Misrepresentation
Cases
Bisset v Wilkinson & Anor
[1926] UKPC 1
[1926] UKPC 73, [1927] AC 177, [1926] UKPC 1
LORD MERRIVALE
The appellant in this litigation brought his action in the Supreme Court of New Zealand to recover a sum of money payable to him under an agreement for sale and purchase of land. The defendants by way of defence and counterclaim alleged misrepresentation by the appellant in a material particular as to the character and quality of the land in question and claimed rescission of the agreement with consequential relief or alternatively damages for fraudulent misrepresentation or breach of warranty. Upon the trial of the action judgment was given for the plaintiff on the claim and the counterclaim. The Court of Appeal of New Zealand, by a majority, set aside the judgment of the trial judge and decreed rescission of the contract between the parties with consequential relief as prayed. The appellant claims to have the judgment of the Supreme Court reinstated.
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“The meaning of the representation as alleged was that the carrying capacity of the farm during the winter, with such special food and new pasture as could be grown by the proper use in ploughing of one team of horses regularly employed throughout the year was two thousand sheep.” “It is also common ground,” said the same learned judge, “that to bring a farm to its full carrying capacity ski1led management is required. It is admitted that the appellants were not experienced farmers.”
The appellant made these admissions at the hearing: ” I told them that if the place was worked as I was working it, with a good six-horse team, my idea was that it would carry two thousand sheep. That was my idea and still is my idea.” Further, he said: “I do not dispute that they bought it believing it would carry the two thousand sheep.”
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In the Court of Appeal, as is said in the judgment of Stout C.J., “the real question in dispute turned out to be whether the appellants were entitled to rescission of the contract. They did not rely upon the breach of warranty, but they asked for rescission of the contract, though their claim for damages for misrepresentation had not been formally withdrawn.” The learned judges of the Court of Appeal differed in opinion. Reed J. – who thought the appeal failed – dealt with the case upon the contention of the defendants – the now respondents – that the representation made to them by the plaintiff was a representation of fact. He found it to be conclusively established by the defendants’ own evidence that, given proper management, the farm was fully capable of carrying at least two thousand sheep. Stout C.J. held that the statement relied upon was made and accepted as a statement of fact. “It would surely be improbable,” the learned Chief Justice said, “that when a seller is asked to say what the carrying capacity of his farm is he should not answer the question, but volunteer his opinion or estimate.” As to the truth of the representation, the learned Chief Justice said: ” The evidence in my opinion is clear that this place never carried all the year round two thousand sheep.” He added this, “The respondent allowed the appellants to purchase the farm from him believing that it would carry two thousand sheep, and, therefore, they were misled.” Adams J. and Ostler J. alike held that the statement was a representation of fact and was proved to be untrue.
In an action for rescission, as in an action for specific performance of an executory contract, when misrepresentation is the alleged ground of relief of the party who repudiates the contract, it is, of course, essential to ascertain whether that which is relied upon is a representation of a specific fact, or a statement of opinion, since an erroneous opinion stated by the party affirming the contract, though it may have been relied upon and have induced the contract on the part of the party who seeks rescission, gives no title to relief unless fraud is established. The application of this rule, however, is not always easy, as is illustrated in a good many reported cases, as well as in this. A representation of fact may be inherent in a statement of opinion and, at any rate, the existence of the opinion in the person stating it is a question of fact. In Karberg’s case[1] Lindley L.J., in course of testing a representation which might” have been as it was said to be by interested parties one of opinion or belief, used this inquiry”\Vas the statement of expectation a statement of things not really expected 1″ The Court of Appeal applied this test and rescinded the contract which was in question. In Smith v. Land and House Property Corporation[2] there came in question a vendor’s description of the tenant of the property sold as ” a most desirable tenant “~a statement of his opinion, as was argued on his behalf in an action to enforce the contract of sale. This description was held by the Court of Appeal to be a misrepresentation of fact, which, without proof of fraud, disentitled the vendor to specific performance of the contract of purchase. “It is often fallaciously assumed,” said Bowen L.J.:
“that a statement of opinion cannot involve the statement of fact.
In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. The statement of such opinion is, in a sense, a statement or fact about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a. statement of a material fact, for he impliedly states that he knows facts which justify his opinion.”
The kind of distinction which is in question is illustrated again in a well-known case of Smith v. Chadwick.[3] There the words under consideration involved the inquiry in relation to the sale of an industrial concern whether a statement of “the present value of the turnover or output” was of necessity a statement of fact that the produce of the works was of the amount mentioned, or might be and was a statement that the productive power of the works was estimated at so much. The words were held to be capable of the second of these meanings. The decisive inquiries came to be: what meaning was actually conveyed to the party complaining; was he deceived, and, as the action was based on a charge of fraud, was the statement in question made fraudulently?
In the present case, as in those cited, the material facts of the transaction, the knowledge of the parties respectively, and their relative positions, the words of representation used, and the actual condition of the subject-matter spoken of, are relevant to the two inquiries necessary to be made: what was the meaning of the representation? Was it true?
In ascertaining what meaning was conveyed to the minds of the now respondents by the appellant’s statement as to the two thousand sheep, the most material fact to be remembered is that, as both parties were aware, the appellant had not and, so far as appears, no other person had at any time carried on sheep-farming upon the unit of land in question. That land as a distinct holding had never constituted a sheep-farm. The two blocks comprised in it differed substantially in character. Hogan’s block was described by one of the respondents’ witnesses as ” better land.” “It might carry,” he said, “one sheep or perhaps two or even three sheep to the acre.” He estimated the carrying capacity of the land generally as little more than half a sheep to the acre. And Hogan’s land had been allowed to deteriorate during several years before the respondents purchased. As was said by 8im J. :
” In ordinary circumstances, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact …. This, however, is not such a case. The defendants knew all about Hogan’s block and knew also what sheep the farm was carrying when they inspected it. In these circumstances … the defendants were not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an expression of his opinion on the subject.”
In this view of the matter their Lordships concur.
Whether the appellant honestly and in fact held the opinion which he stated remained to be considered. This involved examination of the history and condition of the property. If a reasonable man with the appellant’s knowledge could not have come to the conclusion he stated, the description of that conclusion as an opinion would not necessarily protect him against rescission for misrepresentation. But what was actually the capacity in competent hands of the land the respondents purchased had. never been, and never was, practically ascertained. The respondents, after two years’ trial of sheep-farming, under difficulties caused in part by their inexperience, found themselves confronted by a fall in the values of sheep and wool which would have left them losers if they could have carried three thousand sheep. As is said in the judgment of Ostler J.: “Owing to sheep becoming practically valueless, they reduced their flock and went in for cropping and dairy-farming in order to make a living.”
The opinions of experts and of their neighbours, on which the respondents relied, were met by the appellant with evidence of experts admitted to be equally competent and upright with those of his opponents, and his own practical experience upon part of the land, as to which his testimony was unhesitatingly accepted by the judge of first instance. It is of dominant importance that Sim J. negatived the respondents’ charge of fraud.
After attending to the close and very careful examination of the evidence which was made by learned counsel for each of the parties, their Lordships entirely concur in the view which was expressed by the learned judge, who heard the case. The defendants failed to prove that the farm if properly managed was not capable of carrying two thousand sheep.
Questions of laches and of affirmance of the contract on the part of the respondents which were argued at the hearing, are not material for further consideration, and in view of the course of the proceedings and the finding of Sim J. as to the honesty of the appellant in the statements he in fact made, it would be improper to accede to the application which was made at the Board on behalf of the respondents for leave to proceed anew upon the charge of fraudulent misrepresentation.
Their Lordships will humbly advise His Majesty that the appeal should be allowed, and the judgment of Sim J. restored. The respondents must bear the appellant’s costs here and below.
Cremdean Properties Ltd. v Nash
(1977) 244 EG 547
Bridge LJ,
‘Mr. Newsom’s able argument on behalf of the defendant can really be summarised very shortly. In effect what he says is this. The terms of the footnote are not simply, if contractual at all, a contractual exclusion either of any liability to which the defendant would otherwise be subject for any misrepresentation in the document, or of any remedy otherwise available on that ground to the plaintiff. The footnote is effective, so the argument runs, to nullify any representation in the document altogether; it is effective, so it is said, to bring about a situation in law as if no representation at all had ever been made. For my part, I am quite unable to accept that argument. I reject it primarily on the simple basis that on no reading of the language of the footnote could it have the remarkable effect contended for . . I am quite content to found my judgment in this case on the proposition that the language of the footnote relied upon by Mr. Newsom simply does not, on its true interpretation, have the effect contended for. But I would go further and say that if the ingenuity of a draftsman could devise language which would have that effect, I am extremely doubtful whether the court would allow it to operate so as to defeat section 3. Supposing the vendor included a clause which the purchaser was required to, and did, agree to in some such terms as ‘notwithstanding any statement of fact included in these particulars the vendor shall be conclusively deemed to have made no representation within the meaning of the Misrepresentation Act 1967,’ I should have thought that that was only a form of words the intended and actual effect of which was to exclude or restrict liability, and I should not have thought that the courts would have been ready to allow such ingenuity in forms of language to defeat the plain purpose at which section 3 is aimed.’
Scarman LJ
‘Nevertheless, the case for the appellant does have an audacity and a simple logic which I confess I find attractive. It runs thus: a statement is not a representation unless it is also a statement that what is stated is true. If in context a statement contains no assertion, express or implied, that its content is accurate, there is no representation. Ergo, there can be no misrepresentation; ergo, the Misrepresentation Act 1967 cannot apply to it. Humpty Dumpty would have fallen for this argument. If we were to fall for it, the Misrepresentation Act would be dashed to pieces which not all the King’s lawyers could put together again.’
Dimmock v Hallett
(1866-67) LR 2 Ch App 21
The 13th condition of sale stated the following exclusion clause,
“If any mistake be made in the description of any of the lots, or any other error shall appear in the particulars of the estate (except as to the quantity of land, which shall be taken as stated, whether more or less), such mistake or error shall not annul the sale, but the vendor or purchaser shall give or take a compensation or equivalent as the case may require, and which compensation or equivalent shall be settled by the said Judge at Chambers.”
Turner LJ
“This is a Petition to discharge a purchaser under a decree. The first ground on which the application is rested is, that although the auctioneer stated at the sale that it was to be without reserve, Mr. Dimmock , who was a mortgagee in possession of the estate, and had the conduct of the sale, bid against the purchaser, and enhanced the price, so that Mr. Baxter , the only other bidder, having ceased bidding at £14,000, all the other biddings were between Mr. Dimmock and the purchaser, up to £19,000.
If these admitted facts formed the whole of the case, there would not, I think, be any room for doubt; for, if an auctioneer says that a sale is without reserve, every one must understand from that statement that no bidding is to be made on behalf of persons interested in the estate, and the purchaser would be just as much entitled to be discharged as if the conditions had stated the sale to be without reserve.
It is alleged, however, on behalf of the parties to the suit, that though the auctioneer did state that the sale was without reserve, he at the same time stated that the parties interested in the estate had liberty to bid. This is met on the part of the purchaser, not by a denial of the auctioneer having made the latter statement, but by a denial of the purchaser having heard it. The evidence before us establishes that the auctioneer did make the statement, several witnesses who were present at the sale having heard him make it, and without intending to impute to the purchaser any wilful misstatement, I am of opinion that we cannot judicially do otherwise than treat him as having heard and known that the parties interested in the estate had liberty to bid. The question then remains, what meaning is to be attributed to the statement that a sale is without reserve, but that the parties interested are at liberty to bid. The two branches of the statement are not very consistent, but I think that they may be read together by taking the second as a qualification of the first; and if a purchaser knows that parties interested have liberty to bid, he cannot be entitled to be discharged on the ground that they have bid against him.
The purchaser further grounds his case on misrepresentations in the particulars. Some of the instances alleged appear to me to be unimportant. Thus I think that a mere general statement that land is fertile and improvable, whereas part of it has been abandoned as useless, cannot, except in extreme cases—as, for instance, where a considerable part is covered with water, or otherwise irreclaimable—be considered such a misrepresentation as to entitle a purchaser to be discharged. In the present case, I think the statement is to be looked at as a mere flourishing description by an auctioneer.
The next misrepresentation alleged is as to the warping. If the conditions had stated that the land could be covered with deposit within a limited time, and it appeared clearly that it could not be covered within that time, or if it had been stated that the process could be performed at a certain expense, and it was shewn that it could not be performed except at a much greater cost, the purchaser might probably have been entitled to the relief he seeks. But such a vague statement as that the land “in course of time may be covered with warp, and considerably improved at a moderate cost,” puts a purchaser on inquiry, and if he chooses to buy on the faith of such a statement without inquiry, he has no ground of complaint.
The next alleged misrepresentation is much more important. A farm called Bull Hassocks, containing 300 acres, or nearly a third of the property put up for sale, is described as “lately in the occupation of Mr. R. Hickson, at an annual rent of £290 15s. Now in hand.” The facts are, that this farm had been let at a higher rent than £290 15s. before Hickson became tenant Hickson took the farm at Midsummer, 1863, at the rent of £290 15s. At Michaelmas, 1864, he left it, and there appears never to have been any actual tenancy between his leaving and the time of the sale. Mr. Dimmock , however, being in possession, agreed with a Mr. Nelson to let him Bull Hassocks Farm, and another farm called Creyke’s Hundreds, containing 115 acres, at 15s. per acre, which would bring the rent of Bull Hassocks Farm to £225 at most. That agreement was not carried into effect, for Nelson desired to be relieved of the farm, and paid £20 to be off his bargain. Was it then fair and honest to describe the farm in the particulars as late in the occupation of Hickson at a rent of £290 15s., when Hickson had been out of possession nearly a year and a half, within which period there had been an agreement to let the farm at a rent less by £65 than that paid by him. Such a description amounts to a representation to the purchaser that he will come into possession of a farm which will let for £290 15s., whereas Mr. Dimmock , who had agreed to let it for so much less, knew that nothing near that rent could be obtained for it. But the matter does not rest there, for even the representation that the farm had been let to Hickson at £290 15s. was not correct. He had occupied it for a year and a quarter, paying only £1 for the first quarter; and this took place at a time of year when the occupation must have been beneficial; for the farm contained about 150 acres of pasture, which Hickson thus held at a nominal rent from Midsummer to Michaelmas. I am of opinion, therefore, that the particulars contain representations which were untrue, and calculated materially to increase the apparent value of the property. The Court requires good faith in conditions of sale, and looks strictly at the statements contained in them.
Again, Creyke’s Hundreds , containing 115 acres, is described as let to R. Hickson, a yearly Lady Day tenant, at £130 per annum; and another farm, Misson Springs, containing 131 acres, is mentioned as let to Wigglesworth, a yearly Lady Day tenant, at £160 per annum. Now the sale took place on the 25th of January, 1866, and there is no reference made in the particulars to the fact that each of these tenants had given a notice to quit, which would expire at Lady Day. The purchaser, therefore, would be led to suppose, as to these farms, that he was purchasing with continuing tenancies at fixed rents, whereas he would, in fact, have to find tenants immediately after the completion of his purchase. I refer particularly to this, because as to some of the other farms it is stated in the particulars that the tenants had given notice to quit; so that the purchaser must have been led to believe that the tenants of Creyke’s Hundreds and Misson Springs were continuing tenants. This again, as it seems to me, is a material misrepresentation.
The vendor contends that these are only errors, entitling the purchaser to compensation under the thirteenth condition of sale. I think that such a condition applies to accidental slips, but not to a case like the present, where, though I do not mean to impute actual fraud, there is what, in the view of a Court of Equity, amounts to fraud — a misrepresentation calculated materially to mislead a purchaser.
I am of opinion, therefore, that the Petitioner is entitled to be discharged; but there has been so much negligence on his part that he ought not, I think, to have any costs.”
Cairns LJ
“I am of the same opinion. The case raises questions of considerable importance, and, in my view, the Court ought not to be less strict as to sales under its own order than as to sales out of Court. It is first contended by the Petitioner that the sale is vitiated by Dimmock having bid at it. That argument depends upon the conclusion at which we arrive as to what took place at the sale, for the purchaser does not rest his case on the conditions, but on a statement made by the auctioneer; it is, therefore, incumbent on the Court to ascertain what did take place, and the whole of what took place, for it is not alleged that the purchaser was absent during part of the sale. I cannot but come judicially to the conclusion upon the evidence that the auctioneer repeatedly stated, not only that the sale was without reserve, but that all the parties were at liberty to bid. It remains to consider what that statement means. It appears to me to amount to this — that all parties were at liberty to bid, but that every bidding, if accepted, would make a contract. I think, therefore, that the purchaser is not entitled to be discharged on the ground of Mr. Dimmock having bid against him.
As regards the case of misrepresentation, I attach no importance to the statement as to the results of the estate being within the South Level. It was calculated to put a purchaser on his guard, and is a statement which certainly would not have made me very sanguine that the estate could be dealt with under the powers relating to the Level either very speedily or very cheaply. What is a “moderate” cost is a question which different people would answer very differently; and a statement that the cost will be moderate is too indefinite to amount to a misrepresentation. Then as to the omission to state that Hickson and Wigglesworth had given notice to quit, it is to be observed that the particulars, as regards the other holdings, stated that the tenants of them had given notice; it was, therefore, a fair inference that, when there was no such statement, the tenant had not given notice. The farms held by Hickson and Wigglesworth are important as regards size, and the purchaser would consider himself safe of his rent from these till Lady Day, 1867. The point is of importance to him, for if the tenants leave he must either find new tenants, or make allowances to the outgoing tenants. I think, therefore, that the omission is very material. I do not arrive at the conclusion that it was wilful. I believe the affidavit which states that it was accidental; and if it stood alone, it probably would only be a matter for compensation.
But as to Bull Hassocks Farm, why was it stated that this farm was late in the occupation of R. Hickson, at a rent of £290 15s.? Evidently this was put forward as a test of the value of the farm, and the particulars must be taken to say that it was a fair test. Is it a fair test? and can the vendor really have thought that it was so? As far as we can ascertain the facts, this farm was once occupied by a person named Robinson ; there was an interval between Robinson and the next tenant Simpson ; then another interval between Simpson and Hickson. Simpson paid more rent than Hickson; it was a falling property, and the vendor, if he gave any standard, was bound to give a fair one. Moreover, could it be said that Hickson did occupy at that rent? He held the farm from Midsummer, 1863, to the next Michaelmas, for £1; a farm containing 150 acres of pasture land, the occupation of which, for that quarter, was clearly valuable. He had the power of determining his tenancy at Michaelmas, 1864, which he exercised; so, in fact, he held the land fifteen months for £291 15s. But the matter does not rest there. When Hickson gave up the farm, the Plaintiff sought to obtain a tenant, and made a verbal arrangement with Nelson to come in at a rent of £225. The Plaintiff, being a mortgagee in possession, was bound to obtain the best rent; it must, therefore, be taken that £225 was the best rent that could be obtained. He found that Nelson was not a man of capital, and he agreed, for a consideration, to rescind the arrangement; but this does not affect the question as to the rent. One of the Plaintiff’s own witnesses can go no further than to say that he would give 16s. an acre for it. The statement as to the rent was calculated to mislead, and was not prepared with the good faith which is requisite in conditions of sale. I think that a misrepresentation of this nature affects the validity of the contract, and is not a matter for compensation, but entitles the Petitioner to be discharged. I agree as to the costs”
Edgington v Fitzmaurice
(1885) 29 Ch D 459
Cotton LJ
“It is true that if he had not supposed he would have a charge he would not have taken the debentures; but if he also relied on the misstatement in the prospectus, his loss nonetheless resulted from that misstatement. It is not necessary to show that the misstatement was the sole cause of his acting as he did. If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will still be liable…
It was a statement of intention, but it is nevertheless a statement of fact, and if it could not be fairly said that the objects of the issue of the debentures were those which were stated in the prospectus the Defendants were stating a fact which was not true…
Bowen LJ
‘the state of a man’s mind is as much a fact as the state of his digestion… A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact… such misstatement was material if it was actively present to his mind when he decided to advance his money.’
Fry LJ
‘inquiry is whether this statement materially affected the conduct of the Plaintiff in advancing his money.’ He pointed out the ‘prospectus was intended to influence the mind of the reader.’
Erlanger v New Sombrero Phosphate Co
(1878) 3 App Cas 1218
Lord Blackburn
“Throughout the Companies Act, 1862 (25 & 26 Vict. c. 89) , the word “promoters” is not anywhere used. It is, however, a short and convenient way of designating those who set in motion the machinery by which the Act enables them to create an incorporated company.
Neither does this Act in terms impose any duty on those promoters to have regard to the interests of the company which they are thus empowered to create. But it gives them an almost unlimited power to make the corporation subject to such regulations as they please, and for such purposes as they please, and to create it with a managing body whom they select, having powers such as they choose to give to those managers, so that the promoters can create such a corporation that the corporation, as soon as it comes into being, may be bound by anything, not in itself illegal, which those promoters have chosen. And I think those who accept and use such extensive powers, which so greatly affect the interests of the corporation when it comes into being, are not entitled to disregard the interests of that corporation altogether. They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fiduciary relation to some extent. Some reference was made in the argument to the Companies Act 1867 (30 & 31 Vict. c. 131, s. 38) , on the construction of which there has been a great diversity of judicial opinion. That section does contain the word “promoters,” which, as I have already observed, is not to be found in the Companies Act 1862, but it imposes no fresh duty on them with regard to the company. It imposes a fresh duty towards, and gives a new cause of action to, persons who take shares in the company as individuals; it does not affect the obligation of the promoters towards the corporation. I think that the extent of that fiduciary relation, which, as already said, in my opinion, the promoters bear to the company, is a very important consideration in construing that section; and I am desirous to avoid prejudging that question by saying in this case more than is necessary for its decision. I think, as already said, that the promoters are in a situation of confidence to some extent towards the company they form.
Where, as in the present case, the company is formed for the purpose of becoming purchasers from the promoters as vendors, the interests of the promoters and of the company clash. It is the vendor’s interest to get as high a price as possible, and they have a strong bias to overvalue the property which they are selling; it is the purchasers’ interest to give as low a price as possible, and to secure that the price actually given is not more than the property is really worth to them.
Lord Eldon, in Gibson v Jeyes,[2] says that “it is a great rule of the Court that he who bargains in matters of advantage with a person placing confidence in him, is bound to shew that a reasonable use has been made of that confidence—a rule applying to trustees, attorneys, or any one else.” I think persons having property to sell may form a company for the purpose of buying it in such a manner as to shew this, and when they do so, the sale will be unimpeachable. I will not attempt to define how this may be done. Probably there are many ways. What I shall do is to inquire what, on the evidence, appears to have been done in this case, and then to confine myself to saying whether, on the facts of this particular case, it appears that an unreasonable use has been made of that confidence which the company did not indeed place in the promoters, for the company did not then exist, but which the Legislature did place in them for the company when it gave the promoters power to create it…
… the burden of proof lies on the fiduciary agents, agents selling to those to whom they owed a duty to prove, if not that sufficient protection had been afforded, at least that they had sufficient reasons for bonâ fide believing that sufficient protection had been afforded to their purchasers. If they could have proved that Sir Thomas Dakin was told that the price at which the property had been recently bought was £55,000, and also that the knew that Westall , by whom the prospectus was prepared, from evidence which he had collected, was not a disinterested attorney, but one having a strong bias in favour of the vendors, they should have done so. If such proof had been given, and it had been shewn that Sir Thomas Dakin , well aware that for these reasons he should receive the statements and evidence of value with caution, had satisfied himself that the bargain was a good one at £110,000, the case would have been very different. I doubt whether the opinion of one disinterested person so obtained would have been enough protection, but that it is not necessary to consider if, as I think, it is not proved that even this slight degree of protection was given.
My Lords, I have felt much doubt and difficulty as to the second question, though, on the whole, I think the Plaintiffs have not lost their remedy.
Several points were made and argued, as to which I think it unnecessary to say more than that I think they were satisfactorily disposed of in the judgments below. That on which I have difficulty, and to which I shall confine my remarks, is whether laches and acquiescence is made out to such an extent as to deprive the company of the remedy by rescission which they had if they had come promptly. Some things are to my mind clear. The contract was not void, but only voidable at the election of the company.
In Clough v The London and North Western Railway Company,[3] in the judgment of the Exchequer Chamber, it is said, “We agree that the contract continues valid till the party defrauded has determined his election by avoiding it. In such cases, (i.e., of fraud) the question is, Has the person on whom the fraud was practised, having notice of the fraud, elected not to avoid the contract? Or, Has he elected to avoid it? Or, Has he made no election? We think that so long as he has made no election he retains the right to determine it either way; subject to this, that if, in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if, in consequence of his delay the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind.” It is, I think, clear on principles of general justice, that as a condition to a rescission there must be a restitutio in integrum . The parties must be put in statu quo . See per Lord Cranworth in Addie v The Western Bank.[4] It is a doctrine which has often been acted upon both at law and in equity. But there is a considerable difference in the mode in which it is applied in Courts of Law and Equity, owing, as I think, to the difference of the machinery which the Courts have at command. I speak of these Courts as they were at the time when this suit commenced, without inquiring whether the Judicature Acts make any, or if any, what difference.
It would be obviously unjust that a person who has been in possession of property under the contract which he seeks to repudiate should be allowed to throw that back on the other party’s hands without accounting for any benefit he may have derived from the use of the property, or if the property, though not destroyed, has been in the interval deteriorated, without making compensation for that deterioration. But as a Court of Law has no machinery at its command for taking an account of such matters, the defrauded party, if he sought his remedy at law, must in such cases keep the property and sue in an action for deceit, in which the jury, if properly directed, can do complete justice by giving as damages a full indemnity for all that the party has lost: see Clarke v Dixon,[5] and the cases there cited.
But a Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. And a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by. And any change which occurs in the position of the parties or the state of the property after such notice or knowledge should tell much more against the party in morâ , than a similar change before he was in morâ should do.
In Lindsay Petroleum Company v Hurd,[6] it is said: “The doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where, by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.” I have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change, which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.
The Plaintiffs in this case are an incorporated company; but I think that in considering the question of laches the Court cannot divest itself of the knowledge that the corporation is an aggregate of individuals. The knowledge of one shareholder is not the knowledge of the others; but I think great injustice might sometimes be done if it were held that where it is shewn that all the shareholders who paid reasonable attention to the affairs of the company had notice sufficient to make it laches in them not to act promptly, there could not be laches in the company unless the notice was brought home to the company in its corporate capacity. But at the same time it should be recollected that shareholders who seek to set aside a contract made by the governing body, have practically first to change that governing body, and must have time to do so. Now in the present case every allottee had from the beginning by the prospectus full notice that the vendor, John Marsh Evans , was also one of their directors, which alone might have given them an equity to set aside the contract, though in every other respect it was unimpeachable. If that had been the only ground on which the shareholders were entitled to relief, its seems clear that it would have been impossible to give it even the day after the directors took possession and paid the price. They had, however, much more substantial equities, but they had also notice of more, for the prospectus referring to the contract, which was open to inspection at the office, I think each allottee was fixed with the knowledge, which he would have had if he had read it, that Evans had purchased from Chatteris so recently as the 30th of August, not quite three weeks before he sold to the company. He would have not known at what price it had been purchased, but as that was known to all who had an interest in the company under liquidation, either as creditors or contributors, it could very easily have been ascertained. And, in fact, it was known and stated at the meeting in February. Now though this was not actual knowledge that the other four directors had not made independent inquiry before making the purchase, it was enough, in my opinion, to have put any reasonable shareholder upon inquiry. And the circumstances attending the nature of the property, which are mentioned by the Lord Chancellor in his opinion, were such as to make it proper for those who intended to get rid of the bargain to act with considerable promptitude. What weighs most with me is that it appears that if the price of phosphate had not fallen below £5 a ton, there would have been a profit of £1 a ton, and the bargain would not have been a bad one; if it had risen the bargain would have been a good one, and would no doubt have been approved. But I see nothing to lead to the conclusion that the shareholders were waiting to see how the market turned out. Prices no doubt began to fall about February, 1872, and continued to fall, but not with a sudden fall. If I thought the shareholders had been waiting to see how the market ruled it might have made a difference in my opinion. If no steps to repudiate a purchase of a lottery ticket were taken till after the ticket came up a blank, so that the purchaser, if it came up a prize, might have kept it, it would surely be inequitable to set aside the contract then. And though not nearly so strong a case, such delay seems to be somewhat of that nature…
On the other hand, I feel that there is much force in the observation that those who deal inequitably with a company know that it must necessarily be slow in its proceedings, and are not entitled to complain that time elapses; and that it is not desirable that such a rule should be laid down as would practically deprive a company when defrauded of relief. And this is a reason against considering a company as precluded from that relief to which it would otherwise be entitled, on account of delay, unless the delay is excessive. I can find no case in which even a private individual has been precluded by mere delay, except where the delay has been very much greater than in this case. In Prendergrast v Turton[7] nine years elapsed. In Clegg v Edmondson,[8] nearly as long; and in both cases the Plaintiff had lain by whilst the Defendants were investing money in the mine, until that investment proved to be remunerative. It was clearly not equitable to leave the Defendants to all the risk of loss, and claim to themselves a profit; and this seems to be what Lord Eldon principally relied on in Norway v Rowe.[9] In the present case that is no ground for imputing to the Plaintiffs what Lord Lyndhurst in Prendergrast v Turton calls a “conditional acquiescence.” As is pointed out in Clarke v Hart,[10] there was in Prendergrast v Turton very nearly, if not quite a legal defence. Here, taking the time at which the active shareholders were put upon exerting diligence to be February, there was not quite nine months before the filing of the bill; that is not very long for getting the majority of shareholders to make an inquiry, turn out the board, and get proper advice, before instituting a Chancery suit. And having come to the conclusion before, that the company had once had the right to this relief, I think the burthen is on the Defendants to shew that the company have precluded themselves from the relief to which they had a right. I do not think this is made out.”
