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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Westville Shipping Co., Ltd v. Abram Steamship Co., Ltd [1923] UKHL 625 (06 July 1923)
URL: http://www.bailii.org/uk/cases/UKHL/1923/60SLR0625.html
Cite as: 60 ScotLR 625, [1923] UKHL 625
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SCOTTISH_SLR_House_of_Lords
Page: 625↓
House of Lords.
(Before the
v.
(In the Court of Session, June 17, 1922, S.C. 571, 59 S.L.R. 539.)
Subject_Contract — Rescission — Title to Sue — Restitutio in integrum — Assignation of Contract to Sub-assignee — Assignation Repudiated but not Reduced at Date when Action Raised — Pursuers Reinvested in Contract at Date of Closing Record.
Contract — Rescission — Misrepresentation — Assignation of Contract to Sub-assignee — Whether Assignors Barred from Rescinding the Original Contract by their Actings with Sub-assignee — Failure to State Competent Plea when Sued by Sub-assignee — Homologation — Consent to Alteration in Contract in Knowledge of Misrepresentation.
Contract — Rescission — Restitutio in Integrum — Personal Bar — Mora — Fall in Value of Subject of Contract.
Facts:
A assigned his rights under a shipbuilding contract to B on certain representations as to the stage of construction reached by the vessel which were in fact false. B thereafter subassigned his rights to C, making practically the same representations to C as had been made to him by A. On C discovering that the representations were false, and intimating that he repudiated the contract, B was advised that he had no defence, and it was arranged that judgment should be allowed to go against him in the English Courts. B then brought an action against A for reduction of his contract with A and for damages, but at the time of raising his action judgment had not been pronounced by the Court in England annulling the sub-assignation, though such judgment was obtained before the record was closed. In the action by B against A objection was taken that B had no title to sue in respect that at the date of raising the action he had not been reinvested in his right to the contract, and therefore was not in a position to make restitutio in integrum. Held ( aff. the judgment of the First Division) that B had a good title to sue.
The sub-assignees of a shipbuilding contract, after discovering the falsity of the representations on which they had bought, requested the shipbuilders to make a slight alteration in the design of the ship. Thereafter in an action at their instance the sub-assignation was annulled. The assignees having thereafter sued the original cedents for rescission of their contract with them on the ground of misrepresentation and for damages, held ( aff. the judgment of the First Division) that the act of the subassignees in agreeing to the suggested alteration on the design of the ship did not bar the assignees from insisting in their action, and that the unimportant character of the alteration did not make restitutio in integrum inequitable.
Circumstances in which held ( aff. the judgment of the First Division) that in an action for the rescission of a shipbuilding contract on the ground of misrepresentation, a fall in the value of the subject of the contract owing to a slump in freights did not render restitutio in integrum inequitable, and appeal dismissed.
The case is reported ante ut supra.
The Abram Steamship Company, Limited, appealed to the House of Lords.
At delivering judgment—
Page: 626↓
In June 1920 the British Hispano Company discovered that the representations made as to the state of progress were untrue. They at once repudiated the contract. The respondents gave intimation of this to the appellants and in turn repudiated their contract. The British Hispano Company raised action in the English Courts to set aside this contract and recover the money paid under it. While that action was in dependence the respondents raised the present action against the appellants to set aside the contract and recover the money paid under it. The summons was signeted on 5th November 1920. On 11th December judgment was given in favour of the plaintiffs in the English action, the respondents in this case, defendants in that, being advised that they had no defence.
The only other matter that need be mentioned is that before the action was raised a suggestion was made by the builders for a small alteration in the deck house. This was passed on by the respondents to the sub-purchasers and approved of by them.
On these facts it is admitted that there was misrepresentation for which the appellants are responsible which induced the respondents to enter into the contract with them for the purchase of the ship. The materiality of such misrepresentation was not actually admitted, but it was found by both Courts below on what I consider very clear grounds. There is therefore so far good ground for setting aside the contract.
The defence depends on two points—first, it is said that the respondents elected to affirm the contract after they were aware of the grounds for rescission by consenting to certain alterations as shown by certain letters. Election to affirm must, if to be gathered from action, be gathered from unequivocal acts. It would not matter that the act in itself was trivial, but the triviality of the act may easily affect the inferences to be drawn from it. Now here the alteration of a certain part of the deck-house was an alteration suggested by the builders and passed on by the respondents to the subpurchaser. It was assented to, but I cannot for myself think that the assent to such an alteration in the circumstances can possibly be taken as a considered affirmation of the contract. The plea thus becomes equally useless to the appellants in the present action as it would have been if it had been taken in the action brought by the subpurchaser against the respondents. This takes away the whole sting of pointing out that the decree in that action was a consent decree. Persons cannot be held liable for not having put forward pleas which are unsound in themselves.
