S. Pearson & Son, Ltd v. Dublin Corporation [1907] UKHL 960

UKHL

S. Pearson & Son, Ltd v. Dublin Corporation

[1907] UKHL 960

(Before the Lord Chancellor (Loreburn) , The Earl of Halsbury , Lords Ashbourne , Macnaghten , James of Hereford , Robertson , Atkinson , and Collins .)

45 SLR 960

S. Pearson & Son, Limited v. Dublin Corporation.

Subject_ Contract — Principal and Agent — Fraudulent Misrepresentation — Clause Disclaiming Responsibility for Statements in Contract — Fraud of Agent — Responsibility of Principal. Facts:

P. & Son, Limited, entered into a contract with a corporation to construct certain sewage works at a certain price. The engineer of the Corporation prepared plans, which were shown by the Corporation to P. & Son, Limited. These plans misrepresented the state of the locus in an important matter, which materially affected the price agreed upon by P. & Son. The Corporation were not actually aware of the fact that the plans were inaccurate. The contract contained a clause that the contractor was to satisfy himself as to dimensions, levels, &c., and “was to obtain his own information on all matters which can in any way influence his tender.” P. & Son alleged that the misrepresentations in the plans were false and fraudulent, and brought an action against the Corporation for damages for fraudulent misrepresentation.

Held(1) that the clause which provided that the contractors were to satisfy themselves applied only to inaccuracies and errors, and not to fraud,

(2) that accordingly P. & Son were entitled to have an opportunity of proving fraud on the part of the engineers, and

(3) that if they were successful the Corporation would be liable.

“It matters not in respect of principal and agent (who represents but one person) which of them possess the guilty knowledge, or which of them makes the incriminating statement. If between them the misrepresentation is made so as to induce the wrong, and thereby damages are caused, it matters not which is the person who makes the representation, or which is the person who has the guilty knowledge.”

Appeal from a judgment of the Court of Appeal in Ireland ( Walker, C. Fitzgibson , and Holmes, L.JJ. ), who had reversed a decision of the King's Bench Division ( Gibson , Boyd , and Wright, JJ., Lord O'Brien, C.J ., dissenting ) setting aside a judgment of Palles, C.B. , in favour of the respondents—the defendants below—at the trial of the action before him with a special jury, and ordering a new trial. In so far as material the facts appear from the considered judgments of their Lordships, infra.

Lord Chancellor (Loreburn) —This is an action for deceit brought by Messrs Pearson & Son, contractors, against the Dublin Corporation. Inasmuch as I am about to propose that the case be remitted for a new trial, it is desirable that I should say no more than is necessary to explain my view. The plaintiffs' case is that they were induced to enter into a contract for the construction of certain sewage works by statements made by and on behalf of the defendants as to the existence to a depth of 9 ft. below Ordnance datum of an old wall. Undoubtedly evidence was adduced at the trial from which the jury might, if they thought right, conclude that the plaintiffs were so induced by statements made on behalf of the defendants. Also, there was evidence for the jury that those statements were made either with a knowledge of their falsity, or (which is the same thing) with a reckless indifference as to whether they were true or false, on the part of the engineers employed by the defendants to make the plans which were submitted to plaintiffs as the basis of the tender. And had the case rested there I gather that Palles, C.B., would have left the case to the jury, and that the learned Judges who subsequently had this litigation before them would have approved this course. But another feature of the case was considered fatal to the plaintiffs' claim. The contract contained clauses, which I need not cite at length, to the effect that the contractors must not rely on any representation made