Lord Penzance, Lord Hatherley, Lord O’Hagan, Lord Selborne and Lord Gordon concurred.
Esso Petroleum Company Ltd. v Mardon
[1976] EWCA Civ 4 [1976] 2 All ER 5, [1976] QB 801
Denning MR
Such being the facts, I turn to consider the law. It is founded on the representation that the estimated throughput of the service station was 200,000 gallons. No claim can be brought under the Misrepresentation Act, 1967, because that Act did not come into force until 22nd April, 1967: whereas this representation was made in April 1963. So the claim is put in two ways: First, that the representation was a collateral warranty. Second, that it was a negligent misrepresentation. I will take them in order.
Collateral warranty: Ever since Hailbut Symons & Co. v. Buckleton, (1913) Appeal Cases 30, we have had to contend with the law as laid down by the House of Lords that an innocent misrepresentation gives no right to damages. In order to escape from that rule, the pleader used to allege -I often did it myself – that the misrepresentation was fraudulent, or alternatively a collateral warranty. At the trial we nearly always succeeded on collateral warranty. We had to reckon, of course, with the dictum of Lord Moulton that “such collateral contracts must from their very nature be rare”. But more often than not the Court elevated the innocent, misrepresentation into a collateral warranty: and thereby did justice – in advance of the Misrepresentation Act, 1967. I remember scores of cases of that kind, especially on the sale of a business. A representation as to the profits that had been made in the past was invariably held to be a warranty. Besides that experience, there have been many cases since I have sat in this Court where we have readily held a representation – which induces a person to enter into a contract – to be a warranty sounding in damages. I summarised them in Dick Bently Productions v. Harold Smith Motors (1965) 1 Weekly Law Reports at page 627, when I said:”..,
“Looking at the cases once more, as we have so often done, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Sufficient that it was intended to be acted upon and was in fact acted on”.
Mr. Ross-Munro, Q.C., retaliated, however, by citing Bisset v. Wilkinson (1927) Appeal Cases 177, when the Privy Council said that a statement by a New Zealand farmer that an area of land “would carry 2,000 sheep” was only an expression of opinion. He submitted that the forecast here of 200,000 gallons was an expression of opinion and not a statement of fact: and that it could not be interpreted as a warranty or promise.
Now, I would quite agree with Mr. Ross-Munro that it was not a warranty – in this sense – that it did not guarantee that the throughput would be 200,000 gallons. But, nevertheless, it was a forecast made by a party – Esso – who had special knowledge and skill. It was the yardstick (the e.a.c.) by which they measured the worth of a filling station. They knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a forecast – intending that the other should act upon it and he does act upon it – it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill. It is just as if Esso said to Mr. Mardon:
“Our forecast of throughput is 200,000 gallons. You can rely upon it as being a sound forecast of what the service station should do. The rent is calculated on that footing”.
If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty. Just as there is a breach of warranty when a forecast is made “expected to load” by a certain date if the maker has no reasonable grounds for it, see Sunday v. Keighley (1922) 27 Commonwealth Cases 296 or bunkers “expected 600/700 tons”, The Pantanassa (1958) 2 Lloyd 449 at pages 455-7 by Mr. Justice Diplock. It is very different from the Hew Zealand case where the land had never been used as a sheep-farm and both parties were equally able to form an opinion as to its carrying capacity – see particularly 1927 Appeal Cases at pages 183-4.
In the present case it seems to me that there was a warranty that the forecast was sound, that is, Esso made it with reasonable care and skill. That warranty was broken. Most negligently Esso made a “fatal error” in the forecast they stated to Mr. Mardon, and on which he took the tenancy. For this they are liable in damages. The Judge, however declined to find a warranty. So I must go further.
Negligent misrepresentation: Assuming that there was no warranty, the question arises whether Esso are liable for negligent mis-statement under the doctrine of Hedley Byrne v. Heller & Partners Ltd.(1964) Appeal Gases 465. It has been suggested that Hedley Byrne cannot be used so as to impose liability for negligent pre-contractual statements: and that, in a pre-contract situation, the remedy (at any rate before the 1967 Act) was only in warranty or nothing. Thus in Hedley Byrne itself Lord Reid said (at page 483):
“… Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty”.
And in Oleificio Zuccu v. Northern Sales (1965) 2 Lloyds Reports 196 Mr. Justice McNair said that:
“… as at present advised, I consider the submission advanced by the buyers – that the ruling in Hedley Byrne applies as between contracting parties – is without foundation”.
As against these, I took a different view in McInerney v. Lloyds Bank (1974) 1 Lloyds 241, when I said at page 253:
“… If one person, by a negligent mis-statement, induces another to enter into a contract – with himself or a third person -he may be liable in damages”.
In arguing this point, Mr. Ross-Munro, Q.C. took his stand in tis way. He submitted that, when the negotiations between two parties resulted in a contract between them, their rights and duties were governed by the law of contract and not by the law of tort. There was, therefore, no place in their relationship for Hedley Byrne, which was solely a liability in tort. He relied particularly on Clark v. Kirby Smith (1964) Chancery 507 where Mr. Justice Plowman held that the liability of a solicitor for negligence was a liability in contract and not in tort, following the observations of Sir Wilfred Greene, the Master of the Rolls, in Groom v. Crocker (1939) 1 King’s Bench 206. Mr. Ross-Munro might also have cited Bagot v. Stevens Scanlan & Co.(1966) 1 Queen’s Bench 197, about an archtect, and other cases too. But I venture to suggest that those cases are in conflict with other decisions of high authority which were not cited in them.. These decisions show that, in the case of a professional man, the duty to use reasonable care arises not only in contract, but is also imposed by the law apart from contract, and is therefore actionable in tort. It is comparable to the duty of reasonable care which is owed by a master to his servant, or vice versa. It can be put either in contract or in tort: see Lister v. Romford Ice and Gold Storage Co. (1957) Appeal Cases at page 587 by Lord Radcliffe: Matthews v. Kuwait Rechtel Corporation (1959) 2 Queen’s Bench 57. The position was stated by Tiadal C.J., delivering the judgment of the Court of Exchequer Chamber in Boorman v. Brown (1842) 3 Queen’s Bench at page 526:
“… There is a large class of cases where the foundation of the action springs out of privity of contract between the parties, but in which the breach or non-performance, is indifferently either assumpsit or case upon tort. Such are the actions against attorneys, surgeons and other professional men for want of competent skill or proper care in the service they undertake to render … The principle in all these cases would seem to be that the contract creates a duty and the neglect to perform that duty, or the non-feasence, is a ground of action upon a tort”.
That decision was affirmed in the House of Lords in 11 Clark and Finelly 1, when Lord Campbell, giving the one speech, said (at page 44):
“… Wherever there is a contract, and something to be done in the course of the employment which is the subject of that contract, if there is a breach of duty in the course of that employment, the plaintiff may recover either in tort or in contract”.
To this there is to be added the high authority of Viscount Haldane, L.C. in Nocton v. Lord Ashburton (1914) Appeal cases 932 at page 950:
“… The solicitor contracts with his client to be skilful and careful. For failure to perform his obligations, he may be made liable at law in contract or even in tort, for negligence in the breach of a duty imposed on him”.
That seems to me right. A professional man may give advice under a contract for reward; or without a contract, in pursuance of a voluntary assumption of responsibility, gratuitously without reward. In either case he is under one and the same duty to use reasonable care: see Cassidy v. Ministry of Health (1951) 2 King’s Bench at pages 359-360. In the one case it is by reason of a term implied by law. In the other, it is by reason of a duty imposed by law. For a breach of that duty, he is liable in damages: and those damages should be, and are, the same, whether he is sued in contract or in tort.
It follows that I cannot accept Mr. Ross-Munro’s propositions It seems to me that Hedley Byrne, properly understood, covers this particular proposition: If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another – be it advice, information or opinion – with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other aide into a contract with him, he is liable in damages. This proposition is in line with what I said in Candler v. Crane Christmas & Co. (1951) 2 King’s Bench at pages 179-180, which was approved by the majority of the Privy Council in Mutual Life & Citizens Assurance Limited v. Evatt (1971) Appeal Cases 793. And the Judges of the Commonwealth have shown themselves quite ready to apply Hedley Byrne between contracting parties; see in Canada Sealand v. Ocean Cement (1973) 33 Dominion Law Reports (3rd) 625; and New Zealand Capital Motors v. Beecham (1975) 1 New Zealand Law Reports 576.
Applying this principle, it is plain that Esso professed to have – and did in fact have – special knowledge or skill in estimating the throughput of a filling station. They made the representation – they forecast a throughput of 200,000 gallons – intending to induce Mr. Mardon to enter into a tenancy on the faith of it. They made it negligently. It was a “fatal error”. And thereby induced Mr. Mardon to enter into a contract of tenancy that was disastrous to him. For this misrepresentation they are liable in damages.
Now for the measure of damages. Mr. Mardon is not to be compensated here for “loss of a bargain”. He was given no bargain that the throughput would amount to 200,000 gallons a year. He is only to be compensated for having been induced to enter into a contract which turned out to be disastrous for him. Whether it be called breach of warranty or negligent misrepresentation, its effect was not to warrant the throughput, but only to induce him to enter into the contract. So the damages in either case are to be measured by the loss he suffered. Just as in the case of Doyle v. Olby (Ironmongers) (1969) 2 Queen’s Bench 158, he can say:
“…I would not have entered into this contract at all but for your representation. Owing to it, I have lost all the capital I put into it. I also incurred a large overdraft. I have spent four years of my life in wasted endeavour without reward: and it will take me some time to re-establish myself”.
For all such loss he is entitled to recover damages. It is to be measured in a similar way as the loss due to a personal injury. You should look into the future so as to forecast what would have been likely to happen if he had never entered into this contract: and contrast it with his position as it is now as a result of entering into it. The future is necessarily problematical and can only be a rough-and-ready estimate. But it must be done in assessing the loss.
Now for the new agreement of 1st September, 1964. The judge limited the loss to the period from April 1963 to September 1964, when the new agreement was made. He said that from 1st September, 1964, Mr. Mardon was carrying on the business
“on an entirely fresh basis, of which the negligent mis-statement formed no part”.
I am afraid I take a different view. It seems to me that from 1st September 1964, Mr. Mardon acted most reasonably. He was doing what he could to retrieve the position, not only in Ms own interest, but also in the interest of Esso. It was Esso who were anxious for him to stay on. They had no other suitable tenant to replace him. They needed him to keep the station as a going concern and sell their petrol. It is true that by this time the truth was known – that the throughput was very far short of 200,000 gallons – but nevertheless, the effect of the original mis-statement was still there. It laid a heavy hand on all that followed. The new agreement was an attempt to mitigate the effect. It was not a fresh cause which eliminated the past. It seems to me that the losses after 1st September 1964, can be attributed to the original mis-statement, just as those before.
Now for the company position. The initial capital of £6,270 was not provided by Mr. Mardon personally out of his own bank account. It was provided by a private company in which he and his wife held all the shares. It was suggested that this, in some way, prevented Mr. Mardon from claiming for the loss of it. The Judge rejected this suggestion: and so would I. The business of this filling station was undoubtedly the personal business of Mr. Mardon. The money put into it might be obtained by overdraft at the bank or by loan from his own private company – but wherever it came from, it was a loss to him: and he can recover that loss. It is no concern of Esso where it came from, c.f. Dennis v. London Passenger Transport Board (1948) 1 All England Reports 319.
If Mr. Mardon had not been induced to enter into the contract, it is fair to assume that he would have found an alternative business in which to invest his capital. (The Judge said so). It is also fair to assume (as he is a very good man of business) that he would have invested it sufficiently well so that he would not have lost the capital. Nor would he have incurred any overdraft or liabilities that were not covered by his assets. And it may be assumed that he would have made a reasonable return by way of earnings for his own work (in addition to return from his capital). But equally it must be remembered that, after March, 1967 (when he gave up the site at Southport) he should have been able (if fit) to take other employment or start another business and thus mitigate his loss: and gradually get restored to a position equal to that which he would have had if he had never gone into the Esso business. It would take him some time to do this. So the loss of earnings could only be for a limited number of years.
On this footing, the loss which he has suffered would seem to be as follows (subject to further argument by the parties): Capital loss: cash put into the business and lost £6,270; overdraft incurred in running the business, £7,774. Loss of earnings to be discussed. There will be interest to be added for a period to be discussed.
Mr. Mardon also claimed damages for having to sell his house to pay off the overdraft. That seems to me too remote and should be compensated for by interest on the overdraft. He also suffered in health by reason of all the worry over this disaster, and was off work. That should be compensated for by including it in the figure of loss of future earnings.
Conclusion: I would like to express my appreciation of the full and careful way in which the learned Judge found the facts and analysed the law. It has been most helpful to the determining of the case. The result is that Mr. Mardon is entitled to substantial damages on his counterclaim. There remain the issues of interest and costs to be discussed. We are also willing to hear further argument on the assessment of damages.
Gordon v Selico
(1986) 18 H.L.R. 219
CA
“Furthermore, he observed, the plaintiffs and their surveyor had ample opportunity to inspect the flat, an opportunity of which they availed themselves. In these circumstances, decisions such as Horsfall v Thomas and Smith v Hughes, precluded the plaintiffs from complaining of any misrepresentation.
Both these two cases, however, are distinguishable from the present on their facts. In the former, not only was the defect in the gun patent and discoverable on inspection, but the purchaser took no steps to inspect it, so that he did in fact not rely on any misrepresentation as to its condition which might have been made. In the latter case, the vendor did nothing to disguise the character of the oats sold. In the present case, on the learned judge’s relevant findings of fact, with which we see no reason to disagree, not only was a fraudulent misrepresentation made, which was intended to mislead prospective purchasers of a lease of the property; the misrepresentation did mislead the purchasers and they acted on it to their detriment. In these circumstances, it is in our judgment no answer in law to the claim in deceit for the defendants to say that the plaintiffs or their surveyor could have discovered the dry rot on a closer inspection of Flat C or were content to purchase without any warranty as to the condition of the property; they and their surveyor were in fact misled by the cover-up operation, as they were intended to be. The general principle caveat emptor has no application where a purchaser has been induced to enter the contract of purchase by fraud. Nor can clause 4(2)(a) of the Law Society’s Conditions of Sale avail a vendor in these circumstances. These subsidiary submissions made by way of defence to the claim based on deceit are not in our judgment well founded.[1]
Heilbut Symons & Co v Buckleton
[1912] UKHL 2 [1913] AC 30,
Viscount Haldane
My Lords, as neither the circumstances of the conversation nor its words were in dispute, I think that the question of warranty or representation was one purely of law, and that it ought not to have been submitted to the jury.
As soon as fraudulent representation was negatived, it seems to me that as to this there was no question of fact. The words of Mr. Johnston in the conversation proved by the respondent were words which appear to me to have been words not of contract but of representation of fact. No doubt this representation formed part of the inducement to enter into the contract to take the shares which was made immediately afterwards, and was embodied in two letters dated the next day, April 15. But neither in these letters nor in the conversation itself are there words either expressing or, in my opinion, implying a special contract of warranty collateral to the main contract, which was one to procure allotment.
It is contrary to the general policy of the law of England to presume the making of such a collateral contract in the absence of language expressing or implying it, and I think the learned judge who tried the case ought to have informed the jury that on the issue of warranty there was no case to go to it, and that on this issue he and the Court of Appeal ought to have given judgment for the appellants. The strongest presentation of the case for the respondent seems to me that of Farwell L.J. to the effect that there was a contract that the shares should be shares in a rubber company, and that the jury has found that the company was not a rubber company. But even on the basis of this finding I do not think that the account given by the learned Lord Justice of the transaction properly describes it. The respondent did not ask the technical question whether the company of which he had heard vaguely was correctly described as a rubber company. That he was not thinking of this point seems to me clear from the fact that when he received the letters informing him that he was to have shares in the Filisola Rubber and Produce Estates (a description which was in accordance with that in the prospectus) he made no further inquiry. What he from the first wanted to know was whether Johnston thought the company was “all right,” a question to which Johnston simply replied that the appellants were bringing it out, an answer which, to my mind, simply conveyed that a firm of their standing would not be bringing it out if they did not believe it to be all right. From the evidence of the respondent, which immediately follows in the passage I have quoted, it seems to me plain that this was accepted by the respondent as the answer he wanted.
My Lords, words which on the face of them appear to be simply representations of fact may, if the context so requires, import a contract of warranty. The judgment of Lord Blackburn in Brownlie v. Campbell(1) is instructive on this point. But I
(1) (1880) 5 App. Cas. 925, at p. 953.
cannot find in the words under construction, or in the circumstances, any context which required the Court to put upon them any interpretation beyond the natural one which I have stated. This interpretation I think they naturally bore, and the parties themselves appear to have put it upon them.
I wish to add that I entirely agree with the observations made by Lord Moulton in the judgment which he is about to deliver, and which I have had the advantage of reading, on the authorities as to the test of whether words can be interpreted as giving rise to a warranty. Considerable confusion has arisen from failure to keep in view the simple principle to which he refers as enunciated by Holt C.J. that an affirmation can only be a warranty provided it appear on evidence to have been so intended. The words of Holt C.J. are cited with approval by Buller J. in Pasley v. Freeman.(1) Not the least interesting of the older authorities which laid down the general principle, even in days when the action of assumpsit was by no means clearly marked off from that of case, is Chandelor v. Lopus.(2) It was there decided that the plaintiff, who was suing the defendant for misrepresentation as to the character of a precious stone sold to him, must declare on a contract, or if he declared in tort for a misrepresentation must aver a scienter. Had the moral of this decision, with its firm distinction between two wholly different causes of action, been steadily kept in view, there would have been less disposition than the Law Reports disclose to slip, by the easy process of leaving a supposed question of fact to a jury, from one legal conception into another which is totally distinct.
Neither the respondent nor Johnston appears to have had any question in his mind other than whether some company dealing with rubber, as to the identity of which there was no question raised, was being brought out by the appellants. For the respondent says that the position of the appellants in the rubber trade was such that “any company that they should see fit to bring out was a sufficient warranty” to him “that it was all right in every respect.” His interest was in the shares for which he was minded to apply, and all he was really asking for was the assurance
(1) (1789) 3 T. R. 51.
(2) (1603) Cro. Jac. 4.
I have mentioned. Had Johnston thought that he was being asked to do anything else than answer the question whether the appellants were bringing out the company, he might well have refused to pledge himself, and I do not believe that either he or the respondent, regard being had to the character of the conversation, was thinking of any other question. But if not, there was in point of law no evidence to go to the jury on the issue as to warranty, and this issue ought not to have been submitted to it. In reality the only contract entered into seems to have been the contract reduced into writing by the two letters of April 15 for procuring an allotment of shares in what was described as the Filisola “Rubber and Produce Estates” Company.
It is with great reluctance that, in a case where the Court of Appeal has agreed with the verdict of a jury and the judgment of the judge who tried the case, I feel myself bound to come to a different conclusion. But I cannot, on the facts of this case, take any other view than that the appeal ought to be allowed. Judgment should, in my opinion, be entered in the action for the appellants, and the respondent ought to pay the costs here and in the Courts below. I move accordingly.
LORD ATKINSON. My Lords, I concur.
Lord Moulton
In the history of English law we find many attempts to make persons responsible in damages by reason of innocent misrepresentations, and at times it has seemed as though the attempts would succeed. On the Chancery side of the Court the decisions favouring this view usually took the form of extending the scope of the action for deceit. There was a tendency to recognize the existence of what was sometimes called “legal fraud,” i.e., that the making of an incorrect statement of fact without reasonable grounds, or of one which was inconsistent with information which the person had received or had the means of obtaining, entailed the same legal consequences as making it fraudulently. Such a doctrine would make a man liable for forgetfulness or mistake or even for honestly interpreting the facts known to him or drawing conclusions from them in a way which the Court did not think to be legally warranted. The high-water mark of these decisions is to be found in the judgment pronounced by the Court of Appeal in the case of Peek v. Derry(1), when they laid down that where a defendant has made a misstatement of fact and the Court is of opinion that he had no reasonable grounds for believing that it was true he may be made liable in an action of deceit if it has materially tended to induce the plaintiff to do an act by which he has incurred damage. But on appeal to your Lordships’ House this decision was unanimously reversed, and it was definitely laid down that, in order to establish a cause of action sounding in damages for misrepresentation, the statement must be fraudulent or, what is equivalent thereto, must be made recklessly, not caring whether it be true or not. The opinions pronounced in your Lordships’ House in that case shew that both in substance and in form the decision was, and was intended to be, a reaffirmation of the old common law doctrine that actual fraud was essential to an action for deceit, and it finally settled the law that an innocent misrepresentation gives no right of action sounding in damages.
On the Common Law side of the Court the attempts to make a person liable for an innocent misrepresentation have usually taken the form of attempts to extend the doctrine of warranty beyond its just limits and to find that a warranty existed in cases where there was nothing more than an innocent misrepresentation. The present case is, in my opinion, an instance of this. But in respect of the question of the existence of a warranty the Courts have had the advantage of an admirable enunciation of the true principle of law which was made in very early days by Holt C.J. with respect to the contract of sale. He says: “An affirmation at the time of the sale is a warranty, provided it appear on evidence to be so intended.” So far as decisions are concerned, this has, on the whole, been consistently followed in the Courts of Common Law. But from time to time there have been dicta inconsistent with it which have, unfortunately,
(1) (1887) 37 Ch. D. 541; (1889) 14 App. Cas. 337.
found their way into text-books and have given rise to confusion and uncertainty in this branch of the law. For example, one often sees quoted the dictum of Bayley J. in Cave v. Coleman(1),where, in respect of a representation made verbally during the sale of a horse, he says that “being made in the course of dealing, and before the bargain was complete, it amounted to a warranty” – a proposition that is far too sweeping and cannot be supported. A still more serious deviation from the correct principle is to be found in a passage in the judgment of the Court of Appeal in De Lassalle v. Guildford(2) which was cited to us in the argument in the present case. In discussing the question whether a representation amounts to a warranty or not the judgment says: “In determining whether it was so intended, a decisive test is whether the vendor assumes to assert a fact of which the buyer is ignorant, or merely states an opinion or judgment upon a matter of which the vendor has no special knowledge, and on which the buyer may be expected also to have an opinion and to exercise his judgment.”
With all deference to the authority of the Court that decided that case, the proposition which it thus formulates cannot be supported. It is clear that the Court did not intend to depart from the law laid down by Holt C.J. and cited above, for in the same judgment that dictum is referred to and accepted as a correct statement of the law. It is, therefore, evident that the use of the phrase “decisive test” cannot be defended. Otherwise it would be the duty of a judge to direct a jury that if a vendor states a fact of which the buyer is ignorant, they must, as a matter of law, find the existence of a warranty, whether or not the totality of the evidence shews that the parties intended the affirmation to form part of the contract; and this would be inconsistent with the law as laid down by Holt C.J. It may well be that the features thus referred to in the judgment of the Court of Appeal in that case may be criteria of value in guiding a jury in coming to a decision whether or not a warranty was intended; but they cannot be said to furnish decisive tests, because it cannot be said as a matter of law that the presence or absence of those features is conclusive of the intention of the
(1) 3 Man. & Ry. 2.
(2) [1901] 2 K. B. 215, at p. 221.
parties. The intention of the parties can only be deduced from the totality of the evidence, and no secondary principles of such a kind can be universally true.
It is, my Lords, of the greatest importance, in my opinion, that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made. In the present case the statement was made in answer to an inquiry for information. There is nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement. It is a representation as to a specific thing and nothing more. The judge, therefore, ought not to have left the question of warranty to the jury, and if, as a matter of prudence, he did so in order to obtain their opinion in case of appeal, he ought then to have entered judgment for the defendants notwithstanding the verdict.
It will, of course, be evident that I have been dealing only with warranty or representation relating to a specific thing. This is wholly distinct from the question which arises when goods are sold by description and their answering to that description becomes a condition of the contract. It is, in my opinion, a failure to recognize that in the present case the parties were referring (as is evident by the written contracts) to one specific thing only that led Farwell L.J. to come to a different conclusion from that to which your Lordships ought, in my opinion, to come in this appeal.”
HIH Casualty and General Insurance Ltd & Ors v Chase Manhattan Bank & Ors
[2003] UKHL 6 [2003] 2 Lloyd’s Rep 61, [2003] UKHL 6, [2004] ICR 1708, [2003] Lloyd’s Rep IR 230, [2003] 1 CLC 358, [2003] 1 All ER (Comm) 349, [2003] Lloyds Rep IR 230
Lord Bingham
In submitting that phrase [6] does not deny the insurers their usual legal remedies for negligent misrepresentation by Heaths, the insurers drew sustenance from the well-known principles propounded by Lord Morton of Henryton giving the judgment of the Board in Canada Steamship Lines Ltd v The King [1952] AC 192 at 208. There can be no doubting the general authority of these principles, which have been applied in many cases, and the approach indicated is sound. The courts should not ordinarily infer that a contracting party has given up rights which the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do. But, as the insurers in argument fully recognised, Lord Morton was giving helpful guidance on the proper approach to interpretation and not laying down a code. The passage does not provide a litmus test which, applied to the terms of the contract, yields a certain and predictable result. The courts’ task of ascertaining what the particular parties intended, in their particular commercial context, remains.
12. In relation to negligent misrepresentation, the key to the understanding of phrase [7] in my view lies in the provision that Chase shall have “no liability of any nature . . .”. This is comprehensive language, clearly chosen to give Chase an extended immunity. It cannot refer simply to the liability of Chase to suffer the avoidance of the contract, since that is the subject of express provision in clause [8]. So the language must be intended to preclude the liability of Chase for damages under section 2(1) of the 1967 Act for any negligent misrepresentation by Heaths and also any right of the insurers to avoid the policy on that ground.
13. I find nothing commercially surprising in this interpretation, from the viewpoint of Chase or the insurers. In a complex transaction of this kind, the possibility that Heaths as agent might make and fail to correct a representation which was later held to be both untrue and negligent would be very real. Chase, distanced from the transaction, would have little knowledge of what was represented and little opportunity to correct it. It could reasonably seek protection against loss or diminution of its security on such a ground. The insurers for their part might reasonably accept this chink in their armour, recognising that their rights against Heaths in such an eventuality would remain unimpaired.
14. Does phrase [7] then operate to protect Chase against any liability for damages or any risk of avoidance if the insurers should be induced to enter into the contract by any fraudulent misrepresentation of Heaths acting as the agents of Chase? In submitting that such is the effect of the phrase, Lord Grabiner QC for Chase emphasised the comprehensive language already noted, “no liability of any nature”. Read literally, those words would cover liability for fraudulent misrepresentation, or deceit. If Chase’s security for its loan is to be cast-iron, the policy must stand even if induced by the deceit of Heaths.
15. This is not a negligible argument. But neither the judge nor the Court of Appeal accepted it and I am satisfied that they were right not to do so. For, as Rix LJ observed more than once in his judgment (paragraphs 160, 169), fraud is a thing apart. This is not a mere slogan. It reflects an old legal rule that fraud unravels all: fraus omnia corrumpit. It also reflects the practical basis of commercial intercourse. Once fraud is proved, “it vitiates judgments, contracts and all transactions whatsoever”: Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at 712, per Denning LJ. Parties entering into a commercial contract will no doubt recognise and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal. What is true of the principal is true of the agent, not least in a situation where, as here, the agent, if not the sire of the transaction, plays the role of a very active midwife. As Bramwell LJ observed in Weir v Bell (1878) 3 Exch D 238 at 245,
“I think that every person who authorizes another to act for him in the making of any contract, undertakes for the absence of fraud in that person in the execution of the authority given, as much as he undertakes for its absence in himself when he makes the contract”.
