, at least in some situations, been willing to imply such duties with a view to securing the performance and enforcement of the contract or, as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into: see e.g. Transamerica Life Inc v ING Canada Inc (2003) 68 OR (3d) 457, 468.
In Australia the existence of a contractual duty of good faith is now well established, although the limits and precise juridical basis of the doctrine remain unsettled. The springboard for this development has been the decision of the New South Wales Court of Appeal in Renard Constructions (ME) Pty v Minister for Public Works (1992) 44 NSWLR 349, where Priestley JA said (at 95) that:
“… people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations.”
Although the High Court has not yet considered the question (and declined to do so in Royal Botanic Gardens and Domain Trust v Sydney City Council (2002) 186 ALR 289) there has been clear recognition of the duty of good faith in a substantial body of Australian case law, including further significant decisions of the New South Wales Court of Appeal in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, Burger King Corp v Hungry Jack’s Pty Ltd [2001] NWSCA 187 and Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15.
In New Zealand a doctrine of good faith is not yet established law but it has its advocates: see in particular the dissenting judgment of Thomas J in Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 at 517.
Closer to home, there is strong authority for the view that Scottish law recognises a broad principle of good faith and fair dealing: see the decision of the House of Lords in Smith v Bank of Scotland, 1997 SC (HL) 111 esp. at p.121 (per Lord Clyde).
Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.
Traditionally, the two principal criteria used to identify terms implied in fact are that the term is so obvious that it goes without saying and that the term is necessary to give business efficacy to the contract. More recently, in Attorney General for Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at 1993-5, the process of implication has been analysed as an exercise in the construction of the contract as a whole. In giving the judgment of the Privy Council in that case, Lord Hoffmann characterised the traditional criteria, not as a series of independent tests, but rather as different ways of approaching what is ultimately always a question of construction: what would the contract, read as a whole against the relevant background, reasonably be understood to mean?
The modern case law on the construction of contracts has emphasised that contracts, like all human communications, are made against a background of unstated shared understandings which inform their meaning. The breadth of the relevant background and the fact that it has no conceptual limits have also been stressed, particularly in the famous speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp.912-3, as further explained in BCCI v Ali [2002] 1 AC 251 at p.269.
Importantly for present purposes, the relevant background against which contracts are made includes not only matters of fact known to the parties but also shared values and norms of behaviour. Some of these are norms that command general social acceptance; others may be specific to a particular trade or commercial activity; others may be more specific still, arising from features of the particular contractual relationship. Many such norms are naturally taken for granted by the parties when making any contract without being spelt out in the document recording their agreement.
A paradigm example of a general norm which underlies almost all contractual relationships is an expectation of honesty. That expectation is essential to commerce, which depends critically on trust. Yet it is seldom, if ever, made the subject of an express contractual obligation. Indeed if a party in negotiating the terms of a contract were to seek to include a provision which expressly required the other party to act honestly, the very fact of doing so might well damage the parties’ relationship by the lack of trust which this would signify.
The fact that commerce takes place against a background expectation of honesty has been recognised by the House of Lords in HIH Casualty v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61. In that case a contract of insurance contained a clause which stated that the insured should have “no liability of any nature to the insurers for any information provided”. A question arose as to whether these words meant that the insured had no liability even for deceit where the insured’s agent had dishonestly provided information known to be false. The House of Lords affirmed the decision of the courts below that, even though the clause read literally would cover liability for deceit, it was not reasonably to be understood as having that meaning. As Lord Bingham put it at [15]:
“Parties entering into a commercial contract … will assume the honesty and good faith of the other; absent such an assumption they would not deal.”
To similar effect Lord Hoffmann observed at [68] that parties “contract with one another in the expectation of honest dealing”, and that:
“… in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will behave honestly.”
As a matter of construction, it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance. The same conclusion is reached if the traditional tests for the implication of a term are used. In particular the requirement that parties will behave honestly is so obvious that it goes without saying. Such a requirement is also necessary to give business efficacy to commercial transactions.
In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties would reasonably be understood to take them as read without explicitly stating them in their contractual document. A key aspect of good faith, as I see it, is the observance of such standards. Put the other way round, not all bad faith conduct would necessarily be described as dishonest. Other epithets which might be used to describe such conduct include “improper”, “commercially unacceptable” or “unconscionable”.
Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties’ bargain. The central idea here is that contracts can never be complete in the sense of expressly providing for every event that may happen. To apply a contract to circumstances not specifically provided for, the language must accordingly be given a reasonable construction which promotes the values and purposes expressed or implicit in the contract. That principle is well established in the modern English case law on the interpretation of contracts: see e.g. Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2013] UKSC 3 at [23], [45] and [54]. It also underlies and explains, for example, the body of cases in which terms requiring cooperation in the performance of the contract have been implied: see Mackay v Dick (1881) 6 App Cas 251, 263; and the cases referred to in Chitty on Contracts (31st Ed), Vol 1 at paras 13-012 – 13-014.
The two aspects of good faith which I have identified are consistent with the way in which express contractual duties of good faith have been interpreted in several recent cases: see Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch) at [95]-[97]; CPC Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch) at [246].
What good faith requires is sensitive to context. That includes the core value of honesty. In any situation it is dishonest to deceive another person by making a statement of fact intending that other person to rely on it while knowing the statement to be untrue. Frequently, however, the requirements of honesty go further. For example, if A gives information to B knowing that B is likely to rely on the information and A believes the information to be true at the time it is given but afterwards discovers that the information was, or has since become, false, it may be dishonest for A to keep silent and not to disclose the true position to B. Another example of conduct falling short of a lie which may, depending on the context, be dishonest is deliberately avoiding giving an answer, or giving an answer which is evasive, in response to a request for information.
In some contractual contexts the relevant background expectations may extend further to an expectation that the parties will share information relevant to the performance of the contract such that a deliberate omission to disclose such information may amount to bad faith. English law has traditionally drawn a sharp distinction between certain relationships – such as partnership, trusteeship and other fiduciary relationships – on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract involves a simple exchange, many contracts do not fit this model and involve a longer term relationship between the parties which they make a substantial commitment. Such “relational” contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties’ understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements.
The Agreement in this case was a distributorship agreement which required the parties to communicate effectively and cooperate with each other in its performance. In particular, ITC needed to plan production and take account of the expected future demand from Yam Seng for Manchester United products. For its part Yam Seng, which was incurring expense in marketing the products and was trying to obtain orders, was arguably entitled to expect that it would be kept informed of ITC’s best estimates of when products would be available to sell and would be told of any material change in this information without having to ask. Yam Seng’s case was not advanced in this way, however, and it is therefore unnecessary for me to decide whether the requirements of good faith in this case extended to any such positive obligations of disclosure.
Although its requirements are sensitive to context, the test of good faith is objective in the sense that it depends not on either party’s perception of whether particular conduct is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people. The standard is thus similar to that described by Lord Nicholls in a different context in his seminal speech in Royal Brunei Airlines v Tan [1995] 2 AC 378 at pp.389-390. This follows from the fact that the content of the duty of good faith is established by a process of construction which in English law is based on an objective principle. The court is concerned not with the subjective intentions of the parties but with their presumed intention, which is ascertained by attributing to them the purposes and values which reasonable people in their situation would have had.
Understood in the way I have described, there is in my view nothing novel or foreign to English law in recognising an implied duty of good faith in the performance of contracts. It is consonant with the theme identified by Lord Steyn as running through our law of contract that reasonable expectations must be protected: see First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep 194, 196; and (1997) 113 LQR 433. Moreover such a concept is, I believe, already reflected in several lines of authority that are well established. One example is the body of cases already mentioned in which duties of cooperation in the performance of the contract have been implied. Another consists of the authorities which show that a power conferred by a contract on one party to make decisions which affect them both must be exercised honestly and in good faith for the purpose for which it was conferred, and must not be exercised arbitrarily, capriciously or unreasonably (in the sense of irrationally): see e.g. Abu Dhabi National Tanker Co v. Product Star Shipping Ltd (The “Product Star”) [1993] 1 Lloyd’s Rep 397, 404; Socimer International Bank Ltd v Standard Bank London Ltd [2008] 1 Lloyd’s Rep 558, 575-7. A further example concerns the situation where the consent of one party is needed to an action of the other and a term is implied that such consent is not to be withheld unreasonably (in a similar sense): see e.g. Gan v Tai Ping (Nos 2 & 3) [2001] Lloyd’s Rep IR 667; Eastleigh BC v Town Quay Developments Ltd [2010] 2 P&CR 2. Yet another example, I would suggest, is the line of authorities of which the Interfoto case is one which hold that an onerous or unusual contract term on which a party seeks to rely must be fairly brought to the notice of the other party if it is to be enforced.
