Edington v Fitzmaurice - Thomson Reuters

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Then, was the Plaintiff induced by that statement to take the bonds? He does notexpressly say he was induced partly by that statement. I do not think his wordsamount exactly to that. But upon examination, and upon cross-examination, thoughhe does say that if he had thought that this document did not give a charge upon theproperty he should not have had anything to do with it, he said, "If it had been statedto me that there was a second mortgage on this property beyond the £21,500 whichhad not been paid, and the object of the debenture was at once to be urgentlygathering up the money for the purpose of paying that particular mortgage, then Ishould have had nothing to do with the concern." Now, it is for a jury, or any tribunalthat has to draw inferences of fact, to say whether with that evidence, and looking atthe materiality of the thing, that is a matter which did tend materially to induce thePlaintiff to take the debentures in question, by which he has lost money. He says thathe thought sufficiently of the importance of the thing to go to the secretary and askthe secretary whether this would be a first charge, and the secretary solemnlyassured him it would. It shews that he *472 felt it of importance, and he does saythat if he had the least notion that there was this second mortgage, he should nothave taken the property. I think, therefore, it was a thing which did go materially toinduce him to take the debenture bonds, and in that sense also I think it was astatement of fact. That being so, I think that on that ground alone he would beentitled to relief. But, as I said before, I do not think it necessary to say what,supposing that had been the only misstatement, the Court might have done, becauseI think that each of the statements and the whole of the documents are to be lookedupon together. But I do hold that even if it stood upon this alone, looking at theopinion of the Lord Chancellor in Peek v. Gurney [FN18] and the opinion of the Masterof the Rolls in Smith v. Chadwick [FN19], where he comments on the LordChancellor's judgment, there was a partial and fragmentary statement, calculated todeceive, and that it was a thoroughly misleading statement, though in the shape of anon-statement, and that the parties are responsible.FN18 Law Rep. 6 H. L. 377.FN19 20 Ch. D. 58.[His Lordship then expressed his opinion that the statements as to the half- yearlypayments of £500, and as to the power of calling in the balance of the mortgage for£21,500, did not shew that it might be called in at the end of four years.] I think thatthis is so important a matter that it clearly is most material; that it ought to havebeen stated; and that, not being stated, it is a matter which makes this prospectussubstantially incorrect.But mere inaccuracy will not affect the matter. This is a case in which the action isbrought for fraud. Fraud, however, as I have said, may be committed by recklessrepresentations made without knowing how the matter stands one way or the other.Then, does this fall within that doctrine. Upon the whole, though not so confidently asI hold upon the other matter, I think it does. I think that where five or six directorsare constantly attending at meetings, constantly discussing how they can obtainadvances, what mortgages they can get, who will deal with them, and whether theyshall raise debentures in a particular form from persons, shareholders or otherwise ofthe company, it is their bounden duty, before they send out a document such as this,to inquire and to know for certain what is the effect of the *473 document as to amatter so plain and important. The Plaintiff says that if he had known that themortgage was liable to be called in in four years, and that in the last year such a sumas £18,000 was to be at once called in, he would not have thought of lending hismoney to the society. And, though I think that this is not quite so clear a point as theother, I do think it is sufficiently clear, and on that ground also the Plaintiff has a rightto say that he has been taken in and misled, and that he has been deceived byreckless statements of a gambling character made by persons who had no right to beso sanguine as they were, with such difficulties about them as at that time wereexisting, and that on that ground also he is entitled to maintain this action.Then there is a third point. [His Lordship then read the statement as to the objects ofthe issue, and expressed his opinion that the intention was to tell people that the
purchase of horses and carts was very important to the company, whereas there wasno real expectation or intention of so laying out the money, though if all had gone onwell it might at some future time have been done.] This, therefore, was illusory andmisleading. Nor did it appear that anything was done as to the supply of fish. Withregard to the alterations in the buildings the only evidence we have is of very slightand trifling alterations. It would have been easy of proof if there was anything seriousexpended, or likely to be expended. It does strike me, therefore, that these objectswere inserted merely in this way. "The persons who are about to subscribe will requireus to say why we want this enormous issue of debenture capital. If we have thisvaluable property, if we are going on so prosperously, if we have 13,000 members,and the numbers are daily increasing; if we have no other mortgage than themortgage mentioned in the circular, which is not to be paid off for twenty-one and ahalf years, people will say why are you coming to us to ask for £25,000 additionalcapital?" And it being seen that this would be asked, the directors felt that unless theyput in some statement which would make people comfortable and satisfied as to theobjects of the issue of the debentures, they would not get subscribers."Does that amount to a false statement? Is it a statement *474 calculated to misleadto such an extent, and is it within the law a statement of a kind, liable to beconsidered a fraudulent statement in an action for fraud against an individual. Heremany points are made. One point is that it does not state facts, but that it statesintentions of the mind, and on that ground it is said, it is not sufficient. Another is,that it is a mere statement of intention which does not amount to any guarantee orcontract to do it, and that it might be altered at any time; that it is not a matter withwhich the persons lending the money would have any concern; and it is also seriouslyargued that it was solidly and substantially true. I think myself that there is somedoubt about what might be the law applicable to this kind of statement. I had toconsider it very recently with my Brother Manisty in a case in the Queen's BenchDivision of Bellairs v. Tucker [FN20]. It was a different case in many respects, butthere was a statement in the prospectus which was issued by the defendants in thecase that it was believed that a certain French company would be successful insubstance because of the success of an English company. The English company hadonly very recently been established, and I think both my Brother Manisty and myselfhad considerable doubt whether there was any dishonesty, and whether thestatement of success was not a statement of a mere matter of opinion. But then theprospectus went on to say "which English company having only been started eighteenmonths has already entered into a contract which will have a certain effect." We hadthe whole matter before us, and we thought that looking to the history of the matter,and looking at the evidence in the case, this was not a statement of a fact as existingwhich was nonexistent. But whether we were right or not, that case appears to me tobe very different from the present, because the decision in that case went on theparticular facts of the case and the circumstances of those particular companies. Ithink that in every one of these cases it will be found that it is a very dangerous ruleto take a decision in one case as a precedent, on account of the great variety of factswith regard to the conduct of directors in different companies.FN20 Law Rep. 10 Ch. 446.But looking at the facts of the present case and at the surrounding *475circumstances, is this statement: "The objects of the present issue are" a falsestatement of a fact existing which did not exist? If it is not, then I should say thePlaintiff would have no right to rely on it. But upon the whole I think it is. It has notbeen directly held in any of the cases cited that if the thing stated to exist is anintention of the mind that may not be a statement of fact which is obviously andcertainly false.It was said that it is idle and absurd to suppose that so small a sum as £ 7000 or£8000 would have had that effect, and that if they had got the whole £ 25,000 thenthey might set to work to perform these objects. But I think that cannot be saidtowards any individual subscriber of the bonds. When you tell me that the objects ofthis issue are to enable you to complete present alterations, to purchase horses andvans, and to further develope the supply of cheap fish from the coast, that is telling
Page 4 and 5: FN6 3 Ex. D. 238.Crossley, Q.C., J.
Page 6 and 7: and that it is not a fair way of de
Page 10 and 11: me in so many words, not only that
Page 12 and 13: from them that the advances were to
Page 14 and 15: misrepresentation as to the state o

Edington v Fitzmaurice - Thomson Reuters

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