Scottish Court of Session Decisions

The Westville Shipping Company, Limited, pursuers, brought an action against Abram Shipping Company, Limited, defenders, for (1) reduction of an agreement, dated 20th February 1920, whereby the defenders in consideration of the sum of £26,700 assigned to the pursuers all their rights under an agreement between them and the Dublin Shipbuilders, Limited, for the building, launching, and completing of a steel screw steamer, (2) repayment of the sum of £26,700, and (3) payment of £6300 as damages. Messrs Thomas M'Laren & Company, shipbrokers, Glasgow, who had acted as agents for the defenders in concluding the agreement of which reduction was sought, were also called as defenders, but by minute of amendment the pursuers abandoned the action against them before the closing of the record.

The pursuers pleaded—“1. The pursuers having been induced to enter into the said agreement by the fraudulent misrepresentations made by the defenders, are entitled to have the same reduced, and to have the sums paid by them thereunder repaid to them, and are accordingly entitled to decree in terms of the first and second conclusions of the summons. 2. The said agreement having been entered into by the pursuers under essential error, induced by the misrepresentations of the defenders, the pursuers are entitled to have the same reduced and to have the sums paid by them thereunder repaid to them. 3. The pursuers having sustained loss and damages to the amount of £6300, in consequence of the fraudulent misrepresentations of the defenders, are entitled to decree in terms of the third conclusion of the summons. 4. Alternatively, the pursuers are entitled in name of damages to payment of the sums concluded for in the second and third conclusions of the summons.”

The defenders pleaded, inter alia—“1. No title to sue. 3. Restitutio in integrum being impossible, the first and second conclusions of the summons are incompetent and should be dismissed. 4. The pursuers are barred by their actings under the agreement between them and the defenders from maintaining the present action. 5. The pursuers' averments in so far as material being unfounded in fact, the defenders are entitled to be assoilzied. 6. The defenders not having made any fraudulent representations to the pursuers are entitled to absolvitor. 7. The defenders are entitled to be assoilzied from the conclusion of the summons in respect—(1) That the representations made by them were made in good faith and were not false or misleading; (2) That they gave no guarantee as to the date of delivery of the steamer; and (3) That the representations made by them were not material. 8. The pursuers not having been induced to enter into the agreement under reduction by the representations of the defenders founded on, the defenders are entitled to absolvitor.”

On 29th February 1921 the Lord Ordinary ( Hunter) allowed a proof before answer.

The averments of the parties and the import of the evidence sufficiently appear from the opinion of the Lord Ordinary, who on 15th June 1921 sustained the second plea-in-law for the pursuers and repelled their remaining pleas, reduced the agreement of 20th February 1920, and decerned against the defenders for payment to the pursuers of the sum of £26,700.

Opinion.—“In this action the Westville Shipping Company, Limited, seek to reduce an agreement between them and the defenders, dated 20th February 1920, on the ground that they were induced to enter into it by misrepresentations of the defenders. They also conclude (first) for repayment of a sum of £26,700 paid by them to the defenders, and (second) for payment of a further sum of £6300 in name of damages. This second sum is claimed by them only on the footing that the misrepresentations complained of were fraudulently made. At the proof I allowed the pursuers to amend by adding an alternative conclusion, in the event of their not being in a position to rescind the contract, concluding for payment of the sums specified in name of damages. Success in this alternative conclusion would also depend upon the pursuers establishing a case of fraud against the defenders.

On 24th September 1919 the defenders contracted with the Dublin Shipbuilders, Limited, Dublin, for the building, completing, and finishing of a steel screw steamer of certain specified dimensions. The price payable was £40,000, to be paid in five different instalments of £8000. The first instalment was paid by the defenders on 6th February 1920, when the keel of the vessel was laid.