16. It is clear that the law, on public policy grounds, does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract. The insurers have throughout contended for a similar rule in relation to the fraud of agents acting as such. After a very detailed examination of such authority as there is, both the judge ([2001] 1 Lloyd’s Rep 30 at 45, paragraph 35) and the Court of Appeal ([2001] 2 Lloyd’s Rep 483 at 504, paragraph 109) decided against the existence of such a rule. It is true that the ratio of the leading authority on the point, S Pearson & Son Ltd v Dublin Corporation [1907] AC 351, despite the distinction and numerical strength of the House which decided it, is not easy to discern. I do not however think that the question need be finally resolved in this case. For it is in my opinion plain beyond argument that if a party to a written contract seeks to exclude the ordinary consequences of fraudulent or dishonest misrepresentation or deceit by his agent, acting as such, inducing the making of the contract, such intention must be expressed in clear and unmistakable terms on the face of the contract. The decision of the House in Pearson v Dublin Corporation does at least make plain that general language will not be construed to relieve a principal of liability for the fraud of an agent: see in particular the speeches of Lord Loreburn LC at page 354, Lord Ashbourne at page 360 and Lord Atkinson at page 365. General words, however comprehensive the legal analyst might find them to be, will not serve: the language used must be such as will alert a commercial party to the extraordinary bargain he is invited to make. It is no doubt unattractive for a contracting party to propose a term clearly having such effect, because of its predictable effect on the mind of the other contracting party, and this may explain why the point of principle left open in Pearson v Dublin Corporation has remained unresolved for so long. But I think it clear that, judged by this exacting standard, the language of phrase [7] falls well short of what is required to meet Chase’s objective, as both the judge (paragraph 81(3)) and the Court of Appeal (paragraphs 159, 160) held.
17. It appears, from authority to which we were referred by Chase, that a different approach would be taken in New York. In The Chase Manhattan Bank v AXA Reinsurance UK plc (unreported, index number 603080/00, 26 July 2001) Gammerman J considered the effect of a truth of statement clause in a film-finance insurance contract and observed (at page 7):
“Under well-established New York law, such express, detailed disclaimers preclude a claim of fraud based on misrepresentations within the scope of the disclaimers . . .”
The judge’s decision was upheld by the Appellate Division of the Supreme Court on 23 May 2002. In a judgment also of that date in The Chase Manhattan Bank v New Hampshire Insurance Company and AXA Reassurance SA (unreported, index number 602759/01) the same judge, construing (it would appear) similar clauses, in a similar context, said (at page 38):
“The clauses are drafted with great precision. Each sentence and word within each clause serves a separate function. Some portions of the clauses are limited to representations/omissions about the risk, while others are not. Given the sophistication of the parties, I decline to read into the contractual language limitations that are not stated in the plain text of the parties’ agreements.”
As these citations make plain, the law in our respective jurisdictions has a different point of departure. English law knows no rule comparable with that described as well-established in New York. Instead, it requires a party seeking to exonerate himself from the consequences of his agent’s fraud (assuming that is legally possible) to do so expressly and openly. I can see no persuasive argument for varying or relaxing our domestic rule which, as it seems to me, serves to encourage an open and cards-on-the-table (face upwards) approach to the making of contracts.
Phrase [8]
18. In relation to misrepresentation, phase [8] adds nothing to phrase [7]: there may be no avoidance for innocent or negligent misrepresentation, but the phrase does not, for reasons already given, apply to fraudulent misrepresentation. In relation to non-disclosure, there was some difference of opinion between the judge and the Court of Appeal.
19. I think it plain, giving fair effect to the language of this phrase, that innocent or negligent non-disclosure by Heaths is to give the insurers no right to avoid the policy. The phrase refers to “any . . . nondisclosure by other parties . . .”; the English law on non-disclosure is widely recognised to be very strict; and any other reading would weaken Chase’s security to a point which would, it may be inferred, have been unacceptable to it. But fraudulent non-disclosure raises a more difficult problem.
20. The judge held that phrase [8] did not exclude the insurers’ right to avoid the contract of insurance in circumstances where the breach of the independent duty of disclosure by Heaths was the result of deliberate concealment of material facts: [2001] 1 Lloyd’s Rep 30, paragraphs 76-77. In the Court of Appeal, doubt was cast on the meaning of “fraudulent non-disclosure” ([2001] 2 Lloyd’s Rep 483, paragraph 165) and it was questioned whether the law had distinguished between innocent, negligent and fraudulent non-disclosure (paragraphs 163, 168). In paragraph 168, Rix LJ said:
“In sum, I do not think that, in the absence of express language, any line is to be drawn between the various possible causes of or motives for non-disclosure. It is not in this way that the distinction is to be drawn. The question to my mind is whether a non-disclosure can support a claim in fraud, with its remedies in damages and/or rescission: either because [on] analysis it amounts or gives rise to a fraudulent misrepresentation or perchance for any other reason.”
21. In the passage quoted, Rix LJ makes an important but uncontentious point: that silence, where there is a duty to speak, may amount to misrepresentation: see Brownlie v Campbell (1880) 5 App Cas 925 at 950, per Lord Blackburn; Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 at 773-774, 782-783, per Slade LJ; Spencer Bower, Turner & Sutton, Actionable Non-Disclosure (2nd ed 1990) at 249-250. Since an agent to insure is subject to an independent duty of disclosure, the deliberate withholding from the insurer of information which the agent knows or believes to be material to the risk, if done dishonestly or recklessly, may well amount to a fraudulent misrepresentation. If, in the present case, the insurers establish non-disclosure by Heaths of this kind, nothing in the truth of statement clause deprives them of their ordinary right to avoid the policy and recover damages against Chase and Heaths.
22. Whether, on the facts of this case, the insurers can establish any deliberate and dishonest or reckless non-disclosure by Heaths which does not amount to a misrepresentation, must be doubtful. In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 at 549, Lord Mustill pointed out that “in practice the line between misrepresentation and non-disclosure is often imperceptible.” But section 84 of the 1906 Act appears to accept the possibility of fraudulent non-disclosure and I do not think such possibility need be rejected on conceptual grounds. If it were to be established, I would agree with the judge that phrase [8] does not exclude the insurers’ ordinary right to avoid.
23. I would for my part answer the preliminary issues in this way:
“On the true construction of the contracts of or for insurance pleaded in the [Amended] Particulars of Claim No. 1999 Folio 1413 [the Insurers’ action] and on the assumption that the facts and matters pleaded in those Particulars of Claim are true, the Insurers are entitled in law
(a) to avoid and/or rescind the contracts of or for insurance against Chase on the grounds, but only on the grounds, of fraudulent misrepresentation or as regards the contracts of insurance fraudulent non-disclosure by Heaths as agent of Chase;
(b) to damages from Chase for, but only for, fraudulent misrepresentation by Heaths as agent of Chase and fraudulent non-disclosure by Heaths as agent of Chase if, but only if, such fraudulent non-disclosure by Heaths amounts to fraudulent misrepresentation.”
On the Court of Appeal’s narrow point relating to fraudulent non-disclosure not amounting to misrepresentation, the insurers’ appeal succeeds, and should be allowed to that extent. The cross-appeal by Chase fails and must be dismissed.
Walker v Boyle:
[1982] 1 WLR 495, [1982] 1 All ER 634
Dillon J
National Conditions of Sale (19th edition). Condition 17(1) provided that ‘no error, the statement or omission in any preliminary answer concerning the property . . shall annul the sale’. There had been a pre-existing boundary dispute with a neighbour which was not disclosed in the course of the preliminary enquiries before contract.
‘I do not regard condition 17 as satisfying that requirement in the circumstances of this case. Another way of putting it is that Mrs Boyle has not shown that it does satisfy that requirement.’
….
‘It seems to me that the equitable barrier to specific performance extends not merely to matters of title where the vendor has failed to disclose defects known to him in his own title, but also to misrepresentation where the vendor has, albeit innocently, misdescribed the property or made some other misrepresentation about the property, when the true facts were within his own knowledge. A trifling misrepresentation where the truth would have had no effect on the purchaser and the purchaser would have nonetheless entered into the contract, rests in a different category because there the contract has not been induced by the misrepresentation, but here, as I find, the purchaser would reasonably have refused to contract unless the boundary dispute, if disclosed to him, had first been resolved. Therefore, it seems to me that on equitable principles and consistently with the authorities I have mentioned, and consistently also with the fairly recent decision of Walton J in Faruqi v English Real Estates Ltd [1979] 1 WLR 963, the vendor, Mrs Boyle, is not entitled in equity to rely on condition 17 in the circumstances of this case.’
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.”
Howard Marinne and Dredging Co. Ltd v A. Ogden & Sons (Excavations) Ltd.
[1977] EWCA Civ 3 [1978] QB 574,
Master of the Rolls (dissenting)
THE COLLATERAL ORAL WARRANTIES
Ogdens submitted that, in the two telephone conversations in April 1974, Howards gave oral warranties as to the carrying capacity of the barges; and that, on the faith of these warranties, they tendered for the main excavation contract and entered into it: that the warranties are therefore binding on Howards on the authority of such cases as the Shanklin Pier case (1951) 2 King’s Bench 854: and Wells v. Buckland (1965) 2 Queen’s Bench 170. Further, that at the interview of 11th July, 1974, Howards gave a further oral warranty as to the carrying capacity of the barges: and that, on the faith of it, they did order the barges and took them on hire under the Charterparties.
On this point we were, as usual, referred to Heilbut v. Buckleton [1913] AC 30. That case has come under considerable criticism lately, particularly in view of the contemporaneous decision of the House of Lords in Schavel v. Read (1913) 2 Times Reports 64, see Professor Grieg’s Article in (1971) 87 Law Quarterly Review at pages 185/190. Much of what was said in Heilbut v. Buckleton is now out of date, as I mentioned in Evans v. Merzario (1976) 1 Weekly Law Reports at page 1081; and Esso v. Harden (1976) 1 Queen’s Bench at page 817. Ho doubt it is still true to say, as Holt C.J. said: “an affirmative at the time of the sale is a warranty, provided it appears as evidence to be so intended” – which I take to mean intended to be binding.
Applying this test, I cannot regard any of the oral representations made in April 1974 as contractual warranties. Ogdens invited offers from five different owners of barges. These five made separate offers. Howards made their written offer “subject to availability and contract”: which shows that they were not binding themselves to anything at that stage. It cannot be supposed that, in the telephone conversations, they were binding themselves contractually to anything. Nor would I regard the statement at the interview of 11th July, 1974 as a contractual warranty. It was made three months before the barges were delivered. And meanwhile there was the “on hire condition survey”: and the exchange of the draft charterparties in which you would expect any contractual terms to be included.
I agree with the judge that there were no collateral warranties here.
NEGLIGENT MISREPRESENTATIONS
Ogdens contended next that the representations by Howards, as to the carrying capacity of the barges, were made negligently: and that Howards are liable in damages for negligent misrepresentation on the principles laid down in Hedley Byrne v. Heller [1964] AC 465.
This raises the vexed question of the scope of the doctrine of Hedley Byrne. It was much discussed in the Privy Council in Mutual life Ltd, v. Evatt [1971] AC 794; and in this Court in Esso Petroleum Co. v. Harden (1976) 1 Queen’s Bench 801. To my mind one of the most helpful passages is to be found in the speech of Lord Pearce in Hedley Byrne v. Heller [1964] AC at page 539:
“… To import such a duty of care, the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer … A most important circumstance is the form of the inquiry and cf the answer”.
To this I would add the principle stated by Lord Reid and Lord Morris of Borth-y-Gest in the Privy Council case [1971] AC at page 812, which I would adopt in preference to that stated by the majority:
“… When an inquirer consults a business man in the course of his business and makes it plain to him that he is seeking considered advice and intends to act on it in a particular way … his action in giving advice … (gives rise to) … a legal obligation to take such care as is reasonable in the whole circumstances”.
Those principles speak of the “gravity of the inquiry” and the seeking of “considered advice”. Those words are used so as to exclude representations made during a casual conversation in the street; or in a railway carriage; or an impromptu opinion given offhand; or “off the cuff” on the telephone. To put it more generally, the duty is one of honesty and no more whenever the opinion, information or advice is given in circumstances in which it appears that it is unconsidered and it would not be reasonable for the recipient to act on it without taking further steps to -check it. Some instances are to be found in the books. One is Fish v. Kelly (1864) 17 C.B.N.S. 294. The other is Low v. Bouverie (1891) 3 Chancery 82, as explained by Lord Reid and Lord Morris of Borch-y-Gest in Mutual Life v. Evatt [1971] AC at page 813. And the actual decision in Heilbut, Symons & Co. v. Buckleton [1913] AC 30 was that an honest answer on the telephone did not give rise to a cause of action.
Applying this test, it seems to me that at these various conversations Mr. O’Loughlin was under a duty to be honest, but no more. Take the first two conversations. They were on the telephone. The callers from the North wanted to know what was the capacity of the barges. Mr. O’Loughlin answered it offhand as best he could, without looking up the file. If they had wanted considered advice, they should have written a letter and got it in writing. Take the last conversation. It was on an occasion when Mr. O’Loughlin went up to the North to discuss all sorts of things. In the course of it, he was asked again the capacity of the barges, he had not got the file with him, so he answered as best he could from memory. To my mind in those circumstances it was not reasonable for Ogdens to act on his answers without checking them. They ought either to have got him to put it in writing – that would have stressed the gravity and importance of it – or they ought to have got expert advice on their own behalf – especially in a matter of such importance to them. So I agree with the judge that there was not such a situation here as to give rise to a duty of care: or to make Howards liable for negligent misrepresentation at common law.
THE MISREPRESENTATION ACT,_1967.
Alternatively Ogdens claim damages for innocent misrepresentation under the Misrepresentation Act, 1967. It says: “… When a person a has entered into a contract after/representation has been made to him by another party thereto and as a result thereof he has
suffered loss, then, if the person making the representation would be liable in damages in respect thereof had the representation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe, and did believe up to the time the contract was made that the facts represented were true”.
This enactment imposes a new and serious liability OR anyone who makes a representation of fact in the course of negotiations for a contract. If that representation turns out to be mistaken -then however innocent he may be – he is just as liable as if he made it fraudulently. But how different from times past! For years he was not liable in damages at all for innocent -misrepresentation – see Heilbut v. Buckleton [1913] AC 13. Quite recently he was made liable if he was proved to have made it negligently, see Esso v. Mardon (1976) Queen’s Bench 801. But now with this Act he is made liable – unless he proves – and the burden is on him to prove – that he had reasonable ground to believe and did in fact believe that it was true.
Section 2(1) certainly applies to the representation made by Mr. O’Loughlin on 11th July, 1974, when he told Ogdens that each barge could carry 1600 tonnes. The judge found that it was a representation: that he said it with the object of getting the hire contract for Howards. They got it: and, as a result, Ogdens suffered loss. But the judge found that Mr. O’Loughlin was not negligent: and so Howards were not liable for it.
The judge’s finding was criticised before us: because he asked himself the question: Was Mr. O’Lcughlin negligent? Whereas he should have asked himself: Did Mr. O’Loughlin have reasonable ground to believe that the representation was true? I think that criticism is not fair to the judge. By the word “negligent” he was only using shorthand for the longer phrase contained in section 2(1) which he had before him. And the judge, I am sure, had the burden of proof in mind: for he had come to the conclusion that Mr. O’Loughlin was not negligent. The judge said in effect:
“I am satisfied that Mr. O’Loughlin was not negligent”:
and being so satisfied, the burden need not be further considered, see Robins v. National Trust Co [1927] AC at page 520.
It seems to me that, when one examines the details, the judge’s view was entirely justified. He found that Mr. O’Loughlin’s state of mind was this: Mr. O’Loughlin had examined Lloyd’s register and had seen there that the deadweight capacity of each barge was 1800 tonnes. That figure stuck in his mind. The Judge found that
“the 1600 tonnes was arrived at by knocking off what he considered a reasonable margin for fuel, and so on, from the 1800 tonnes summer deadweight figure in Lloyd’s register, which was in the back of his mind”.
The judge said that Mr. O’Loughlin had seen at some time the German shipping documents and had seen the deadweight figure of 1055-135 tonnes: but it did not register. All that was in his mind was the 1800 tonnes in Lloyd’s Register which was regarded in shipping circles as the Bible. That afforded reasonable ground for him to believe that the barges could each carry 1600 tonnes payload: and that is what Mr. O’Loughlin believed.
So on this point, too, I do not think we should fault the judge. It is not right to pick his judgment to pieces – by subjecting it – or the shorthand note – to literal analysis. Viewing it fairly, the judge (who had section 2(1) in front of him) must have been of opinion that the burden of proof was discharged.
THE EXCEPTION CLAUSE
If I be wrong so far, however, there remains the exception clause in the charterparty. It was, as I have said, included throughout all the negotiations: and no objection was ever taken to it. The important words are:
“Charterers acceptance of handing over the vessel shall be conclusive evidence that she is … in all respects fit for the intended and contemplated use by the charterers and in every other way satisfactory to them “.
In the old days we used to construe such an exception clause strictly against the party relying on it: but there is no need – and I suggest no warrant – any longer for construing it so strictly. The reason is that now by section 3 of the Misrepresentation Act 1967 the provision is of no effect except to the extent that the court may allow reliance on it as being fair and reasonable in the circumstances of the case. Under this section the question is not whether the provision itself is reasonable: but only whether “reliance on it is fair and reasonable in the circumstances of the case”.
If the clause itself is reasonable, that goes a long way towards showing that reliance on it is fair and reasonable. It seems to me that the clause was itself fair and reasonable. The parties here were commercial concerns and were of equal bargaining power. The clause was not foisted by one on the other in a standard printed form. It was contained in all the drafts which passed between them, and it was no doubt given close consideration by both sides, like all the other clauses, some of which were amended and others not. It was a clause common in charterparties of this kind: and is familiar in other commercial contracts, such as construction and engineering contracts, see for instance Pearson v. Dublin Corporation [1907] AC 356, and the useful observations in Hudson on Building Contracts, 10th Edition (1970) at pages 39,48. It is specially applicable in cases where the contractor has the opportunity of checking the position for himself. It tells him that he should do so: and that he should not rely on any information given beforehand, for it may be inaccurate. Thus it provides a valuable safeguard against the consequences of innocent misrepresentation.
Even if the clause were somewhat too wide (I do not think it is), nevertheless this is, I think, a case where it would be fair and reasonable to allow reliance on it. Here is a clause by which Ogdens accepted that the barges were “in all respects fit for the intended and contemplated use by the charterers”. Ogdens had had full inspection and examination of the barges They had had an on-hire survey by their surveyors. Any expert could have given them a reliable estimate as to the deadweight capacity. Yet they seek to say that the barges were not fit for the use for which they ended them – in that they were of too low carrying capacity, in support of this case they have no written representation to go upon. They only have two telephone conversations and one interview – as to which there is an acute conflict of evidence. It is just such conflicts which commercial men seek to avoid by such a clause as this. I would do nothing to impair its efficacy. I would allow Howards to rely on it. .
CONCLUSION
It seems to me, as a matter of probability, that all three representations should stand on the same footing – all three to convey the same meaning – all three true or all three false. Yet the judge drew a distinction between them. The first two were true. The third was untrue. But the distinction did not matter in the end before him. He held that none of the three was actionable. If we now draw a distinction – and hold that the third alone is actionable – we shall be making a rod for the back of the Official Referee. Ogdens will not be able to get damages for entering into the main contract for the work – but only for hiring the barges from Howards.That will give rise to a lot of speculation, Rather than commit the parties to all this trouble and expense, I would hold that Howards can rely on the exception clause – which was inserted, I believe, so as to avoid all such troubles as this case has given rise to. In my opinion, seeing that Ogdens had six months’ use of these barges, they ought to pay the hire for them, amounting to £93,l83.14p. I would dismiss the appeal, accordingly.
Forshall v. Walsh
[1997] IEHC 100
Shanley J
THE APPLICABLE LAW
(a) A Plaintiff seeking to establish the commission of the tort of fraud or deceit must prove-
(i) the making of a representation as to a past or existing fact by the Defendant
(ii) that the representation was made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false
(iii) that it was intended by the Defendant that the representation should be acted upon by the Plaintiff
(iv) that the Plaintiff did act on foot of the representation and
(v) suffered damages as a result.
129. Where fraudulent misrepresentation is alleged it must be established that the representation (as defined above) was intended to and did induce the agreement in respect of which the claim for damages arises.
(b) A party seeking damages for negligent misrepresentation must establish that the representor 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. In Ward v. McMaster 1989 ILRM 400, McCarthy J. considered that the duty of care arose from the proximity of the parties, the foreseeability of the damage and the absence of any compelling exemption based upon public policy. And in Caparo Industries Plc v. Dickman, 1990 B.C. L.C. 273, Lord Bridge, in his speech in the House of Lords, said (at page 280):
“What emerges is that in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care, are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that the situation should be one in which the Court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other”
130. He observed in relation to decided cases in which a duty of care in respect of negligent misstatement had been held to exist, that the limit on the liability of a wrongdoer towards those who had suffered economic damage,
“….. rested on the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the proximity between the Plaintiff and the Defendant that the Defendant knew that his statement would be communicated to the Plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the Plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter on that transaction or on a transaction of that kind” .
(c) Finally, it should be noted that while an employer can be made vicariously liable for the torts of his employee, such liability can only be imposed for the negligence of an employee where the negligence is committed in the course of his employment and the employer is not liable for negligence committed outside the scope of his employment.
Bank of Ireland v. Smith [1966] IR 646
Kenny J.
The modern cases, however, show a welcome tendency to treat a representation made in connexion with a sale as being a warranty, unless the person who made it can show that he was innocent of fault in connexion with it. The rule that an innocent misrepresentation causing loss does not entitle a person to recover damages for its falsity produces injustice in many cases. In Oscar Chess Limited v.Williams (1), Denning L.J., having referred to the famous ruling of Holt C.J., said:”The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice,” and in Dick Bentley Productions Limited v. Smith (Motors) Limited (2) the same Judge said:”It seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that the representation was intended to be acted upon and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.” I have not had the advantage of hearing counsel on these two cases but I believe that they express the true rule.
The statement in the advertisement was a representation and was made with the intention of inducing a purchaser to act on it: the purchaser was induced to enter into the contract by it. The representation was incorrect, but was made innocently and honestly: Mr. Mulcahy was innocent of fault in making it, but it would be unreasonable that his principals should not be bound by it. In this connexion the remarks of Lord Macnaghten which I have quoted are relevant, for it would be against conscience that the vendor in a Court sale should not be bound by a representation made by his agent in connextion with that sale.
It follows, in my opinion, that the purchaser is entitled to recover damages for breach of warranty relating to the undersowing of 40 acres.
I think I should deal with the other ground on which the purchaser based his claim. It was said that an auctioneer acting for a vendor should anticipate that any statements made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was incorrect and was made carelessly. In my opinion, the decision in Hedley Byrne & Co. v. Heller (1) does not give any support to this startling proposition. It decides that, if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so, he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, “equivalent to contract,” before any liability can arise. The basis of the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. is, I think, contained in the speech of Lord Devlin when he said (at p. 528):”I think, therefore, that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v. Lord Ashburton (2) are ‘equivalent to contract,’ that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.” Even if an auctioneer’s fees are paid by the purchaser (and in this case the vendors are liable for them), a contractual relationship between the vendors auctioneers and the purchaser does not exist. The decision of Davitt P. in Securities Trust Limited v. Hugh Moore & Alexander Limited (3) supports this conclusion. Moreover, the purchaser has not proved that Mr. Mulcahy was negligent. He was told by an employee of Mr. Smith that the lands had been undersown, he visited them on many occasions and the error which he made is one which could be made by the most careful of auctioneers. The claim in negligence against the vendors fails.
There has been the usual difference in opinion between the experts about damages. I accept the view that the yield of hay from grass undersown in barley is 2 tons to the acre. The representation complained of refers to “approximately 40 acres” the price of hay in the barn would have been £10 per ton. The purchaser lost the hay crop which he expected and so lost £800. There has also been conflict about the cost of sowing the lands to make them pasture. The agricultural contractor said that the cost would be £15 15s. 6d. an acre, but this includes the use of fertilizer which is not necessary. I will allow £11 an acre for the cost of ploughing, discing, sowing and harrowing. A claim is also made for loss of grazing, but this is not referred to in the letter of the 26th May, 1966, in which the purchaser’s claim is stated. The purchaser will be awarded compensation of £1,240, which will be paid out of the money in Court after the claim of the Bank but before the claim of the defendants.
All this unfortunate litigation has been caused by Mr. Smith who admitted in evidence that he had read the advertisement but said that he did not notice the error. I do not accept his evidence on this. The purchaser will be awarded his costs of this motion which will be taxed on the basis that they were incurred in the trial of an action, but limited to two days, and I will award these costs against Mr. Smith personally. As it may not be possible to recover them from him, the amount of the costs when taxed will be retained in Court on the allocation of the purchase money, and if the purchaser establishes that he cannot recover them from Mr. Smith by the usual methods of legal execution, they will be paid out of the sum retained.
Pat O’Donnell & Co. Ltd v. Truck & Machinery Sales Ltd
[1997] 1 I.L.R.M. 466
Moriarty J
Following upon the decision of the House of Lords in Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] AC 465 , it was accepted by Davitt P in Securities Trust Ltd v. Hugh Moore & Alexander Ltd [1964] IR 417 that an action for negligent misrepresentation could succeed in this jurisdiction where a relationship between two parties was of such a nature that upon one seeking information from the other damage resulted from a breach of a duty to take reasonable care that the information furnished was correct. In Doolan v. Murray , High Court 1990 No. 7753P, 21 December 1993 , Keane J approved the dictum of Lord Denning MR in Esso Petroleum Co. v. Mardon [1976] 2 All ER 5 , to the effect that:
If a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another — be it advice, information or opinion — with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.
In setting forth a statutory entitlement to damages for non-fraudulent misrepresentation in 1980, the Oireachtas did not require that a duty of care should exist between representor and representee. By s. 45(1) of the Sale of Goods and Supply of Services Act 1980 , it is provided that:
Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable for damages in respect thereof, had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.
Having appraised the evidence on both sides, I am of the opinion that the counterclaimant is entitled to succeed in respect of misrepresentation both on a basis of negligent misrepresentation and statutory misrepresentation, but primarily in respect of the former.
Patently, Mr O’Donnell was under a duty of care in relation to the representations he made to Mr Mansfield with a view to inducing sales. He was a specialised and experienced dealer and up to 90% of his business was Volvo-produced, and he knew from previous dealings over dump trucks that Mr Mansfield was not a person who would exhaustively study vehicle specifications and he had, on his own evidence, assiduously canvassed Mr Mansfield as a large potential purchaser of L150s whilst further knowing of his difficulties regarding Zettlemeyer over whom Volvo had attained control.
Equally clearly, the recommendations made by Mr O’Donnell in relation to the L150 were instrumental in persuading him to enter into the agreement. The actual elements of conflict in accounts given by both principal witnesses are in fact appreciatively less than in many other areas of controversy in the counterclaim. Although there are conflicts it seems to me to be established as a relatively clear probability that in circumstances where he was made aware that Mr Mansfield required shovels that were at least the equal of the Caterpillar 966 for arduous quarrying work, Mr O’Donnell conveyed emphatically to Mr Mansfield that the L150 was a new and entirely up-to-date model of the highest standard that would be equal to, and in some ways superior to, the Caterpillar 966.
Mr O’Donnell was furnished with and was familiar with a significant amount of promotional and technical literature which conveyed to him that in such matters as speed in low gears, and in breakout force, a particularly significant attribute in a quarrying concept, the L150 was not equal to the Caterpillar 966.
He did not convey to Mr Kallmin that he was selling L150s to Mr Mansfield on a basis of being equal to or superior to the Caterpillar 966 nor did he tell him that quarrying was the main projected use by Mr Mansfield’s hirers.
Whilst I accept Mr O’Donnell’s evidence that he was surprised and dismayed at the content of the Volvo letter, and likewise accept the evidence of the Volvo witnesses that design modifications are part and parcel of the business of marketing an evolving product, it remains the fact of matters that on such significant aspects as the type of axle and the standard wheel fittings, significant preparations were in train and at an advanced state of development to adapt a product more suitable to Mr Mansfield’s needs. In the context of the allegedly extensive dealings between Mr O’Donnell and Volvo and the latter’s detailed consideration of whether or not to proceed with the proposed agreement at all on a basis of larger tyre fittings, it would seem that these aspects ought to have been elicited and conveyed to Mr Mansfield.