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Earl of Halsbury —I concur in thinking that in this case there must be a new trial, and for that reason I wish to say as little as possible on the merits of this case. The Chief Baron refused to leave the case to the jury upon grounds to be presently examined, but in the course of what I have to say I wish to point out at once that all that I wish to affirm is that there was evidence produced by the plaintiff which he had a right to have submitted to the jury. I do not assume that the jury would have found that fraud had been committed by anyone. Still less do I propose myself to find fraud proved as a fact, but simply that it was a question which ought to have been submitted to the jury. The sole question here appears to me to be that question. It was an ordinary action for fraud causing damage to the plaintiff. Tenders were invited for a contract to execute certain work, and certain plans and specifications were held out to intending contractors as what I will at present call notices of what the work was intended to be. A contract was ultimately concluded upon the terms thus held out; and I may say at once that, apart from the question of fraud, there was nothing proved which could have called for an answer from the defendants. It is not necessary to go far in reciting the questions of fact. Palles, C.B., pointed out with great clearness how the question of fact is raised, and it turns upon the existence or non-existence of a certain wall. It is not denied that the wall was represented on the plan as going 9 ft. below the datum line, and the Chief Baron himself states that this statement was acted upon by the contractors so as to induce them to send in the tender at a less sum than they would otherwise have done for the execution of that contract. It is better, perhaps, to quote the Chief Baron's own words. His Lordship says—“In the result, then (and, as I have said, I have arrived at the conclusion with regret), I think that there was a statement contained in these plans which was in fact an incorrect statement. I think that the result of that incorrect statement was that the plaintiffs here sent in the tender which was accepted, and was for a sum much less than that for which they would have tendered if they had known the truth. But I am obliged to hold upon this 43rd section, together with the 46th, 47th, and 48th, which I will not occupy time in reading, that, taken as a whole, or, rather, taking the plans as controlled by the specification, they do not contain a representation intended to be acted upon, that this structure penetrated 9 ft. below Ordnance datum.” It will be observed that the Chief Baron affirms both propositions—that the statement was inaccurate in fact, and that the tender was for a less sum than the contractor would otherwise have offered if he had known the truth. The one point which led to the Chief Baron's judgment was, to use his own words, that the statement which he finds as a fact to be inaccurate does not contain a representation “intended to be acted on that the structure penetrated 9 ft. below datum line.” With the sincere respect that I have for anything said by the Chief Baron, I cannot help saying that there is some confusion here. The words may be the subject of contract, and they may be so qualified or cut down by other words as to alter their primary meaning, but the intention with which words are used is the condition of mind of the person using them, and that is a question of fact to be ascertained by a jury. If one assumes that the statement is false, and that it has caused a person to act upon it to his prejudice, the question whether it was fraudulently made by the person who made it may and ought to be decided by a jury. But the learned Judge seems to think that the 43rd section of the contract removes it from being a question of fact for a jury, and that it becomes thereby a question of law for the Judge. I must say, notwithstanding my great respect for the learned Judge, that I entirely differ from that view. The action is based on the allegation of fraud, and no subtlety of language, no craft or machinery in the form of contract, can estop a person who complains that he has been defrauded from having that question of fact submitted

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Lord Ashbourne —I concur in the opinion of the Lord Chancellor that the appeal should be allowed, and as that involves the grant of a new trial I shall say as little as possible upon the merits of the case. With the highest deference for the opinions of Palles, C.B., and the learned Judges of the Court of Appeal in Ireland, I am of opinion that the case should not have been withdrawn from the jury. I think that there was evidence given at the trial upon which a jury might reasonably if they thought proper act in finding that the plaintiffs had suffered serious damage in consequence of the acts of the defendants or of their agents. The evidence went to indicate, first, that the plaintiffs were influenced in making the contract referred to in the case by statements for which the defendants were liable as to the existence of an old wall in an important position to the depth of 9 feet; and secondly, that those statements so made were false in fact, and were made by the engineers of the defendants recklessly and without any real belief in the existence of the facts represented. It may be inferred from the evidence of Mr Hellens that the false representations were of the highest importance, were calculated to deceive, and were intended to be acted on. But the decisions of the Chief Baron and of the learned Judges in the Court of

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Lord Macnaghten —I entirely agree in the motion proposed.