In February 1920 the pursuers were desirous of purchasing a steamer of about the dimensions of the steamer agreed to be built by the Dublin Shipbuilders, Limited, for the defenders. The pursuers employed Messrs Edward Hall & Company (Cardiff) Limited, who are brokers for the sale and purchase of vessels, to negotiate the purchase of a vessel for them. This firm got into communication with Messrs Thomas M'Laren & Company, shipbrokers, Glasgow, who on behalf of the defenders submitted to

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them the steamer referred to in the agreement sought to be reduced. The case turns upon certain statements made by Messrs M'Laren & Company to Messrs Hall & Company.

At the time when negotiations opened for the purchase of the vessel the market in the sale of ships was brisk, prices ruled high and were rising. There was, however, considerable uncertainty as to the date when delivery of ships contracted to be built might be expected. Shipbuilders would not guarantee any particular date of delivery, but the prospect of delivery within a reasonable time enhanced the value of a contract to get a ship from the builders, as the indefinite continuance of the inflated freights then ruling could not be relied upon.

After certain communications between the brokers, which I need not refer to in detail, Messrs M'Laren & Company on 17th February 1920 telegraphed to Messrs Hall & Company as follows—'850 tonner keel laid tank tops being laid frames bent starting erecting expected July delivery but cannot guarantee estimated she will carry 870 tons all told Fifty-eight thousand declined subject unsold have verbal firm offer from owner at Fifty-eight thousand seven hundred this absolutely best possible and rockbottom telegraph quickly others negotiating.’ In a letter of the same date this passage occurs—‘As regards delivery they expect she will be ready by July, but of course will give no guarantee. The position is, the keel is laid and they have started on the tank tops. Frames are bent, and they are starting to erect same. We also inquired at the engineers and they are well ahead with their work and see no reason why their part of it should not be ready for delivering steamer in July.’

In reply to Messrs M'Laren & Company's telegram just quoted Messrs Hall & Company sent a telegram accepting the offer in these terms—‘Dublin 850 tonner expected July delivery message received clients instruct us accept steamer at Fifty-eight thousand seven hundred pounds subject approval plans specifications and terms contract telegraph confirmation quickly.’

The sale thus concluded was confirmed by Messrs M'Laren & Company by telegram and letter of same date, in the latter of which they say, ‘Messrs Abram’ (i.e., the defenders) ‘have paid the keel instalment, so that the amount to be paid by your purchasers would be sellers’ profit, plus the keel instalment, then they would take up the position of the owners and pay the other instalments as they fall due.’

The agreement between the parties was then duly executed, and the sum of £26,700 paid by the pursuers to the defenders.

Shortly after they had effected the purchase of the vessel from the defenders the pursuers realised that they would have difficulty in financing the payment of the instalments of the price to the builders for which they had rendered themselves liable under the agreement. As the market in ships was still improving, they resolved to dispose of their rights under their agreement with the defenders at a profit to themselves. Accordingly by agreement, dated 13th March 1920, they, in consideration of a sum of £33,000 to be paid by the British Hispano Line, Limited, assigned to that company all their rights and benefits under the agreement of 24th September 1919, and the British Hispano Line, Limited, covenanted duly and punctually to pay the several instalments which would thereafter become due under the said agreement. The difference between £26,700 paid by the pursuers to the defenders and the said sum of £33,000, viz., £6300, represents an apparent profit made by the pursuers upon this transaction.

In their negotiations with the British Hispano Line, Limited, the pursuers made representations with reference to the state of progress of the building of the vessel founded upon the information which they had received in the telegram and letter of Messrs M'Laren & Company to Messrs Hall & Company, dated 17th February 1920. I do not think that the evidence is clear as to the precise nature of the representation made by the pursuers. In a letter to the pursuers from the British Hispano Line, Limited, dated 3rd July 1920, they say—‘When you asked us to take over this contract we were naturally concerned with the question of date of delivery of steamer which is of the highest importance to us, there was some suggestion made as to inspection, but on your informing us the matter was urgent as you were unable to meet the next instalment, which would be due in a few days, we agreed to accept your assurance that the framing was almost completed and the boat was well in hand for delivery in July. It was only on this assurance that we dropped the question of inspection and agreed to purchase.’