There are some further observations that I would make about the reasons I mentioned earlier for the reluctance of English law to recognise an implied duty on contracting parties to deal with each other in good faith.
First, because the content of the duty is heavily dependent on context and is established through a process of construction of the contract, its recognition is entirely consistent with the case by case approach favoured by the common law. There is therefore no need for common lawyers to abandon their characteristic methods and adopt those of civil law systems in order to accommodate the principle.
Second, as the basis of the duty of good faith is the presumed intention of the parties and meaning of their contract, its recognition is not an illegitimate restriction on the freedom of the parties to pursue their own interests. The essence of contracting is that the parties bind themselves in order to co-operate to their mutual benefit. The obligations which they undertake include those which are implicit in their agreement as well as those which they have made explicit.
Third, a further consequence of the fact that the duty is based on the parties’ presumed intention is that it is open to the parties to modify the scope of the duty by the express terms of their contract and, in principle at least, to exclude it altogether. I say “in principle at least” because in practice it is hardly conceivable that contracting parties would attempt expressly to exclude the core requirement to act honestly.
Fourth, I see no objection, and some advantage, in describing the duty as one of good faith “and fair dealing”. I see no objection, as the duty does not involve the court in imposing its view of what is substantively fair on the parties. What constitutes fair dealing is defined by the contract and by those standards of conduct to which, objectively, the parties must reasonably have assumed compliance without the need to state them. The advantage of including reference to fair dealing is that it draws attention to the fact that the standard is objective and distinguishes the relevant concept of good faith from other senses in which the expression “good faith” is used.
Fifth, in so far as English law may be less willing than some other legal systems to interpret the duty of good faith as requiring openness of the kind described by Bingham LJ in the Interfoto case as “playing fair'” “coming clean” or “putting one’s cards face upwards on the table”, this should be seen as a difference of opinion, which may reflect different cultural norms, about what constitutes good faith and fair dealing in some contractual contexts rather than a refusal to recognise that good faith and fair dealing are required.
Sixth, the fear that recognising a duty of good faith would generate excessive uncertainty is unjustified. There is nothing unduly vague or unworkable about the concept. Its application involves no more uncertainty than is inherent in the process of contractual interpretation.
In the light of these points, I respectfully suggest that the traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent that it still persists, is misplaced.
I have emphasised in this discussion the extent to which the content of the duty to perform a contract in good faith is dependent on context. It was Mr Salter’s submission that the relevant content of the duty in this case was captured by two more specific terms which Yam Seng contends are to be implied into the Agreement. I therefore turn to consider these.
A Duty Not to Give False Information?
The first more specific term said by Yam Seng to be implied in the Agreement is a term that “insofar as [ITC] instructed or encouraged [Yam Seng] to incur marketing expenses it would not do so for products which it was unable or unwilling to supply, nor offer false information on which [Yam Seng] was likely to rely to its detriment.”
As I see it, the essential difficulty with this formulation is that it does not distinguish between encouraging expenditure in the expectation that products would be supplied, or providing false information, dishonestly and doing so innocently. In my view, such a distinction is critical. To take the first limb of the alleged implied term, in so far as ITC led Yam Seng to expect that products were going be supplied believing that it would be able to supply them and intending to do so, there would be no lack of good faith on the part of ITC. The position would be different if ITC wilfully led Yam Seng to expect that products would be supplied in circumstances where ITC did not in fact intend to supply them or knew that it would be unable to do so. Conduct of the latter kind would be clearly contrary to standards of commercial dealing which the parties would reasonably have taken for granted; but I can see no basis for implying any more onerous obligation. The same distinction needs to be drawn in relation to the second limb of the alleged implied term. I can see no justification for implying an unqualified obligation not to provide false information – equivalent to a warranty that any information given by ITC on which Yam Seng was likely to rely would be true. By contrast, it was clearly implied that ITC would not knowingly provide false information on which Yam Seng was likely to rely. Such conduct would plainly infringe the core expectation of honesty discussed earlier.
Spice Girls Ltd v. Aprilia World Service BV
[2000] EWHC Ch 140 [2000] EWHC Ch 140
Arden J
105. A distinguishing feature of the Spice Girl’s participation in the commercial shoot, or their approval of promotional material, as opposed to (say) their participation in a “meet and greet” (a celebrity reception), was that it required them to do something now to be used at a date in the future. However, as I have said, the agreement specifically allows promotional material to be used to promote the Spice Sonic scooter (clause 8). Clause 10.9 also specifically allows the commercial shoot to be broadcast in the specified countries until 4 March 1999, and likewise clause 10.10 specifically allows the press advertising to be used to promote the Spice Sonic scooter in the specified countries until the same date.
106. There must be many situations where one party has superior, even secret, knowledge which the other party did not have when it entered into the contract. A skilled buyer may spot a valuable painting in a flea market and buy it at a ridiculously low price because the vendor did not have this knowledge. In such a situation, one would expect the general rule that there is no general duty to disclose to apply. In the example just given, one would expect the information on which the value of the painting was based to be generally available. But that is not this case. Knowledge of Ms Halliwell’s stated intention to leave the Spice Girls at the end of the US tour was not information which Aprilia could acquire. It was agreed to be kept confidential to those who attended the Wembley management meeting. Mr Morrison in his evidence recognised that the information was or might be material to Aprilia and that in principle it ought to be disclosed to them.
……
109. In my judgment, however, Brown v Raphael does not assist Aprilia. In that case, there was a statement of belief. The words “currently comprising” in the preamble to the agreement do not constitute a statement of belief. Those words were literally true and signal the possibility of future changes in the line-up of the group. There is as I see it no representation in the agreement as to the preservation of the composition of the group. There is therefore no representation in the agreement which is falsified by the failure to disclose the stated intention of Ms Halliwell to leave the group. In those circumstances, the words “currently comprising” cannot in my judgment constitute a misrepresentation on any of the bases put forward by Mr Sutcliffe.
110. Accordingly I now turn to the question whether participation in the commercial shoot amounted to a representation by conduct that SGL did not know and had no reasonable grounds to believe at or before the time of entry into the agreement that any of the Spice Girls had an existing declared intention to leave the group.
111. SGL knew the importance which Aprilia attached to having the right to endorse their products with images of the Spice Girls down to March 1999. Without those rights, Aprilia could not manufacture and sell the limited edition Spice Sonic scooter or use promotional literature for its products which used images of the Spice Girls. SGL knew the very considerable expense involved in the shoot. SGL did not consider what effect a change in the line up would have on Aprilia and in my judgment SGL could not reasonably form the view that there would be no or no significant adverse effect. SGL would not be prevented from passing the information to Aprilia. It could have done so in the strictest confidence.
112. Given that the benefits of the commercial shoot could not be enjoyed by Aprilia if one of the Spice Girls left the group before March 1999, participation in the shoot in my judgment carried with it a representation by conduct that SGL did not know, and had no reasonable ground to believe, that any of the Spice Girls had an existing declared intention to leave the group before that date. Nothing was done to correct that representation which was a continuing representation. It was on the facts found material to Aprilia’s decision to enter into the agreement that none of the Spice Girls was intending to leave in the contract period. Accordingly, SGL had a duty to correct its misrepresentation. What I have said about the commercial shoot must equally apply to other promotional material depicting the five Spice Girls which was intended to be used at any time during the period of the agreement.
113. I next turn to the question whether the representations by conduct induced the agreement. This is a necessary requirement for an action in misrepresentation (see Horsfall v. Thomas (1852) 1 H & C 90 and see the Misrepresentation Act 1967 section 2(1)). Mr Mill submits that there is no evidence that AWS relied on any representation by conduct in entering into the agreement. No one gave evidence on behalf of AWS. Mr Brovazzo was part of the team who took the decision to cause AWS to enter into the agreement, but he does not state that he relied on these representations. In certain limited circumstances, reliance can be inferred. In Smith v. Chadwick (1884) 9 AC 187, Lord Blackburn stated:
“I think if it is proved that the defendants with a view to induce the plaintiff to enter a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement.”
114. Ms Fuzzi and Mr Bravazzo both gave evidence that Aprilia would not have entered into the agreement if it had been known that Ms Halliwell had declared an existing intention to leave the group in September 1998. This would have deprived Aprilia of the full benefits of the five girl promotional material, and I have no doubt that AWS would have consulted Aprilia’s marketing department if it had been told of Ms Halliwell’s intentions.. Before the agreement was made, Aprilia incurred expenditure on the commercial shoot. I have held that SGL’s participation in this carried with it an implied representation that SGL did not know and had no reasonable grounds to believe that any of the Spice Girls had an existing declared intention to leave the group and that this was a continuing representation which SGL had a duty to correct if it was falsified before Aprilia entered into the agreement. Given that Aprilia had to sign the agreement to get the right to use the commercial shoot (and that there was no other reason for it to sign the agreement except to get the rights thereunder), it seems to me that the court can infer that indirectly it was induced to enter the contract by the representation made to it when it made the shoot. The same would apply to other promotional material which constituted a representation by conduct. I am satisfied that SGL participated in the commercial shoot and provided logos, images and so on of the Spice Girls in order that Aprilia should sign the agreement. I am also satisfied that the representations by conduct were such as to be likely to induce a person to enter into the agreement. An inducement to enter into a contract need not of course be the sole inducement.
