[1959]

 

789

A.C.

  


 

Original Printed Version (PDF)


[JUDICIAL COMMITTEE]


BARON UNO CARL SAMUEL AKERHIELM AND ANOTHER

APPELLANTS;

AND

ROLF DE MARE AND OTHERS

RESPONDENTS.


ON APPEAL FROM THE COURT OF APPEAL FOR EASTERN AFRICA.


1959 June 1.

LORD KEITH OF AVONHOLM, LORD JENKINS and the RT. HON. L. M. D. DE SILVA.


Company - Shares - Issue - Misrepresentation - Statements in circular letter - Honest belief in untrue representations - Capital "subscribed" - Allotment of fully-paid shares in respect of formation expenses and acquisition of patent rights - "Subscribed" - Whether payment in cash essential.




[1959]

 

790

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

Fraud - Honest belief in truth of statement - Sense in which it is understood by person making it - Construction by court - Test of honest belief.


Court of Appeal - Fact, question of - Appeal from lower court - Fraud - Acquittal by Supreme Court of Kenya - To be displaced on appeal only on clearest grounds.

Eastern Africa - Company- Shares -Sale - Alleged fraudulent misrepresentation.


In a circular letter signed by the appellants which, the respondents alleged, induced them to subscribe for shares in a private company formed in Kenya for the purpose of manufacturing "cold process" tiles, it was stated, inter alia, "(b) We have procured the patent rights for most countries in Africa, India and Pakistan, and (c) About one-third of the capital has already been subscribed in Denmark." The company having gone into liquidation and the whole of the shareholders' money been lost, the respondents brought this action against the appellants alleging that representations (b) and (c) were fraudulent misrepresentations and claiming damages. The trial judge held that both representations were untrue, but that the appellants honestly believed them to be true at the time when they were made, and, applying Derry v. Peek (infra), dismissed the action.

On appeal, the Court of Appeal for Eastern Africa hesitated to hold that representation (b) was false, and declined to hold that it was made fraudulently; they found that representation (c) was untrue, but reversed the trial judge's finding that the appellants honestly believed it to be true, and awarded damages:-

Held, (1) that, assuming, without deciding, that representation (b) was not wholly true, there was no sufficient reason for disturbing the concurrent findings of the courts below in favour of the appellants on that point.

(2) The word "subscribed " in the circular letter did not mean that one-third of the capital had already been subscribed in cash consistently with the representation, formation expenses of the company and the acquisition of patent rights could be met by allotting fully-paid shares.

(3) That, in the circumstances, the Court of Appeal were not justified in reversing the trial judge's view, formed after seeing and hearing the first appellant give evidence, that he did honestly believe representation (c) to be true.

Benmax v. Austin Motor Co. Ltd. [1955] A.C. 370; [1955] 2 W.L.R. 418; [1955] 1 All E.R. 326 considered.

(4) Even assuming that the Court of Appeal were justified in substituting their own conclusion for that of the trial judge on the question of honest belief, they had adopted a wrong method of approach in that they construed the language of representation (c) as they thought it should be construed according to the ordinary meaning of the words, and held that, on the facts known to the appellants, it was impossible that either of them could ever have believed the representation as so construed to be true. The question was not whether the defendant in any given case honestly believed




[1959]

 

791

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it, albeit erroneously, when it was made.

Derry v. Peek (1889) 14 App.Cas. 337; 5 T.L.R. 625; Angus v. Clifford [1891] 2 Ch. 449; 7 T.L.R. 447, and Lees v. Tod (1882) 9 Rettie 807, 854 applied.

Arnison v. Smith (1889) 41 Ch.D. 348; 5 T.L.R. 413, so far as inconsistent with the above authorities, disapproved.

(5) Where a defendant has been acquitted of fraud in a court of first instance the decision should not be displaced on appeal except on the clearest grounds.