Lord James of Hereford —I fully concur in the view expressed, that it is expedient not to give any opinion upon the merits of this case which might influence a decision hereafter to be arrived at by another tribunal. The question before your Lordships, whether the Chief Baron rightly removed the case from the decision of the jury, depends upon the answers to be given to one or two propositions. Principally your Lordships have to determine whether evidence was given at the trial upon which a jury might reasonably act in finding that the plaintiffs had suffered damage in consequence of the deceit of the defendants or their agents. With the most sincere respect for the judgment of the learned Chief Baron, I am of opinion that such evidence was given, and that the defendants were not relieved from the consequence of such deceit. The defendants being desirous of carrying out some sewage works, had to invite tenders for the necessary contracts. Certain information had to be afforded to intending tenderers. With this object engineers, nominated and employed by the corporation, prepared certain plans. As I understand, these plans were furnished by the engineers to the corporation, and by the latter issued to applicants, of whom the plaintiff company was one. Upon those plans a very important wall was made to appear as existing 9 ft. below Ordnance datum. It did not in fact run to such depth, and the defendants' engineers had no knowledge or reason to believe that it did. The representation appears to have been founded only on surmise. There is no doubt about the object of such false representations. Now in the arguments employed at your Lordships' bar by counsel for the corporation, it was not in face of the evidence contended that if the action had been brought against the engineers there would not have been evidence of deceit; but certain replies were made to the prima facie case against the defendants. In the first place, it was said that the plans were furnished by the engineers to the defendants, who are innocent of personal deceit. They passed the plans on, and so they innocently made the representation, not knowing of its untruth. The engineers, who knew of the nature of the representations, made no communication to the tenderers. I cannot admit the soundness of this argument. The engineers were employed by the corporation as their agents to make the plans for the purpose of their being communicated to the plaintiffs and others. In the course of this agency the alleged deceit was committed. Of course the defendants did not personally test the accuracy of the plans, but when they passed them on they surely must bear the burthen of their agents' conduct, and cannot repudiate the wrongful representations upon which they to a certain extent invited the tenderers to rely. In the courts below this argument on behalf of the defendants was not accepted, and I concur in thinking that it cannot be maintained. But Palles, C.B., whilst accepting the view that the plaintiffs had produced prima facie evidence of deceit, removed the case from the jury apparently upon the ground that clause 43 of the specification protected the defendants from liability. Now, the learned Chief Baron in respect of this clause expressed the opinion that the contractor was not entitled in point of law to say he acted upon the statement contained in the plans. He was told to act upon his own judgment, and ought to have done so. If this dictum be read as general in its terms, and so applied, it may be read as conferring considerable advantage upon the designers of fraud. At any rate, by inserting such a clause those who framed it would run a fair chance of the contractors saying—“I assume that those with whom I deal are honest and honourable men. I scout the idea of their being guilty of fraud. An inquiry testing the plan will be expensive and difficult, and so I will not make it.” The protecting clause might be inserted fraudulently, with the purpose and hope that, notwithstanding its terms, no test would take place. When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it. As a general principle I incline to the view that an express term that fraud shall not vitiate a contract would be bad

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Lord Robertson —I concur in the judgment proposed.