Carey v. Independent Newspapers (Ireland) Ltd.
[2003] IEHC 67
Gilligan J
Negligent misrepresentation/ misstatement
The nature of misrepresentation required- will silence constitute a representation?
In Stafford v. Mahony, Smith and Palmer [1980] ILRM 53 at 64, Doyle J laid down the criteria for the action of negligent misrepresentation as follows:
“In order to establish the liability for negligent or non-fraudulent misrepresentation giving rise to action there must first of all be a person conveying the information or the representation relied upon; secondly, that there must be a person to whom that information is intended to be conveyed or to whom it might reasonably be expected that the information would be conveyed; thirdly, that the person must act upon such information or representation to his detriment so s to show that he is entitled to damages.”
In principle, the Irish courts have accepted that silence or non-disclosure regarding facts or changes in circumstance not known to the other party can give rise to an obligation to disclose such facts and circumstances and such failure to disclose will constitute a misrepresentation. In Pat O’Donnell and Co v. Truck and Machinery Sales Ltd. [1998] 4 I.R. 191 at 202, O’Flaherty J remarked:
“In general, mere silence will not be held to constitute a misrepresentation. Thus, a person about to enter into a contract is not, in general, under a duty to disclose facts that are known to him but not to the other party. However, in certain circumstances, such a party may be under a duty to disclose such facts. A duty of disclosure will arise, for example, where silence would negate or distort a positive representation that has been made, or where material facts come to the notice of the party which falsify a representation previously made.”
The duty of care and contractual negligent misrepresentation
The substance of the plaintiff’s claim in this respect is that she was induced to enter the contract by the representation made by Mr. Drury that she would be allowed to work from home from lam until the first edition deadline: thereafter, she would work from the Dail.
In Securities Trust Ltd. v. Hugh Moore & Alexander Ltd. [1964] I.R. 417. Davitt P. defined the context in which liability may arise as follows at p. 421:-
“… circumstances may create a relationship between two parties in which, if one seeks information from the other and is given it, that other is under a duty to take reasonable care to ensure that the information given is correct…”
In Esso Petroleum v. Mardon [1976] QB 801, Lord Denning MR formulated the duty of care in the following manner at p. 820:-
“… if a man, who has or professes to have special knowledge or skill, makes a representation by virtuethereof 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.”
Irish law reflects this line of thinking. In Forshall v. Walsh (unreported, High Court, Shanley J, 18th June, 1997), Shanley J stated at p.64 of the transcript:
“A party seeking damages for negligent misrepresentation must establish that the representative failed to exercise due care in making the representation as a result of which representation the person to whom it was made was induced to enter into the particular agreement and suffered damage in consequence of the inaccurate representation. Closely aligned to the claim of negligent misrepresentation is the wider tort of negligent misstatement. In relation to negligent misstatement the first matter a plaintiff must establish is that the defendant owed him a duty of care.”
The most recent affirmation of these principles in Irish law is King v. Aer Lingus plc [2002] 3 I.R. 481. So far as apposite to the present context, the facts and issues in this case were as follows. In 1989, Aer Lingus transferred its service and maintenance engineering component into a new subsidiary company, a process which involved lengthy and detailed negotiations between management and trade unions. The workforce felt that the only option was a secondment type arrangement where employees would retain their employment relationship with Aer Lingus while working in the subsidiary. As part of the negotiation process, the defendant company
wrote similar letters to the plaintiffs, containing statements to the effect that in the event of TEAM (i.e. the subsidiary to which the service and engineering component was transferred) getting into financial difficulties, existing employees would continue to maintain the Aer Lingus fleet at a minimum. The agreement also contained a clause that the company would not cause or permit a lockout during the lifetime of the agreement. The plaintiffs transferred to TEAM, which ran into financial difficulty in 1993 and was eventually sold in 1997. 97% of the workforce transferred to the purchasing company: however, the plaintiffs were among those who instead decided to return to Aer Lingus. The plaintiffs failed to secure the fleet maintenance jobs they were assured they would retain in any circumstance in the 1989 letters and were working on clerical or operative positions on their return. They claimed that they were entitled to do the same kind of work that they had always done and claimed that insofar as Aer Lingus had failed to provide such work, the plaintiffs were entitled to damages for breach of the assurances given to them in 1990.
At p. 48 of the report, Kearns J held:
“The commitment contained in the letter… can only be seen, be it a representation or term of the agreement, as conveying that fleet maintenance work would be available ‘at a minimum’ with the defendant at the point of return for those workers who, having transferred to TEAM in 1990, opted to return to the parent company in 1998 against the backdrop of difficulties described in evidence. For the avoidance of any doubt, however, I find that the assurance contained in Mr. O’Neill’s’ letter of the 30th April, 1990, was both a representation and a term of the agreement and that, insofar as it may be regarded as a representation, the defendants, in making it, were under the duty of care alluded to in Hagen & ors. v. ICI Chemicals and Polymers Limited [2002] IRLR 31. It is proper to record that the defendants did not deny the existence of such a duty in a transfer of undertaking situation, which for all practical purposes existed in this case, but rather sought to argue that the plaintiffs had failed to plead any specific misrepresentations. The duty of care, it seems to me, it self-evident and no more than basic common sense, and a general plea of misrepresentation is sufficient in the circumstances.”
With regard to the question of damages, Kearns J held at p.489 of the report:-
“… the plaintiffs are entitled to be treated as though they had never transferred to TEAM, that they are entitled to all appropriate increments or benefits on the basis that they earned and achieved the same seniority by 1998, as those Aer Lingus employees who did not transfer, that they were, on returning, entitled to such recognition and are now entitled to compensation in lieu thereof if they have suffered financial loss as a consequence of not getting such recognition.”
This case re-affirms two propositions. First, there is a duty of care to avoid making negligent representations or statements in pre-contractual, negotiation stages which have the effect of inducing a plaintiff to act to his/ her detriment. The case took place in a “transfer of undertaking” context, but there is nothing in the language of the judgment to suggest that the duty of care is confined to this situation. Where a new contract and terms of employment are being negotiated with prospective employees, there is a duty of care on the part of the prospective employer to avoid making negligent misrepresentations/ statements which are intended or have the effect of inducing an employee to leave his present position and which results in detriment to the employee. As regards the question of damages, Kearns J treated the employees as though the inducement to transfer to TEAM never took place: this is consistent with the basis on which damages for negligent misrepresentation are awarded in tort.
Is there any duty on the representee to ascertain the truth of the position before he acts on the representation?
The cases are uncertain in the context of claims for misrepresentation where the representation complained of induced a plaintiff to enter into a contract. In several cases, it has been suggested that when the representee is, or in the circumstances should be, informed or better informed of matters relating to the misrepresentation, any carelessness in reliance upon the misrepresentation will not deprive the misrepresentee of a remedy.
In Redgrave v. Hurd (1881) 20 Ch.D 1 at 13, it was held that it was not a “sufficient answer” to an action to rescind the contract between two solicitors for the
purchase of a practice that the representee had the means of discovering and might, with reasonable diligence, have discovered the truth. In Nocton v. Ashburton [1914] AC 932, Lord Dunedin stated at p.962:
“No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.”
In Strover v. Harrington [1988] Ch. 390, Sir Nicholas Browne-Wilkinson VC stated at p.410-
“… if it is once shown that a misrepresentation has been made, it is no answer for the representor to say that the representee has been negligent and could have found out the true facts if he had acted otherwise. The representee is under no duty of care to the representor to check on the accuracy of the representation. The representor is bound by his representations, however careless the representee may have been.”
At p.596 of Butterworth’s’ The Law of Contract, it is stated that “In Scotland, in contrast, Walker asserts a general rule to the contrary that there is no recission (reduction) if the error was attributable to the negligence of the plaintiff (pursuer). The true state of the law may lie between these positions. Courts engage in what has been described as ‘balancing the equities’.”
However, in the broader tort action of negligent misstatement, the court will enquire whether it was reasonable for the former to rely on the statements of the representor in the circumstances of the case: see Smith v. Eric S Bush [1990] 1 AC 831.
