United Kingdom House of Lords Decisions

Earl Loreburn.—This is an action for false and fraudulent representation. In such an action the pursuer cannot succeed, unless he proves dishonesty. There is another kind of action known to the law, namely, for some breach of duty arising out of the relations between the parties, as, for instance, where a solicitor is sued for failure to exercise diligence. That class of case was referred to in Nocton v. Lord Ashburton . It is, however, quite a different proceeding, and has nothing to do with fraud, though at one time the word “fraud” was used occasionally in regard to that form of action also. It is to be hoped that so grave an expression will be confined to cases where the charge involves moral delinquency.

A subordinate point was raised in this case, namely, whether or not the respondent M'Arthur intended to induce, and did induce, the pursuer to act upon the incriminated letter. In my opinion that letter was intended to convey the opinion that the two Messrs Inglis were in good credit, and the writer meant to influence those persons who should be interested in providing the contemplated loan. The pursuer was such a person, and he was undoubtedly induced by the letter to give his name as surety. He was none the less induced by the letter that it was not, in fact, either addressed to or seen by him, for its effect was accurately stated to him in pursuance of the writer's intention, and he acted upon it.

All therefore depends upon the question whether the letter was dishonest, and conveyed what was, in fact, false. Taking what it said, and what it omitted to say together, any ordinary person would understand it to mean that these two gentlemen, the Messrs Inglis, were in good credit.

That is the general impression that this letter would undoubtedly convey, though it imposed a limit upon the sum for which they could be safely trusted. Coming from the general effect of the letter to its particular contents, there are two features of it which require notice. The first is a statement that the Bank was collecting certain dividends for these two gentlemen, which was not true. The second feature is that, while purporting to deal with the credit of the Messrs Inglis, it withheld the fact that the Messrs Inglis were overdrawn at the respondent Bank. Now, if Mr M'Arthur knew that the statement about the dividends was untrue, or if (which is the same thing) he had no knowledge whatever on the subject and took upon himself to make the assertion knowing that he had no foundation for it, that would be dishonest, and the withholding of the fact about the overdrafts would aggravate the dishonesty. But if he believed the statement about the dividends, however foolishly, then the withholding of the fact that the Messrs Inglis' accounts were overdrawn would not be reprehensible, for in the circumstances he might naturally consider them still to be solvent people. It is quite a possible view to take on the evidence that Mr M'Arthur, though culpably careless, was not fraudulent. That was the view taken by the learned Judge at the trial. I attach great importance to the opinion of the learned Judge who saw the witness in cases like this, where conduct and motive are in question. I accept his opinion. It seems to me that M'Arthur believed the loan would be repaid, and could be repaid, out of the resources of the sons; that he relied upon the statements they made to him; and that he accepted, though without proper inquiry, what the previous bank manager had told him in regard to the dividends collected by the Bank for their accounts. As I have already said, I believe that the respondent Bank estimated accurately Mr M'Arthur's conduct in their letter of 14th November; that is a frank letter, very honourable to the Bank. It is all the more honourable to them that they were not only just in their description of his conduct, but also merciful towards the man who had made the mistake.

At the same time it is impossible not to feel that, though the pursuer has no remedy in law, he has been illtreated. I think it is hard upon him that he has not been recompensed. In my opinion, this House ought to mark its sense of this by saying that there should be no costs on either side from the issue of the writ onwards. This course is, I am aware, exceptional; it is a course that your Lordships would not, I am sure, entertain if the appeal were merely an appeal as to costs, but only in cases where there is a substantial and meritorious ground of appeal, though unsuccessful, and where there is a marked case of hardship. In my opinion, this is such a case. Accordingly, I move that the appeal be dismissed, but that there be no costs on either side of this action from its commencement.

Viscount Haldane.—I entirely agree with what has fallen from my noble and learned friend on the woolsack. As to the costs I will only say this, that, as he does, I regard what your Lordships have intimated about costs as arising out of the view which we have taken of the merits in an appeal in which we have all the materials before us in the same fashion as the two Courts below had these materials before them. But for this I should be unwilling to make a modification in the order which might be said to operate as though this appeal were one for costs only. I think it is more than that and is really a question of the merits, and for that reason I concur with the view that has been expressed.

There is only one other point about which I wish to say anything, and that is the question which was argued by the appellant, as to there being a special duty of care under the circumstances here. I think the case of Derry v. Peek (1889) 14 App Cas 337 in this House has finally settled in Scotland, as well as in England and Ireland, the conclusion that in a case like this no duty to be careful is established. There is the general duty of common honesty, and that duty of course applies to the circumstances of this case as it applies to all other circumstances. But when a mere inquiry is made by one banker of another, who stands in no special relation to him, then, in the absence of special circumstances from which a contract to be careful can be inferred, I think there is no duty excepting the duty of common honesty to which I have referred.

In saying that I wish emphatically to repeat what I said in advising this House in the case of Nocton v. Lord Ashburton, that it is a great mistake to suppose that, because the principle in Derry v. Peek clearly covers all cases of the class to which I have referred, therefore the freedom of action of the Courts in recognising special duties arising out of other kinds of relationship which they find established by the evidence is in any way affected. I think, as I said in Nocton's case, that an exaggerated view was taken by a good many people of the scope of the decision in Derry v. Peek . The whole of the doctrine as to fiduciary relationships, as to the duty of care arising from implied as well as express contracts, as to the duty of care arising from other special relationships which the Courts may find to exist in particular cases, still remains, and I should be very sorry if any word fell from me which should suggest that the Courts are in any way hampered in recognising that the duty of care may be established when such cases really occur.

Further than that I have nothing to add, and I concur in the general view which has been taken of this appeal by my noble and learned friend on the woolsack.

Lord Kinnear.—I agree with what has been said by both my noble and learned friends who have preceded me, and I have nothing to add.

Lord Atkinson.—I quite concur with what has been said by my three noble and learned friends who have preceded me.

I do not discuss the question whether there may not be established between two men relations by which a duty is imposed upon one to see that the information which he conveys to the other is accurate; but it appears to me to be perfectly clear that the facts of this case did not impose upon Mr M'Arthur any such duty towards the inquirer who inquired of him, and therefore the case comes back and rests upon the doctrine of Derry v. Peek . I quite concur with my noble and learned friend upon the woolsack that, although the facts do place Mr M'Arthur in an extremely awkward position, yet they are not sufficiently cogent to induce one to come to the conclusion that the Judge who saw him and listened to his evidence came to a wrong conclusion.

In reference to the question of costs I fully concur in what has been suggested by my noble friend on the woolsack, for I cannot but feel that this litigation is entirely due to the unbusinesslike procedure on the part of Mr M'Arthur. Honest though he may have been, it was most negligent and most misleading, and but for it this litigation would probably never have been started.