Anderson v Ryan [1967] IR 34
HENCHY J. :
In the month of January, 1965, an advertisement appeared in a Dublin evening paper for the sale of an Austin-Healey (Sprite) motor-car. A Mr. Edwin Davis saw it and, being interested in cars, he telephoned a number indicated in the advertisement. As a result, two men called to his house with the Sprite. It happened that Mr. Davis had an Austin (Mini) motor-car. The two men seemed to take a fancy to the Mini, as Mr. Davis did to the Sprite, and the upshot of the negotiations was that it was agreed to exchange the Mini for the Sprite. The two men left with the Mini and Mr. Davis found himself with the Sprite. No money had passed; it was a straight swop. The unfortunate part of the transaction was that, unknown to Mr. Davis, the Sprite was a car that had been stolen in Northern Ireland. Within a week detectives descended upon him and took it away. Later a man pleaded guilty in the Dublin Circuit Court to fraudulently obtaining the Mini from Mr. Davis by falsely pretending that he was the owner of the Sprite. Mr. Davis eventually recovered the Mini and has since sold it.
In the meantime, someone approached the defendant in this action, who carries on business as a panel-beater in Cork Street, Dublin, and indicated that he was prepared to sell the defendant a Mini for £200. It was, in fact, the Mini belonging to Mr. Davis. The defendant was interested in the purchase but was not prepared to go through with it until he had obtained a purchaser to whom he could sell the car at a profit. The plaintiff, who is a garage owner in Bray, turned out to be such a person. He visited the defendant’s premises, where the Mini happened to be, inspected the car, and agreed to buy it for £225 plus £22 for panel repairs to it, which the defendant agreed to do. The plaintiff, having made enquiries which showed that the car was not subject to a hire-purchase agreement, there and then, on the 15th January, 1965, made out a cheque in favour of the defendant for the sum of £244 10s. 0d. to cover the 225 for the Mini and also to cover an account that the plaintiff owed to the defendant for panel beating which had been previously done for the plaintiff by the defendant. The defendant lodged the cheque to his account on the following day. My impression from the evidence is that the defendant had no title to the Mini when that deal was made. But, later, on the same evening as he got the cheque from the plaintiff, the defendant gave a cheque for £200 for the car to someone who purported to be, but was not, Mr. Davis. The defendant proceeded to do the panel beating which he had arranged with the plaintiff to do.
A few days later the plaintiff called to the defendant’s premises, paid the defendant the sum of £22 for the further panel beating, collected the registration book (which showed Mr. Davis to be the owner) and took the Mini away. He then placed it on display in the forecourt of his garage in Bray as a second-hand car for sale. Once again the arm of the law reached out. Two detectives called and said that the Mini was the subject matter of criminal proceedings. They told the plaintiff that he would have to allow them to take it away and that if he did not give it to them they would return with a warrant. He let them take it away. That is the last he saw of the car or his £247. The plaintiff recovered judgment in the Circuit Court against the defendant for the sum of £247, and the defendant has appealed against that judgment.
The plaintiff rests his case on ss. 12 and 21 of the Sale of Goods Act, 1893. In support of his contention that he is entitled to recover the £247 as money paid upon a consideration that has wholly failed, he relies upon sub-s. 1 of s. 21 which is as follows:”Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.”
In the present case, it is clear that, if the defendant was not the owner of the Mini at the time he sold it to the plaintiff, the plaintiff got nothing for his money and he would be entitled to recover the £247 as money paid upon a consideration that had wholly failed. Counsel for the plaintiff says that the car was sold on the 15th January, 1965, when the plaintiff inspected it, agreed on the price and gave a cheque for £244 10s. 0d.; and that the defendant then had no title.
In my view, the flaw in that argument is that it confuses an agreement to sell with a sale. The distinction is made clear in s. 1 of the Act of 1893, which is in the following terms:”(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.”
The transaction between the plaintiff and the defendant on the 15th January, 1965, was no more than an agreement to sell. The property in the car did not pass. It was plainly the intention of the parties that the property would not pass until the panel beating had been done by the defendant and the balance of £22 had been paid; until that had happened the agreement to sell would not have merged into a sale. Sect. 21, sub-s. 1, has reference only to a case “where goods are sold,” i.e. where there has been a sale of goods. It matters not for the purposes of the sub-section if the seller is not the owner at the time of the agreement to sell. He may mend his hand between then and the sale. But if at the time of the sale (i.e. when the property passes or is due to pass) the seller is neither the owner nor a person selling under the authority or with the consent of the owner, and in fact has no title whatsoever, the buyer would be entitled to claim the purchase money back on the ground that he has paid it on a consideration that has totally failed, subject to the proviso that the owner may be estopped by his conduct from denying the seller’s authority to sell. Sect. 21, sub-s. 1, is applicable in the present case only if I hold that the defendant had no title to transfer ownership when he handed over the car.
The plaintiff also rests his case on s. 12 of the Act to the extent that it provides that in a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is (a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods, and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass, and (b) an implied warranty that the buyer shall have and enjoy quiet possession of the goods. The circumstances of this
case do not show a contrary intention, so the plaintiff would be entitled to damages for breach of an implied warranty if he shows that the true legal position is that, when the car was handed over to him, he did not get the property in it together with the ancillary right of quiet possession.
Therefore, the central question which decides the points raised under both s. 12 and 8. 21 is:”Did the defendant have a good title to the car when he sold and delivered it to the plaintiff?” To decide this question one must go back to the circumstances under which the original owner, Mr. Davis, parted with possession of the car. As I have said, he exchanged it for the Sprite. The inducement for him to do so was not alone the desirability to him of the exchange but also the representation by the other party that the Sprite was his property. That was a false and fraudulent representation as to an existing fact. The contract of exchange was, therefore, a voidable contract. Since Mr. Davis intended to pass the ownership of the Mini, the person who got the car in exchange acquired a title to it, but it was a voidable title, that is, voidable at the option of Mr. Davis. It would have been different if Mr. Davis had parted with the Mini as a result of larceny by a trick, for then no title would have passed. Authority for the conclusion that what passed on the exchange was a voidable title is to be found in Cundy v. Lindsay (1); Robin & Rambler Coaches, Ltd. v. Turner (2); Central Newbury Car Auctions Limited v. Unity Finance Ltd. (3) and Archbold on Criminal Pleading (36th ed.) para. 1497.
There is no evidence that there was any intermediate sale of the Mini between the fraudulent exchange and the sale to the defendant. In fact, all the likelihood is that the car was sold to the defendant by or on behalf of the person who effected the fraudulent exchange. One looks then to see what title, if any, such person conveyed to the defendant. The answer is to be found in s. 23 of the Act, which is as follows:”When the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.” It is clear from the evidence that Mr. Davis had not avoided the title of the person who sold the car to the defendant at the time of that sale, and it has not been suggested that the defendant bought otherwise than in good faith and without notice of the seller’s defect of title.
I am satisfied, therefore, that the defendant acquired a good title to the car and that he in turn passed a good title to the plaintiff. It is unfortunate that the plaintiff has been deprived of a car of which he was the rightful owner, but the fault for that does not lie with the defendant. As the plaintiff may wish to recoup his loss in other proceedings, I express no view on the legal interpretation to be put on the events that led to him being permanently deprived of a car that was lawfully his. I go no further than saying that no liability attaches to the defendant for the plaintiff’s loss and that the plaintiff’s claim must be dismissed. The order of the Circuit Court will be reversed.
Hegarty & Anor v Fusano Properties Limited
[2006] IEHC 54
Judgment of Miss Justice Laffoy delivered 24th February, 2006.
The special summons in this matter issued on 1st June, 2005 and was returnable before the Master on 5th October, 2005. In the special endorsement of claim it was pleaded that, by a contract in writing dated 21st November, 2002, the plaintiffs agreed to buy and the defendant agreed to build and sell “new property therein described”. The price was stated in the endorsement of claim to be £625,000 but that is patently an error and the reference should have been to €625,000. It appears from the documentation put before the court that the property in question is a third-floor apartment in Block A, now designated apartment 117, in the Smithfield Market development in Dublin 7.
Essentially, the plaintiffs pleaded two matters in the special summons. The first was that, notwithstanding that the property was not complete, the defendants had served a notice to complete. While the date of the notice to complete was not stated, it was a notice of 3rd May, 2005 from the defendant’s solicitors to the plaintiffs’ solicitors, which was served on 4th May, 2005. The plaintiffs claim a declaration that the notice to complete is invalid and of no effect. The other matter pleaded was that the defendant misrepresented “the quality of the appurtenances and services available” to the property, that the same is not worth the price contracted for it, or is worth substantially less than that price and is not worth the service charge demanded for it. It was pleaded that the defendant has refused to compensate the plaintiffs by reducing the price and the service charge. In respect of this matter, the relief which the plaintiffs claim is an order that the purchase price and the service charge be reduced by an amount sufficient to compensate the plaintiffs for the misrepresentation.
The evidence before the court discloses that the first named plaintiff paid a booking deposit of €5,000 for the property in September or October, 2002. The property was sold off the plans. At that time the first plaintiff was furnished with a brochure entitled “Smithfield Market Residential”, which both physically and figuratively was a glossy production. The plaintiffs’ case in relation to the misrepresentation of “the quality of the appurtenances and services available” to apartment 117 is founded on the first of a number of statements in the brochure under the heading “Focus on details” in the following terms:
“Concierge
The development will have a concierge and extra security of a video entry facility in each apartment to allow residents to monitor visitors.”
I note that the brochure contains a statement in the following terms:
“These particulars and accompanying price list are issued strictly on the understanding that they do not form part of any contract. Measurements are approximate and maps are not drawn to scale. The builder reserves the right to make any alterations to the design and specifications in the interest of the overall quality of the development.”
Neither side brought that provision to the court’s attention, understandably, perhaps, because it is an example of “small print” in the physical sense. As the provision was not the subject of argument at the hearing, I place no reliance on it.
The contract dated 21st November, 2002 was in the form of the Building Agreement (2001 edition) and Contract for Sale (2001 edition) issued jointly by the Incorporated Law Society and the Construction Industry Federation. It was a combination of a building agreement and agreement for sale, which referred to the first plaintiff as the employer and the defendant as the contractor. The provisions of the contract which are relevant for present purposes are:
· The definition of “the Works”, which defined that expression as meaning the apartment specified on the agreed plan “together with such necessary works and services as may be necessary to render the apartment and premises reasonably habitable when completed”.
· The definition of “the completion date”, which provided for the earlier of two alternatives, the operative alternative for present purposes being “the date upon which the employer shall receive from the contractor a notice in writing that the works have been completed”. Consistent with this definition, clause 12 of the building provisions provided that the contractor should fix the completion date by giving notice in writing to the employer of the completion of the works.
· The definition of “closing date”, which was defined as being the day fourteen days after the completion date, as defined.
· In relation to the sale provisions, clause 27 provided that, save where excluded or amended by the Special Conditions therein, the General Conditions contained in the Incorporated Law Society of Ireland General Conditions of Sale (2001 edition) were deemed to be incorporated in the agreement. Neither side has put the relevant provisions of the General Conditions of Sale before the court. This omission is highly significant, because the notice to complete dated 3rd May, 2005 invoked General Conditions 40(d) and 41. There is no evidence before the court as to the content of those provisions.
· The following further provisions of the sale provisions were relied on by the defendant:
§ Clause 9, which is headed “Warranties/Representations” and provided that warranties/representations not agreed by the contractor’s solicitor in writing prior to signing should not form part of the agreement. The position of the plaintiffs is that this clause is of no relevance because they are not asserting that there was an oral warranty or representation in relation to the concierge; they are relying on the statement in the brochure.
§ Clause 10, which is headed “Model/Brochure”, in which the employer acknowledged that there might be modifications in the layout of the apartment block and the development from the model and/or from the brochure.
§ Clause 17, which is headed “Right to alter development”. The development is defined as meaning the development known as Smithfield Market, to comprise residential and non-residential units, including retail, cultural, office, public car park facilities, hotel, leisure, local authority and health board facilities as depicted for the purpose of identification only on plan 1 annexed to the contract. The essence of clause 17 is that the defendant reserved the right to alter the development or to discontinue the development “other than the property being sold”, subject to obtaining planning permission.
I now propose to consider the evidence on affidavit which is before the court which is relevant to the issues raised on the special summons, namely, that the notice to complete was ineffective because the property which the plaintiffs had agreed to purchase was not completed, and that the plaintiffs are entitled to an abatement of the purchase price because of a misrepresentation of “the quality of the appurtenances and services available” to the property. In particular, at the hearing the plaintiffs did not pursue a complaint based on the advice of their “snagging engineer” that the apartment as completed is a fire hazard because the windows do not open sufficiently to provide a means of escape in case of fire, which was alleged to be in breach of the Building Regulations, an allegation which was vigorously disputed by the defendant. The plaintiffs did pursue an issue in relation to Land Registry file plans, contending that their absence impacted on whether the defendant was ready, willing and able to complete when the notice to complete was served. Even if this were of some relevance if the terms of General Condition 40 were before the court, the plaintiffs’ solicitors asked for the file plans on 31st May, 2005, the day before the notice to complete was due to expire, and they were furnished with them on the same day. This is obvious from the correspondence put before the court, but the matter was not raised on the pleadings in any way and, in my view, is a “red herring”.
The affidavit evidence before the court consists of:
(1) an affidavit sworn by the second plaintiff on 4th October, 2005, the day before the special summons was returnable before the Master and four months after it issued (the plaintiffs’ first affidavit), a rather limp excuse being given for the affidavit not having been filed and served contemporaneously with the special summons;
(2) an affidavit of Joseph Linders, who averred that he is responsible for the general management of the Smithfield Market development, which was sworn on 1st November, 2005 (the defendant’s affidavit); and
(3) a further affidavit sworn by the second plaintiff on 13th December, 2005 (the plaintiffs’ second affidavit).
On the issue as to the effectiveness of the completion notice, in the plaintiffs’ first affidavit the second plaintiff averred, by reference to a booklet of photographs, that the outside approaches to the apartment were still a “hard hat” building site, both on the date of the notice (3rd May, 2005) and the date of the purported forfeiture (1st June, 2005). He averred that he inspected the property on 1st June, 2005 and observed that the approaches were still a “hard hat” building site and there was still a “Danger, Do Not Enter” sign on a barrier blocking the principal entrance that had been displayed in that position for at least most of the month of May and well into June, 2005.
In the defendant’s affidavit, Mr. Linders averred that around 1st June, 2005 some finishing works such as tiling and the laying of paving stones etc. were still going on around the entire development, including Block A, and, accordingly, it was necessary to direct access of people coming and going to apartments as and when such finishing works were going on. He acknowledged that this created a certain amount of inconvenience for residents and persons who had purchased units, but he averred that it did not amount to a situation where the apartment contracted for by the plaintiffs was not reasonably habitable by the date on which the completion notice took effect. He exhibited a photograph taken on 7th June, 2005 in the vicinity of Block A and averred that, far from being the “hard hat” area suggested by the plaintiffs at that time, the area was virtually completely finished. He suggested that the plaintiffs were disingenuous in that the photographs they put before the court were taken at various locations around the entire development, which did not reflect the real position around Block A.
In the plaintiffs’ second affidavit the second plaintiff reiterated that at the time of the determination of the notice to complete on 1st June, 2005, there was no way of accessing apartment 117 without passing through a “hard hat” site. In reliance on the photographs which were put before the court, he averred that they show that from time to time there were no less than two tower cranes, a cherry-picker, various lifts, hoists, unprotected scaffolding, unmade ground, building materials and debris, and other typical hazards of a “hard hat” building site there, and that the position was much worse at the date of the service of the notice to complete (4th May, 2005). He averred that the work continuing in the area around Block A around 1st June, 2005, was of a far heavier nature than mere tiling and paving. He averred that the apartment was not reasonably habitable at either the date of delivery, or at any time up to the determination of the notice to complete, or indeed for a long period afterwards, as it was not possible to access the apartment safely, if at all. On this basis he averred that the vendor was not ready, willing and able to close the sale on 1st June, 2005.
Turning now to the misrepresentation issue, in the plaintiffs’ first affidavit the second plaintiff averred that the plaintiffs were made aware of the location of the conciergerie. They took the reference to the concierge in the brochure to mean that the entry to apartment 117 would be through the conciergerie and that the plaintiffs would have the benefit of the security and services of a concierge, but they were not alerted to the contrary. In fact, the entrance to apartment 117 is from a street called “The Curved Street” or “Thundercut Alley”. However, the post box for apartment 117 is in the conciergerie, at some distance from the apartment, involving a walking through the weather and the open air, which cannot be undertaken in a relaxed state of dress, or without protection from bad weather. The second plaintiff further averred that nothing in the brochure or in the documents available when the booking deposit was paid contradicted “the misrepresentation as to the entrance facility through the conciergerie”. The plaintiffs have ended up without the security of a concierge and with an inconvenient walk outside in the open to the post box. The budget documentation in relation to the service charge furnished later made it clear that the plaintiffs would be paying an equal share of the €135,000 initially estimated as the cost of the concierge service, which misled them into thinking that they would have the benefit of the expenditure. The second plaintiff, without indicating what, if any, expertise he has in relation to valuing residential property, averred that apartment 117 is worth less than the price the plaintiffs contracted for. He further averred that, regardless of any effect on market value, the loss of value to the plaintiffs, by comparison with the apartment they thought they were buying is in their estimation, of the order of 10% to 20% of the purchase price, that is to say, between €62,500 and €125,000. While acknowledging that the Curved Street is a “broad alley, built in a pleasing style” the second plaintiff averred that it contains many design features that would provide excellent hiding places for thieves and muggers and it is distant from the conciergerie and the security man for whom they will be paying.
In the defendant’s affidavit, Mr. Linders averred that the provision of a central concierge facility in the development is to benefit occupants of residential units in all apartment blocks in relation to taking in of packages and general assistance. The plaintiffs will have the benefit of this service, as much as any other resident in the development and all the purchasers of apartments who contribute to the same via the service charge. A concierge is not a security guard. The development will have a security man on duty on a constant basis. Each apartment block, including block A, is equipped with a CCTV camera outside the main entrance, which is connected to the concierge’s office, so that there is constant monitoring of the various blocks. Each individual apartment has a video facility which allows the occupant to monitor the entrance to the block. Mr. Linders further asserted that, insofar as the plaintiffs complain that the conciergerie depicted on the initial sales literature for the development was not in fact where they imagined it would be, they should have checked the position before signing the contract, so that the principles of caveat emptor apply. My understanding of the plaintiffs’ complaint is not that the conciergerie is not where they imagined it would be but that apartment 117 is not accessed through it. Mr. Linders exhibited a valuation dated 24th October, 2005 from Hooke and MacDonald, Auctioneers, Valuers and Estate Agents, to the effect that the value of apartment 117 has increased since the plaintiffs contracted for it and the approximate likely sale price now is in the region of €715,000.
In the plaintiffs’ second affidavit the second plaintiff contradicted some of the averments made by Mr. Linders in the defendant’s affidavit: some only (Nos. 106 to 127), not all, of the apartments in Block A are accessed through the entrance on Thundercut Alley; there are three, not one, concierge areas servicing the seven residential blocks in Smithfield Market; and there is no CCTV security camera outside the door of Block A. The second plaintiff also suggested that the connection between apartment 117 and the conciergerie intended when the contract was signed has been altered because the connecting corridor has been “bisected by the extension of two apartments”. It was suggested that this is apparent from a drawing put before the court by the plaintiffs. I have to say it is not apparent to me. Finally, the second plaintiff persisted in his contention that the value of apartment 117 to the plaintiffs is less by in the region of 10% to 20% because what they contracted to buy was an apartment “with the full amenity, including security protection, of a conciergerie”.
The defendant raised a jurisdictional issue, contending that the plaintiffs were seeking to litigate matters which are outside the scope of what a vendor and purchaser summons is designed to deal with having regard to the provisions of s. 9 of the Vendor and Purchaser Act, 1874 (the Act of 1874).
Section 9 of the Act of 1874 set out first the jurisdiction of the English courts as follows:
“A vendor or purchaser of real or leasehold estate in England, or their representatives respectively, may at any time or times and from time to time apply in a summary way to a judge of the Court of Chancery in England in chambers, in respect of any requisitions or objections, or any claim for compensation, or any question arising out of or connected with the contract, (not being a question affecting the existence or validity of the contract) and the judge shall make such order upon the application as to him shall appear just, and shall order how and by whom all or any of the costs of and incidental to the application shall be borne and paid.”
Section 9 then went on to deal with the jurisdiction of the courts in Ireland as follows:
“A vendor or purchaser of real or leasehold estate in Ireland, or their representatives respectively, may in like manner and for the same purpose apply to a judge of the Court of Chancery in Ireland and the judge shall make such order upon the application as to him shall appear just, and shall order how and by whom all or any of the costs of and incidental to the application shall be borne and paid.”
Under the Rules of the Superior Courts, 1986 a vendor and purchaser summons may be brought by way of special summons. The summons is grounded on affidavit, but a party may seek to cross-examine a deponent (Order 38, rule 3). It is of significance that in this case, which has thrown up a plethora of factual conflicts on the affidavits, neither side sought to cross-examine the other’s deponent. Further, neither side suggested that this was an appropriate matter to go to plenary hearing.
The court was referred to the comprehensive commentary on vendor and purchaser summonses in Farrell on Irish Law of Specific Performance (Butterworths) at paras. 8.53 to 8.59 and the commentary on the same topic in Wylie on Irish Conveyancing Law (2nd Edition, Butterworths) at paras. 13.26 to 13.29.
I am satisfied that the court has jurisdiction to determine a question as to the validity of a notice to compete on a vendor and purchaser summons. Further, s. 9 expressly empowers the court to determine any claim for compensation on a vendor and purchaser summons. However, it is well settled that the claim for compensation must arise out of or be connected with the contract. As Farrell points out at para. 8.59, in principle, this would cover a claim for a declaration that a purchaser is entitled to compensation or an abatement of the purchase money by reason, for example, of the existence of a right of way, or a shortfall in the area of land sold. However, Farrell goes on to say that for a number of reasons there does not seem to be very much opportunity in practice for the use of s. 9 in relation to a claim for compensation. The reasons are: that standard contracts contain clauses likely to cover parties’ rights in relation to misdescription and abatement and they are likely to have arbitration clauses; in the absence of a standard contract there is a greater chance of an issue “affecting the existence or validity of the contract”, which would take the matter outside the scope of s. 9; and some English case law has distinguished between compensation and damages, the latter being outside s. 9.
It is notable that two of the authorities relied on by counsel for the parties were cases in which the vendor was relying on a condition which entitled him to annul the sale, if the purchaser persisted in an objection or requisition which the vendor was unable or unwilling to comply with (In Re Terry and White’s Contract [1886] 32 ChD 14, cited by counsel for the plaintiffs; and Re Molphy v. Coyne [1919] 53 ILTR 177, cited by counsel for the defendant). For present purposes, those authorities go no further than to establish jurisdiction, which I am satisfied the court has. They are no assistance to the court beyond that, because this is not a case in which the defendant sought to rely on a condition of the type under consideration in them, the jurisprudence in relation to which is conveniently summarised in Wylie op. cit. at paras. 15.27 to 15.35 inclusive.
In relation to the issue as to the effectiveness of the notice to complete, the case made by the plaintiffs was that apartment No. 117 was not reasonably habitable either on 4th May, 2005, the date of service of the notice, or on the date of its expiry, 1st June, 2005, because it was not possible to access the apartment safely. It is not possible to determine whether the notice to complete was effective or not having regard to the current state of the evidence for the following reasons. First, the court does not have evidence of all of the relevant contractual terms. The “completion date”, as defined in the contract, relates to the completion of the works, that is to say the construction of apartment 117 together with such necessary works and services as may be necessary to render it reasonably habitable. The contract provides a mechanism for fixing the completion date (clause 12 of the building provisions). The closing date is defined as being fourteen days after the completion date. However, in the absence of evidence of the relevant general condition in relation to service of notices to complete after the closing date, which I assume are conditions 40 and 41 of the 2001 edition of the General Conditions, it is not possible to express any view on whether the notice to complete was properly served in accordance with the conditions invoked by the defendant. Secondly, and more importantly, there is a total conflict on the affidavits as to whether apartment 117, including the necessary works and services to render it reasonably habitable, had been completed either on 3rd or 4th May, 2005 or on 1st June, 2005. That conflict cannot be resolved. As I have stated, neither side saw fit to cross-examine the other side’s deponent. For the foregoing reasons, it is not possible to find that the plaintiffs have established that the notice to complete was ineffective. On the other hand, that does not mean that it was effective.
Fortunately, the concierge issue can be dealt with more definitively. What the brochure stated was that the development would have a concierge. The court was referred to the definition of concierge in The Concise Oxford Dictionary of Current English (Clarendon Press, 9th edition, 1995), which gives one definition of concierge, especially in France, as “a door-keeper or porter of a block of flats etc.”. What the brochure represented was that the development, which obviously means the residential development at Smithfield Market, would have a concierge. On the plaintiffs’ own case the residential development has no less than three concierges. To that extent the representation has been fulfilled. The case being made by the plaintiffs on the basis of the statement in the brochure is that the defendant represented that apartment 117 would be accessed through the conciergerie. In my view, the statement in the brochure is not, on any reasonable construction, open to such interpretation. Even if one assumes that it was to be inferred from the entire statement that the concierge would be a security feature, the entire statement is not open to the construction that the plaintiffs seek to put on it. Therefore, in my view, the statement in the brochure was not a representation that apartment 117 would be accessed through the conciergerie. That, in my view, is a complete answer to the plaintiffs’ allegation of misrepresentation.
If it were not, the court could not advance the matter any further on the current state of the evidence. It would not be appropriate to express any view on whether the alteration to the access to apartment 117 which the second plaintiff merely speculates may have happened would have been permissible under condition 10 of the building provisions in the contract. Finally, if the plaintiffs had established that there was a compensatable misrepresentation, I think it improbable that the measure of compensation provided by law for such a wrong is an injured party’s subjective estimation of the value of the lost amenity to him, for example, the second plaintiff’s broad brush estimation. However, no submissions were offered on the measure of compensation. Further, no evidential basis at all was laid for measuring an appropriate reduction in the service charge.
The plaintiffs have not established entitlement to any of the reliefs sought in the special summons and their claim is dismissed.
Intrum Justitia BV v. Legal and Trade Financial Services Ltd.
[2005] IEHC 190 (10 June 2005)
JUDGMENT of O’Sullivan J. delivered the 10th of June, 2005
Introduction
The plaintiff is a Dutch Company located at the Hague and carries on the business of credit management and debt collection.
The defendant is an English Company located in Lancashire and carries on a similar business.
By agreement dated 11th October, 2004, the plaintiff agreed to purchase the entire issued share capital of an Irish subsidiary of the defendant (Legal and Trade Collections (Ireland) Limited) for a purchase price of €2.15 million of which 90% was paid on closing. Prior to entering into the agreement the plaintiff had conducted a comprehensive due diligence process.
The agreement provided for delivery of Completion Accounts not later than four weeks following the completion date, that was not later than Monday 8th November, 2004. These accounts were to comprise the un-audited balance sheet and un-audited profit and loss account for the period from the last accounts date to
1st October, 2004. This exercise would have included a reconciliation of the defendant’s client’s accounts which was of significance to the plaintiff because these had come under particular scrutiny in the course of the due diligence process and some concern had been raised in relation to them.
Embezzlement comes to light
The financial director of the defendant was Mr. Colin Thorpe and he worked from the defendant’s Ashtown Gate premises in Dublin. The chief accountant of the defendant was Mr. Ronald Whitehead and he was based in the United Kingdom. At the end of October and the beginning of November, 2004, he was in Dublin working on the Completion Accounts. In particular he was working on the provision of a reconciliation between the client account balance in the nominal ledger and the balance in the CUBS, which was a computerised system operated by the defendant to administer the debts on behalf of the companies’ clients. In the early afternoon of Tuesday 2nd November, 2004, Ronald Whitehead had made a comparison between the nominal ledger and the control account and found a discrepancy in the order of €457,000. He had a subsequent discussion with Colin Thorpe who at that point confessed that he had been embezzling money from the defendant for a period of almost three years from the beginning of 2002 to feed a gambling habit.