Michovsky v Allianz
[2010] IEHC 43 (26 February 2010)
JUDGMENT of Mr. Justice Kearns delivered the 26th day of February, 2010
In these proceedings, which were commenced by plenary summons issued on the 7th October, 2003, the plaintiff, a German national and married man, born on 2nd August 1944, claims damages for breach of an insurance contract whereby the defendant agreed to indemnify the plaintiff in the event of destruction by fire of the plaintiff’s dwelling at Glebe House, Drumlease, Dromahair, in the County of Leitrim. Drumlease Glebe House was destroyed by fire in the early hours of 13th August, 2002. The property consisted of a substantial Georgian manor house, an annexe thereto and a gatehouse at the end of a 1 km driveway. In addition the property comprised approximately nine statute acres. A photograph and sketches of the house and its rooms are attached to the end of this judgment.
The plaintiff, who is a self employed computer engineer, purchased the property in 1991 for the sum of €240,000. Keen to escape the pressures of his business activities in Germany, the plaintiff spent the following three years renovating the property. This involved putting on a new slate roof, fitting a new oil-fired central heating boiler in the basement, installing a new gas fired hot water heater, also in the basement area, and a new water system in which rainwater was collected, filtered, purified and used as the main water supply. The plaintiff did a lot of this work himself. In addition the plaintiff fitted new German style windows (designed to open three ways) and new interior doors throughout the house. The house itself contained eleven bedrooms, two kitchens, two lounges, a dining room, ten bathrooms, a leisure room and a substantial amount of storage and miscellaneous rooms. It has a large courtyard at the rear of the house and a number of out buildings.
The plaintiff moved to Ireland with his family, consisting of his wife and four children. Over the years that followed, his two older children eventually moved back to Germany. His two younger children attended primary school in Dromahair, but in or around 2001, the plaintiff decided the house had become too big for his family’s requirements and he decided to sell it.
For this purposes, he retained a local estate agent, Mr. John Ryan, to advise him in relation to the sale of property. A promotional piece advertising the attractions of the property appeared in the property supplement of the Irish Independent on 13th July, 2001. That article indicated that the asking price for the property was £1m. In noting that the property was “smarter than the average semi, and bigger also, with a pool, and a library”, the article continued:
“Close to Yeats country, Drumlease Glebe House reflects some of the best features of Anglo Irish period lifestyles. Located 2.4 miles from Dromahair village, Co. Leitrim, it is separated from Sligo town, 14 miles away, by a choice of lakeside drives along either the northern or southern shores of Lough Gill.
Built originally in 1834 of local limestone, it gets its name from the fact that it was a “glebe” or gift to the Bishops of Kilmore.
Up to nine years ago Drumlease has been operated as a country guest house when it built up a reputation for its cuisine and hospitality. As a result a very high standard of restoration and maintenance is reflected in its accommodation and décor. At ground floor level there are three reception rooms including a library as well as a pantry, kitchen, small storage room and w.c.
In all there are total of ten bedrooms although these are laid out in a way which could conjure up some fresh ideas for marketing the hospitality to the corporate/equestrienne/fishing community. At basement level there is an on suite bedroom, office, linen room, kitchen/dining area, wine cellar and laundry.
In the main house at first floor level there are four bedrooms, of which the master is on suite, as well as two bathrooms. In the stable wing off the main house at first floor level, is a suite with bedroom, living room and shower room. In the guest wing on the first floor is a self contained two bedroom unit with kitchen, sitting room, third bedroom and shower room.
Outside is a heated swimming pool, a courtyard and stables for twenty horses.
As well as trout fishing on the river Bonnet which runs along the bottom of the nine acre site the property, comes with six trout rods in Lough Melvin.”
Despite these attractions, the property failed to sell in the year 2001.
The plaintiff was keen to move with his wife and youngest child, as he subsequently in fact did, to Italy where he hoped to buy a smaller property. The plaintiff had already made arrangements for their daughter, Vivienne, who was then twelve years old, to commence school in Italy in September.
While there were definite plans to move permanently to Italy in September, 2002, the plaintiff retained vague hopes of buying at some stage a small property in Ireland which would be easier to manage than Drumlease. However the plaintiff took no steps to acquire any such property in Ireland. In the first part of 2002, a suitable property was identified in Italy and in July of that year the plaintiff arranged to ship out his German furniture to Italy. For the purpose of purchasing the property in Italy, the plaintiff raised a loan of €60,000 on the security of the gate house at the end of the driveway which was sold in that year for the sum of €110,000. Part of the sum borrowed from the bank was used to pay a deposit on the Italian property.
However, despite displays of interest from three or four potential purchasers in the first part of 2002, no definite offer to purchase Drumlease House at any particular price was forthcoming before the property was gutted and destroyed by a fire which occurred on the 13th August, 2002.
Prior to the occurrence of the fire, the plaintiff had gone with his wife and children to Germany to celebrate his birthday there on the 2nd August. They spent the time from 27th July until 7th August in Germany. On returning to Ireland, the older of the two younger children, Stephen, was staying in the gate lodge and the plaintiff and his wife and younger daughter moved into the annexe by the side of the house. The stated purpose for occupying the annexe rather than the main house was the desire on the part of the plaintiff and his wife to maintain the house in pristine condition fit for viewing. Apart from removing some laundry from three large suitcases of clothing brought back with them from Germany, the plaintiff and his wife left these suitcases fully packed in the games room of the annexe during the six day period leading up to the fire.
As previously mentioned, the plaintiff had in place a policy of insurance with the defendants which went back to the time of purchase of the property and which had been negotiated originally by the plaintiff’s brokers with the defendant’s predecessors, Church and General.
As detailed in the statement of claim, the policy provided that the defendant would give household cover in respect of the plaintiffs dwelling house to the extent of €870,846 and further indemnity in respect of destruction or damage to contents in the €88,430. Additional cover pursuant to the policy was provided in respect of the gate house and contents.
Arising from the fire, the plaintiff notified the defendant of what was described in the statement of claim as an “accidental fire” on the 14th August, 2002. Thereafter, the statement of claim continues, the plaintiff engaged building surveyors and engineers to assess the losses sustained by the plaintiff and in furtherance whereof Messrs. Haran & Associates, surveyors and engineers, assessed the plaintiff’s total loss at €904,789.29 and these particulars were furnished to the defendant through its loss adjusters on 23rd January, 2003.
By it’s defence delivered on 2nd December, 2003 the defendant referred to a letter dated 21st October, 2003 whereby it had refused an indemnity under the policy and had repudiated same and all liability thereunder for the reasons set out a paragraphs 6 – 9 of the defence. Paragraph 6 of the defence states as follows:-
“the said fire was started deliberately by or on behalf of the plaintiff in that he or a person at his direction tampered with the oil-fired central heating system for the dwelling house in a manner calculated to cause and which in fact caused the fire.”
A notice for particulars was furnished to the plaintiff’s solicitors at the same time and by letter of reply dated 24th March, 2004, the plaintiff solicitor provided the following information to the defendant:-
“The Glebe house and gate house were placed on the market in spring, 2002. The price sought for the Glebe House was €1,269,738.00 (IR £1m) and the price sought for the gate house was €126,973.81 (IR £100,000). During the period which the premises were on the open market for sale, there was no variation in the price sought for either the Glebe House or gate house.”
Asked when the fire first came to the attention of the plaintiff and the details of what steps the plaintiff took when alerted to the fire, the letter went on to state: –
“On the evening before the fire, the plaintiff and his family cooked their evening meal in the main kitchen and ate their dinner in the dining room of the main wing. The subsequently watched some television in the guest wing and then went to bed there at 11.00 p.m. They had made their sleeping arrangements in the guest wing of the main premises upon returning from their holiday in Germany so as to keep the main wing of the house presentable for prospective buyers viewing the premises. The plaintiff was awoken at about 3.00 a.m. the following morning by a large bang. He partially dressed and ran along the corridor towards the main wing of the premises. He did not get far because he was quickly faced by intense heat and thick smoke. He attempted to go further but began to lose his orientation and suffocate. He made his way to another room, opened the window and jumped outside. While inside, the plaintiff had been screaming to his wife and family that there was a fire. Upon getting outside through the window safely, it was very difficult to assess what was happening from the rear of the guest wing of the building.
The plaintiff’s car keys were in his trousers and he got into his car parked at the side of the house. The plaintiff drove to the gate lodge where his son, Steve, was staying. The plaintiff own mobile telephone was still in the main house. On arrival at the gate lodge, there was no answer as his son had gone to Sligo for the night. The plaintiff then drove to the nearest neighbour’s house but got no response. He then drove to Josephine Hamilton’s house, a small distance in the direction of Dromahair. She had been their former care-taker and she responded to the plaintiff’s shouts and immediately called the fire brigade. The plaintiff was accompanied by his wife and daughter. On returning with his wife, daughter and Josephine Hamilton to the plaintiff’s dwelling house, the plaintiff drove around towards the front of the building and could discern thick smoke coming from the top windows of the house”.