Lord Atkinson —I, like the noble and learned Lords who have preceded me, wish to guard myself against being supposed to express any opinion on the merits of this case or upon the weight or credibility of the evidence to the existence of which I shall have to refer. I think that there was abundant evidence given on behalf of the plaintiffs proper to be submitted to the jury with a view to establish—first, that several of the maps and plans prepared by the defendants' engineers contained a representation that the North Harbour wall, the backbone of the scheme as it is styled, went down to a depth of 9 ft. below Ordnance datum; secondly, that this representation as to a most material matter was false in fact; thirdly, that it was acted upon by the plaintiffs; fourthly, that it was made by these engineers recklessly, without any real belief in the existence of the fact represented. I assume for the present, as was held by Palles, C.B., and both the Irish Courts, that the defendants are responsible for the acts of these officers of theirs. In this state of facts it was the province of the jury to determine with what intent the representation was made. They would, from the fact that the representation was false, have been entitled to draw the inference that the persons who made it intended that it should be acted upon. But in addition there is, in my opinion, substantive evidence to show that these engineers intended that the representation should be acted upon. And it is difficult, if not impossible, to see how the representation could induce the contractor to moderate his estimate unless he trusted in that representation and acted upon it. As I understand the Chief Baron's decision, he withdrew from the jury the questions which it would prima facie have been the right of the plaintiffs to have left to them—not because there was not evidence given upon each proper for their consideration, but because he thought that the plaintiffs had by their contract deprived themselves of the right to have the question as to the intention with which the representation was made submitted to the jury at all—had in effect contracted that they would not allege that any representation such as that in fact made was made with the intent that it should be acted upon, or that it had in fact been acted upon. In commenting on clause 43 he expresses himself as follows—“My clear opinion is, that with that statement in the specification, upon which the contractor was to make his tender, he is not entitled, in point of law, to say, ‘I acted to the extent of a hair's breadth upon the statement contained in these plans.’ He was told that he should act upon his own judgment, and satisfy himself as to the dimensions, levels, character, and nature of the existing works, and I regret to say, that if he has not done that, but on the contrary has acted upon their statement, he is not entitled to recover upon that as a representation made with intent to be acted upon.” The rule of law thus laid down by the Chief Baron would apply to any action for deceit founded upon plans and specifications. He makes no distinction between conscious and unconscious fraud, such as is made by the Court of Appeal—a distinction which, if sound, would appear to me to amount to this, that the contractor should be held to have a cause of action for deceit if he was deceived by a deliberate lie, but no cause of action if he was deceived by a false and reckless statement not really believed in by those who made it, though in law equally fraudulent and equally valid as the ground of such an action. With all respect for the learned Judges presiding in the Court of Appeal, I think this distinction unsound, and as I understood it, it was not insisted upon before your Lordships by the defendants' counsel. It would appear to me that a clause such as art. 43, deliberately introduced into a contract by a party to the contract, designed beforehand to save him from all liability for a false representation made recklessly and without any real belief in its truth, is as much “conceived in fraud” and as much “part of the fraud” as if the representation had been false to the knowledge of the person who made it, because, to use Lord Bramwell's words in Smith v. Chadwick ( 50 L.T. Rep. 697, 9 App. Cas. 187), “An untrue statement as to the truth or falsity of which the man who makes it has no belief is fraudulent, for in making it he affirms that he believes it, which is false.” If, therefore, the direction given to the jury is to be upheld on the grounds upon which it was purported to be based, it must, in my opinion, be because these several articles of the specification, on their true construction, are to be held to embody a contract by the plaintiffs that they in effect are not, under any circumstances, to have a remedy by action for deceit for any fraud which may be practised upon them by the defendants or by those acting on their behalf in the nature of a false representation—that is, a contract to submit to a fraud. As at present advised, I am inclined to think, on the authority of Tullis v. Jacson ( 67 L.T. Rep. 340;

(1892) 3 Ch 441

) and Brownlie v. Campbell ( 5 App. Cas. 925), that such a contract would be illegal in point of law. And, with the most profound respect for the Chief Baron, I do not think that the articles of the specification relied upon can, on their true construction, be held to have had fraud, whether conscious or unconscious, within their purview or contemplation, or to apply at all to such a case of fraud as the present is alleged to be. They were, I think, intended to apply, and do apply, to inaccuracies, errors, and mistakes, or matters of that sort, but not to fraud, whether of principal or agent or of

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Lord Collins —I agree.

Appeal sustained.

Counsel for the Appellants— Campbell, K.C. (of the Irish Bar)— Danckwerts, K.C.— E. A. Collins (of the Irish Bar). Agents— Le Brasseur & Oakley, Solicitors.

Counsel for the Respondents— C. A. O'Connor, K.C.— Ronan, K.C.— J. J. O'Brien, K.C.— P. A. O'C. White (all of the Irish Bar). Agent— R. Leslie S. Badham, Solicitor.