Following his confession Colin Thorpe was emotionally upset and Ronald Whitehead took some time to quiet him down and to persuade him to contact Price Waterhouse Cooper, the company’s auditors, in an attempt to clarify the method and extent of the embezzlement. Mr. Whitehead also contacted his superiors in the United Kingdom and it was agreed that Paul Anslow, the Chief Financial Officer would come from England to Dublin the following day, which he did. That following day, Wednesday 3rd November was spent checking references and the system with the result that a figure of €453,000 approximately appeared to be the extent of the embezzlement. That exercise took all of Wednesday 3rd November, 2004, and on the morning of Thursday 4th November, Mr. Anslow contacted Mr. Biggam of the plaintiff who had been made a Director of the Ashtown Gate Company after completion of the agreement. Mr. Biggam immediately informed Mr. John Easdon who was Regional Managing Director of the plaintiff for the UK and Ireland and who was just returning from Zurich Airport. He arranged to come over to Dublin the next morning, Friday 5th November. He did so and having contacted his solicitors, Mr. Biggam and Mr. Easdon interviewed Colin Thorpe on the morning of Friday 5th November.
At that time they were concerned at the delay which had elapsed between Colin Thorpe’s confession in the early afternoon of the previous Tuesday and their being informed only on the morning of Thursday 4th. At the interview Colin Thorpe told Messrs. Easdon and Biggam what he had been doing since his confession and that he had wanted to go to the police. After meeting Mr. Thorpe, Mr. Easdon suspended him pending an investigation. He then contacted Mr. Anslow and Ronald Whitehead at around lunchtime on Friday 5th November. The big concern in Mr. Easdon’s mind at that point was why there had been a delay between Colin Thorpe’s confession and his being informed. He therefore asked Mr. Anslow and Mr. Whitehead to give their account of what had happened since Colin Thorpe’s confession.
At this time the defendant’s auditors, Price Waterhouse Coopers, were busy working on the finalisation of the Completion Accounts which were due to be delivered not later than the following Monday 8th November. Mr. Easdon asked that this activity cease for the duration of his conversation with Mr. Anslow and Mr. Whitehead and this was done. At the end of that conversation they had confirmed the account given by Colin Thorpe. Mr. Easdon said that he was “somewhat reassured” and that he was happy to let the auditors back in to complete their work and said so. In fact as transpired in evidence that Price Waterhouse Coopers were contacted on that Friday afternoon but had redeployed their personnel and did not have them available to continue work that Friday or indeed the following Monday.
The early correspondence
It will be recalled that Clause 4.5 of the agreement required furnishing by the defendant of Completion Accounts (as defined) on or before Monday 8th November, 2004. On that date a document was sent by Mr. Anslow, Chief Financial Officer of the defendant, which stated that “…we and our professional advisors need access to the premises at Ashtown Gate in order to access the records and have further discussions with senior management to carry out the investigation to the fullest extent possible. Until we are allowed to carry out fully our investigation, you will appreciate that the Completion Accounts can only be regarded as provisional.”
The letter went on to say that the writer was not able to present at that time the full reconciliation between the client account balance in the nominal ledger and the balance in CUBS.
On the same day, Monday 8th November, the plaintiff wrote to Geoffrey Ognall, Chairman of the defendant, saying that the disclosures were serious and had a fundamental impact on the share purchase agreement and that the integrity of all financial information provided to date was now open to question and that the magnitude of the problem was at that time unclear. The letter went on the say that it was of the utmost importance that the defendant immediately provide a complete account of all information known to the defendants them concerning deficiencies and financial irregularities in the accounts of the defendant. All rights were reserved.
On the next day, Tuesday 9th, Mr. Ognall wrote to the plaintiff stating that the plaintiff’s approval of further access with professional advisors was required to the records of the company and to senior management. The letter asked as a matter of urgency to be told how the defendant would be allowed to conduct the further investigations in relation to embezzlement. On the next day, Wednesday 10th, the plaintiff wrote asserting that the documents provided did not constitute Completion Accounts as defined by the contract and that the information did not fully identify the extent of the embezzlement, and therefore the defendant had not complied with the share purchase agreement. The letter stated that the plaintiff was currently considering the implication of the defendant’s failure and would respond to the points raised in early course. All rights were reserved.
On the following day, Thursday 11th November, the defendant wrote reiterating that the company and its advisors no longer had access to the records of the company and the company was therefore unable to produce the Completion Accounts. The defendant went on to suggest that the parties work together with an expert as defined in the agreement to assist in investigating the embezzlement and finalising the Completion Accounts. A letter of the same date from the plaintiff reasserts the question mark over all financial information and states that the plaintiff is unable to take any formal or contractual steps in relation to the target company but suggests without prejudice cooperation between the parties in relation to the governance thereof. It requested that the defendant countersign a letter in acknowledgement of their agreement. A further letter of the same day and in reply states the defendant was not in a position to countersign the correspondence but did undertake to cooperate fully in all investigations necessary to resolve the matter including to cooperate fully in assisting and preparing the completion accounts with the assistance of a duly designated independent expert.
On the following day, Friday 12th November, the plaintiff responded asserting that the defendant’s position appeared designed to advance the defendant company’s interest rather than resolving the matter in a way satisfactory to the plaintiff, complaining that the defendant’s position appears not to take into account the interest of third parties, pointing out that the implementation of Clause 4.5 was only of historical interest since no Completion Accounts had been provided and asserting that the defendant’s proposal would not be appropriate and further that the impact of the misappropriation of funds could not be considered to be limited to the question of the amount of money missing. It concluded with a statement that the plaintiff was prepared to consider any proposal the defendant might have to make but not one which was limited to the financial question of the misappropriated funds but, rather, one which would have to be accompanied by offers of indemnity to the appropriate extent.
On Tuesday 16th November, the defendant replied, refuting the allegations of self-interest and enclosing a report, admittedly incomplete because of the limited time available to investigate, and reasserting that they no longer had access to Colin Thorpe who had been suspended and that its accountants had been asked to no longer access the records. The report in turn was furnished under cover of a front page stating that it was incomplete by virtue of the fact that the defendant was not able to continue its investigation due to the suspension of Mr. Thorpe and the plaintiff company’s permitting no further access by the defendant to the records of the company. The defendant did not accept any responsibility for the accuracy of the information contained therein.
The report is clearly largely based on information which had been supplied by Colin Thorpe and is therefore based on information supplied approximately two weeks before the date of the report itself. The report includes also the reconciliation between the CUBS reports showing the actual amount of cash due to clients and the client funds creditor balance in the nominal ledger. The total amount of embezzlement is shown at €453,415.55.
On the next day, Wednesday 17th November, the defendant wrote in response, apparently, to telephone conversations on the previous day stating that the defendant was in full agreement with the plaintiff’s proposal to appoint KPMG as an independent expert within the terms of the Chairperson’s agreement in order to agree the Completion Accounts and that their decision would be final and binding. If there was to be a reduction in the purchase price the defendant stated it would comply with the mechanism set out in the agreement. The defendant stated it could give an indemnification and undertaking to compensate outside the terms of the share purchase agreement “when we do not know the possible extent of such an undertaking”. Surprise is expressed at the request for “a blanket indemnity, given that there has been an inconclusive and insufficient investigation into the matter” and the letter points out that the defendant cannot be responsible for transactions during the ownership of the plaintiff or for acts of third parties.
The response to this letter was a long letter on Friday 18th November, accusing the defendant of an opportunistic distortion of the proposal which was misrepresented in the defendant’s letter. The letter went on to reiterate the defendant’s misrepresentation of its financial position and to assert that the value of the transaction was entirely undermined and that the true financial position was unknown. Completion Accounts had not been furnished or other appropriate information which would enable the plaintiff to assess the full impact of the defendant’s misrepresentation. KPMG’s initial advice was that the defendant company would require a full forensic audit before any view could be taken on the true position of the accounts. The plaintiff did not know whether the defendant was solvent. The defendant is accused of not responding to the opportunity to cooperate in the interests of the company or to make a proposal. Accordingly the plaintiff rescinded the contract of 11th October, 2004, on the grounds that the defendant had very substantially misrepresented to the plaintiff the financial position of the company.
They say that had they known of the embezzlement beforehand they would under no circumstances have concluded the agreement and that the misrepresentation goes to the very heart of the deal. It is added “the ease with which you appear to have discovered this matter after completion is a cause for serious concern”. The consequences of rescission are then spelled out in relation to an interim continuation of the plaintiff’s directors pending replacement by the defendant and an assertion that the directors will report to the defendant as owner of the company and run it to the defendant’s account. The defendant must pass a resolution changing the name of the company from the plaintiff’s name to the defendant’s name. The entire purchase price must be returned.
Comment on this correspondence
The impression given by this correspondence is that each of the parties was adopting somewhat confusing if not self-contradictory positions. For example, the defendant was offering to cooperate but when faced with an indemnity which was too wide simply refused rather than returning with an appropriately by narrow indemnity; again, the defendant is seeking to operate the contract provisions in relation to an independent expert at a time when those provisions had no application. More fundamentally the defendant asserted more than once that the plaintiff had withdrawn permission to the defendant’s accountants to access the books of the defendant company when the true position was that such withdrawal had operated only for a short period of some hours on the afternoon of Friday 5th November. Thereafter on that day and on Monday 8th, the defendant’s accountants were asked by the defendant to assist in the finalisation of the Completion Accounts but had not the personnel to do it.
On the plaintiff’s side, as well however, the correspondence is initiated with a question raised over the integrity of all the financial information but notwithstanding this their letter of 8th November, states that it is of the utmost importance that the defendant immediately provide a complete account of all information known to the defendant concerning the deficiencies and irregularities in question. Again, at no stage does the correspondence point out that the defendant’s assertion that neither they nor their accountants have access to the books and records of the defendant company is incorrect. It is not clear what purpose the information requested as of the utmost importance in the plaintiff’s letter of 8th November, (the date for furnishing the Completion Accounts) would serve given that the deadline would have passed when same was furnished and indeed given that there was a serious question mark over all information that could be given. There were telephone calls between the principals before the defendant’s letter of 17th November, apparently in the context of some kind of agreed accountancy exercise but the defendant’s letter of that date was met with complete rejection on the basis that the defendant had apparently deliberately misunderstood those conversations. This was accompanied by the decision to rescind.
There seems to have been no real meeting of minds in this early, pre-solicitor, correspondence and indeed a certain amount of protecting of self-interest on both sides. There may well have been a lack of communication between the individuals on the defendant’s side in relation to access to the books and, quite possibly, the same on the side of the plaintiff.
The correspondence passed thereafter into the hands of the solicitor and the pleadings were initiated on 19th November, 2004.
The pleadings and submissions
In the pleadings the plaintiff claimed rescission of contract based on (a) fraudulent misrepresentation, (b) misrepresentation whether negligent or otherwise, (c) mistake and, (d) in addition damages for breach of contract. Before dealing with the latter three, I note that the allegation of fraudulent misrepresentation was withdrawn, but only when the plaintiff submitted its written legal submissions in mid April, 2005. This allegation was presumably first alluded to in the plaintiff’s letter of 18th November, 2004, which said “the ease with which you appear to have discovered this matter after completion is a cause for serious concern”.
Insofar as it is appropriate to refer to the remainder of the evidence, I propose to do so in the context of considering the submissions made in relation to the issues of misrepresentation, mistake and breach of contract and, finally, the question of damages.
The defendant counterclaims for specific performance of the agreement with an appropriate adjustment to the purchase price.
Misrepresentation
The plaintiff’s claim in this regard is founded on an e-mail sent by Geoffrey Ognall, Chairman of the defendant, to Ken Hanson Financial Director of the plaintiff on 14th May, 2004, before the commencement of the due diligence process which referred to the fact that the defendant had “no skeletons in the cupboard” and a further e-mail sent on 22nd June, 2004, in the middle of the due diligence process which indicated that all the key financial factors had been showed by the defendant. In evidence Mr. Easdon said that there was a difference between the parties in relation to the need to have what he described as “quite a rigorous and thorough due diligence” and the defendant’s anxiety to complete the transaction by the end of June. He said “the comment was that such an extensive due diligence is not necessary because there is nothing wrong with this company, you won’t find anything wrong with this company etc.”
In cross-examination it was put to Mr. Easdon that the representation about no skeletons in the cupboard and from Mr. Ognall in May of 2004, did not make any difference in how sparing or how thorough he was going to be in the due diligence process that ensued and he agreed. He said “No, that is right”. The second e-mail, which was on 22nd June, was in the course of the due diligence process. It was put to him again that nothing changed in the way that the due diligence was being carried out as a result of those words in the e-mail, and again Mr. Easdon said, “That’s right, yes.”
The evidence from Mr. Ognall was that he made the representations and intended them to be acted upon but in light of the foregoing evidence in my opinion the probability is that the defendant did not rely on those representations at all. Mr. Ognall explained that he was somewhat impatient and wanted to get the contract signed soon and was impatient with the thorough going due diligence process and made the representations in that context. It had no effect clearly from the replies of Mr. Easdon. The plaintiff went ahead with the thorough due diligence process and in my opinion on the balance of probabilities relied upon the information provided from that process which continued on unchanged despite the making of these representations.
I accept that in this context the representations do not have to be the main or paramount consideration in the mind of the representee but it is also true that they must be part of the underlying basis upon which the representee proceeds. There is no real sense, in my opinion, in which those representations were relied on or formed part of the underlying basis on which the plaintiff proceeded given that the due diligence process continued on in exactly the same way after they were made as before. The plaintiff relied on Gahan v. Boland (Unreported, High Court, Murphy J., 21st January, 1983) which establishes that an innocent representation made in good faith and with no intention to mislead can nonetheless entitle the representee to a rescission of the contract. In that case, however, the representation to the effect that a proposed major road would not affect the representee’s purchase of his home and paddock was not, as I understand the judgment, overtaken or replaced by any other specific representation or information on the same point. In the present case it is clear that the plaintiff relied on the financial information thrown up by its own thorough and rigorous due diligence process for the purpose of informing itself as to the financial situation of the defendant company. I would therefore hold that the plaintiff is not entitled to rescission or indeed to any relief in the context of the misrepresentations because it did not rely on them.
Mistake
On reflection I have to say that I have doubts as to whether this is a case of true mistake as known to the law of contract at all.
The parties entered into an agreement which contains warranties by the defendant as vendor as to the accuracy and reliability of the financial information known to the parties at the time. These warranties are numerous and comprehensive and it is clear that they are wide enough to cover the situation that has arisen in the present case. Both parties clearly thought at the time that the accounts and financial information presented a true picture, and in that sense, of course, were mistaken as to the actual situation, but they also included by agreement warranties from the defendant intended to deal with a situation where their view of the account might not turn out to be the case. They acknowledged, in other words, that their current state of knowledge might be incomplete or inaccurate and came to an agreement as to which of them should bear the consequences if such should prove to be the case. Mistake in contract law concerns a situation where the parties think they know the true facts and proceed upon the basis of their erroneous assumption without even suspecting that their assumptions might be wrong, quite a different thing from the situation of the parties in the present case who thought they knew the true financial circumstances of the company but contemplated at the same time that their information may be misleading and proceeded to agree what was to happen if that should prove to be the case. No body suggests a contract of insurance is based on a mistake just because the parties cannot identify the event which it is intended to deal with.
Furthermore if, contrary to the above, it is correct to subject the circumstances of the present case to an analysis driven by the traditional law of mistake in contract cases, and that this analysis could, therefore, result in a conclusion that the plaintiff company is entitled to rescission, by reason of the fact that the parties did not appreciate the true financial picture, then in my view such a result would be anomalous given the situation that the same parties have addressed the possibility that the accounts might not present a true picture and in arranging what is to happen in such an event have agreed that rescission would not be available to the plaintiff. This latter position arises because the contract provides at Schedule 6, Clause 7 that:-
“No breach or breaches of any of the warranties, specific warranties or the deed of indemnity shall give rise to any right on the part of the purchaser to rescind this agreement after completion.”
The case was argued, notwithstanding the above, by counsel for both parties upon the basis that there had been a mutual mistake, namely that both parties at the time of entering the agreement made the mistake of thinking that there had been no embezzlement, and in deference to the submissions of counsel I will deal with their arguments in what follows.
In doing so however, and particularly in the context of a submission that the purchaser did not get substantially what he bargained for, it is necessary that I reach some view as to the extent of the embezzlement.
The extent of the embezzlement
The evidence is that just before Colin Thorpe confessed to embezzlement, Ronald Whitehead had identified a “discrepancy” in the order of €457,000 when he was doing the reconciliation of the client accounts. This figure was shown subsequently to have been substantially correct when with Colin Thorpe’s assistance the matter was gone into in detail and a discrepancy of €453,415.55 was identified, which was reassuringly close to Mr. Whitehead’s own calculation.
It was further established in evidence that the method of fraud, which briefly involved Colin Thorpe forging the signature of John Cahill, the Financial Director of the defendant company, on cheques which required two signatures namely his own and that of John Cahill and presenting them as bona fide cheques payable to clients, cashing them, and subsequently manipulating the books and records of the company to disguise the fraudulent transaction.
In particular, Colin Thorpe was able to identify the cheques in the fraudulent category by reference to secret and otherwise meaningless annotations in the IT software recording these transactions and which are all referenced in the report furnished by the defendant to the plaintiff on 16th November, 2004.
A further point was made in the hearing before me that given that the life of a cheque in this country is six months, if there were any further fraudulent transactions they would have “come out in the wash” in the intervening six months and that it is unlikely now that further fraudulent transactions will emerge.
As a matter of probability and on the basis of the information proved in court in my view the extent of Colin Thorpe’s fraud is likely to be in the order of €457,000. There are three aspects which seem to me relevant in reaching this conclusion: in the first place that was the estimate of the discrepancy reached independently by Ronald Whitehead; secondly, Colin Thorpe had his own secret way of identifying the fraudulent cheques and using this identification his estimate of the extent of the fraud is strikingly close to Ronald Whitehead’s estimate and thirdly, for what it is worth, there has been no evidence of further discrepancies other than those disclosed by Colin Thorpe in the intervening six months.
In reaching the foregoing conclusion, I am of course conscious that no forensic audit had been done. The company has been under the control of the plaintiff since the fraud was discovered. By its letter of 11th November, the plaintiff wrote to Geoffrey Ognall “…until we have clarified the true financial position of the company, we are unable to take any formal or contractual steps in relation to it.”
The un-contradicted evidence of all relevant witnesses has been that once there is evidence of embezzlement such as in the present case it is essential that the company must do an appropriate audit. There may be issues as to how far such an audit should go, and I will return to this aspect later in my judgment, but in my opinion this was a case where the good management of the company required some level of forensic audit and indeed it is clear that the plaintiff was advised by KPMG initially that the defendant would require “a full forensic audit” before any view could be taken on the impact of (the defendant company’s failure to disclose) the true financial position of the company (See the company’s letter of 18th November).
Such an audit was not undertaken nor was any exercise done so far as I am aware by the plaintiff company whether by way of a sampling audit as suggested by Mr. Derek Donohue or otherwise.
I think it is necessary to reach some view of the extent of the embezzlement in order to consider the submissions of the parties in the context of mistake, and in particular in the context of an issue as to whether the purchaser did or did not get substantially what he bargained for. I must, however, reach my conclusion as to the extent of the embezzlement in the absence of definitive information.
Having considered such evidence as is available in my opinion the effect of the fraud does not mean that the subject matter of the share purchase agreement is essentially different from the one contracted for. Accordingly the plaintiff would not be entitled on the basis of mistake to rescission under common law as identified in Bell v. Lever Bros [1932] AC 161. Nor is this a case where the misapprehension (to the effect that there had been no embezzlement) was fundamental to the agreement (which included the wide ranging warranties already discussed and an agreement that their breach would not give rise to rescission). Accordingly the plaintiff would not be entitled to rescission in equity as identified in Solle v. Butcher [1950] 1 K.B. 671 and as applied in this country by Costello J. (as he then was) in O’Neill v. Ryan [1992] 1 I.R. 166 672 at p. 185.
Of course I acknowledge that the plaintiff company’s witnesses said that if they had known in advance of the embezzlement, they would not have entered the agreement. This does not prove, however, that therefore the effect of the embezzlement was fundamental, anymore than an insured driver’s assertion that he would not have driven on the day of the accident had he known of it beforehand means that he did not need insurance. This was an agreement to buy shares in a company with specific objectives in mind and the plaintiff company’s evidence referred to has to be seen in context.
The evidence is that the “drivers” for the purchase of these shares were the plaintiff company’s desire to acquire the very good client base including some blue chip clients of the defendant, and its good employees and in particular, John Cahill the Managing Director, to improve the company’s position in the Irish market and to receive the disclosed revenue stream, enhanced by the synergies that would become operative when the two companies were merged together.
It is also clear from the evidence that the merging process has been put on hold since the discovery of Colin Thorpe’s embezzlement but that notwithstanding this the revenue stream has remained as predicted, and that John Cahill remains employed at the Ashtown Gate premises albeit not as Managing Director. One or two clients have transferred from the Ashtown Gate (erstwhile defendant) company’s business to the plaintiff’s own English subsidiary business at Park West and that the one or two clients who have ceased doing business have done so for reasons other than those related to the embezzlement. Of course it is true that the embezzlement has not become public knowledge and that when it does many clients may become concerned as has happened apparently in England to a subsidiary of the plaintiff company’s where a non-fraudulent discrepancy was discovered and which caused considerable upset and loss to that company.
There was further evidence that the clients, particularly the blue chip clients such as banks, of a company engaged in debt collection on behalf of those clients will be particularly sensitive to the publication of financial impropriety within the debt collecting company. They can only be reassured, it is said, by a full forensic audit which establishes that none of their own monies were taken, that none of their clients had complained about being asked to discharge bills already paid and that there was a clear and reliable identification of the extent of the embezzlement. Nobody suggested that such an exercise is impossible but there has been widely divergent views as to the cost of such an audit and indeed the specific scope involved.
Once again in this context I am left in the situation where no such audit has taken place and accordingly I must deal with the evidence produced without speculating beyond it.
Given, therefore, that the likelihood is that the extent of the audit is limited to some four hundred and fifty seven thousand euro and that a forensic exercise can be done which will establish with reasonable certainty such extent and can satisfy clients including blue chip clients of the defendant company, and bearing in mind the “drivers” which motivated the plaintiff in acquiring the defendant’s company shares, I do not think that what the plaintiff got in their share purchase agreement was so different from what they contracted for as to qualify for the descriptions in the authorities which justify an entitlement to rescission either at common law or in equity. In other words this is not one of those exceptional circumstances which are extremely limited where rescission as distinct from damages will be granted by a court as identified by Costello J. (as he then was) in O’Neill v. Ryan.
Breach of contract
The plaintiff in its written submission refers to twelve warranties all of which it claims were breached. I will refer to one or two only as follows:-
1. All written information given by or on behalf of the vendor or the company to the purchaser or any shareholder, accountant, lawyer or agent thereof in the course of the due diligence exercise carried out by the purchaser and his professional advisors was, when given and is at the date hereof, true, accurate and complete in all respects.
2. There is no fact or matter which has not been disclosed in writing to the purchaser which rendered the information referred to in paragraph 1 onto or misleading at the date of this agreement.
3. None of the representations or warranties made by the vendor in this agreement or in any document to be delivered by and pursuant hereto or in connection with the transactions contemplated hereby contains any untrue statement of a fact, or omits to state a fact necessary to make any statement or fact contained herein or therein not misleading.
4. All the accounts, books, ledgers, financial and other records of whatsoever kind of the company;
(a) have been fully, properly and accurately kept,
(b) do not contain any material, inaccuracies or discrepancies of any kind,
(c) give a true and fair view of its trading transactions and its financial, contractual and trading position,
(d) the principal accounts are true, complete and accurate in all respects…
It is beyond reasonable argument, as the plaintiff puts it, that there was a breach of these warranties. It is also agreed, however, that no breach or breaches of any of the warranties, shall give rise to any right on the part of the purchaser to rescind the agreement.
Accordingly, the relief to which the plaintiff is entitled, in the absence as I hold, to an order rescinding a contract or to an order declaring it void ab initio, is damages.
The measure of damages
There is a considerable divergence between the parties as to the measure of damages to which the plaintiff is entitled.
It is common case that the plaintiff is entitled to have the amount taken put back into the company.
The defendant in correspondence and argument contended that it was liable also to pay half the costs of whatever audit exercise is necessary to identify the extent of the embezzlement. This proposition seems to have originated from a misunderstanding of the effect of clause 4.5 of the agreement which deals with Completion Accounts. These were to be provided on or before the 8th November. Once Completion Accounts were furnished under the contract, the vendor and purchaser were required to agreement same on or before 15th December, or in default of agreement the purchaser was entitled to serve notice to dispute the Completion Accounts and refer the matter to an independent accountant known as “the expert” to determine the matter at issue and whose determination was agreed to be binding and final. The costs of the expert were to be borne 50% by the vendor and 50% by the purchaser.
None of the foregoing applied, however, because completion accounts were not furnished in accordance with the contract on or before Monday 8th November, or indeed on any date subsequently.
Insofar as the defendant company seeks to rely on the contention put forward in the early correspondence that it was effectively frustrated from doing this by the refusal of the plaintiff company to grant them and their accountants access to the books and records of the company, I hold on the evidence that this is not correct. They were refused access only for a matter of hours on Friday 5th November and thereafter (despite those contentions) had access albeit that that position was not clarified by the plaintiff in its correspondence in response to those contentions.
Accordingly in my view the defendant company will have to pay damages to cover the cost of an appropriate forensic audit. I will return to the question of this at a later point.
The value of the shares
Evidence was given on behalf of the plaintiff by Desmond Peelo the well-known accountant to the effect that on the date of the transaction the value of the shares was nil. He based this on his view that no properly informed purchaser would have bought the shares on that date. This conclusion and opinion was agreed with by Mr. Derek Donohue who was called on behalf of the defendant.
Mr. Peelo went on to say that if the money taken was restored to the company and if a full forensic audit showed that no further monies other than those restored to the company were taken and assuming the cost of the accounting exercise were reimbursed, the entire shareholding in the defendant company might at this point in time have a value approaching the net asset value which was some €600,000.
Evidence was also given by Derek Donohue on behalf of the defendant. In the first place he agreed that at the date of the contract no properly advised purchaser would have bought the shares. He took issue with the conclusion from that fact, however, that the shares were on that date of nil value. He said that they had an unascertained value and went on to say that if an appropriate accounting rectification exercise were conducted and the company was reimbursed the costs thereof and whatever had been taken from the company were restored to it then the value of the company remained unaltered namely at 2.15 million euros. He clarified this by stating that this was the value to the plaintiff as objectively determined by reference to the drivers which motivated its acquisition of the defendant’s shares. It seems to me that Mr. Donohue was talking about “value to the plaintiff” as distinct from “market value” which was what Mr. Peelo was referring to. Indeed in the latter context, Mr. Peelo went on to say further to his opinion referred to above, that his view that the company might have a value approaching it its asset value of €600,000, in the circumstances already identified, meant that there was no value for goodwill. However, he added, things get forgotten “but it takes time and I would certainly think the time is at least a year, if not two years, away”, by which I understand him to mean that the value on the open market in a year or two would be restored to the price paid by the plaintiff.
The plaintiff relied on the Privy Council decision in Lion Nathan Limited v.
C-C Bottlers Limited [1996] 1 WLR 1438. That was a case about the sale of shares in a soft drinks company. The whole of the share capital was sold with a warranty that forecast profits for a number of months into the future had been calculated with all due care – as distinct from a warranty that those profits would be a specified figure. The latter had it been given would have been what Lord Hoffman described as a warranty of quality and if it had been a warranty of quality then “the damages would prima facie have been the difference between what the shares would have been worth if the earnings had been in accordance with the warranty and what they were actually worth”. However in Lion Nathan the breach of warranty was only in relation to the forecast (to the effect that it had been done with all due care) and therefore the damages were the difference between the price agreed on the basis of the forecast as made and the price it would have been had the forecast been properly made.
In the present case the plaintiff submits that the warranties, for example, the warranty that “all written information given by or on behalf of the vendor… was, when given, and is at the date hereof, true, accurate and complete in all respects”, were warranties of quality in Lord Hoffman’s termination so that the measure of damages should be the difference between what the shares would have been worth if those warranties had been adhered to by the defendant and what they were actually worth which the plaintiff contends was nil on the day of the execution of the agreement. Lion Nathan is dealt with in McGregor, McGregor on Damages, 17th Ed. (London, 2003) at para. 24-007.
In my opinion the plaintiff’s contention is correct in principle: the warranties given, and I have cited one example, were warranties of quality in that they warranted that the relevant figures were accurate and true as distinct from the other kind of warranty to the effect that the calculation had been made with all due care. In those circumstances following the Privy Council in Lion Nathan, the measure of damages is prima facie the difference between what the goods as warranted would have been worth and what they were actually worth.