The fire brigade under the command of Station Officer O’Hara, arrived at Drumlease House at about 3.45 a.m. Blue flames were observed to be coming out of the lower left front of the house. The roof was already gone at this stage. He observed the plaintiff and approached him. The plaintiff was standing with his wife and the Hamiltons. He informed Officer O’Hara that he had heard an explosion and that everything went black. He brought Station Officer O’Hara to where the oil tank supplying diesel oil to the basement boiler room was located. Officer O’Hara noted the lever on the oil tank to be in the “on” position. He turned it off. Efforts to switch off the gas tank supply proved unsuccessful. Officer O’Hara needed a water supply but noted that the swimming pool was empty. He was aware that the Bonet river ran close by and sent some of his crew off to draw up a water supply from that source.
He observed that all the windows in the old house were in the open “tilt” position both at ground level and basement level. He also observed blue flames at the level of the basement boiler room window.
The plaintiff was extremely worried about his mobile phone and briefcase which he had not taken from the house. Officer O’Hara went with the plaintiff into the house to the games room and located these items and took them from the property. He noted there were a number suitcases standing upright on the floor and a number of bags lying on a single bed in the same location as the briefcase.
Officer O’Hara also found three containers in a shed by the courtyard. One was a black one which had a smell of petrol and the top was hanging off. He also found a jerrycan with petrol in it at the same location.
He also saw an aluminium ladder in the grass outside the corner of the annex building furthest from the swimming pool. By 6.30 a.m. the fire crew had the fire under control. Officer O’Hara re-entered the property with Officer David Garvey. They were anxious to vent the property to clear smoke. He noted that all doors within the property were open. He also noted that there were blue flames still flickering on the floor of the basement area.
At some point in time, the plaintiff re-entered the property and re-emerged with the suitcases which Officer O’Hara had seen standing in the games room. Whilst in the house, Officer O’Hara noted that only one bedroom had a bed with bedclothes on it. That was the room in which the plaintiff and his wife had been sleeping. Their daughter’s room, at the end of the annexe at the point from Mrs. Michovsky and Vivienne emerged, had a bed which however had no pillow, duvet or blankets on it.
Officer O’Hara stated that the plaintiff was agitated and upset, but found it odd when the plaintiff produced two bottles of liquor, one of brandy, and offered refreshments to the fire crew before they had completed the extinguishment of the fire.
In the days and weeks which followed, an investigation was undertaken by both the Gardaí and by a specialist retained on behalf of the defendant. The plaintiff retained his own fire expert, Mr. C.D. Wareham of Messrs. Hawkins & Associates but only did so in February 2005.
EVIDENCE IN RELATION TO THE INVESTIGATION
Garda Kieran Treanor of Glenfarne Garda Station was part of the investigation team. He visited the premises on the 14th August along with Garda Cassidy and Garda Kelly. They were clearing back debris in the basement area when Garda Kelly drew his attention to the fact that the isolation valve on the oil supply pipe to the boiler unit in the basement was detached and separated from it. The removal of this valve had the effect of permitting an unfettered flow of oil from the oil tank outside the house across the floor of the basement in the general vicinity of the boiler unit.
He described how various samples were taken by Garda Kelly from that area, from the lintels and frames in the doorways and from the stairs out of the basement upwards to first floor level. He confirmed that the scene had been secured and that only Garda personnel were allowed in. He described how on the following day they dragged the cooker away from the wall of the kitchen and took samples from the floor beneath the cooker. All of these samples were sent for forensic analysis. He also prepared a sketch of the basement area which was by now suspected to be the seat of the fire. There were three modes of accessing the boiler room in the basement, one from the kitchen area of the house via a staircase, one from the internal courtyard and one through a door at the rear of the house adjacent to the swimming pool. His sketch showed the boiler unit and the door which provided access to the boiler room from the back of the house on the pool side. This door he measured at three foot nine inches in height and three foot two inches wide. It was made of solid wooden construction with two windows and two bolts. The upper pane of glass in the door was completely absent and the pane in the lower panel was partially absent. He noted that the door in question was unbolted, notwithstanding the presence of an upper and lower bolt.
Garda Kelly was too ill to attend Court and his evidence was admitted by means of an agreed statement. In that statement he described discovering a gate valve with the head removed in the basement in the heating room area of the oil line leading to the burner. He called in some other personnel to examine this “unusual discovery”. He then took samples, consisting of samples from the floor of the basement, a sample from the wall-plate leading out from the heating room towards the base of the staircase, a sample of debris from the door-jam leading to the kitchen, a sample of debris from the kitchen floor, the gate valve and some other material. On the following day some further samples were taken from under the stairs in the basement, together with a sample of burned material from under the cooker in the kitchen. He brought these to Garda Headquarters in the Phoenix Park and handed them over to forensic scientist Rose Campbell.
His statement also confirms that in the small single bedroom occupied by Vivienne, there were no bedclothes on the bed. Opposite the bedroom was the corridor where he observed marks or tracks left by objects similar to suitcases on the carpet. In his view the suitcases were there both during and after the fire.
Rose Campbell is a forensic scientist at the Forensic Science Laboratory. She gave evidence that she found partially evaporated petrol and diesel oil in the sample found in the debris from the floor of the basement in the heating room. Traces of hydrocarbon similar to paraffin oil were found in samples of debris taken from the kitchen floor and from a piece of wood from the first step of the staircase. Traces of partially evaporated diesel oil were found in part of a phone directory and a sample of debris taken from the staircase. Similar findings were made in respect of samples of burnt debris and wood taken from the lintel leading to the heating room from the stairwell. Traces of evaporated diesel oil were also found in burnt debris and wood which constituted the sample from under the gas cooker in the kitchen area.
A sample of liquid taken from a jerry can was found to contain petrol.
Sergeant Sweeney gave evidence that he first became involved on the 19th August when he took a statement from the plaintiff. He ascertained that the plaintiff’s son Stephen had stayed that night in Sligo with his girlfriend. He conducted a further interview with the plaintiff on 3rd December, by which time he had in his possession the report from Ms. Rose Campbell of the Forensic Laboratory. On that date he had gone to Drumlease House with the plaintiff. He examined the door between the boiler room and the pool area and felt that one of the bolts on the door had been open and another closed. He believed the top bolt had been open during the fire and the bottom one closed. He made this deduction from the smoke marks and absence thereof at the site of the bolt lock.
The technical evidence in the case was provided by Mr. Jonathan Thomas on behalf of the defendant and Mr. Chris Wareham on behalf of the plaintiff. Mr. Thomas is a consultant scientist and engineer with long experience of investigating fires and explosions. He went to the scene of the fire on 16th August 2002 where he met with the plaintiff. He noted that the fire had almost completely destroyed the first floor and roof of the main house. The first floor had collapsed downwards into the ground floor rooms. At ground floor level there was notably more fire damage in the two stairwells. The kitchen and pantry had been almost totally destroyed by fire. However, the basement had largely escaped direct fire damage, the exception to this being the room which housed the gas fired water heater and the oil fired central heating burner. At this point in time he had no knowledge of the presence of accelerants at the location of the fire, but nonetheless thought the fire may have been caused deliberately. He derived this view from the fact that the isolation valve to the boiler tank had been found in a disassembled state. In this state fuel oil would have flowed freely out of the opening of the valve. The physical state of the valve was such that this could not have occurred as a result of the fire. The thread of the valve was not mechanically damaged and had not melted.
In his opinion the pattern of fire damage strongly suggested that the fire commenced in the basement below the kitchen/pantry and spread upwards to the floors above via the stairwell. He met with the plaintiff onsite who confirmed that he had found no problems within the boiler room when he inspected a few days before the fire and nobody had worked on the oil system in the intervening period. He noted that the oil burner was in close proximity to the isolation valve and in certain circumstances could have ignited the escaping oil. However, as this was not operating at the particular time and was not particularly fire damaged, it was Mr. Thomas’s view that the oil was ignited by an alternative means such a piece of burning material.
When later furnished with the report from the Forensic Science Laboratory he formed the view that the presence of diesel oil in the kitchen at a location below the cooker was a very suspicious circumstance. He further confirmed that paraffin would, like petrol, act as an accelerant and believed accelerants had been used down the staircase between the ground floor and the basement. While some of the material may have been transferred on the soles of shoes post fire, this would not explain the residues found below the cooker in the kitchen.
It was his opinion, confirmed in evidence, that the setting of this fire was not typical of the actions associated with a casual intruder.