In reply to this communication the pursuers on 8th July 1920 say—‘The second paragraph of your letter is incorrect. We, throughout the negotiations, merely passed on to you the information given to us by the selling brokers at the time of our purchase, which was that no guarantee as to delivery in July could be given although our sellers expected that the steamer would then be ready. We gave you the position, namely, that the keel was laid and that work on the tank tops had started, that frames were bent, and that the builders were at the time of our purchase starting to erect the same. We had been informed of the above position on the 19th of February, and during our interviews you and ourselves were all of the opinion that the probability was that after a lapse of nearly a month the framing would have been partly completed.’ From the oral evidence I think that the pursuers made definite statements on the lines mentioned in this latter letter as to the state of progress of the building of the ship, and indicated that the source of their knowledge was the telegram of Messrs M'Laren & Company of 17th February, which was exhibited to Messrs Pittard and Thomas, directors of the British Hispano Line Limited, They did more than merely represent

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that they had no information except what they had received from the defenders, leaving it to the purchasers from them to satisfy themselves as to the actual state of facts. They made the defenders' representations to them their own representations in a question between them and the British Hispano Line, Limited.

In June the British Hispano Line, Limited, who had become suspicious as to the state of progress of the building of the vessel, sent a representative to Dublin to ascertain the real position regarding the ship's construction. He found that nothing had been done except the laying of the keel, and that for three months no work had been done on the vessel at all. The Hispano Company complained to the pursuers, and the pursuers in turn on 21st June com plained to the defenders, who, however, replied—‘When you bought the steamer from us the keel was already laid, and accordingly you paid us the amount of this instalment in addition to the purchase price. Further than that we gave no information to Messrs M'Laren, and no doubt they acted in a like manner in their transactions with Messrs Hall of your city.’

On 3rd July 1920 the British Hispano Line, Limited, intimated to the pursuers that they repudiated the contract on the ground of misrepresentation. The pursuers appear to have taken the opinion of counsel about the situation. They also instructed Mr Walliker of Cardiff to proceed to Dublin to report upon the progress that had been made with the ship. His report is dated 17th July 1920.

On 24th July 1920 the pursuers' agents Wrote to the defenders referring to the defenders' letter of 21st June and calling their attention to the representations made by Messrs M'Laren & Company at the time when the contract between the pursuers and defenders was being negotiated. They continue—‘You have already had a copy of Messrs M'Laren's letter to our clients’ brokers, and we believe you know that not only were our clients induced by such representations to purchase your interest in the building contract, but that also on the faith of the same representations they transferred their contract to another company in Cardiff. This latter company is the British Hispano Line, Limited, and the latter company as well as our clients have ascertained that the representations which induced our clients to enter into the contract were untrue. The British Hispano Company have notified our clients that they repudiate the contract, that they are applying to the Courts to rescind the same, and are claiming the sum paid to our clients for their interest in the contract. In these circumstances we have to give you notice that our clients will, on the ground of the misrepresentations made to them, claim a rescission of their contract with you, the return of the sum paid to you, and for damages.’

This letter was replied to by the defenders' agents, who say—‘Our clients gave no warranty as to delivery of the steamer. They simply signed the contract to put your clients into their place, and they admit no responsibility for any representations made by Messrs M'Laren & Company.’

Action was taken in the English Courts by the British Hispano Line against the pursuers to have their contract set aside on the ground of misrepresentation and to obtain repayment of the money paid by them thereunder. Intimation of these proceedings was duly made by the pursuers to the defenders, who, however, adhered to the position they had already taken up in their agents' letter as above indicated. The pursuers were advised that they could not successfully defend the action taken against them by the British Hispano Line, Limited, and on 11th December 1920 judgment was pronounced against them. Thereafter these parties entered into an agreement which provided on certain specified considerations for the British Hispano Line, Limited, delaying to take any steps to enforce this judgment until judgment is obtained by the pursuers in the present action, the summons in which had been signeted on 5th November 1920.