Mr. Connolly S.C. for the defendant has reminded me in the course of hearing, however, that the plaintiff company in this case was under an obligation to mitigate its loss. The company came to court, six months later, claiming that on the day of the contract the shares were worth nil because no one properly advised and aware of the embezzlement would have purchased them on that day. There is evidence also, however, that if a forensic audit were conducted and if whatever sums taken were reimbursed to the company together with the costs of that audit then in time (Mr. Peelo says that this would certainly take at least a year if not two years) then the goodwill might be recovered so that the value as intended would be restored. Mr. Donohue says that the value to the purchaser (based on his objective criteria approach) would be restored on these assumptions without delay. Is it realistic or fair, therefore, to ignore the fact that the plaintiff has not conducted any forensic audit (and the jurisprudence on mitigation of loss establishes that a plaintiff is entitled to the costs of mitigating its loss even if those steps are unsuccessful provided they were reasonable) and simply accept that the plaintiff is entitled to sit idly by in reliance upon its claimed right to rescind the agreement and come to court six months later in unqualified reliance upon a nil valuation as of the date of the agreement itself and no other date regardless of how unfavourable such a stance might be to the defendant?
I do not think so.
Equally, it is difficult to assess damages given the state of the evidence as I have described it. There is a letter but no more than that from KPMG estimating that the cost of a full forensic audit would be of the order of €250,000 to €500,000 and may be more. That is not evidence at all. On the other end of the scale Mr. Donohue says that a sample audit might well establish with sufficient certainty to satisfy clients of the company that the extent of the embezzlement had been determined and that such an audit would cost in the order of €25,000. He expressed strong disagreement with the KPMG estimate referred to above. Furthermore, it seems from a reading of Lion Nathan although it is nowhere stated, that the purchase of the shares in that case was as an investment. If correct, that would distinguish Lion Nathan from the present case where the purpose of the purchase by the plaintiff was driven by the specific commercial considerations referred to above. Insofar as those were the drivers of the agreement there is no indication that any of them has not been delivered although clearly there is a risk that clients may be lost when the circumstances of Colin Thorpe’s embezzlement become common knowledge. That is a risk and no more. There has been no audit and therefore that particular issue has not been tested. It is not even clear whether an audit could have been conducted in time for the hearing. This is therefore a case where it is uncertain whether a loss will be incurred. The plaintiff has not established in evidence whether any audit could have been done prior to the hearing or even whether such an audit as could have been done could have satisfied the appropriate criteria for reassuring clients. I am simply left in the dark on these matters.
The same edition of McGregor on Damages para. 8.015 says that this category (i.e. where it is uncertain whether a loss will be incurred) covers a wide field ranging from gains prevented by the defendant’s wrong to expenses made necessary by that wrong. The uncertainty in the present case relates to the former category namely “gains prevented by the defendant’s wrong”, that is fees earned from clients of the defendant company in the future who by reason of the defendant company’s breach of contract may (when the embezzlement comes to light) make a decision to cease employing the defendant. That is a potential wrong dependant on the activity of the third party, namely the client in question. How do I approach the risk? There is evidence that something similar has happened to a subsidiary company of the plaintiff in the United Kingdom in reasonably comparable circumstances. To some extent the more that is spent on the forensic audit, the more the risk will be reduced that clients will decide to leave.
I do not think the evidence on this aspect of the case, such as it is, establishes as a matter of probability that loss of clients is the natural and direct result of the defendant’s wrong (as distinct from a risk that such might happen). That was the test established in Ratcliffe v. Evans [1892] 2 Q.B. 524, a Court of Appeal case dealing with slander. Rather the present is closer to another early case Chaplin v. Hicks [1911] 2 K.B. 786, also a Court of Appeal case where the plaintiff was one of fifty finalists among six thousand entrants in a competition where the defendant offered engagements as actresses to twelve out of those fifty finalists. The plaintiff was not offered a fair chance of being interviewed in accordance with the advertised rules and twelve prize winners were chosen from amongst the other forty nine. A jury awarded £100 for loss of the chance to the plaintiff. Vaughan Williams L.J. in upholding that award said at p. 792, (having discussed remoteness in a case where the contingencies are too numerous and difficult to deal with):- “I only wish to deny with emphasis that, because precision cannot be arrived at, the jury has no function in the assessment of damages.”
The evidence as presented by the plaintiff in this case leaves me with nothing but the most rudimentary information as to the chance of the loss of customers when Colin Thorpe’s embezzlement is finally published. It is obvious that the more conclusive the forensic audit, the smaller the risk of loss of custom. In those circumstances I would assess by way of general damages under this heading a figure of 5% of the net annual post tax profits of the defendant company as shown in the last fully audited accounts of the company (duly corrected for Colin Thorpe’s embezzlement for that twelve month period) to compensate the plaintiff for the risk that when the embezzlement is made common knowledge some clients may quit the plaintiff. In doing so, I have borne in mind the character of the audit to be provided so far as I know it and also Mr. Peelo’s estimate of the time needed for the recovery of the goodwill of the company.
In regard to the necessary expenditure on the audit I would measure the figure of €25,000 given in evidence by Mr. Donohue as being the only admissible evidence in relation to this cost.
Accordingly the plaintiff is entitled to:
(a) €457,000 to be put back into the company to make up for its direct loss due to the embezzlement of Colin Thorpe,
(b) €25,000 to pay for the necessary audit to identify the extent of that embezzlement,
(c) 5% of the post tax profits of the company for the last duly audited twelve-month period adjusted for the effect during that period of Colin Thorpe’s embezzlement, and
(d) in the event that the forensic audit to be carried out discloses further losses directly due to Colin Thorpe’s embezzlement in excess of €457,000 such further sum to be payable when ascertained.
The defendant is entitled to an order directing specific performance of the agreement with an appropriate adjustment to the purchase price.
Approved: O’Sullivan J.
Wildgust & Anor v. Governor and Company of Bank of Ireland & Anor HC
[2001] IEHC 225 (17 August 2001)
Judgment of Mr. Justice Frederick Morris delivered on the 17th day of August 2001
The Proceedings to date
This matter came before the Court and was at hearing for seven days in July 1998.
On the 23rd July 1998 a compromise was reached between the Plaintiffs and the First Named Defendant as a result of which the proceedings against that Defendant were struck out with no Order as to costs.
At the conclusion of the Plaintiffs evidence against the Second Named Defendant Counsel on behalf of the Second Named Defendant sought a non suit and on the 28th July 19981 delivered Judgment on that Application. In the course of that Judgment I said “I am satisfied that the Plaintiffs have adduced evidence before the Court which if accepted could lead the Court to the conclusion that the enquiry made of the Norwich Union on the 22nd April by Mr. O’Hanlon was made by Hill Samuel in their capacity as Agents for Mr. Wildgust and his Company and that the making of a negligent misstatement to Hill Samuel equated in all respects to the making of the statement to the Plaintiffs.” I therefore refuse the Application for a non suit.
In the course of the Application for a non suit Counsel on behalf of the Second Named Defendant objected to the manner in which the Plaintiff had pleaded the case and submitted that insofar as the Plaintiff had any case to make (and he denied that he had such a case) it lay in negligent misstatement broadly based on the Hedlev Byrne v Heller principle. He submitted that no such case was pleaded. He submitted that it would be unjust in the circumstances to allow the Plaintiff to maintain such a case at that stage because had he appreciated that this case was to be made then his approach to the case and that of his clients might well have been different.
I took the view that the case as pleaded did not adequately identify the cause of action as negligent misstatement. However in the interests of justice I directed that the Plaintiff be permitted to amend the Statement of Claim so as to adequately plead this cause of action.
From that Ruling the Plaintiff appealed to the Supreme Court and by Order of the Supreme Court of the 3rd April 2000 it was ordered that the Plaintiffs appeal be allowed insofar as it awarded the Second Named Defendant the cost of the action to date but it ordered nevertheless that the Plaintiff deliver an amended Statement of Claim in accordance with my Judgment that is to say so as to adequately plead the claim under negligent misstatement. The Court further directed that the matter be referred back to me to continue the hearing.
Accordingly the hearing of this matter before me recommenced on the 10th July.
The Facts of the Case
There is only one matter of fact in issue between the Parties which I shall identify in due course. In my Judgment of the 28th July 19981 summarised the facts as follows:
The First Named plaintiff is a business man and is the principal if not the sole shareholder in the second-named plaintiff company. That company, Carrickowen Limited was incorporated for the purpose of holding two commercial units in Industrial Estates in Coolock. The First Named plaintiff (“Mr. Wildgust”) and his late wife wished to create an arrangement whereby they would sublet smaller units within these commercial units at a rent sufficient to pay the mortgage on the property and thereby create a pension fund for themselves. With this intention they applied for and obtained from Hill Samuel Merchant Bankers a loan of £215,000 (which sum was subsequently increased by an additional £50,000) which loan was secured by the primary security of a mortgage over the property in favour of Hill Samuel and was backed by a personal guarantee from Mr. Wildgust and the late Mrs Wildgust. As an additional secondary security Mr and Mrs Wildgust were required to obtain and assign to Hill Samuel a policy of insurance on their joint and several lives. All of these transactions were satisfactorily carried through.
Mr. Wildgust put in place an arrangement whereby the rents of the tenants occupying the sub-units were paid direct, in the first instance, into a company account with Allied Irish Banks but this arrangement was subsequently changed to one whereby the rents were paid into a company account in the Bank of Ireland at their Ballsbridge branch and arrangements were made with the bank that the premiums on the life policy were to be discharged to Norwich Union by direct debit The premiums were due monthly on the 23rd of each month.
A breakdown in the system occurred as a result of which the direct debit payment due on the 23rd March, 1992 was not paid. Mr. Wildgust held the Bank of Ireland responsible for this fact. They were accordingly joined as defendants in the present claim however after the hearing had progressed for some days a settlement was reached between Mr. Wildgust and the Bank of Ireland as a result of which they were struck out of the case.
Because of the failure to discharge the premium due on the 23rd of March, 1992 the Life Policy lapsed. The late Mrs Wildgust died on the 1st of January, 1993. The amount payable under the terms of he policy on her death was not paid as the Norwich Union claimed that the policy had lapsed. Mr. Wildgust brings this action to enforce payment of that amount and claims that as a result of withholding payment consequential loss has been suffered by him and by his company.
The issue of fact which gives rise to this action is as follows:
It is alleged that a Mr. Kevin O’Hanlon who was the Manager of Hill Samuel became aware of the fact that there had been a breakdown in the payment of the direct debit to the Norwich Union Insurance Company by the Bank of Ireland because Hill Samuel were among the persons to whom default notice was sent. He says that he telephoned Mr. Wildgust to enquire about payment of the premium and was told by him that the premium had been paid. Subsequently he says that he telephoned the Norwich Union on the 22nd April 1992 to enquire about the payment of this direct debit and he was told that the cheque for the premium had been received and that everything was “correct and in order.” He says that in reliance upon this he took no action. In fact the premium had not been paid. He said that if he had known that the premium remained unpaid then it would have been paid by Hill Samuel in order to keep the policy alive. He said that he is sure that this would have occurred particularly in view of Mrs Wildgust’s ill health. It is alleged on behalf of the Plaintiff that the information given to Mr. O’Hanlon constituted a negligent misstatement of fact as a result of which the policy was allowed to lapse and the Plaintiff has suffered loss and damage.
It is denied on behalf of the Norwich Union Insurance Company that the telephone call described by Mr. O’Hanlon or any such call was ever made.
Accordingly I am satisfied that as a preliminary issue of fact I must determine whether the Plaintiff has satisfied me that on the balance of probabilities such a telephone call did take place and that such an assurance was given to him by the Norwich Union. In the event of me being satisfied that such a conversation did take place then the second issue is to determine the Plaintiffs rights in these circumstances.
With regard to the issue of fact I now propose to summarise the relevant evidence.
Mr. Kevin O’Hanlon was in the employment of Hill Samuel between 1982 and 1993. At the relevant time he was Manager of the Merchant Bank and became familiar with the commercial mortgage granted to the Second Named Defendant while he was in the bank. He was aware that an advance of £215,000 was originally made and this was secured by Mr. & Mrs Wildgust’s personal guarantees and an assignment of a life insurance policy on the lives of Mr. & Mrs Wildgust with the Norwich Union Insurance Company. Subsequently the mortgage facility was increased to £275,000. He was aware of an arrangement put in place by Mr. Wildgust for the payment of premiums on the life policy through the Bank of Ireland by way of direct debit. He informed the Court that it is common practice for a Banker in the position of Hill Samuel if they became aware of a default on the payment of a premium which might result in a policy lapsing that the bank would themselves pay the premium.
On the 3rd April 1992 Hill Samuel received a direct debit breakdown advice indicating that a premium of £227.25 due on the 23rd March 1992 was unpaid. Upon becoming aware of this fact Mr. O’Hanlon says that as Account Manager he referred the matter to Senior Management and after discussing it with his superiors he contacted Mr. Wildgust informing him of the breakdown in payment. He says that when he contacted Mr. Wildgust and was informed by him that he, Mr. Wildgust had forwarded a cheque to the Norwich Union to keep the policy in order and he said that on the 22nd April 1992 he telephoned the Norwich Union to confirm that the cheque had been received and that everything was in order. He says that the Norwich Union confirmed that this was so. He says that he has no doubt that if he had known that the premium was not paid arrangements would have been made for Hill Samuel to pay the premium to prevent the policy lapsing. This was of particular importance as Mrs Wildgust had been diagnosed with cancer.
Mr. O’Hanlon has no personal recollection whatever of this transaction nor the telephone call and gives evidence entirely from the contemporaneous note that he made on the 22nd April 1992 which appears on his file and which he has signed. Mr. O’Hanlon ceased in the employment of Hill Samuel in October 1993.
The Defendants deny that any such conversation ever took place between Mr. O’Hanlon and any member of their staff. They have offered the evidence of Mr. Owen Byrne who was in 1992 Operations Director of the Norwich Union Life Insurance Company and Ms Betty Tuite who is and was at the relevant time the Manager of the Premium Collection and Agency Department. Her evidence may be summarised as follows:
She says that there are different sections within the Premium Collection Unit but in the Direct Debit Section there were approximately four people who were answerable to her. She says that these operatives are skilled and experienced people who were fully trained.
She says that there is and was at the relevant time a system whereby if an enquiry came through into the section, such as would have happened in Mr. O’Hanlon’s case, the operatives who received the enquiry would write it down on an action slip which would be sent to the Image Department. This action slip would be scanned and the enquiry would be recorded in the image departments.
In addition the enquiry would be electronically entered on the screen and would be recorded and available on, in this case, Mr. Wildgust’s screen. She informed the Court with considerable emphasis that this system is absolutely reliable and is universally adopted. She says that she has checked and is in a position to inform the Court that no record of any such enquiry exists on the computer records or in the Imaging Department. She does not admit of the possibility that any such enquiry was ever made.
In determining this issue of fact I believe that there are two significant factors to which I should have regard.
In the course of cross examination it emerged that the Norwich Union Premium Collection and Agency Department was contacted by the Norwich Union Dun Laoghaire Branch with a request that the default direct debit be relodged for payment. Nowhere on the Norwich Union computer records or in the image department is this request or telephone conversation noted otherwise than by manual note entered on the unpaid direct debit. It should have been if the system described was as foolproof as suggested by the Defendants. They explain this fact by referring to the manuscript note on the unpaid direct debit. However, I do not accept that as a satisfactory explanation for what has been described as a completely foolproof system of noting.
I am satisfied that even though there existed a thorough and business like procedure for noting enquiries it was not incapable of error and it would have been possible for Mr. O’Hanlon’s enquiry not to have been entered in the system.
The second point is this. There exists and has existed on the Hill Samuel file since the 22nd April 1992 a memorandum or “file note” signed by Mr. O’Hanlon confirming the fact that on the 22nd April such a conversation took place. Mr. O’Hanlon has no financial or other interest in this transaction to provide him with any motive to do otherwise than to tell the full truth. No suggestion has been made that this “file note” is other than bona fide. I can envisage no circumstances in which such a “file note” would have come into existence if the facts which they record were not correct.
Accordingly I accept as a fact that even though Mr. O’Hanlon has no direct recollection of this transaction such an enquiry was made of the Norwich Union and I accept that Mr. O’Hanlon was given the assurances in the terms which he has told the Court.
That being so it is necessary to consider what rights, if any, the Plaintiffs acquire as a result of the Norwich Union’s misstatement of fact made to a representative of Hill Samuel.
I believe that it is necessary and relevant to summarise the evidence given by Mr. Wildgust. Having described the various transactions involved in the acquisition of the property he then described the raising of finance for the transaction with Hill Samuel Limited. This was secured then inter alia with the life policy on Mr. & Mrs Wildgust the premiums from which were payable monthly.
Mr. Wildgust gave detailed evidence of difficulties which he had with the loan facilities which were made available to him and his company by the Bank of Ireland which are not of any relevance to the present issues save that it emerges from the lack of attention to his dealings with the Bank of Ireland that in late 1991 and early 1992 Mr. Wildgust was apparently preoccupied by his wife’s ill health and allowed his business affairs to lapse.
A premium was due to the Norwich Union on the 23rd March 1992 and default notices were sent by the Norwich Union to Hill Samuel and Mr. Wildgust in respect of that default. Mr. Wildgust says that he never received this default notice. He claims there should not have been a failure on the part of the Bank of Ireland to pay the direct debit because he had at that time renegotiated overdraft arrangements with the Bank of Ireland which he believed provided him with the facility for meeting such payments. The first notice that he had that the premium due on the direct debit of the 23rd March 1992 was not paid was in the latter half of the month of June. This delay was due to the bank strike and the postal strike which finished at that time. He said “If I had found out before, I would have paid the money straight up.” He said that between the 23rd March and the end of June he received no communication from the Bank of Ireland in relation to the direct debit nor did he receive any communication whatever from the Norwich Union in relation to the return of the direct debit. It was after June and probably around August that he had communication with the Norwich Union about the direct debit. He says that around the 8th, 9th or 10th April he had a telephone conversation with Mr. O’Hanlon of Hill Samuel. He said that Mr. O’Hanlon told him that the direct debit had not been paid and that he told Mr. O’Hanlon that he had sent a cheque to cover it. This was a reference to a cheque for £681.75 which he believed was to be held by the Bank of Ireland in reserve to meet a contingency such as this. In fact he did not know then but now knows that this reserve was not available because that cheque was returned.
I am of the view from the totality of Mr. Wildgust’s evidence that he became aware that the policy had lapsed at the end of June 1992 when he got his statements.
What emerges from Mr. Wildgust’s evidence is:
(a) At no stage up to the time when the policy lapsed was Mr. Wildgust aware of the telephone conversation between Mr. O’Hanlon and the Norwich Union or of any information given to Mr. O’Hanlon by the Norwich Union
(b) Mr. Wildgust believed at all times that the Bank of Ireland were in sufficient funds or otherwise obligated to him to discharge the direct debits due to the Norwich Union as premiums on the policy.
(c) At no stage did or could Mr. Wildgust have placed any reliance upon any statements made by the Norwich Union to Mr. O’Hanlon.
The Law since Ward v McMaster & Glencar Exploration plc and Andaman Resources pic, Applicants and the County Council of the County of Mayo, Respondents
Since I delivered Judgment on the application for a non suit on the 28th July 1998 the Supreme Court has considered the law in this Jurisdiction having regard to the decision of the Supreme Court in Ward v McMaster & Glencar Exploration plc and Andaman Resources plc Applicants and the County Council of the County of Mayo Respondents.
In his Judgment delivered the 19th July 2001 (unreported) Chief Justice Keane considered the approach of McCarthy J. in Ward v McMaster and contrasted it to what he described as the more cautious approach favoured in Caparo Industries plc v Dickman and Sutherland Shire Council v Heyman and having done so, summarising the law had this to say:
“There is in my view, no reason why courts determining whether a duty of care arises, should consider themselves obliged to hold that it does in every case where injury or damage to property was reasonably foreseeable and the notorious difficulty and elusive test of “proximity” or “neighbourhood” can be said to have been met, unless very powerful public policy considerations dictate otherwise. It seems to me that no injustice will be done if they are required to take the further step of considering whether, in all the circumstances, it would be reasonable that the law should impose a duty of a given scope on the Defendant for the benefit of the Plaintiff, as held by Costello J. at first instance in Ward v McMaster, by Brennan J. in Sutherland Shire Council v Heyman and by the House of Lords in Caparo Industries plc v Dickman. As Brennan J. pointed out there is a significant risk that any other approach will result in what he called a “massive extension to aprimafacie duty of care restrained only by undefinable considerations”
With this Judgment the remainder of the Supreme Court were in agreement.
Accordingly when McCarthy J. said in Ward v McMaster
“Whilst Costello J. essentially rested his conclusion on the “fair and reasonable ” test, I prefer to express the duty as arising from the proximity of the Parties, the foreseeability of the damage and the absence of any compelling exemption based upon public policy. “
This is no longer the full test. I must add the further factor of asking myself “is it just and reasonable that the law should impose a duty of a given scope on the Defendant for the benefit of the Plaintiff?” I am satisfied that this is the appropriate test in cases where negligent misstatement is alleged.
It is submitted on behalf of the Plaintiff by Mr. Bradley S.C., that it is unrealistic to attempt to separate the coinciding interest of Hill Samuel and the Plaintiff since each had an identical and corresponding interest in ensuring that the policy remained in place and accordingly a misrepresentation made to Hill Samuel must, he submits, prejudice Mr. Wildgust since without this misrepresentation the policy would have been renewed by Hill Samuel.
In my view the one major insurmountable difficulty for the Plaintiff is that at no stage did he, Mr. Wildgust become aware of the fact that the misstatement had been made by the Norwich Union nor did he place any reliance upon it. He was not misled by the misstatement because he was not aware of it. He was not prejudiced by it. It was not until two months later that he became aware of the fact that the premium had not been paid. In my view the misstatement in no way influenced or contributed towards the conduct of the Plaintiff. It did not influence him or cause him to act to his detriment. I do not believe that it would be reasonable that the law should impose a duty on the Defendant for the benefit of the Plaintiff in these circumstances. In my view to do so would, as Brennan J., said in Capara Industries Limited plc v Dickman be a “massive extension of a prima facie duty of care” which is not my understanding of the law in this Jurisdiction.
Wildgust v. Bank of Ireland SC
[2000] IESC 10; [2001] 1 ILRM 24 (13th April, 2000)
THE SUPREME COURT
21/99
Denham, J.
Murphy, J.
McGuinness, J.
JUDGMENT of Mrs. Justice Catherine McGuinness delivered the 13th day of April 2000 (nem. diss.)
1. This is an appeal from the orders and judgment of the President of High Court whereby he dismissed the claim of the Plaintiffs/Appellants as set out in their statement of claim, granted liberty to the Plaintiffs/Appellants to amend their statement of claim to include a claim for negligent misstatement or a claim broadly based on the Hedley Byrne v Heller principle, and granted leave to the second named Defendant/Respondent to amend its pleadings accordingly. As a condition of the said amendment the learned President also ordered that the Plaintiffs pay to the second named Defendant their costs of the days on which the case had ready been at hearing.
2. The factual background of the proceedings is helpfully summarised by the learned President in his judgment of the 28th July 1998 as follows: [*2]
“The first named Plaintiff is a businessman and is the principal if not the sole shareholder in the second named plaintiff company. That company, Carrigowen Limited, was incorporated for the purpose of holding two commercial units in industrial estates in Coolock. The first named Plaintiff Mr Wildgust and his late wife wished to create an arrangement whereby they would sublet smaller units within these commercial units at a rent sufficient to pay the mortgage on the property and thereby create a pension fund for themselves. With this intention they applied for and obtained from Hill Samuel Merchants Bankers a loan of £215,000 (which sum was subsequently increased by an additional £50,000). This loan was secured by the primary security of a mortgage over the property in favour of Hill Samuel and was backed by a personal guarantee from Mr Wildgust and the late Mrs Wildgust. As an additional secondary security Mr and Mrs Wildgust were required to obtain and assign to Hill Samuel a policy of insurance on their joint and several lives. All of these transactions were satisfactorily carried through.
Mr Wildgust put in place an arrangement whereby the rents of the tenants occupying the sub-units were paid direct, in the first instance, into a company account with Allied Irish Bank but this arrangement was subsequently changed to one whereby the rents were paid into a company account in the Bank of Ireland at their Ballsbridge branch and arrangements were made with the bank that the premiums on the life policy were to be discharged to Norwich Union by direct debit. The premiums were due monthly on the 23rd of each month.
[*3] A breakdown in the system occurred as a result of which the direct debit payment due on the 23rd March 1992 was not paid. Mr Wildgust held the Bank of Ireland responsible for this fact. They were accordingly joined as Defendants in the present claim. However after the hearing had progressed for some days a settlement was reached between Mr Wildgust and the Bank of Ireland as a result of which they were struck out of the case.
Because of the failure to discharge the premium due on the 23rd March 1992 the life policy lapsed. The late Mrs Wildgust died on the 1st January 1993. The amount payable under the terms of the policy on her death was not paid as the Norwich Union claimed that the policy had lapsed. Mr Wildgust brings this action to enforce payment of that amount and claims that as a result of withholding payment consequential loss has been suffered by him and by his company.”
3. The proceedings were commenced against the first and second named Defendants by plenary summons issued on the 27th July 1993. The statement of claim was delivered on the 25th May 1994. Notices for particulars and replies were duly exchanged. The second named Defendant filed its defence on the 7th November 1994, the first named Defendant on 30th November 1994. There was a further exchange of particulars in regard to special damages in early 1998. The matter came on for trial before the President of the High Court on the 15th July 1998. It was at hearing on the 15th, 16th, 17th, 21st and 22nd July. On the 23rd July 1998 it was announced to the Court that a settlement had been reached between the Plaintiffs and the first named Defendant, the Bank of Ireland; the case was, however, to continue against the second named Defendant, Norwich Union. [*4]
4. At this point the learned President asked Counsel for the Plaintiffs to summarise the way in which the case as it then stood was put against the second named Defendant, saying that he felt that this might clarify the matter. Mr Bradley S.C. then restated the case against the second named Defendant (as set out at pages 4 to 8 of the transcript of the 23rd July) and replied to a number of questions put to him by the trial judge. At this stage stress was laid on the Plaintiffs’ claim of negligent misrepresentation, or negligent misstatement, arising under the principles enunciated in the case of Hedley Byrne v Heller [1964] AC 465.
5. A number of further witnesses were then called on behalf of the Plaintiffs. At the close of the Plaintiffs’ case Counsel for the remaining Defendant, Mr Sreenan S.C., made an application for a non-suit. Full and comprehensive submissions were made by Counsel on both sides and the learned President reserved his judgment until the 28th July 1998. On that day he gave judgment and made the order to which I have already referred.
6. In this appeal the Plaintiffs/Appellants seek the following orders:
(a) An order setting aside so much of the said judgment as directs the requirement
on the part of the Appellants to amend the pleadings to reflect a claim upon
the broader principles of Hedley Byrne v Heller .
(b) An order setting aside so much of the said order of the High Court wherein the learned High Court Judge determined that the said pleadings did not disclose a claim based upon the negligence of the Respondent in relation to representations and statements made to third parties.
(c) An order setting aside so much of the said judgment as to the grant of the costs of the hearing to date to the Respondent.
(d) An order setting aside so much of the said judgment as refuses to grant a stay pending appeal in relation thereto. [*5]
(e) An order in lieu thereof directing the continuation of the trial herein.”
7. It will be seen from this that the Plaintiffs/Appellants do not seek to overturn the non-suit granted by the learned trial judge in respect of the other claims raised in the statement of claim.
8. The Defendant/Respondent opposes the appeal and seeks to uphold the order of the High Court. No cross-appeal has been brought by the Respondent.
Submissions of Counsel
9. At the outset it was correctly (and not surprisingly) agreed by Counsel that the purpose and function of pleadings was as set out in the following passage from Mahon v Celbridge Spinning Company Limited [1967] IR 1 , which had been cited with approval by Keane J. (as he then was) in McGee v O’Reilly [1996] 2 IR 229:
“The whole purpose of a pleading, be it a statement of claim, a defence or reply, is to define the issues between the parties, to confine the evidence of the trial to the matters relevant to those issues, and to ensure that the trial may proceed to judgment without either party being taken at a disadvantage by the introduction of matters not fairly to be ascertained from the pleadings. In other words a party should know in advance, in broad outline, the case he will have to meet at the trial.”