Firstly, Drumlease House was in a remote location and about one mile from the public roadway. Any intruder would have had to carry accelerants a long distance from the roadway to the house itself. While it had been suggested that an unknown intruder might have gained access to the boiler room through the door at the back of the house (poolside), this was not an obvious location at which an intruder would try to get into the house in hours of darkness, given that the doorway in question was below ground level and could not readily be accessed save by clambering down a steep embankment. It would have been necessary to break the upper pane of glass in that door to open the bolts which secured it. No broken glass was found at that particular entrance to the boiler room to suggest a forcible entry had been made. If the upper window of the window in the door had been broken, he would have expected evidence of smoke venting to appear on the outside walls or outside frame of the doorway, but none had been found. Nor was there any sign of heat damage to the foliage and bushes and brambles immediately outside the door. Furthermore, the section of glass which remained in the lower panel was indicative of a line or contour which he described as more typical of fire damage.
Mr. Thomas further stated that a tool would have been required to turn and disassemble the valve, something in the nature of a flathead spanner. An intruder would, in his opinion, have been far more likely to attempt to sever or pull out the flexible hose between the end of the pipe and the boiler unit.
Finally, the location of the oil tank was not obvious, being set away some distance from the house.
Mr. Chris Wareham first visited the scene in 2005 and conceded that he was considerably disadvantaged by the lateness of his examination. He pointed out that the oil tank holds about 1,400 litres and it was his view that if the safety valve was removed in the boiler room, the entire tank would empty in twelve-fifteen minutes. This had not happened and the oil tank was noted to be nearly full in the aftermath of the fire. He found some evidence of sooting on the window frames of the boiler room door (poolside) suggesting that the glass was broken or missing at the time of the fire. This would be consistent with a break-in by an intruder.
He did, however, unequivocally state that the fire had been started deliberately. He so concluded in 2006 and so informed the plaintiff’s solicitor at that time.
In cross-examination he agreed that it would not have been easy for an intruder to locate the boiler room and to remove the isolation valve from the supply pipe. One would need to know where the valve was and need to know the layout. He also agreed that a tool like a spanner would be required to open the valve in question.
THE HEARING BEFORE THE COURT
Prior to the commencement of the case it was agreed between the parties that the Court should first determine the issue of liability and defer until a later stage any issue in relation to quantum of loss and damage. The hearing before the Court commenced on 16th February, 2010 and lasted for four days. The plaintiff gave evidence, as did his wife Evelyn and daughter Vivienne. His son Stephen did not give evidence. Their evidence will be dealt with separately.
The Michovsky’s housekeeper Josephine Hamilton, gave evidence of the events of the night in question, stating that she was awoken by the Michovskys on the night of 13th August, 2002. She recalled that Evelyn was wearing her nightdress and perhaps a black cardigan. The plaintiff was wearing what she thought was a navy blue tracksuit and had only one shoe on. Their daughter had no shoes on.
She stressed that there was no local ill will towards the Michovsky family, they had settled in well and the children had gone to local schools. She had always found him very straightforward and hard working and he always paid her housekeeping money when it was due.
John Ryan gave evidence that he was a local estate agent who had been approached by the plaintiff in 2001 with a view to putting the property on the market. He accepted that this approach must have come prior to the article which appeared in the Irish Independent Property Supplement in July 2001. However, real efforts to sell the property only got under way in the following year. While the initial guide price was £1m, that figure dropped to €1m in 2002. There was always a strategy that the house and gate house could be sold independently of each other. That in fact was what happened. An agreement for the sale of the gate house was made prior to the fire during the month of August, 2002.
Mr. Ryan confirmed that there were changes of tactics in efforts to sell the property and his firm took on a joint agency with Sherry FitzGerald Draper in Sligo in 2002 in an effort to dispose of the property. There was quite a healthy level of interest in the property and in August 2002 there were three interested parties including the individual who subsequently purchased the property from the plaintiff in 2003. He accepted in cross-examination that the brochure produced by Sherry FitzGerald Draper indicated that the asking price for the property (exclusive of gate house) was “€900,000 (or offers)”. In 2002 the ultimate purchaser was talking of a purchase price in the region of €750,000. That person later bought the house in August 2003 in its damaged condition for the sum of €250,000. He agreed there was no firm offer for the house as at the time of the fire in August 2002.
He could not comment on the frequency or otherwise of persons calling to view the house in his absence or in the absence of Mr. Draper, the other estate agent charged with selling the property. As far as he was concerned it was viewing by appointment only. The plaintiff had not passed on to him the names or details of any viewers who may have inspected the property between 7th August and 12th August, 2002.
In the course of his evidence Sergeant Sweeney stated that there were no signs of a break in ever found at the Glebe House. Furthermore, having been stationed in the area for many years, he was able to state that incidents of arson were virtually unknown in the county area. There had at no time been any other suspect or other person under investigation in respect of the fire notwithstanding the view of the Gardaí that the fire had been started deliberately.
He accepted that the plaintiff had co-operated with the Gardaí in their inquires in that he had met them when requested to do so and had furnished two statements in relation to the events surrounding the fire. As far as the Gardaí were concerned the plaintiff had no known enemies in the locality where he resided.
The case was opened by plaintiff’s counsel to the Court without any concession that the fire in question had been started deliberately. This was so notwithstanding that Mr. Wareham, the plaintiff’s own expert, had reported to the plaintiff’s legal advisers as far back as 2006 his opinion that the fire had been caused deliberately. That concession, namely, that the fire was started deliberately, was only forthcoming from the plaintiff’s advisors on the third day of the hearing before this court.
Accordingly, the only issue for determination by the Court is whether the fire which consumed Drumlease Glebe House was caused by an intruder or by the plaintiff or some person on his behalf.
RELEVANT LEGAL PRINCIPLES
It is accepted by both sides that the onus of proving fraud in this case rests on the defendant. It was also agreed that where proof of fraud is largely a matter of inference, such inference must not be drawn lightly or without due regard to all the circumstances, including the consequences of a finding of fraud (see Derry v. Peek [1889] 14 App. Cas. 337 and Banco Ambrosiano s.p.a. v. Ansbacher & Co. [1987] IRLM 669).
In Superwood Holdings plc v. Sun Alliance and London Insurance plc [1995] 3 I.R. 303 Denham J. dealt with the onus of proof which lies on a party who alleges fraud and cited with approval the dictum of Finlay C.J. in Banco Ambrosiano spa v. Ansbacher & Co. [1987] IRLM 669 where at p. 691 he stated:-
“…the onus is to prove the matters necessary to establish fraud as a matter of probability, and that where, as in the present case, such proof is largely a matter of inference, that the inference must not be ‘drawn lightly or without due regard to all the relevant circumstances, including the consequences of a finding of fraud’.
Thus, the onus is on the defendants to prove the fraud on the balance of probabilities.”
That the test remains one on the balance of probabilities (and not of any higher standard) was recently reconfirmed by the Supreme Court in Lawlor v. Tribunal of Inquiry [2009] 2 I.LR.M. 400.
In the course of delivering the judgment of the court, Murray C.J. noted that the Supreme Court in Banco Ambrosiano was satisfied that an allegation of fraud did not require to be proved to the criminal standard where the proceedings take place other than in a criminal court. He adopted and approved the views expressed by Henchy J. in the Banco Ambrosiano case to the effect that it would be “an error” to introduce some intermediate standard of proof between that of civil liability and criminal liability, citing the following observations from the judgment of Henchy J at p. 701:-
“If, as has been suggested, the degree of proof of fraud in civil cases is higher than the balance of probabilities but not as high as to be (as is required in criminal cases) beyond reasonable doubt, it is difficult to see how that higher degree of proof is to be gauged or expressed. To require some such intermediately high degree of probability would, in my opinion, introduce a vague and uncertain element, just as if, for example, negligence were required to be proved in certain cases to the level of gross negligence.”
Murray C.J. also referred to a further citation from Henchy J. in the same case where he stated (at p. 702):-
“Proof of fraud is frequently not so much a matter of establishing primary facts as of raising an inference from the facts admitted or proved. The required inference must, of course, not be drawn lightly or without due regard to all the relevant circumstances, including the consequences of a finding of fraud. But that finding should not be shirked because it is not a conclusion of absolute certainty. If the Court is satisfied, on balancing the possible inferences open on the facts, that fraud is the rational and cogent conclusion to be drawn, it should so find.”
In approving and adopting this approach Murray C.J. stated (at p. 414):-
“The findings made must clearly be proportionate to the evidence available. Any such findings of grave wrong doing should in principle be ground upon cogent evidence.”
This statement reiterates views of a similar nature expressed by Hamilton C.J. in Georgopoulus v. Beaumont Hospital Board [1998] 3 I.R. 132 where the degree of probability required on the part of the party alleging fraud was referenced to a test of proportionality, Hamilton C.J. stating at pp 149-150:-
“As already pointed out in this judgment, the proceedings before the Defendant were in the nature of civil proceedings and did not involve any allegations of criminal offences. The standard of proving a case beyond reasonable doubt is confined to criminal trials and has no application to proceedings of a civil nature.