Principle in Glasier v. Rolls (1889) 42 Ch.D. 436 at 437; 5 T.L.R. 691 applied.

Judgment of the Court of Appeal for Eastern Africa reversed.


APPEAL (No. 8 of 1957) from a judgment of the Court of Appeal for Eastern Africa (July 4, 1956) reversing a judgment of the Supreme Court of Kenya (May 18, 1955).

The following facts are taken from the judgment of the Judicial Committee: In this case the present respondents (hereinafter called the plaintiffs) brought an action in the Supreme Court of Kenya against the present appellants (hereinafter called the defendants) and one Eric Von Huth (who died after action brought) claiming damages in respect of certain alleged false and fraudulent misrepresentations contained in a circular letter dated February 24, 1948, and signed by the defendants and Von Huth, whereby the plaintiffs alleged themselves to have been induced to subscribe for shares in I)Dantile Ltd. (a company incorporated in Kenya on March 20, 1948) and by so subscribing to have suffered damage.

The plaintiff Rolf de Mare subscribed in cash for 500 ordinary shares of the company of 20s. each. The plaintiff Guy Magnus Alexander Faugust subscribed for 1,500 ordinary shares and 250 preference shares of 20s. each, and made over 500 of his ordinary shares by way of gift to his wife, the plaintiff Barbro Wilhelmina Elisabeth Faugust, who did not herself subscribe for any shares.

The company was formed with a view to the manufacture and sale in Kenya and elsewhere of tiles for use in bathrooms, etc., of a type known as "Cold process tiles" as distinct from the conventional baked or heat-treated type of tile. There appeared to be no doubt that at the date of the circular letter "cold process" tiles were being successfully made and marketed in Denmark by way of substitute for the conventional type of tile, which since the war had been difficult or impossible to obtain,




[1959]

 

792

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

and that a method of making "cold process tiles" was the subject of protection under a patent application in Denmark, the benefit of which was vested in a Danish company called Muritas A/S.

Unfortunately the company was not a success, its failure being mainly attributable to the reappearance on the market within a short time after its formation of adequate quantities of the conventional type of tile, and the consequent cessation of the demand which had previously existed for "cold process" tiles, which were in truth no more than a war-time or post-war substitute for the normal article. In August 1950 a Mr. Erik Seex (who gave evidence at the trial) was appointed as an Inspector to investigate the affairs of the company under the Kenya Companies Ordinance. His report led to the prosecution of the defendants and Von Huth for certain offences (not in volving dishonesty) under the Ordinance. Later the company went into liquidation and it was found that the whole of the shareholders' money had been lost. In such circumstances it was natural that persons in the plaintiffs' position should look back with a somewhat jealous eye at any statements in regard to the company's position and prospects made to them at the time when they subscribed for its shares.

The statements in the circular letter alleged by the plaintiffs in their plaint to constitute the false and fraudulent misrepresentations on which they relied were three in number, viz.: (a) "The tile has been produced and sold successfully in Denmark"; (b) " We have procured the patent rights for most countries in Africa, India and Pakistan"; and (c) "About onethird of the capital has already been subscribed in Denmark."

At the trial before Corrie J. representation (a) was admitted to be true. There thus remained to be dealt with by the judge representation (b) as to the patent rights, and representation (c) as to "about one-third of the capital" having "already been subscribed in Denmark." The judge held that those representations were both untrue but that the defendants honestly believed them both to be true at the time when they were made. Accordingly, directing himself correctly as to the law applicable to those findings by reference to the principles stated in Derry v. Peek,1 he held that the plaintiffs had failed to make good their charges of fraudulent misrepresentation and by his judgment dated May 18, 1955, dismissed the action.


1 (1889) 14 App.Cas. 337; 5 T.L.R. 625.