From the correspondence it appears that the second instalment payable to the Dublin Shipbuilders, Limited, became payable on 27th November 1920. On 23rd November they made intimation to the defenders, on whose request they also applied to the pursuers. On 26th November the pursuers intimated to the shipbuilders that they had never made any arrangement with them and referred them to the defenders. They added—‘We may say that the contract between ourselves and Messrs Abram, which apparently gave rise to their communication to you of the 1st March last, is now the subject of litigation, and we are satisfied that we are under no liability to them in the circumstances to provide for further payments in respect of this steamer.’

On 2nd December 1920 the shipbuilders intimated to the defenders that if they did not receive payment of the instalment due they would exercise their right to advertise and put up the vessel for sale in terms of their contract of 24th September 1919. Apparently from the letter of this date Mr H. K. Abram, a member of the defenders' company, had indicated to the builders that in this event the ship would be purchased by the defenders or by some-one on their behalf. The vessel was exposed for sale upon 25th January 1921, on which date it was purchased by Mr Henry Abram. That gentleman was not examined, but his son Mr H.K. Abram explained that his father, although largely interested in the defenders' business, had made the purchase entirely on his own behalf.

The first question which I have to determine on the evidence is whether the representation made by Messrs M'Laren & Company in their telegram of 17th February 1920, for which it is now admitted that the defenders are responsible as to the stage of construction reached by the vessel, was false in fact. I have no hesitation in answering this question in the affirmative. A certain amount of evidence was adduced by the

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defenders as to the indefinite character of the statement made and the possibility of drawing different inferences therefrom. In fact all that had been done in the way of construction was that the keel of the vessel had been laid. I do not think that anyone, however ignorant of the precise meaning of expressions used in shipbuilding, would draw any other inference from the statements in the telegram than that the construction of the vessel had reached a much more advanced stage than this. It was not true that ‘they have started on the tank tops.’ It was proved in evidence that this work could not be started until the bottom framing was erected and the floors or some of them in position. This work had not been done when Mr Walliker made bis inspection in July. It was also not true that the frames had been bent and they were starting to erect same. I think from the terms of the letter that the pursuers were justified in assuming that the frames referred to were the side frames which were not delivered to the builders until long after the date of the telegram.

It was contended for the defenders that the statements made although untrue were not material. Their argument was that even though all the work referred to in the telegram had been completed this would not have led to earlier delivery, which was the root of the matter. It is proved that it was very difficult for the builders to obtain material, and I understand that at the date of the proof delivery had not been given, although that was almost a year after the expected date. However that may be, a purchaser might well be prepared to purchase a vessel where satisfactory progress with construction had been made, while be would have refused to have anything to do with the purchase if he had known that after the keel had been laid weeks had passed without any further work being done. Sir John Daniel, a director of the pursuers' company, explains that he was averse to having anything to do with the purchase until the telegram was produced, when owing to what was said as to construction he was induced to make the offer. Another director, Mr Allin, gives similar evidence as to the importance he attached to the information in the telegram. In Menzies v. Menzies ( 20 R. (H.L.) 108, at p. 142, 30 S.L.R. 530) Lord Watson said—‘Error becomes essential whenever it is shown that but for it one of the parties would have declined to contract. He cannot rescind unless his error was induced by the representations of the other contracting party or of his agent made in the course of negotiation, and with reference to the subject-matter of the contract. If his error is proved to have been so induced, the fact that the misleading representations were made in good faith affords no defence against the remedy of rescission.’ In my opinion the pursuers would not have entered into the agreement sought to be reduced unless they had been in error as to the stage of construction reached by the vessel, and that error was induced by the misrepresentation of the defenders. I do not think that it is in the defenders' mouth to contend that the pursuers ought not to have been influenced by the statements made. They were clearly put forward with a view to induce a prospective purchaser to accept the offer made.