The second point is that the action is barred by the fact of the sub-sale. So long as the sub-sale stood this would of course be so. As has well been pointed out by the Lord President no one can be allowed to maintain a contract between him and another and at the same time to reduce another contract on which alone his title to make that contract depended. That was the position of Dunn in Molleson's case, 21 R. (H.L.) 10. Dunn proposed to stick to his contract with the United Breweries Company and at the same time to reduce the original contract. But here the subcontract no longer exists. It has been put out of the way by the decision in the English Courts. I am of opinion that the dicta in Molleson's case provide the answer to the contention. It is true that Lord Watson puts the matter hypothetically, but Lord Herschel was more explicit. He says—“No doubt if there had been any fraud, if there had been misrepresentation, it would have been open to Dunn notwithstanding the execution of the conveyance to set aside the conveyance and put an end to the transaction altogether.” On principle I can see no answer to this point. The sub-contract which was ex hypothesi the only obstacle has been completely swept away. The respondents have been put back into their original position, i.e., as purchasers under the contract with the appellants. Why then should they not reduce that contract if they have relevant grounds to do so?
The only point remaining is founded on date. It is said on the authority of Symington v. Campbell ( 21 R. 434) that at the date of the raising of the present action the pursuers had no title to sue and that the action is not saved by a title subsequently emerging. It is as well to set out what Campbell's case actually decided.
A purchased a vessel from B. Prior to his purchase injury had been done to the ship by the alleged fault of C; A raised an action against C for damages for such injuries. Subsequently to the service of the summons A obtained from B an assignation of all claims competent to him against C. It was held that at the date of the summons A had no title to sue and that
Page: 627↓
I therefore concur in the judgment proposed.
It may be doubted whether since the decision of the case of Lamare v. Dixon ( (1873) L.R., 6 H.L. 414), to be presently referred to on another point, the same importance will henceforth be attributed to the entry into possession of land as was given to it in these two cases. In the case of Reese River Mining Company and the Liquidator of the Company v. Joseph Mackrill Smith, the respondent alleged that he had been induced to take shares in the company by fraud and misrepresentation contained in the prospectus. He filed a bill against the directors alleging that he took shares in the company on the faith that the statements made in the prospectus and articles were true and accurate and within the knowledge of the directors. But these statements, he alleged, were false, &c., and prayed that his name might be removed from the register of the company. A winding-up order had been subsequently made; Smith's name was placed on the list of contributories. On the 10th July 1886 he took out a summons to have the register rectified by the removal of his name. The application was refused by the then Master of the Rolls. On appeal this decision was reversed by the Lords Justices, and from their decision an appeal was brought to this House. The Lord Chancellor (Lord Hatherley), in giving judgment said—“It appears to your Lordships—and with all humility I would say it appears to me—perfectly correct to say that the agreement subsists until rescinded—that is to say, in this sense, until rescinded by the declaration of him you have sought to bind by it, that he no longer accepts the agreement, but entirely rejects and repudiates it. It is not meant, I apprehend, by that expression ‘until rescinded’ used by any of your Lordships at the time when that case (i.e., Oakes v. Turquand, L.R., 2 HL 325) was argued before the House to say that the rescission must be an act of some court of competent authority, and that until the rescission by that court of competent authority takes place the agreement is subsisting in full rigour.” On the next page he states what he thinks is the true view—“If in a case of this description the directors had committed the fraudulent
Page: 628↓
Lords Westbury and Cairns would appear to have approved of this statement of the law. Well, it is not now disputed that false statements were made to the British Hispano Line Company as to the forward condition of the ship they bought at the time they bought her. It is not disputed now that these statements were material, neither is it disputed that, relying upon them as truthful and accurate, the company entered into the contract to purchase the ship.