10. Counsel for the Plaintiffs/Appellants, Mr Bradley, submitted that the facts on which the Plaintiffs’ claim of negligent misstatement was based had been fully set out in the statement of claim and in the replies to particulars. He referred in particular to paragraph 13 of the statement of claim, to which the learned President had not referred in his judgment, and also to paragraphs 15 and 18. He submitted that these paragraphs established both the [*6] making of the communication which the Plaintiffs/Appellants allege was a negligent misstatement and the detrimental results to the Plaintiffs/Appellants which followed from that communication. The relevant paragraphs of the statement of claim state as follows:
“13. Upon realisation of the non-payment of the first direct debit a representative of Hill Samuel Bank Limited contacted the second named Defendant, its servants or agents, informing it and confirming with it that in the event of direct debits not being met by the Plaintiffs that the said direct debits would be met by Hill Samuel Bank Limited. At the date of the said Agreement the second named Defendant, its servants or agents confirmed that the earlier direct debit, which had been returned unpaid had subsequently being paid and that the said policy had been reinstated and that accordingly no obligation or necessity to discharge any sums arose. In addition the second named Defendant, its servants or agents did not subsequently despite the terms of the said Agreement contact Hill Samuel Bank Limited or the Plaintiff to inform either or both of them that direct debits had not been met and that the said policy was in jeopardy. This was despite the clear representations and agreement entered into in relation to the discharge of any such sums ……
15. In addition to the foregoing, it is the Plaintiffs’ contention that it is the normal
practice and custom of bankers for lending institutions with an interest noted
in relation to policies of insurance, which said policies have been pledged by
way of security for advances, that the said institutes would discharge unpaid
premia which said custom and practice the second named Defendant, its
servants or agents were aware of and participated in save with the exception [*7]
of the instant case herein. Such non-participation was wrongful and in breach of agreement and negligent and in breach of duty including breach of fiduciary duty …..
18. As the result of the matters aforesaid, the first named Plaintiff has been
exposed to a risk of liability, pursuant to his guarantee and furthermore in his
capacity as personal representation (sic) of Margaret Wildgust deceased has not received the benefit of the said policy of insurance and further the Plaintiffs and each of them, have suffered loss, damage and distress by reason of non-payment of the said policy of insurance in relation to the liabilities on foot of the borrowings from Hill Samuel Bank Limited.”
11. Mr Bradley also drew attention to the fact that the second named Defendant/Respondent in its notice for particulars of the 21 st June 1994, at paragraph 3, specifically sought particulars of the communication set out in paragraph 13 of the statement of claim, asking for particulars of the identity of the Hill Samuel representative who allegedly contacted the second named Defendant, the date on which the said contact was made, the identity of the person in the second named Defendant company who allegedly confirmed that the earlier direct debit had been paid, and the identity of the person who allegedly confirmed that the policy had been reinstated. In addition the second named Defendant sought copies of any documents if the aforesaid communications had been made or recorded in writing. In their replies to particulars dated the 4th July 1994 the Plaintiffs had stated that the relevant Hill Samuel representative was one Declan O’Hanlon and that the contact had been made in or around the 22nd April 1992. It was stated that the Plaintiffs had no knowledge as to the [*8] identity of the Norwich Union official to whom Mr O’Hanlon had spoken but the Plaintiffs provided a copy of a file note signed by Mr O’Hanlon and dated 22nd April 1992 which was entitled: Carrickowen Limited and read as follows:
With regard to the above account I have been advised by Mr Harry Wildgust that Mrs Margaret Wildgust has been diagnosed with cancer. We hold as security a policy assigned to ourselves with Norwich Union Life Insurance Society.
On the 6th April 1992 we received an advice from Norwich Union Life Insurance Society that the direct debit on the policy had been returned unpaid. I contacted the clients and was informed that they had forwarded a cheque to Norwich Union to keep the policy in order.
I rang Norwich Union today, 22 nd April, to confirm that the policy was correct and in order. Norwich Union confirmed that the cheque had been received and everything was correct and in order”.
12. Senior Counsel for the Appellants submitted that, given the matter set out in the statement of claim and in the replies to particulars, the Defendant was well aware of the nature of the case being made against it. In addition he referred to the defence of the second named Defendant at paragraphs 12 to 15 as follows:
“12. It is denied that a representative of Hill Samuel Bank contacted the second named Defendant, its servants or agents as alleged or at all and the particulars of the alleged communication are denied as if same were set out separately and traversed seriatim . [*9]
It is denied that the alleged or any agreement was made between a representative of Hill Samuel Bank and the second named Defendant as alleged or at all.
It is denied that the second named Defendant confirmed to Hill Samuel, its servants or agents, that the earlier direct debit had been paid or that the policy had been reinstated as alleged or at all.
It is denied that the second named Defendant confirmed to Hill Samuel Bank Limited, its servants or agents, that there was no obligation or necessity to discharge any sums under the policy of insurance as alleged or at all.”
13. The nature of this defence, Counsel claimed, made it clear the second named Defendant was aware of the nature of the Plaintiffs’ case and was well able to deny the allegations made against it and fully to defend itself. In this context he referred to the judgment of Lord Denning M.R. in the case of Karsales (Harold) Limited v Wallis [1956] 2 All ER 806 at 869 where the learned Judge stated:
“The only difficulty that I have felt in the case is whether this point is put with sufficient clarity in the pleadings. It is not put as clearly as one could wish. Nevertheless I have always understood in modern times that it is sufficient for a pleader to plead the material facts. He need not plead the legal consequences which flow from them. Even although he has stated the legal consequences [*10] inaccurately or incompletely that does not shut him out from arguing the points of law which arise on the facts pleaded.”
14. Going beyond the matters set out in the pleadings, Mr Bradley went on to refer to his original opening of the case on 15th July 1998. During the course of that opening he had referred in some detail to the telephone call made by Mr O’Hanlon to the Norwich Union on the 22nd April 1992 and had opened the file note of 22nd April 1992 to the Court (see page 20 of the transcript). Later in his opening, in reply to a question from the Trial Judge, Counsel stated that the Norwich Union had represented that the policy was in order as of the 22nd April 1992 and that had either Hill Samuel Bank, through Mr O’Hanlon, or Mr Wildgust being informed at that stage that there was a problem the policy could have been kept in being by a payment before the thirty days of grace had lapsed. Again (at page 26 of the transcript) Mr Bradley stated:
“And also of course, My Lord, we would be saying that if Your Lordship accepts the evidence of Mr O’Hanlon that there will be negligence in the misstatement on the part of the Norwich Defendants in relation to what occurred on the 22nd April 1992. “
15. Following Mr Bradley’s opening of the case Mr Sreenan, Senior Counsel, for the second named Defendant, had protested vigorously in regard to an allegation of mala fides which was apparently being made against the second named Defendant, but had raised no objection to the allegation of negligent misstatement.
16. During the course of the hearing Mr O’Hanlon was a witness for the Plaintiffs and gave evidence concerning the alleged telephone conversation and the file note of April 22 nd [*11] 1992. He was cross-examined by Mr Sreenan in considerable detail. Mr Bradley pointed out that Mr Sreenan put a large number of factual matters concerning the records and procedures of the Norwich Union to Mr O’Hanlon. These matters, he said, could only have stemmed from full instructions to Counsel and from research carried out by Norwich Union to meet this aspect of the case. Both in Mr Sreenan’s cross-examination and in the later submissions which he made to the Court it was clear that the second named Defendant well understood the case that was being made against it and was fully prepared to meet it.
17. Counsel for the Plaintiffs also drew attention to the fact that the whole matter of the telephone call and the file note was well known to the second named Defendant from at least December 1992 onwards, and had been the subject matter of correspondence between Hill Samuel Bank Limited and the second named Defendant in December 1992, well before the issue of the proceedings in July 1993 and the delivery of the statement of claim on the 25th May 1994.
18. Mr Bradley drew attention to his “second opening” of the Plaintiffs case at the request of the learned President on 23rd July 1998, where he set out even more clearly the claim of negligent misstatement and signalled his reliance on Hedley Byrne v Heller and on the decision of the late Shanley J. in Amanda Forshall v Walsh and Others delivered on the 18th June 1997.
19. Arising out of these considerations Mr Bradley submitted that the claim of negligent misstatement had been quite sufficiently pleaded, that it had at all relevant times been well understood by the second named Defendant and that the second named Defendant had come to Court well prepared to defend it. There was therefore no requirement to amend the pleadings as directed by the learned President of the High Court. In addition it was an [*12] injustice to the Plaintiffs to require them, after five days of hearing, to recommence their case before a new Judge and to meet the costs of the hearing to date.
20. Senior Counsel for the second named Defendant/Respondent, Mr Sreenan, submitted that nowhere in the statement of claim was a claim in negligent misstatement pleaded or made out. He argued that in order to make a case in negligent misstatement, the Plaintiffs/Appellants would have to plead:
that a statement was made by the second named Defendant to the Plaintiffs;
that the second named Defendant intended that the Plaintiffs would rely and act upon this statement; and
that the Plaintiffs did so rely and acted upon the statement to their detriment.
21. He referred to the amended statement of claim which had been served by the Plaintiffs and submitted that paragraph 13(a) had had to be added to the statement of claim in order to make the case in negligent misstatement. Paragraph 13 (a) amended paragraph 13 of the original statement of claim by adding the following:
“13(a) A representative of Hill Samuel Bank Limited made enquiry of the second named Defendant, its servants or agents, relating to the returned unpaid debit on or about the 22nd day of April 1992 and it was represented to him on that date that everything was in order. At the time of furnishing the said information the second named Defendant, its servants or agents, well knew or ought to have known that Hill Samuel Bank Limited would rely on the said information and but for the said information would have made whatever payments were necessary in maintenance of the said policy and knew that it would have done so in the interests of the Plaintiffs and itself [*13] as holder of the said policy as security for the liabilities of the Plaintiffs and each of them. In the premises the second named Defendant was under a duty of care in furnishing the said information and was in breach of the said duty and guilty of negligence in that the information in truth and in fact was false, untrue, inaccurate and misleading. Furthermore the second named Defendant its servants or agents knew or ought to have known that in the furnishing of the incorrect information to Hill Samuel Bank Limited it would and did cause the Plaintiffs loss and damage.”
22. Mr Sreenan submitted that if a claim had been properly pleaded in negligent misstatement the second named Defendant would have approached the case differently because it would have known what case was being made before the trial began and could have met it accordingly. The claim of negligent misstatement could have been evaluated by the second named Defendant who could have obtained Counsel’s advice as to whether it was a claim which was capable of being sustained or not. The second named Defendant could also have obtained Counsel’s advice on what proofs were required to meet the claim and would have been in a position to consider the possibility of making a lodgment in respect of the claim. Further discovery might have been required in regard to the relationship between the Plaintiffs and Hill Samuel. Telephone records and other documents from Hill Samuel might have been critically relevant to the issue of the alleged telephone conversation by Mr O’Hanlon.
23. Counsel for the Defendant/Respondent also submitted that, had the case being correctly pleaded, there would have been a proper opportunity to consider the legal [*14] implications of basing the Plaintiffs’ claim on the judgment of the learned Shanley J. in the Amanda Forshall case.
24. Mr Sreenan went on to make a number of submissions both in regard to the import of the Amanda Forshall case and in regard to the discussion of the law on negligent misstatement as set out at pages 7 to 10 of the judgment of the learned President of the High Court and to the conclusion reached by him at page 10 where he stated:
“Accordingly in approaching this matter on the basis of an application for a non-suit I am satisfied that the Plaintiffs have presented the Court with evidence which, if accepted, would establish that there was a negligent misstatement of fact by the servant or agent of the Norwich Union, that this statement was communicated to Hill Samuel and by reason of the relationship between Hill Samuel and the Plaintiff (i.e. that of mortgagor and mortgagee) there was a proximity between the Norwich Union and the Plaintiffs. I am also satisfied that evidence has been tendered which shows that damage as a result of misstatement was foreseeable.”
25. Had Counsel been initially aware of the nature of the Plaintiffs’ claim, Mr Sreenan submitted, he would have been prepared to deal with what he described as the considerable widening of the tort of negligent misstatement contained in the Plaintiffs’ claim which in the event was accepted by the learned President.
26. In regard to paragraph 13 of the statement of claim, Mr Sreenan said that the Defendant/Respondent was of course aware of the allegations made by Mr O’Hanlon, and denied them in its defence, but had at all times believed that these allegations formed part of the Plaintiffs claim that the Defendant/Respondent had acted in bad faith.[*15]
27. In reply Counsel for the Plaintiffs/Appellants pointed out that the Defendant/Respondent had brought no appeal against the conclusions reached by the learned President in his judgment but had confined themselves to seeking to uphold the order made by the High Court.
The Issues
28. A number of issues arise on this appeal as follows:
1. Was the Plaintiffs claim in negligent misstatement pleaded with sufficient clarity and particularity in the statement of claim?
2. If not, were the Defendants, and in particular the second named Defendant, made sufficiently aware of the nature of this claim and of its factual background during the course of correspondence, by the pleadings generally, by Counsel’s opening of the Plaintiffs case, and by the course of the proceedings viewed as a whole?
3. If the Plaintiffs claim was not in fact correctly pleaded, were the Defendants materially prejudiced in their defence and would they have continued to be materially prejudiced had the trial continued in the High Court before the learned President.
4. Should the trial in the High Court have continued, with or without amendment of pleadings?
5. The issue of costs.
Conclusions
29. As was accepted by both parties the purpose of pleadings is to define the issues between the parties, to confine the evidence of the trial to the matters relevant to those issues, [*16] and to ensure that neither party will be taken at a disadvantage by the introduction of matters not fairly set out in the pleadings.
30. Order 19 of the Rules of the Superior Courts deals with pleadings generally. Rule 5(1) of that order provides:
“In all cases alleging a wrong within the meaning of the Civil Liability Acts 1961 and 1964, particulars of such wrong, any personal injury suffered and any items of special damage shall be set out in the Statement of Claim or counterclaim and particulars of any contributory negligence shall be set out in the defence.”
31. Order 20 deals with the Statement of Claim. At Rules 7 and 8 the order provides:
“7. Every Statement of Claim shall state specifically the relief which the Plaintiff claims, either simply or in the alternative, and it shall not be necessary to ask for general or other relief which may always be given, as the Court may think just, to the same extent as if it had been asked for. The same rules shall apply to any counterclaim made or relief claimed by the Defendant in his defence.
8. Where the Plaintiff seeks relief in respect of several distinct claims or causes of
complaint founded upon separate and distinct grounds, they shall be stated, as far as may be, separately and distinctly. The same rules shall apply where the Defendant relies upon several distinct grounds of defence, set off , or counterclaim, founded upon separate and distinct facts .” [*17]
32. Mr Bradley submits that paragraph 13 of the Statement of Claim and the following paragraphs meet these criteria. I would accept that paragraph 13 of the Plaintiffs’ Statement of Claim refers to the confirmation by the second named Defendant that:
“The earlier direct debit which had been returned unpaid had subsequently been paid and that the said policy had been reinstated and that accordingly no obligation or necessity to discharge any sums arose.”
33. However, the reference to this communication is in the context of what is described as an “agreement”. This “agreement” is somewhat ill-defined, but it appears to refer to the fact that Hill Samuel Bank informed the Norwich Union that in the event of the direct debits not being met by the Plaintiffs that the said direct debits would be met by Hill Samuel Bank Limited. The paragraph concludes by stating that the second named Defendant:
“did not subsequently despite the terms of the said agreement contact Hill Samuel Bank Limited or the Plaintiff to inform either or both of them that direct debits had not been met and that the said policy was in jeopardy. “
34. I cannot accept that this in any way sets out a claim of negligent misstatement under Hedley Byrne principles. It does not state the duty of care owed by the second named Defendant to the Plaintiffs. It does not state that the communication in question was made to the Plaintiffs, or at least to agents of the Plaintiffs. It does not state that the Plaintiffs, or indeed Hill Samuel Bank Limited, relied on the communication or that Norwich Union knew that they would rely on it; nor does it clearly set out that the Plaintiffs acted to their detriment in reliance on the communication. It does not even set out that the communication was untrue. All of these things would be normal elements in the pleading of a claim [*18] negligent misstatement and are material facts rather than matters of law. Even given the subsequent details provided in the replies to particulars it could not be clear to the Defendant on the basis of the pleadings that they had to meet a claim of negligent misstatement. Mr Sreenan is, I consider, justified in arguing that paragraph 13 and the following paragraphs appeared to him to be part of the Plaintiffs’ allegation of mala fides on the part of the second named Defendant.
35. Accordingly in my view the learned President of the High Court was correct in holding that on the pleadings he was “unable to find any case based upon negligent misstatement or broadly based on the Hedley Byrne v Heller principle”.
36. The learned President was, therefore, also correct in holding that it would be necessary for the Plaintiffs’ to amend the pleadings if they were to pursue their claim under Hedley Byrne v Heller.
37. When one considers the course of the proceedings as a whole, however, it is more difficult to accept that the Defendant/Respondent was not, at least in a general way, aware of the nature of the Plaintiffs’ claim. On 18th December 1992 Messrs Giles J. Kennedy & Company, Solicitors for the Plaintiffs, wrote to the Norwich Union setting out in broad outline the claims being made by the Plaintiffs. This letter stated, inter alia,:
“We also understand that a representative of Hill Samuel contacted the Norwich Union Life as an interested party on the policy, inquiring about the premium and this representative was assured by the Norwich Union Life that the premium have (sic) not initially been paid, but had subsequently been paid and that accordingly, matters were in order.” [*19]
38. The letter went on to set out the options open to the Plaintiffs. These included:
“Option 2. Commence proceedings against the Norwich Union and is (sic) against
the Bank of Ireland for breach of contract and negligence on the date
of death of Margaret Wildgust for the loss and damage sustained,
namely the sum insured on the policy and interest accruing thereafter
after death. Our clients will be relying on the negligence and breach
of contract of the Bank of Ireland, Ballsbridge, and the negligence and
breach of contract to include breach of duty of your company in
respect of the cancellation of the policy herein and in particular the
negligent misrepresentations made to the Hill Samuel Bank and
your failure to notify our client of cancellation of the policy within a
reasonable time and that the debit remained unpaid. ” ( my emphasis).
39. The second named Defendant received this letter well before the issue of the proceedings or the delivery of the Statement of Claim, and even before the unfortunate death of Mrs Wildgust in January 1993.
40. In addition, while Mr Bradley’s references to negligent misrepresentation in his original opening of the case are somewhat vague, he is, it seems to me, correct in his contention that the run of the evidence and in particular Mr Sreenan’s cross-examination of Mr O’Hanlon demonstrate a knowledge on the part of the Defendant/Respondent of the full significance of the alleged telephone conversation and the file note of 22nd April 1992. It is clear from that cross-examination that the Respondent had carried out considerable research into its own records and business practices in order to be able to meet and deny the Plaintiffs’ [*20] claim. Certainly the Plaintiffs’ claim in negligent misstatement was made fully clear in Mr Bradley’s clarification of the case on the 23rd July 1998.
41. As far as the second issue is concerned, therefore, I consider that during the course of the proceedings viewed as a whole the Respondent was made aware in general terms of the nature of the Plaintiffs’ claim.
42. Was, then, the Respondent materially prejudiced in its defence? In its pleadings the Respondent clearly denied the allegations of fact made by the Plaintiffs (paragraphs 12 to 15 of the defence). As already set out above, the Respondent had carried out researches and given full instructions to Counsel to enable Counsel to cross-examine witnesses and to make cogent and comprehensive submissions, which he did. I accept that the lack of clarity and particularity in the pleadings was to an extent prejudicial to the Respondent, but the effect of this prejudice would not, it seems to me, have persisted had the trial been continued after a relatively brief adjournment to permit the amendment of pleadings. In his submissions to this Court Mr Sreenan on behalf of the Respondent was somewhat critical of what he felt was the undue broadening by the learned President of the tort of negligent misstatement in the light of the Amanda Forshall case. Perhaps the President inclined to a generous interpretation of the tort but that is not an issue for this Court. It is an issue of law which will arise, will be argued and will be decided in the trial of the Plaintiffs’ reconstituted claim in the High Court, just as the relevant issues of fact will fall to be decided in the High Court.
43. Should therefore, the Plaintiffs’ claim of negligent misstatement be put back for a new trial or should there be a continuation of the trial before the President of the High Court?
44. It is not impermissible for pleadings to be amended during the course of a trial. Order 28 Rule 1 of the Rules of the Superior Courts provides as follows: [*21]
“The Court may, at any stage of the proceedings, allow either party to alter or amend his endorsement or pleadings in such manner and on such terms as may be just, and also such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties.”
45. While no one would suggest that amendment of pleadings in mid-trial is normally a desirable practice or should frequently be permitted, it was open to the trial judge in the instant case to take that course. In my view to put back the whole matter for a new trial, presumably before another judge, would be to place an undue burden on the Plaintiffs/Appellants which is not necessitated by the level of possible prejudice against the Defendant/Respondent arising out of the continuation of the current trial.
46. I would therefore direct that an amended Statement of Claim as directed by the President of the High Court in his order of 28th July 1998 be served on the Defendant/Respondent within 21 days. The Respondent may file an amended defence to that claim within 28 days from the date of delivery of the amended Statement of Claim. The matter should then with the least possible delay be listed before the learned President of the High Court with a view to continuing and concluding the current trial.
47. Given the conclusions which I have reached, it would seem the better course that the costs of the trial to date be treated as part of the costs of the proceedings as a whole, to be dealt with in his discretion by the learned trial judge at the conclusion of the trial. I would therefore allow the appeal in regard to costs.
Lombard & Ulster Banking -v- Mercedes- Benze Finance Ltd
[2006] IEHC 168 (11 January 2006)
JUDGMENT delivered the 11th day of January, 2006 by Mr. Justice John MacMenamin
1. It might well have been thought in this era of mediation and alternative dispute resolution that an action between two substantial finance houses regarding the financing of a hire purchase transaction of three rather elderly second hand Mercedes tractor truck units would be more redolent of litigation of another era; the more so when the sum originally at stake was just in excess of the lower end of the High Court money jurisdiction. The fallacy of such a presumption is demonstrated by the instant case which was fought out with tenacity and vigour over three days in the High Court. The reasons therefor emerge in the course of this judgment. Put simply, each side firmly believed in the moral and legal correctness of their actions. (For ease of reference in this judgment Mercedes-Benz Finance Ltd will (save in the next paragraph) be hereafter be referred to as ‘the defendant’).
2. On one view, the relevant events in issue can be measured in a two month time-span. In or about August 1998 Vincent Hughes, the second named defendant (who is no longer concerned in these proceedings), approached the plaintiffs and stated that he wished to buy three second hand Mercedes trucks from the first named defendant in England and wished to obtain finance of STG £40,000 for this transaction. In the ordinary way the structure of the finance would be a series of three hire purchase agreements, one in respect of each of the three trucks.
3. The contract was made between the plaintiff and the defendant. The transaction was handled in the plaintiff company by Aidan Carolan. At the time of this transaction he was a Manager of the plaintiff company in its Cavan branch. He is now Area Manager in the same branch. He testified that in August 1998 he received a telephone call from a salesperson in Westwood Garage in Strokestown to the effect that the second named defendant was minded to purchase one single new Scania truck from that garage. Mr. Carolan went to meet Mr. Hughes. The nature of this transaction was to be a hire purchase agreement. It is unnecessary to deal any further with this transaction as it did not proceed.
4. Mr. Carolan testified that he personally had no previous experience of dealing with Mr. Hughes. Mr. Hughes had however engaged in transactions with Lake Leasing who are an associated company of the plaintiff. While the latter company carry on their own leasing business, Lombard and Ulster Finance collect funds on their behalf by way of direct debit. The plaintiffs do not share the same information and databanks as Lake Leasing.
5. A short period later Mr. Carolan received a further telephone call from a sales executive of Lombard and Ulster in Sligo. That executive was Gareth Heavey. Mr. Heavey informed Mr. Carolan that Mr. Hughes was then purchasing three second hand Mercedes trucks from Mercedes in England and that this information had come to him through Lake Leasing. Lake themselves were not in the business of financing trucks. Their main business related to the financing of cars. Mr. Carolan’s understanding was that Lombard and Ulster would be dealing with Mercedes Benz Sales. He contacted Mr. Hughes and asked him about his intentions. He was informed that Mr. Hughes was purchasing three trucks from Mercedes Benz. As Mr. Carolan was going through Carrick-on-Shannon (where Mr. Hughes lives) he stated that he would call to see him. At that meeting Mr. Carolan was told that Mr. Hughes was purchasing three trucks for a total value of approximately STG £62,000 and that he required finance of STG £40,000 from the plaintiffs and that he wished to pay the deposit.
6. Mr. Carolan knew no more about the trucks at that stage. He put the proposal forward to his head office and the arrangement was approved in principle.
7. The next step in the transaction was to seek a pro forma invoice from the defendant. Mr. Carolan contacted a Mr. Kevin Segar in that company. He told Mr. Segar that Mr. Hughes was purchasing three trucks from the defendant and that he wished to obtain an invoice. The plaintiff was going to finance the purchase. Mr. Segar indicated that he would arrange for a draft invoice which he did. Mr. Carolan testified that he informed Mr. Segar that the plaintiffs were to finance STG £40,000. The total consideration for the three trucks was STG £62,667.56. In error Mr. Segar sent an invoice to Mr. Carolan dated 11th September for the sum of £64,667.56. It will be seen therefore that the error was in the sum of an additional sum of STG £2,000.
8. To avoid further confusion Mr. Carolan laid out a draft invoice as the plaintiffs would require it. He forwarded this to a Stuart Lowther in the defendant company to make up the invoice. Mr. Carolan stated that he was not surprised to find that the seller of the trucks was Mercedes Benz Finance Ltd (a UK Company) rather than Mercedes Benz Sales Ltd. This was attributable to the fact that the plaintiffs financed trucks and various pieces of equipment which might have been repossessed by finance companies such as the defendant. Equally the defendant could wish to sell contract hire vehicles which had been repossessed. Such a transaction therefore, even from the defendant which is a United Kingdom registered company would not be uncommon. Ultimately, on 14th September an invoice emanated from the defendants. The only distinction which can be seen on the face of the draft as opposed to the actual sales invoice of 14th September was the sequence in which the trucks were dealt with, and some lack of definition to the valuation figures which were attributable to each of the three trucks. Mr. Hughes signed the hire purchase contract on the requisite form for the transaction on 15th September. Mr. Carolan contacted a sales support person in the plaintiffs Dublin office to carry out a credit bureau check, known as an ‘ICB check’ to ascertain whether the goods were the subject of any hire purchase or loan agreement. Nothing adverse was disclosed. Thereafter Mr. Carolan instructed the plaintiff’s head office to carry out the credit transfer of STG £40,000 to the defendant company.
9. No information was disclosed to the plaintiff, nor did any discussions take place between Mr. Carolan and the defendant as to the provenance or whereabouts of the trucks. Mr. Carolan said that he proceeded on the basis that they were in the possession of the defendants, and in storage in England.
10. The sales invoice relating to the three trucks from the defendants contained a number of terms which are of importance. The first of these was: “no warranty given or implied”. The second: “any distance recorded on the above vehicle cannot be guaranteed in any way”. The third: “as seen and approved by Mr. V. Hughes”. Finally it was stipulated: “all goods remain the property of the vendor until cleared or received in full”. The total consideration of STG £62,667.56 was set out. Below that there was recited: “less cash deposit due from Mr. Hughes STG £22,667.56”, leaving a balance due of STG £40,000.
11. On its face then, this is a relatively straightforward hire purchase transaction conducted perhaps rather too speedily and certainly informally.
In order to obtain a fuller picture one must then turn to the history of the tractor truck units. Each of them had previously been registered in Northern Ireland. The oldest was previously registered OJI5287. It chassis number was WDB65592. It was the subject matter of a hire purchase agreement made between Mercedes-Benz Finance Ltd and Agnew Commercials, a Northern Ireland concern on 30th March, 1996. The cash price paid for the vehicle was STG £23,500. This was financed as to an initial payment of STG £5,000 by way of deposit and further finance to a total sum of STG £18,500 payable for 36 months at the sum of STG £606.65.
This vehicle was subsequently re-registered in this jurisdiction as 91 LM 674. The second vehicle was originally registered RJI4221. It too, had been the subject matter of a hire purchase agreement between the first named defendant and Agnew Commercials. This purchase was effected on 23rd October, 1996. The total cash price was £36,013.74, financed as to an initial deposit payment of STG £15,363.75 and additional finance of £20,650 repayable over 36 months at £684.24. The chassis number of this vehicle was WDB65593.
The third vehicle was registered MIL9639 in Northern Ireland. It was subsequently re-registered 96 LM 828. It chassis number was WDB655912. It had been the subject matter of a hire purchase agreement made between Mercedes-Benz Finance Ltd and Agnew Commercials for a total cash price of £69,795 structured as to an initial payment on deposit of £20,395 and financed as to a total sum of £49,400 payable over 60 months at £656.05 per month.