The next question I have to consider is whether the statements which I have held to be false were fraudulently made. The way in which they came to be made is this. Mr H. K. Abram, a director of the defenders' company, communicated them by telephone to Messrs M'Laren & Company with the object of their passing them on to the pursuers as an inducement to them to purchase at his figure. At the time he made the statements he had no personal knowledge of the progress that had been made with the construction of the ship. The only information he had was contained in a letter from the builders in which they state—‘The bottom frames are all set at furnace, and the stern frames are also in progress. We have hopes of getting the bottom framing plates very shortly, and when these are received they will be proceeded with.’ This information afforded no justification for saying that the builders had started on the tank tops. I have difficulty in seeing how a gentleman so long associated with shipowning as Mr Abram could be so ignorant of ship construction as to think that what is said in the telegram of 17th February is the same thing as what is said in the letter of 9th February. It should be noted, however, that when he was telephoning the particulars Mr Abram says that he did not have the builders’ letter of 9th February before him. He had had information about another vessel, referred to as the Larne boat, which was being built for the defenders, to the effect that the builders had received the last consignment of tank margin and floor plates, and that the tank would all be plated in a few days, when they would immediately proceed to erect the frames, which were all ready. I think it probable that he may have thought this information referable to the steamer in question. At the date of the transaction there was no great inducement to make a deliberately false statement as to the stage of construction reached. The demand for ships was keen, and the pursuers would probably have been able to dispose of their contract with the Dublin Shipbuilders, Limited, at a substantial profit to themselves. I think Mr Abram had no reasonable ground for believing that the statement he made was true, but I do not think that he made it knowing that it was untrue, without believing it to be true, or recklessly careless whether the statement was true or false. It appears to me therefore that fraud cannot be imputed to him. For this proposition I refer to the instructive opinion of Lord Herschell in Derry v. Peek, 1889, 14 App Cas 337. At p. 369 his Lordship says—‘A man who forms his belief carelessly, or is unreasonably credulous, may be blameworthy when he makes a representation on which another is to act, but he is not, in my opinion, fraudulent in the sense in which that word was used in all the cases from

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Pasley v Freeman down to that with which I am now dealing.’ At p. 374 there is the following passage—‘I think the authorities establish the following propositions—First, in order to sustain an action of deceit there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved where it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent there must I think always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief.’

Although in my opinion the charge of fraud is not established against the defenders, I think that their own conduct in asserting that they were not responsible for the statements made by Messrs M'Laren & Company in the telegram of 17th February 1920 was largely responsible for the charge being made and persisted in against them. Owing to the position taken up by them the pursuers were forced to bring their action not only against the defenders, but against Messrs M'Laren & Company. On the defenders accepting responsibility the pursuers asked leave to amend their summons, which on 5th January I granted, and assoilzied Messrs M'Laren & Company from the conclusions of the summons, and found them entitled to expenses against the pursuers, but reserved the question whether or not the pursuers were entitled to recover the amount of said expenses from the defenders. On the information that is now before me I hold them to be so entitled, and that independent of their success in this action.

In the view which I take of the facts of the case the pursuers are entitled to have the agreement of 20th February 1920 reduced and the money paid by them thereunder returned, unless there is some bar to their obtaining this remedy arising from their actings or from the circumstance that they are not in a position to give restitutio in integrum. It was suggested that the pursuers had not timeously made complaint of the inaccuracy of the statements, but the truth was not known to them until about the middle of June, and they wrote to the defenders about the matter on the 21st of that month, The delay that has occurred does not appear to me of itself to prevent the pursuers claiming relief. More reliance was placed by the defenders on the circumstance that on 2nd July the British Hispano Line, Limited, intimated their approval of a suggested alteration of minor importance. The alteration was not carried out, and as the British Hispano Line, Limited, had already complained of the misstatements made to them about the stage in the construction of the vessel reached, and on 3rd July 1920 intimated their intention to rescind their contract with the pursuers, I do not think that this circumstance can be considered of sufficient importance to amount to homologation.