On the 20th June 1920 they sent their representative to Dublin to discover by inspection what was the actual condition of the ship. It was then found that all the statements as to her forward condition were untrue, that little more had been done beyond laying the vessel's keel. They then consulted their solicitors, and took a course very much like that suggested by Lord Hatherley. They wrote to their vendor, the respondents, a letter detailing the misrepresentations made to them on which they alleged they acted, and wound up the letter with this paragraph—“We must now, however, inform you that had we known the position and that your statement was incorrect, we should never have agreed to purchase your contract, and that in consequence of this misrepresentation we must repudiate the contract and ask you for an immediate return of the sum of £33,000 paid by us.—Yours,” &c.
On the 9th July the solicitors again wrote—“We are instructed to again state that our clients feel that misrepresentations were made and they insist on repudiating the contract. Unless we hear from you with regard to the matter within the next few days, we are instructed to commence proceedings.—Yours,” &c.
The respondents did not pay to the British Hispano Line Company the £33,000 or any part of it. They did not accept the latter company's repudiation of the contract to purchase this ship as being void on the ground of essential error. On the contrary, on the 8th of July 1920 they wrote to the latter company stating that they would hold them to their contract. The British Hispano Line Company was therefore obliged to institute proceedings to enforce the rights which their election to rescind conferred upon them, and as consequential relief to procure the repayment of the £33,000. The writ was issued on the 18th of August 1920. The respondents, according to the evidence, finding they had no defence to the action settled it. On the 30th November 1920 the solicitors on both sides appeared before the District Registrar for the Cardiff District, when after hearing them it was ordered that judgment by consent should be entered for the plaintiff for rescission of the contract of the 13th March 1920 and for the sum of £33,000 and costs when taxed. The formal order was not drawn up till the 11th December 1920. On the 16th December 1920 the plaintiffs and defendants in the action entered into an agreement providing that the plaintiff company would not take any steps to enforce this judgment until judgment should be given in an action brought by the defendants in Scotland against the Abram Steamship Company, Limited, and Thomas M'Laren & Company, and that in consideration of this concession the respondents would pay interest at bank rate upon the sum of £33,000. This is, however, wholly immaterial, for in truth it is not this judgment which really puts an end to the voidable contract of the 13th March 1920. That was done early in the month of July previous in the manner mentioned. This brought it to an end, provided always that the British Hispano Line Company was then entitled in law to take that course. It was contended they were not entitled to take it because with full knowledge of the deception which had been practised upon them and of the essential error into which they had been led, they by letter dated the 2nd of July 1920 unequivocally expressed an intention to treat the contract of the 13th March 1920 as a subsisting contract then in full force and effect, and that this election so to treat it was final and decisive. This contention is based upon two letters, the first written by the builders of the ship to the solicitor of the respondents and forwarded to the British Hispano Line Company, and the second written by the latter company to the shipbuilders. The letters respectively run as follows. The respondents' solicitor wrote to the British Hispano Company the following letter “Cardiff, 2 nd July 1920.—S.S. No. 17.—Dear Sirs—We have received the following letter from Messrs Abram & Sons, Ltd. It is more or less an extract from one received from the Dublin Shipbuilders, Ltd.—‘With reference to the midship accommodation in the above vessel, we find that the altered arrangement which you approved some time ago does not work out very satisfactorily as the pantry space under the winding stairs is practically valueless. We enclose blue print showing an amended arrangement in which we have changed the entrance door to the starboard side in lieu of the after end. The ladder under this arrangement is straight and a good pantry space is obtainable.
Page: 629↓
The British Hispano Company wrote to the Dublin Shipbuilders the following letter:—“Cardiff, July 2 nd, 1920.—S.S. No. 17.—Dear Sirs—Referring to your letter addressed to the Abram Shipping Company, we return herewith blue print, and shall be pleased if you will proceed with the suggested re-arrangement. We shall also be obliged if you will let us know whether steamer has progressed since the writer had inspection of her some little time ago.—Yours,” &c.