It is true that the complaints against the plaintiff involved charges of great seriousness and with serious implications for the plaintiff’s reputation.
This does not, however, require that the facts upon which the allegations are based should be established beyond all reasonable doubt. They can be dealt with on ‘the balance of probabilities’ bearing in mind that the degree of probability required should always be proportionate to the nature and gravity of the issue to be investigated.”
I am satisfied that these principles are the correct and relevant legal principles to be applied to the facts and circumstances of this case.
DECISION
I propose in formulating my decision on this case to refer extensively to the evidence given at the hearing by the plaintiff, his wife and daughter.
While ultimately it was common case that the fire at Drumlease Glebe House was caused deliberately, the plaintiff gave evidence largely along the lines of the account furnished in the Reply to Particulars detailed earlier in this judgment. He described as “evil” any suggestion that he himself had set the fire or caused someone on his behalf to do so.
There was no discovery sought in this case in relation to the plaintiff’s financial records. Thus it may be said at the outset that there are no circumstances of severe financial hardship proven in this case which would point up an immediate need on the part of the plaintiff to raise cash in the form of an insurance payout. There was evidence given by the plaintiff that he had a number of properties in Germany which he sold to enable him purchase Drumlease Glebe House without raising a mortgage. He appears to have been in a financial position to retire from business at a relatively young age.
That said, the evidence undoubtedly establishes that there were circumstances of some urgency dictating that the Glebe House be sold without further delay, not least because of his settled plans to move to Italy the following month. Throughout 2001 and 2002, notwithstanding the best efforts of two estate agents, the plaintiff had not secured a single offer for the property, other than in respect of the gate house. Contrary to the information supplied in the Reply to Particulars, the plaintiff’s asking price for the property (assuming the gate house can be left out of the equation) had dropped from €1,270,000 to €900,000, which is a drop in asking price which was quite significant. To that extent those particular circumstances may be seen as one block in the case which the defendant seeks to establish.
The plaintiff has imperfect English and gave his evidence with the assistance of an interpreter. He has lived with his wife and daughter in Italy since September 2002, only returning to Ireland to assist in inquiries into the fire and to give evidence in the hearing before this Court. I found his demeanour as a witness to be wary and defensive and untypical of a man who believed the police authorities of this jurisdiction had failed to apprehend an unknown intruder and arsonist. If the plaintiff in this case believed an intruder was responsible he certainly did not relentlessly pursue the Gardaí to bring such wrongdoer to justice. On the contrary, he seemed content to simply sit back, lodge his insurance claim and answer such questions as he was asked and no more. By way of example, when the plaintiff gave evidence that he had “multiple problems with the boiler prior to the fire” and was cross-examined as to why he had not mentioned this fact, if fact it was, to the Gardai in either of his statements, his reply was: “because they didn’t ask.” When asked could he explain how diesel had been found under the gas cooker in the kitchen, he stated he had “no idea how it got there” and commenced laughing. He was also unable to explain his behaviour in offering alcoholic refreshment to the fire fighting team before the fire was actually brought under control. Again no coherent explanation was offered for this bizarre behaviour. When asked how he continued to maintain that the fire was “accidental” having regard to the finding of the disassembled isolation valve and the accelerants, he suggested that someone in the locality might have started the fire as a kind of “trick” on the plaintiff and his family. I found the plaintiff to be a somewhat odd and unconvincing witness.
I also found many aspects of his account of events puzzling in the extreme. For example, following his return to Drumlease Glebe House on 7th August, 2002, three suitcases, containing clothing for himself, his wife and daughter, were left unpacked in the games room, notwithstanding that the family did not intend to fly out to Italy until mid or late September. No reason was offered why the plaintiff, who at all times was at home, or his wife, who was not working outside the home, could not have unpacked these cases. Even if they wish to preserve the main house in a condition suitable for viewing, their personal clothing could certainly have been hung up in cupboards or dressers for the duration of the six or seven weeks they intended to remain in Drumlease. The failure to do so is behaviour which I find odd in the extreme. I cannot ignore the other possible explanation that on the night in question it was at all times intended that some clothing could be retrieved from the annexe section of the property into which the plaintiff, his wife and daughter had temporarily moved.
I find also strange the fact that the plaintiff kept a large bunch of keys in his trousers pocket on retiring to bed on the night in question, trousers which were not left on his side of the bed but in an open closet on his wife’s side of the bed. They were not hung on a trousers hanger, nor were they suspended from a hook, but apparently placed over a clothes hanger by means of a belt loop at the back of the trousers. Having viewed photographs which show the proximity of the closet to where his wife was sleeping, I must say I found this somewhat puzzling , given that there was a bedside table on his side of the bed on which he could have placed the keys on retiring. Of course another possible scenario is that the keys were in his trousers because he required to get out of the house and utilise his car at some later stage in the evening. Was he ever in bed that evening or undressed? How was it that the clothing which Mrs Hamilton described him as wearing was quite different from what he himself described, namely trousers and sandals only?
While he claimed to have watched a film on television after dinner the night in question he could not remember anything about the film or programme which he had been watching or whether it was on Irish or German television. Again, as a matter of practical experience, most people can recall quite clearly what they were doing, engaging in or watching immediately before a highly traumatic event.
There was no evidence of a break in to the house on the night in question. Nothing was taken or removed from the property other than furniture removed by the plaintiff some weeks previously and the suitcases which he also removed on the night of the fire. If there was an intruder, he picked about the most difficult point at which to access the property, ignoring a staircase which led to the annexe and other more accessible points of entry. If he brought petrol and paraffin to the scene of the fire, he must have done so by carrying same over the lengthy distance from the gate house, incurring the risk that he would be seen by any occupant of the gate house, albeit that the plaintiff’s son was out on the particular evening. An intruder would have had to have brought a torch, would have to have broken in to the boiler room, found the boiler unit supply line, avail of an instrument to loosen and detach the valve on the supply line. In these circumstances I have to further ask myself the question whether an intruder, who had spread accelerants around the boiler room, would then have left the basement area, mounted the staircase to the kitchen, pulled out a gas cooker from the wall and scattered diesel oil underneath the cooker?
What motive had the intruder, given that it was not burglary and given that the evidence was that the plaintiff’s family had no enemies in the area and, further, that incidents of arson were virtually unknown in the county? If indeed there was an intruder who broke the upper pane of glass in the poolside door accessing the boiler room, why was there no broken glass and no sooting or smoke staining of the outside wall or the adjacent foliage?
Some emphasis was placed by counsel for the plaintiff on the fact that the oil tank in the grounds outside was found in the ‘on’ position by Station Officer O’Hara and turned off by him. The tank nonetheless was later found to be still largely full, notwithstanding that both expert witnesses agreed that the tank, with the isolation valve removed, would have emptied in 15 – 20 minutes. Counsel argued that, as Mr Michovsky had never left the company of the Hamiltons or his family on returning to the scene of the fire, this could only mean that an intruder had turned the oil supply off and on again. However, this theory poses more problems for the plaintiff than it solves. Quite apart from the fact that an explanation might be that some blockage of the oil supply might have occurred in the early stages of the fire, what motive or reason would an intruder have for first turning off the supply (which he had just liberated by removing the isolation valve in the boiler room) and later turning it back on again? The only reason for any such interference would be to convey the impression that the boiler unit itself had gone on fire accidentally and the only person with an interest in giving or creating that impression was the plaintiff. I am also satisfied that during the timeframe from the commencement of the fire until the arrival of the Fire Brigade an opportunity would, as a matter of probability, have arisen when the plaintiff could have effected such interference.
Mrs. Michovsky stated that following their return from Germany on 7th August, 2002 they moved straight into the annexe. She confirmed that the suitcases were left unpacked – only the laundry had been removed from them. She offered no explanation as to why she had not unpacked her own suitcase over a period of 6 days. Asked to explain why no bedclothes were found in her daughter’s bedroom, she stated her belief that they were removed at a time when the family were allowed go into the house. She said they took the bedclothes because they were still quite clean. Apart from herself and her daughter, nobody else seems to have seen this ‘rescue’ incursion for bedclothes into the burning house. As her daughter was dressed on leaving the house, what reason or need was there to go back for a pillow and bedclothes? What ever became of these items? No explanation was offered. While her daughter had got dressed before leaving the house via the window, she had herself had left wearing her nightdress. Later on she found a light jacket in her car.