The defenders' second plea-in-law that restitutio in integrum is impossible remains to be considered. This plea is based upon the circumstance that the pursuers failed to pay the second instalment of the price, and that the vessel was thereupon sold by the builders. I do not think that I need to determine whether or not the sale should he treated as in effect a sale to the defenders themselves. The validity of the plea falls, in my opinion, to be determined either at the date when the pursuers intimated their intention to rescind, or at latest on 5th November, when they actually took action. On either of these dates, if the defenders had accepted responsibility for the inaccurate statements made by them and tendered repayment of the money paid to them, there would have been no obstacle to their complete restoration to the rights enjoyed by them under their agreement with the Dublin Shipbuilders, Limited. I am not prepared therefore to give effect to their plea-in-law. In the result I shall sustain the second plea-in-law for the pursuers.

Perhaps I should add that if I had had to consider the pursuers' claim for damages amounting to £6300 I should not have been able to sustain it in its entirety or perhaps to any extent. Although the agreement with the British Hispano Line, Limited, bears that they were to pay £33,000 to the pursuers, which with the liability for future instalments taken over by them makes a price of £65,000, it appears that £3500 of the price apparently payable to the pursuers was paid to two of the directors of the British Hispano Line, Limited. In an excerpt from the minutes of the pursuers' company, dated 15th March 1920, it appears that ‘the managers reported that the s.s. No. 17 building at Dublin which was purchased at a price of £58,700 had been re-sold for £61,500.’ The secret commission payable to the directors of the British Hispano Line, Limited, by the pursuers would not in any event be recoverable from the defenders, and I doubt whether the transaction was not of such a character as to preclude the pursuers from founding upon the loss they apparently sustained from the cancellation of their agreement with the British Hispano Line, Limited, but it is not necessary for me to determine this point.”

The defenders reclaimed, and argued—The pursuers had no title to sue. At the date of the action being raised they were not in a position to make restitutio in integrum, because they had parted with their title to the ship. No doubt they had been reinvested in their title after the action had been raised, but a defect in title could not be purged pendente processu unless it were purely formal— Symington v. Campbell, 1894, 21 R. 434, 31 S.L.R. 372; Doughty Shipping Company, Limited v. North British Railway Company, 1909, 1 S.L.T 267.

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In any event there was no material misrepresentation. The test of materiality was not what the party said was material, but what was reasonable. The misrepresentation here was not material in the sense that it was the inducing cause of the contract. The precise stage of construction was not an essential element in the agreement. Further, through the actings of the defenders' assignees the agreement had been homologated after the alleged misrepresentation had become known to them. By request to the builders to alter the design of the ship they had unequivocally adopted the agreement, and it did not affect the matter that that request was never carried out— Western Bank of Scotland v. Addie, 1867, 5 Macph. (H.L.) 80; Ex parte Briggs, 1866 L.R., 1 Eq. 483; Clough v. London and North-Western Railway Company, 1871 L.R., 7 Ex. 26; Erlanger v. New Sombrero Phosphate Company, 1878, 3 App. Cas. 1218, per Lord Blackburn at p. 1277; Pollock on Contract, 9th ed., 626; Erskine, iii, 3, 48; Bell's Com., vol. i, p. 140. Further, the pursuers were barred by delay and by the fall in value during the delay.

Argued for the pursuers and respondents—The pursuers had a good title to sue. The fact that the contract with the sub-assignees had not been formally rescinded at the date of raising the present action did not matter and they were entirely in a position to make restitutio in integrum. The sub-assignees by requesting the builders to make a slight alteration in the plans, which was not carried out, had not in knowledge of the misrepresentation homologated the contract or made restitution inequitable— Hay v. Rafferty, 1899, 2 F. 302, 37 S.L.R. 221; Adam v. New bigging, 1888, 13 App. Cas. 308. There was therefore no election— Morrison v. Universal Marine Insurance Company, 1873 L.R. 8 Ex. 197; Gloag on Contract, pp. 611, 612. The misrepresentation was material and induced the contract, and the pursuers were entitled to rely on it— Redgrave v. Hurd, 1881, 20 Ch. D. 1. There was no unreasonable delay, and the defenders could not complain of delay if their own conduct misled the pursuers as was the case here. A fall in values was not a bar to restitutio in integrum— Armstrong v. Jackson, [1917] 2 K.B. 822.

At advising—