[1959]

 

793

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

From that judgment the plaintiffs appealed to the Court of Appeal for Eastern Africa. In a judgment delivered by Briggs J.A., and concurred in by Sinclair V.P. and Bacon J.A. that court as to representation (b) hesitated to hold that it was false and declined to hold that it was made fraudulently; and as to representation (c) concurred with Corrie J.'s finding that it was untrue, but reversed his finding to the effect that the defendants honestly believed it to be true. Accordingly, by the judgment of the Court of Appeal dated July 4, 1956, the appeal was allowed, and judgment was directed to be entered for the plaintiffs for damages assessed at the full amounts paid up on the shares subscribed for by them, on the footing that at the date of their allotment such shares were valueless.

The defendants now appealed from that judgment.


1959. April 7, 8, 9, 13, 14, 15. H. A. P. Fisher for the appellants. Representations (b) and (c) were honestly made; that is enough for the appellants' purpose; the Court of Appeal were wrong. If the Board find that on the natural and ordinary meaning of the words the representations are true, then the appellants' case is that much stronger. Reliance is placed on Armstrong v. Strain.2 Here it is common law deceit or nothing. The argument falls under three main heads. First, as to the patent rights - representation (b) - there are concurrent findings that that representation was not fraudulent, and no ground was alleged which would justify the Board in departing from the Board's rule of practice that they will not interfere, except on certain specified grounds, where there have been concurrent findings of fact by two lower courts: Srimati Bibhabati Devi v. Kumar Ramendra Narayan Roy3 - propositions (4), (5) and (6) in the judgment in that case are perhaps the relevant ones. Nothing is alleged by the respondents which brings this case within any of those exceptions. It is not now open to the respondents to take the case out of the general rule of practice by alleging any error in admissibility of evidence. It is submitted that the first head on the distinction made in Benmax v. Austin Motor Co. Ltd.4 between primary facts and inferences does not really come in. On the evidence the representation was not fraudulently made, and the courts below were correct in so holding.


2 [1951] 1 T.L.R. 856, 871; affd. [1952] 1 K.B. 232; [1952] 1 T.L.R. 82; [1952] 1 All E.R. 139.

3 [1946] A.C. 508, 521; 62 T.L.R. 549.

4 [1955] A.C.370; [1955] 2 W.L.R. 418; [1955] 1 All E.R. 326.




[1959]

 

794

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

Secondly, with regard to the subscription in Denmark - representation (c) - prima facie this is a case where the appellate court should not have interfered with the finding of the trial judge that the appellants honestly believed it to be true. The ground on which the Court of Appeal departed from that is not justifiable, for (a) there was uncontradicted and unchallenged evidence that Hollister (who became solicitor to the company when it was formed) was consulted and approved the form of the circular letter. (b) It was never part of the appellants' case that Hollister was responsible for the statement that about one-third of the capital had already been subscribed in Denmark. Consequently, Hollister's evidence, if he had been called, could neither have corroborated nor contradicted the evidence of the first appellant, Baron Akerhielm, as to his honest belief in the truth of that statement. (c) Consequently upon (a) and (b), on the facts of this case no adverse inference ought to be drawn from the fact that Hollister was not called. (d) As a matter of principle, a finding of fraud ought not to be based on any presumption: Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.5; Ng v. The Queen.6 As a matter of principle it is not justifiable to base a finding of deceit in the circumstances of this case on an inference. (e) No inference of the kind which the Court of Appeal have drawn should be drawn unless the point is taken at the trial, so that the witness could be called or his absence justified. There is authority for that. (f) The Court of Appeal said that the judge misdirected himself when he said that the plaintiffs in the action could have called Hollister. It is submitted that the supposed misdirection by the judge in saying that the respondents could have called Hollister related solely to the representation about the patent rights. (g) The trial judge did not in fact misdirect himself at all. (h) Where there is an allegation of fraud against a defendant the communications between himself and his solicitor as to the subject-matter of the alleged fraud are not privileged.