No explanation offered as to why an aluminium ladder was conveniently located in the immediate vicinity of the window where mother and daughter exited the house. Any intruder intending to break in to the house might have been expected to avail of the fortuitous circumstance of finding a ladder adjacent to the house rather than opt for the most awkward point of entry via the boiler room door at the rear of the house. Presumably from an intruder’s point of view it made no difference where he set the fire. One must also wonder how any supposed intruder get hold of the telephone directory which was found to contain traces of diesel and which was taken by Garda Kelly on 15th August, 2002 from the first step of the stairwell.
Mrs Michovsky also dismissed as “nonsense” any suggestion that her husband caused the fire, stating he had no reason to do so, that “all their hard blood was in that building”. She also stated that her husband had never left her company during the course of that evening. In relation to evidence suggesting that accelerants may have been found on the staircase between the boiler room and upstairs, she stated that she may have used cleaning petrol to clean the carpet when Tom Taaffe had come in to repair the boiler unit two years previously. She knew nothing about the valve in the boiler room or the arrangements in that room. On the night of the fire she had undressed in another room (the games room) where the suitcases were. She was unable to explain why she had not undressed in the bedroom.
Vivienne Michovsky also gave evidence. She recalled her mother waking her on the night in question telling her to put on her trainers and her pants quickly. She heard her father yelling somewhere in the background. They started to make their way out of the window and climbed down a ladder. Her mother followed her down the ladder. At some point she recalled going back into the house with her father and one of the firemen and going into her room and the adjacent bathroom to get her eye drops and an electric toothbrush. She also recalled taking the bedclothes from her bed but could not recall if it was at the time she got her eye drops or at some other time.
She flatly contradicted the evidence given by Officer O’Hara to the effect that there was no sign of the room having been slept in, that there was no pillow or bedclothes in the bedroom when he first went into it. In denying that suggestion under cross-examination her actual response was: “Did O’Hara sleep with me on the bed that he knows that?” I prefer and accept the evidence of Station Officer O’Hara as to the state and condition of Vivienne’s bedroom, corroborated as it is by photographs taken in the aftermath of the fire, and thus the obvious possibility arises in my mind that Vivienne was not in her own room but rather was in the same bed and room as her mother that night while her father was elsewhere.
I found the evidence of both Mrs. Michovsky and Vivienne Michovsky defensive, incomplete and unhelpful. It appeared to me to be well rehearsed and Vivienne in particular quickly fell back on repeated statements that “she could not remember” when pressed on any point of detail. She singularly failed to explain why, how or in what circumstances she or anyone else retrieved the pillow and bedclothes from her bedroom, if retrieved they were, or what later became of those items. However, as her quoted reply in cross-examination indicates, she was not a witness who, at the age of 20 as she now is, was in any way incapable of giving an account of those events.
CONCLUSION
I am of the view that the defendant has succeeded in establishing, as a matter of probability, that this fire was instigated either by the plaintiff or by some person on his behalf. I cannot be certain beyond reasonable doubt in this regard, but I am satisfied, from the accumulation of all the matters to which I have adverted, that no other explanation is in any way likely.
The possibility of an accidental fire was comprehensively demolished by the discovery of the detached and disassembled valve head. It might well have been assumed by the person setting the fire that this valve would be destroyed or buried under rubble and that such evidence would never have come to light. Every door within the house and virtually every window also had been left open, a circumstance which greatly facilitated the spread of fire.
For the various reasons stated, the “intruder” theory seems to me to have no basis in likelihood – it is a remote possibility only.
I am satisfied, on a test of balance of probabilities and as a matter of inference from the entirety of the evidence, that the plaintiff did cause this fire, either on his own or in conjunction with some other person. It is an inference which I draw from all of the facts to which I have adverted in the course of this judgment. None of those facts, taken in isolation, would carry the defendant’s case. However, when all are taken into account, the evidence as a whole is cogent and consistent only with the setting of this fire by an occupant of Drumlease Glebe House. I accept in all respects the evidence given by Mr Thomas, and in particular accept as cogent and reasonable his reasons for discounting the possibility that this fire was caused by some unknown intruder. I thus conclude that the defendant in this case has discharged the onus which the law imposes on a party alleging fraud.
I would therefore dismiss the claim.
Photograph 1. Glebe House
Figure 1. Plan of the building layout at Glebe House
Figure 2. Basement plan of the main house
Figure 3. Ground floor plan of the main house
Figure 4. First floor plan of the main house
Figure t. Schematic of the section of pipe work removed from the basement
Corrigan v Conway & Ors
[2007] IEHC 32 (31 January 2007)
JUDGMENT of Mr. Justice de Valera delivered on the 31st day of January, 2007.
In a previous ex tempore judgment I found that liability in the collision between the driver of the motorcar owned by Thomas Conway and Joseph Drumgoole (at the time driving the motor car the property of Theresa Corrigan) rested with Joseph Drumgoole.
I awarded damages of €54,160.57 made up as to:
General damages to date €25,000.
General damages into the future €25,000.
Agreed special damages €4,160.57.
Total €54,160.57.
This judgment concerns the obligation, if such obligation there is, for the Motor Insurers Bureau of Ireland (MIBI) to satisfy the judgment obtained by the plaintiff against the second defendant.
By a memorandum of agreement dated the 21st December, 1988, between the Minister for the Environment and the Motor Insurers Bureau of Ireland it was provided that in certain circumstances the MIBI would satisfy judgments in respect of uninsured drivers and the plaintiff claims that she comes within the provisions of s. 5(2) of the said agreement.
In the unreported Supreme Court judgment of Kinsella v. The Motor Insurers Bureau of Ireland (the Supreme Court [1992] No. 19) Finlay C.J. held:
“I am satisfied that having regard to the terms of clause 3(2) that the question as to whether or not a claimant ‘should reasonably have known’ of the absence of insurance is essentially a subjective question. The issue is not: would a reasonable person have known?, but rather: should the particular individual, having regard to all relevant circumstances, have known? For example, obviously, a person with defective reasoning or mental powers, or a young child, could not possibly be defeated by this clause.”
In applying this dictum to the circumstances of the instant case it is necessary to consider the events giving rise to the plaintiff’s claim.
I am satisfied that on the 7th August, 2000, the plaintiff drove from her home to a restaurant in Rathmines accompanied by her now and sometime partner Joseph Drumgoole and their daughter.
Joseph Drumgoole had arrived at the plaintiff’s home on foot and was a passenger in the car owned and driven by the plaintiff on the journey from her home to Rathmines.
The plaintiff’s insurance only covered her driving of her car and at the time on the occasion in question Joseph Drumgoole was not insured to drive her car.
I am also satisfied that while in the restaurant the plaintiff who was at the time approximately five months pregnant became aware of bleeding which indicated that there might be a problem with her pregnancy and obeying the instructions she had received from the Coombe Hospital in the event of such an emergency decided together with Mr. Drumgoole and her daughter to immediately go to the Coombe Hospital for investigation.
It is quite reasonable to accept that in these circumstances there was a degree of anxiety to such an extent that it drove from her, and from her partners mind all other matters and on this occasion Joseph Drumgoole drove the plaintiff’s motor car in which she was a passenger and set off for the Coombe.
On the way to the Coombe Hospital a collision occurred between the plaintiff’s car (then been driven by Joseph Drumgoole) and a car belonging to Thomas Conway. This was a reasonably serious collision and as already indicated I have decided that it was the fault of Mr. Drumgoole.
The plaintiff was injured in this collision, seriously but not in anyway life threatening, and she was brought by ambulance to St. James’s Hospital for orthopaedic attention.
In my view the threat of a miscarriage at five months could cause anxiety to such an extent that the plaintiff’s mind could not be expected to address the question of insurance – this would be a “relevant circumstance” as envisaged by Finlay C.J. in the Kinsella decision.
It must be noted that although both the plaintiff and Joseph Drumgoole stated that there was a high degree of anxiety when the bleeding was noticed by the plaintiff in the restaurant, this matter does not appear to have been uppermost in their minds at the scene of the collision as I am satisfied that no direct reference was made by either of them to the Gardaí or the rescue personnel (or indeed the driver of Mr. Conway’s car) at the scene. However as already noted this was a serious collision and it is not, in my view, unreasonable that the plaintiff’s injuries as a result of this collision would have driven the other matter away from the forefront of her mind.
It should be noted that in St. James’s Hospital the plaintiff clearly alerted the medical staff to her condition as the record shows that she was monitored for obstetrical reasons while a patient there.
I am therefore satisfied that the anxiety and worry suffered by the plaintiff when she discovered signs of bleeding in the restaurant in Rathmines was sufficient to drive other matters, such as the insurance situation, from her mind and that this was a “relevant circumstance” as envisaged by Finlay C.J. in the Kinsella judgment and that therefore the MIBI cannot rely on the provisions of para. 5(2) of the MIBI agreement of 1988 and must satisfy the judgment obtained by the plaintiff against Joseph Drumgoole.