But the hire purchase agreements of each of these three vehicles had been terminated on the 18th June, 1998 by reason of failure on the part of the customer to effect repayments as stipulated. The first vehicle had been repossessed on 21st July, 1998. The second and third vehicles mentioned were still in the possession of the customer and remained so until the 6th July, 1999 and 9th April, 1999 respectively. However Mr. Carolan did not know (a) that the previous customer who had entered into this hire purchase agreement with Mercedes-Benz Finance Ltd was none other than Mr. Vincent Hughes. Mr. Carolan was not informed or aware that only one of the vehicles had been repossessed, and the other two remained in Mr. Hughes possession, and continued to be so for another year. Additionally Mr. Carolan states that he was entirely unaware that the transaction that he had entered into was a refinancing of an existing deal rather than a straightforward series of hire purchase transactions.
Mr. Carolan testified that ten days later he heard from a Mr. Ralph who was one of the credit controllers in the defendant company. Mr. Ralph telephoned Mr. Carolan to indicate that the deposit from Vincent Hughes had not been paid. Mr. Ralph then informed Mr. Carolan that the trucks in question had, at the time of the transaction in issue actually been on hire purchase from the defendant company by Mr. Vincent Hughes. Mr. Carolan was taken aback by this information as he said the plaintiffs would not re-finance goods for anybody, whether in the Republic of Ireland or from England. He testified that he said to Mr. Ralph that he was surprised that the defendants had the trucks “on finance” with Mr. Hughes. No discussion took place at that stage as to who had possession of the trucks. After this telephone call Mr. Carolan in turn contacted Mr. Hughes in order to persuade him to furnish the deposit to the defendant. In response to a query as to why Mr. Carolan felt it was his responsibility to contact Mr. Hughes rather than that of the defendant company, Mr. Carolan said that he did so in order to expedite the transaction. On a number of subsequent occasions in the year 1998 and 1999 Mr. Carolan contacted Mr. Hughes in an effort to persuade him to complete the deal.
12. On 26th November, 1998 the plaintiffs received a letter from the defendants in which it was asserted that three trucks were the property of Mercedes Benz Finance Limited and calling upon the plaintiffs to ensure that the totality of the payment of the transaction i.e. the STG £62,667.56 was payable.
13. Mr. Carolan denied that there was any overlap of information between the plaintiff and Lake Leasing. Consequently any information which might have been available to the latter company about transactions which they had entered into previously with Mr. Hughes would not have been available to the plaintiff. Further, when Mr. Hughes spoke to Mr. Carolan in early September he stated that he was buying the trucks from Mercedes. Mr. Carolan said that the only checks customarily carried out in this jurisdiction were those known as the ‘ICB’ check i.e. those carried out under the aegis of the Irish Credit Bureau. This is of some relevance in that the trucks in question were previously registered in the United Kingdom. Lombard and Ulster did not carry out a credit check in that jurisdiction prior to the hire purchase transaction until the 15th or 16th September at which point it emerged that the vehicles in question were registered with the defendant company. Mr. Carolan was insistent that if he had known that what was in issue was a refinancing transaction the plaintiffs would never have considered engaging in it at all. Furthermore he insisted that the contract that he entered into on behalf of the plaintiff was purely for the sum of STG £40,000 and was in no way as surety or guarantor for the totality of the purchase price of the three trucks. He stated that any arrangement made regarding the repayment of the STG £22,000 deposit was between Mr. Hughes and the defendant company.
14. Not the least unusual aspect of the transaction is that apparently, on the 30th September, the plaintiff credited Mr. Hughes account with a deposit on the transaction of IR £26,465.33. Mr. Carolan stated that he thought that that sum must be there for tax purposes so that when Mr. Hughes was carrying out his audited accounts he would be shown that this was part of the transaction which he had effected, and that he would be taking a capital allowance write off of 20% against his accounts from moneys having been paid out on a hire purchase agreement.
Mr. Carolan also said that he was unfamiliar with any credit check agencies known as Experian or Ecuifax which provide information on UK vehicles. They were not used by his company in Ireland.
15. One issue which arose which was never completely clarified was whether, on the 15th or 16th September the plaintiff contacted Mr. Segar in Mercedes Benz with a view to obtaining “clearance” either on Mr. Hughes and/or on the vehicles, and whether as he said, Mr. Segar refused point blank to give any such clearance unless the totality of the debt in question was paid. It was further suggested that this Lombard and Ulster representative, who was unidentified, ultimately was dissatisfied with Mr. Segar’s response, and was put through to Ms. Kaye McDougall of the defendant company. Neither any representative from the plaintiff nor Ms. McDougall gave evidence.
A number of direct debits were presented to Mr. Hughes’ bank in the month of October and November 1998 and went unpaid. Mr. Carolan stated however that the question of dealing with such matters would be for the collection department in Dublin.
16. Between November and March 1999 both Mr. Carolan and a Brian Carey, also senior official of the plaintiff, visited Mr. Hughes on a number of occasions seeking to persuade him to pay the deposit. . An elapse of time between November and the following April of 1999 occurred prior to any response emanating from the plaintiff. However this was considered unremarkable. Mr. Carolan specifically denied that any conversation had taken place between himself and Mr. Segar of the defendant wherein it was suggested that the transaction was for the refinancing of trucks on behalf of Mr. Hughes.
17. Second to testify on behalf of the plaintiff was Mr. Brian Carey, currently head of regulatory risk and compliance with the plaintiff company. He was formerly collections manager. Having reiterated the evidence as to the relationship between the plaintiff company and Lake Finance he stated that his understanding of the invoice in question was that having paid the sum of £40,000 the plaintiff company had acquitted itself of its responsibilities in the transactions. The core of the problem, as far as he was concerned was that Mr. Hughes had failed to pay his deposit to the dealer. He did not however consider that this matter was of direct consequence to the plaintiff in terms of the trucks. He was satisfied that having paid the invoice amount in full (referring to the sum of £40,000), the invoice made clear there was an amount due from Mr. Hughes which he said in the normal course would have been the responsibility of the defendant to collect. In January 1999 he had it in mind to commence proceedings by way of injunctive relief against Mr. Hughes. He was not concerned about the assertion of the claim made by the defendant company in their letter of 26th November, 1998 in that the defendant company had received the STG £40,000, had failed to collect the deposit, and at that stage he assumed that they had released possession of the goods without receiving their deposit. Ultimately therefore he considered that the problem lay with the defendant. In the light of the previously good relationship between the plaintiff and the defendant company he had suggested to Mr. Carolan that he might go to Mr. Hughes and see what he could do in order to see that Mr. Hughes fulfilled his side of the bargain. Mr. Carey added that the plaintiff company subsequently adopted a procedure of profiling accounts which gave further of information regarding the conduct and performance of each account with finance companies on a monthly basis. However in 1998 the breadth of information which is now obtainable was not available to the plaintiff. While ‘ICB’ and other checks were available in this jurisdiction such checks did not cover transactions in Northern Ireland, nor do they cover transactions in the United Kingdom. Mr. Carey testified that because Mr. Hughes had an Irish address he did not consider that it was either reasonable or necessary to carry out checks either in Northern Ireland or in England. No information was available to the plaintiff company to indicate that the plaintiff had a previous history of transacting business in Northern Ireland. This was so despite the fact that in a number of previous transactions with (reflected in discovered documents) Mr. Hughes apparently had furnished an address of his company at 25 Crumlin Park, Crumlin, Co. Antrim. Neither Mr. Carey nor anybody else within the plaintiff company had notice of Mr. Hughes having transacted business in Northern Ireland. He accepted that not alone had the plaintiff been misled by Mr. Hughes in relation to the nature of the transaction, but also it was profoundly mistaken in the view on which it had proceeded that the defendant company was actually in possession of the trucks at the time that the invoice was paid, and they would not have released the trucks until they received the deposit. Referring to a plaintiffs record of 17th September, 1998 known as a “document log” which stated
“Terms of acceptance: Aidan Carolan.
Booking Reference No: 1391
Rate: 0.8565
Transferred by financial control.
Deposit paid to Mercedes.”
He stated that this conveyed to him that it was Mr. Carolan’s belief, and that of the plaintiff that the deposit had been paid. When asked why he did not seek thereafter to repossess the trucks, he responded that he considered that Mr. Hughes had the financial capacity to carry out repayments, that he was present in the jurisdiction and appeared to have a substantial house and car on which he was apparently carrying out payments. He had no reason to believe that he would not ultimately pay the deposit on the trucks.
19. The Defence Evidence
First to testify on behalf of the defendant was Mr. Raj Rajagoupal who was then an account controller. He said that the first contact that he had with Mr. Hughes was when he attended at the defendants offices in England seeking to induce them to reinstate the contracts which had by then been terminated. These discussions took place in the summer of 1998, but prior to any involvement of the plaintiff. Mr. Hughes discussed with Mr. Hughes methods of payment which he might adopt and how he was going to resolve each of the contracts. As soon as soon as the contract was terminated, no further direct debits were accepted through their bank system. However this would not prevent a customer sending in payments in the form of a cheque or paying into a bank. Any funds received after the termination of a contract would be put towards the account. After termination the truck was normally sold at auction in an effort to seek to mitigate the customers loss. The witness informed Mr. Hughes that the contracts had been terminated and that the defendants were actively seeking to repossess the vehicles. Each of the contracts relating to each of the trucks was terminated on 8th June, 1998. Prior to that date, in April 1998 he had considered the repossession of the trucks and had ordered keys for that purpose. He was in contact with repossession agents, named Anglo Irish Professional Repossession. This contact commenced on 20th April, 1998 where a Mr. Murphy of that firm indicated to the defendants that he had identified the trucks and could seize them if this was desired.
20. With regard to the 1991 truck the witness accepted that Mr. Hughes paid the payments promptly for six months after 30th March, 1996 with Mercedes Benz Finance. The latter two trucks, that is the 1993 and 1996 truck were both purchased on 23rd October, 1996. Mr. Rajagoupal testified that when a customer is two payments ‘down’ in relation to any one truck the contract is terminated. The 1991 truck was seized on 21st July, 1998. At the time of seizure it was accepted that the customer immediately became liable to pay all outstanding instalments. He quoted Mr. Hughes a settlement figure of £6,384.89 on the 1991 truck. This was made up of £5,384.89 for arrears and £1,000 added on for the cost of repossession.
It seems clear this total sum of £6,384.89 was paid by Mr. Hughes to the defendant on or about 7th August, 1998 by way of bank draft. Despite the fact that the outstanding sums on the 1991 truck were repaid, the defendant retained possession of that truck. It was ultimately sold on 16th January, 1999 at Garryduff Auctions in Northern Ireland for the sum of STG £4,935. Mr. Rajagoupal contended that despite the fact of £6,384.89 had been paid by Mr. Hughes in August 1998 it was still the property of the defendant. He stated that what was set out in the invoice of 14th September, 1998 were not truck sale prices but settlement figures. He accepted that the implication of the reservation of title clauses was that the defendants owned each of the three trucks. After the date of termination he accepted Mercedes Benz had a money claim against Mr. Hughes and also had ownership of the trucks entitling them to sell the trucks for a fair price. He further accepted that when the defendants received the STG £40,000 the plaintiffs appear to have thought they were buying the trucks. In the course of cross examination by Mr. Senan Allen S.C. on behalf of the plaintiff the following exchange took place from question 136, day three onwards:-
“Q: So when you got the £40,000 it was plainly you could infer, that Lombard thought they were buying the trucks?
A: An assumption could be made on that basis, yes.
Q: No other assumption could be made I suggest to you?
A: You’ve got to understand here in this instance we were not party to any agreement between Mr. Hughes and Lombard, we were completely an innocent party. We had three trucks to sell. The three trucks owed us a certain amount of money. All we wanted to do was sell the trucks and get the money in.
Q: You are not prepared to sell them for £40,000?
A: We certainly would not be able to sell them for £40,000.
Q: Lombard was not prepared to pay any more than £40,000?
A: Then nothing would have happened Sir, we would not have passed title on the trucks at all.
Q: Exactly, so you give them their money back?
A: That is a decision which has to be made by the manager of the department at the end of the day.
Further at question 143:-
Q: If you pay money for something and do not get it, do you not get your money back?
A: Well, it’s a decision which is not made by me, but by somebody senior above me who decides that.”
The witness did not accept that the transaction between the plaintiff and the defendant resembled in all relevant particulars the earlier transactions which the defendant itself had carried out with Agnew Commercials again subject to retention of title clauses. Mr. Rajagoupal was unable satisfactorily to explain the full nature of the transaction relating to the 1991 truck, especially having regard to payment of the outstanding sum thereon as on 7th August, 1998. Nor was he in a position to explain why the cash deposit, stated to be due in the invoice of 14th September, of £22,667.56, made no allowance for the payment by Mr. Hughes on 7th August, of the sum of £6,384.89.
A further incongruity which appeared is that, in a memo from Kaye MacDougall of 17th September, 1998, relating to “chaps receipts” (a form of inter finance house bank payment) and sent by email, the sum of £40,000 received by the defendants from the plaintiff on 16th September was allocated to two accounts. The first of these was stated to be account no 9126885298. The second account was numbered 9146732700. The first of these account numbers was, curiously, the invoice number for the entirety of the three trucks as set out in the invoice of 14th September, 1998. The latter invoice number would appear to relate only to the 1991 truck which had been the subject matter of apparently full repayment made in August, 1998. Mr. Rajagoupal, having been on holiday was not in a position to deal with the manner in which the defendants chose to treat the £40,000 paid by the plaintiffs. The relevant witness on this issue would appear to have been Ms. MacDougal, who did not testify.
21. Mr. Kevin Segar also testified on behalf of the defendant company. At the time he was passenger car asset controller. However, in the absence of others on holidays he also had to involve himself in commercial vehicles transactions. On 11th September he was contacted by Mr. Hughes stating that he had managed to obtain finance from the plaintiffs and requesting that he produce an invoice based on a copy which would be sent over to him reciting the three vehicles, their chassis numbers, engine numbers and registration numbers in accordance with the template invoice to be sent by the plaintiffs. Mr. Segar accepted that the draft invoice sent over on 11th September, 1998, was incorrect. The corrected invoice was sent out on 14th September. On the following day he received a telephone call from a person whom he believed to be called Carolyn from the plaintiff company requesting clearance in the vehicles. To this he responded that he could not possibly give clearance, that the defendants had not received all the monies due on this account and therefore they would not be passing “clearance” or giving letters of “clearance”. The witness stated that the reaction of the representative from Lombard & Ulster was “fairly muted”, and that she then wanted to speak to a supervisor at which point she was passed over to Kaye MacDougall who was in a different part of the office. When the £40,000 came in from the plaintiffs he was surprised to see it arrive before the deposit came in. He did not accept that the first right of appropriation of a debt was that of the customer. The defendants’ policy would be to appropriate the funds across all three transactions. Mr. Ralph was not disposed to accept that there was any analogy which might be drawn between the transactions which the defendant company effected with Agnew Commercial Motors in 1996. He was of the view that what was in question here was a refinancing deal rather than a simple hire purchase transaction. Mr. Ralph was insistent on the proposition that in order for the plaintiffs to obtain full title to the three trucks a total sum on foot of the contract must be paid. However, he denied that the sum of £40,000 which had been paid by the plaintiff had, been effectively treated as a deposit. At question 403 on day three he was asked by counsel for the plaintiffs in reference to the deposit:-
“Q: When the £22,000 failed to materialise you forfeited the £40,000?
A: In my view they paid £40,000 which is what the invoice that is requested from Lombard to raise, they paid and they kept their first part of the bargain in paying us the £40,000. The rest of the balance was due.
Q: What did they get from (sic) the £40,000?
A: I can’t comment. They had a contact with Mr. Hughes which they wrote on the same day that I sent the fax or that the fax was sent over on 14th. They already had a hire purchase agreement with Mr. Hughes and they had three payments from Mr. Hughes as it turned out.
Q: That was later. Never mind about that. How can they hire the goods to Mr. Hughes if they do not own them?
A: On the documentation that they started on 14th, they’d already signed Mr. Hughes up. It was already entered into agreement surely before they sent us the money”.
In Mr. Ralph’s view the plaintiffs were engaging in a refinancing agreement which had nothing to do with straight forward hire purchase. In hindsight he considered that the plaintiff and the defendant did not have the same understanding as to the nature of the transaction at all.
22. Third to testify on behalf of the defendant company was David Ralph, again an employee of the defendant at the time. He stated that his recollection, was at a time that he could not remember, he had contact with the plaintiffs. The plaintiffs sought details as to Mr. Hughes history as a customer. In response to this the witness stated he indicated that the plaintiffs might want to carry out sufficient checks on Mr. Hughes to establish his credit worthiness. However, he did not say that his conversation went outside the standard industry norm that anyone would say to anyone else. He considered that Mr. Hughes was a very “slippery sort of character” with an unfortunate and chequered history with the defendant company. He confirmed having written the letter of 26th November demanding payment of the total sum of £62,667.56. He left the defendant company on 25th January, 1999. The witness was unable to account for the fact that the deposit stipulated in the contract of £22,667.56 did not apparently take into account the sum paid on 7th August, 1998, by Mr. Hughes of £6,384.89, which was a settlement on the 1991 truck.
23. When the witness was asked as to the meaning of his letter of 26th November, he accepted that it meant that in his view the plaintiffs were liable to pay the balance of the total sum outstanding that is that they were liable for the additional sum of £22,667.56. He contended it was a refinancing agreement.
I am unclear as to how this testimony could completely be reconciled with the description on the invoice of 14th September, 1998, as being a “Sales Invoice”.
At question 616 Day 3 the witness was asked whether, in his view, the payment of the sum of STG £6,384 would have entitled Mr. Hughes to the ownership of the 1991 truck. His response was-
“I must be honest, on the face of it, yes, it would look that way.”
24. Consideration
The central case put forward (with much panache) by Mr. Michael Byrne S.C. on behalf of the defendants was that the plaintiffs took on the risk as to whether or not Mr. Hughes would pay the deposit. Further, that at all stages as owners the defendants were entitled to assert the reservation of title clause and that the defendants remained owners of the vehicles. The position did not alter by virtue of the fact that the plaintiffs “took on the risk of Mr. Hughes”. The defendants did not owe any greater duty of disclosure as a consequence of this position. Mr. Byrne further submitted that if the plaintiffs failed to carry out sufficient checks in relation to the credit worthiness of Mr. Hughes that was a matter for them. There was no need to imply terms into the contract unless to give business efficacy thereto. Here there was a straight forward invoice contract between two finance houses containing a retention of title clause clear on its face which, states that if all monies were not paid no title passed. Why then Mr. Byrne asked rhetorically did the plaintiffs not respond to the letter of 26th November? Why did Mr. Carolan resort to Mr. Hughes, on occasion in the company of Mr. Carey, seeking to induce him to pay up the deposit? Counsel further submitted that even if there was a breach of a condition precedent, or a lack of consensus ad idem there was approbation or adoption of the contract by the conduct of the plaintiff in November or thereafter. The arrangement entered into between the plaintiff and Mr. Hughes was one collateral to the contract in issue in these proceedings regarding the payment. Regarding the payment of £6,384 in August, 1998, counsel submitted that such payment, although undoubtedly intended to discharge the indebtedness relating to the 1991 truck, did not have that effect. It was a matter for the defendants to allocate that payment along with other payments in discharge of the general indebtedness owed on foot of the three trucks.
In his succinct submission on behalf of the plaintiff, Mr. Senan Allen S.C. submitted that, on any objective basis, what was in contemplation between the parties was sale of three trucks. The prices for such vehicles were set out in the sales invoice. In its substance and execution the transaction entered into between the plaintiff and the defendant was not different from those entered into by the defendant with Agnew Commercials who supplied the vehicles to the defendant in 1996. Mr. Allen pointed to the acceptance by Mr. Rajagoupal that the payment of a deposit was a matter between the dealer and the customer, not a matter for the finance house. He submitted that whether the transaction was a finance or refinancing transaction, the title to ownership of the trucks by the plaintiff was a condition precedent. Absent the fulfilment of any such condition there could have been no contract. Here the defendants did not have possession of two of the trucks. This was not disclosed. Mr. Allen S.C. rejected any contention to the effect that the mention of the “deposit” sum of £22,667.56 in the invoice meant that the plaintiffs already had possession thereof. On its face it clearly meant that it was the contractual duty of Mr. Hughes to pay the deposit. Mr. Allen specifically pointed out that there was evidence from the defendants side that they were surprised to see the sum of £40,000 arriving from the plaintiffs in the absence of the payment of the deposit. Counsel pointed to what he contended were three fundamental difficulties in relation to the case advanced by the defendant.
These were:
(a) the status of the payment of the £40,000 in the absence of the deposit
(b) the mistaken belief on the part of the plaintiff that the defendant had possession of all three trucks it was purporting to sell
(c) the fact that the defendant did not at the time own the 1991 truck by reason of the payment of £6,384, which consisted not only of the redemption figure but also seizure costs. The failure to respond to the letter of 26th November was not a relevant or material consideration in the interpretation of the contract. As of the 14th September, 1998 the defendant had two trucks (or possibly three) and their personal claim against Mr. Hughes. As of 15th September they had the same trucks, the same liabilities against Mr. Hughes, but in addition the sum of £40,000 received from the plaintiff which was unlawfully appropriated by the defendant as a deposit between all three trucks.
In relation to the three trucks Mr. Allen pointed to the fact that the defendants found themselves in a position where it was they who had by dint of resale made additional profits of STG £3,800 in relation to the 1991 truck; £5,924 the 1993 truck, and STG £10,331 the 1996 truck. It was inconsistent for the defendants to assert continuing ownership over the trucks on the one hand and on the other to assert that they are entitled to retain the sum of £40,000 paid over to them by the plaintiffs.
26. The Law
Where one contracting party has not received any part of that contracted for there has been a total failure of consideration. Here ‘consideration’ acquires a narrower meaning than that imputed for the purpose of determining whether a contract has been formed. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Limited [1943] A.C. 32 Lord Simon summarised the legal position thus:
“In the law relating to the formation of contract the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi contractual right to recover money on that ground, it is generally speaking not the promise which is referred to but the performance of the promise.”
27. Thus if there is defective performance by one contracting party in circumstances entitling the other party to rescind the contract (for example breach of an express or implied condition) the injured party may pursue whatever contractual remedies are available, or elect instead to claim restitution. If, however, there has not been a total failure of consideration, the quasi contractual remedy will not be available. If the defendant has a valid defence in contract to the plaintiffs action the plaintiff may not have any financial remedy at all. If a plaintiff receives some tangible benefit it does not follow that a court will be constrained to hold that there was no total failure of consideration. (See the leading English on this issue, Rowland v. Divall [1923].
The Irish case of Chartered Trust Ireland Limited v. Healy and Commins (Barron J. Unreported, High Court, 10 December, 1995) equally illustrates this point. In that case the first named defendant hired a truck on hire purchase terms. The transaction was financed by the plaintiff finance company. It later transpired that the truck was illegally brought into the State and was not in fact the vehicle it was represented to be. Barron J. held that the contract was null and void and awarded the first named defendant the return of all moneys paid by way of hire purchase instalments and all other payments made in pursuance of the agreement. The fact that Healy had used the truck for over a year did not mean that he had received any part of the consideration; in contracts of sale title to the property and in hire purchase cases the option to purchase are seen are the consideration.
28. Similar considerations informed the decision of the Supreme Court in the case of United Dominions Trust (Ireland) Limited v. Shannon Caravans Limited [1976] IR 225. In that case a third party wished to obtain approximately £3,300 in order to pay for a mobile caravan which he had bought and which had been delivered to him. The third party approached a junior employee of the plaintiff, a hire purchase company, and the employees suggested that the defendant, a dealer in caravans should purport to sell the mobile caravan to the plaintiff for £3,300 and that the third party should then purport to purchase the caravan from the plaintiff under a hire purchase agreement between the plaintiff and the third party. The scheme was put into operation and the plaintiff paid the defendant £3,300 as the purchase price of the caravan and then executed a hire purchase agreement with the third party. The defendant who did not profit by the transaction immediately paid £3,300 to the third party. When the third party had paid the plaintiff 8 of the 36 monthly instalments under the hire purchase agreement the third party became insolvent and the plaintiff’s senior executive became aware of the true facts. The plaintiff’s junior employee was the only employee of the plaintiff who knew of the scheme. He was not authorised to accept hire purchase business for the plaintiff and the plaintiff’s executive officer who authorised the payment of £3,300 by the plaintiff and the execution of the hire purchase agreement was not then aware of the true facts. In an action in the High Court for money paid to the defendant for consideration which it wholly failed the plaintiff recovered judgment for £3,300 less the amount of the hire purchase instalments received from the third party. It was held by the Supreme Court (O’Higgins C.J., Henchy J. and Griffin J.) in disallowing the appeal:
1. That as the plaintiff’s junior employee was privy to an act of deceit against the plaintiff the knowledge that the employee could not be imputed to the plaintiff
2. There had been a total failure of the consideration for the sum of £3,300.
In the course of his judgment (at p. 232) Griffin J. relied on Rowland v. Divall [1923] 2 KB 500 and quoted Lord Justice Atkin at p. 506 of the report to this effect
“It seems to me that in this case there has been a total failure of consideration, that is to say the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession but the seller had not got the right to possession and consequently could not give it to the property … There can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another … can it make any difference that the buyer had used the car before he found out that there was a breach of the condition? To my mind it makes no difference at all. The buyer accepted the car in the representation of the seller that he had a right to sell it, and in as much as the seller had no such right he is not entitled to say that the buyer has enjoyed a benefit under the contract. In fact the buyer has not received any part of that which he contracted to receive, namely the property and right to possession – and that being so there has been a total failure of consideration.
30. The principles thus set out so clearly by Irish authority and otherwise are applicable in the instant case. Here I find the plaintiffs were entitled to assume that the defendants were owners of each of the three trucks. I do not accept on the facts as found that the defendants were the rightful owners of the 1991 truck.
The plaintiffs were entitled to assume that the defendants had the three trucks in their possession. As it transpired the only truck in their possession that was the 1991 truck to which they had no title. The other two trucks were actually held in the possession of Mr. Vincent Hughes. Those two trucks were later repossessed only on the 18th June, 1998.
There is yet a further paradox in the position adopted by the defendant. It is entirely unclear, having regard to the circumstances, as to why the sum of £6,384.89 was not deducted from the sum of £22,667.56 identified as being the ‘deposit’ payable.
I further accept that the plaintiffs were unaware of the fact that the trucks in question had been previously purchased by the defendants in March and October 1996 from Agnew Commercials in Northern Ireland.
In common with the authorities cited there must be a strong suggestion, and I will put it no further, that there were intentional failures of disclosure which may well be tantamount to deceit on the part of Mr. Hughes in relation to the transaction as a whole.
While it may have been that the plaintiffs could have taken further steps to check Mr. Hughes history this in my view does not affect the fundamental legal issue which arises in this case: that is the clear failure of disclosure of material facts, and further breach of material conditions as identified. For the reasons set out above I consider this is a contract where the consideration has wholly failed. The plaintiffs are entitled to recession thereof.
Even if I am wrong on this finding it seems to me that the contract made between the plaintiff and the defendant is one where the background history of the relationship between Vincent Hughes and the defendant should have been disclosed by Mercedes-Benz Finance. Even if the defendants were correct in their argument, the plaintiffs were effectively placed in the position of a surety on behalf of Mr. Hughes. In the circumstances therefore the defendants were in possession of particular information which made the risk to which the plaintiffs were exposed an unusual one or a risk materially different in nature to that which the plaintiff would normally expect. In Levitt v. Barclays Bank [1995] 2 All E.R. p. 615 a contract was set aside where the plaintiff who had put up treasury stock as security, was not told of arrangements between the debtor and the bank whereby the security would be used to repay the loan. Here, the defendants were in possession of particular information regarding Mr. Hughes’s credit record, the previous transactions in relation to the trucks, the fact that two of them were in Mr. Hughes’s possession that only the third had been repossessed from him which truck was lawfully the property of Mr. Hughes. All of these facts should, in the circumstances, have been disclosed in the making of this agreement.
Alternatively even a court were to hold that if the contract was conditional, it is clear that a condition precedent was the payment of the sum due by way of deposit (CF Lowis v. Wilson [1949] I.R. 347]. This condition was unfulfilled.
In either instance it seems to me the plaintiffs are entitled to rescind the contract.
On the basis of these findings I consider that the plaintiff is entitled to recession of the contract. I will hear counsel on the issue of damages and costs.