All the above matters with regard to representation (c) really go to the Benmax point,7 namely, whether this is a case in which an appellate court would be justified in interfering with the finding of the judge that the representation was honestly made. The earlier cases on this topic are conveniently set out in the Benmax case.7 There are three questions to be answered on the Benmax


5 [1942] A.C. 154, 192; 57 T.L.R. 485; [1941] 2 All E.R. 165.

6 [1958] A.C. 173, 181-182; [1958] 2 W.L.R. 599.

7 [1955] A.C. 370.




[1959]

 

795

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

point. The first is: Is the nature of the question - was the appellant honest when he made representation (c)? - one of primary fact or of inference from primary fact? It is submitted that it is the former; it is a question of the state of a man's mind. This is a case where credibility of witnesses comes into question, and consequently it falls into the first category rather than the second. The second question is: Is the manner in which the judge of first instance decided this question such as to bring the rule - that the appeal court will not interfere - into operation? The test to be applied in answering that question is, did his estimate of the witnesses form a substantial part of his reasons? Those words are taken from the speech of Lord Sumner in The Hontestroom.8 The third question is: Is there anything in this case to take it outside the general rule? Admittedly there are exceptional Cases, but there are always two matters to be determined in considering whether even in such a case an appellate court should interfere: (i) is this one of the exceptional cases where the appellate court will interfere if it has materials on which to do so? and then one has to go on and ask, (ii) has the appellate court got the materials on which to form its own opinion? For that point reliance is placed on what Lord Thankerton said in Watt (or Thomas) v. Thomas.9 To decide the first of those questions - whether this is one of the exceptional cases - the Board will have to go into the pros and cons of the Hollister question, and see whether, on the view they take, it makes this case such an exceptional one as to fall within the class of cases which, on the authorities, justify an appellate court in interfering. The Board will also have to consider whether in this case in any event the appellate court is in a position to make its own finding when it lacks an essential part of the material - Hollister's evidence.

For the authorities on this point, see per Viscount Simonds in the Benmax case,10 where he cites Professor Goodhart's article in the Law Quarterly Review, vol. 71, pp. 405-411; The Hontestroom11; Powell v. Streatham Manor Nursing Home12; Watt (or Thomas) v. Thomas,13 where Lord Thankerton stated the position correctly, and the Board is asked to follow that; Glasier v. Rolls,14 a case which is also relied on.


8 [1927] A.C. 37, 47; 42 T.L.R. 741.

9 [1947] A.C. 484, 488; 63 T.L.R. 314;

10 [1955] A.C. 370, 374.

11 [1927] A.C. 37, 47, 50.

12 [1935] A.C. 243, 247, 249, 255, 265; 51 T.L.R. 289.

13 [1947] A.C. 484.

14 (1889) 42 Ch.D. 436; 5 T.L.R. 691.




[1959]

 

796

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

Coming now to the ground which the Court of Appeal thought sufficient to justify them in interfering with the decision of the trial judge - that "the ... judge appears to ... have assumed that the appellants [plaintiffs] could have called Mr. Hollister, if they wished, to show that he was not responsible for the substance of the documents. I think, with respect, that this was a serious misdirection which goes to the root of the judge's finding that the respondents [defendants] acted innocently" - if there was a misdirection, it does not bear on the question of the honesty of the representation about subscription of capital, but related solely to the patent rights position. If the Court of Appeal is wrong, then this case is similar to Powell v. Streatham Manor Nursing Home,15 and no grounds have been shown for the Court of Appeal to interfere. And further, the Court of Appeal were wrong in saying that "an inference unfavourable to the respondents [defendants] could and should have been drawn from their failure to call him [Hollister]." In any case a presumption of that kind should not be used as a foundation for a finding of fraud. Ng v. The Queen16 is a different case, but it contains a dictum which is relied on. One starts with a presumption of innocence, and there must be something affirmative to displace it: Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd.17 Further, any inference of the kind drawn by the Court of Appeal is not legitimate unless at the trial the point has been taken and an opportunity given for the witness to be called: Banwari Lal v. Mahesh.18 Hollister might have been called and given an explanation. There is a rule that where there is an allegation of fraud against a defendant, communications between him and his solicitor as to the subject-matter of the alleged fraud are not privileged.