The law applicable to questions such as this is stated with admirable clearness and precision by Mellor, J., when delivering the judgment of the Exchequer Chamber in Clough v. London and North-Western Railway Company, L.R., 7 Ex. 26, at pp. 34, 35. He expressed himself thus—“We agree with what seems to be the opinion of all the judges below, that if it can be shown that the London Pianoforte Company ( i.e., the company alleging to have been defrauded) have at any time after knowledge of the fraud, either by express words or unequivocal acts, affirmed the contract their election has been determined for ever. But we differ from them in this, that we think the party defrauded may keep the question open so long as he does nothing to affirm the contract. The principle is precisely the same as that upon which it is held that the landlord may elect to avoid a lease and bring ejectment when his tenant has committed a forfeiture. If with the knowledge of the forfeiture, by receipt of rent or other unequivocal act, he shows his intention to treat the lease as subsisting, he has determined his election for ever and can no longer avoid the lease. On the other hand, if by bringing ejectment he unequivocally shows his intention to treat the lease as void, he has determined his election and cannot afterwards waive the forfeiture— Jones v. Carter, 15 M. & W. 718. We cannot do better than cite the language of Bramwell, B., in Croft v. Lumley ( 6 H.L. C. at p. 705), which precisely expresses what we mean.” He then, p. 35, cites at length the well-known passage from Baron Bramwell's judgment, and states that, mutatis mutandis, it is applicable to the election to avoid a contract for fraud. In such cases the question, he says, 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?” All this reasoning is obviously quite as applicable to a case of essential error as it is to a case of fraud. Turning for a moment to these analogous cases of the so-called waiver by the lessor of the forfeiture of a lease one finds that the governing factor is the intention of the party purporting to waive it. All the cases on this point up to the year 1903 are collected in Smith's Leading Cases, eleventh edition, vol. i, p. 36, and the following pages in the notes to Dumpor's case. At the bottom of p. 38 it is stated that “it is conceived that the mere receipt of subsequent rent does not, of its own proper force, operate as a waiver of a forfeiture. It is only evidence of the election of the lessor to retain the reversion and its incidents instead of taking possession of the land. The judgments of Bramwell, B., in Croft v. Lumley (6 H.L. Cas.), at p. 705, and also of Crompton, J., at p. 713, are referred to in support of this statement. In these passages both these learned judges refer to the strong expressions of Lord Mansfield in the case of Doe v. Batten, 1 Cowp. 243. In that case there was a payment under peculiar circumstances of rent accrued due after the alleged forfeiture, and Lord Mansfield said—“The question therefore is quo animo the rent was received and what the real intention of the parties was.” Bramwell, B., at p. 707 of his judgment in Croft's case qualifies this statement of the law by pointing out that where the intention of the parties is spoken of it is not meant that the landlord can do an act lawful only if he has a particular intention and yet say that he had it not. The judgment of Lord Cairns in Lamare v. Dixon already cited points in the same direction. In that case Lamare, the appellant, entered into an agreement to take a lease of a house, went into occupation of the house, and occupied it for two years. From time to time he called upon the landlord to fulfil certain promises made by him which had induced Lamare to enter into the contract. He, Lamare, paid the rent as it accrued due, but always under protest. It was held that these facts did not amount to such acquiescence as to prevent the tenant from ultimately refusing to perform his contract, but that the payments were meant to be treated as merely made in respect of the actual use and occupation of the house and in no other character. While he was in possession of the house he wrote to the respondent a letter containing the following passage—“I beg hereby to give you notice that if you do not cause all the above matters ( i.e., repairs) to be done on the premises, or at least commenced before this day fortnight, I shall myself do what is necessary and charge you with my outlay. I send you the last quarter's rent, but you will of course understand that I in no way abandon my claim against you for damages on account of the non-performance of your agreement in many respects.” The respondent replied saying he had done all he had agreed to do and would not do any more. Lord Cairns, in giving judgment at p. 431 of the report, said—“It is quite true that Lamare said in this letter that he would do the work and sue for damages. I do not at all hold him to be concluded by that. I apprehend he was perfectly free a week after that letter as he was a week before to maintain and hold his position on the nonperformance of the agreement—to say that although he had used the threats of doing the work and suing for damages he was not bound to pursue that course but was at liberty to repudiate the agreement in toto.”
Page: 630↓
When the contract was rescinded and thus got out of the way I think there was nothing to prevent the respondents from enforcing their rights against the appellants. I am of opinion therefore that the appeal fails and should be dismissed with costs.
I agree to the motion proposed.
Their Lordships dismissed the appeal with costs.
Counsel for the Appellants— Sir John Simon, K.C.— C. H. Brown, K.C.— A. H. D. Gillies. Agents— Smith & Watt, W.S., Edinburgh— Botterell & Roche, Solicitors, London.
Counsel for the Respondents—A. T. Miller, K.C.— W. G. Normand. Agents— Webster, Will, & Company, W.S., Edinburgh— William A. Crump & Son, Solicitors, London.