On this Benmax part of the case the Court of Appeal should not have interfered with the decision of the trial judge, and their grounds for so doing were not sound.

If the Board are against the appellants so far, and the Court of Appeal were free to consider the matter at large, the third main head of argument is that on the evidence the Court of Appeal should have held that the representation as to subscription in Denmark was not fraudulent, and this Board ought to investigate afresh the question whether or not the appellants were fraudulent. It is legitimate for shares to be issued, as the context


15 [1935] A.C. 243.

16 [1958] A.C. 173.

17 [1942] A.C. 154, 192.

18 (1918) L.R. 45 I.A. 284.




[1959]

 

797

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

showed they were to be in this case, for consideration other than cash. [Reference was made to Angus v. Clillord19 and Armstrong v. Strain.20] There are four sub-heads on this aspect of the case: (i) The circular letter must be read as a whole. (ii) It is plain that the word "subscribed" is not used in the sense of subscribed in cash. (iii) The first appellant gave evidence as to the sense in which the words were used, and if that evidence is true the representation, on the principles laid down in the cases, was not fraudulent. (iv) The evidence of the first appellant on this point was unchallenged in cross-examination; no crossexamination was addressed to him as to the honesty of his belief or as to the sense in which he understood the phrase.

The position of the second defendant is, of course, different, because he did not give evidence. The court had, however, the benefit of a long report from him about the circumstances of the case. He is, it is submitted, entitled to the benefit of the evidence of the first appellant. It would be paradoxical if the Board held that Baron Akerhielm was honest and that Beyer was not. There are no circumstances on which the Board can so hold - the facts are common to the two cases. The onus of proof remains on the plaintiffs throughout: Glasier v. Rolls21; the plaintiffs fail if the matter is left in doubt. To prove that the defendants were fraudulent is something more than proving that the statement was false. The passage in Kerr on Fraud and Mistake, 7th ed., p. 675, dealing with the shifting of the burden of proof is, it is submitted, misleading, and does not apply to common law actions. That passage is supported by a number of cases, but none is a common law action for deceit, they are all equity cases where a person was claiming to set aside a transaction on the ground of fraud. The true position is stated on p. 669 of Kerr - that the burden rests throughout on the plaintiff. Hornal v. Neuberger Products Ltd.22 shows that a high degree of proof is required in a case where fraud is alleged.

There is no evidence that the first and second plaintiffs purchased their shares in reliance on the representation as to subscription in Denmark or, indeed, on the representation as to patent rights. The plaintiffs have to show that they were substantially induced by the representation in question: per Lord Halsbury L.C. in Derry v. Peek.23 The third respondent said in


19 [1891] 2 Ch. 449; 7 T.L.R. 447.

20 [1951] 1 T.L.R. 856.

21 42 Ch.D. 436, 458.

22 [1957] 1 Q.B. 247, 262, 266-267;[1956] 3 W.L.R. 1034; [1956] 3 E.R. 970.

23 14 App.Cas. 337, 344.




[1959]

 

798

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

evidence that she relied on these particular representations. They were not, however, addressed to her, and so were not made in order to induce her to take shares; she, therefore, had no cause of action. She also has no cause of action for the further reason that the shares were paid for by her husband and given to her by him as a gift.

With regard to damages, on the evidence the shares had some value at the date when the first and second respondents subscribed, and the fact that they became worthless by 1950 was due to subsequent events. In Twycross V. Grant24 the shares were valueless from the start, and that case is distinguishable. The Court of Appeal here ought not to have held that the damages, if any, were the full value of the shares. They should, therefore, be for something less than the full amount subscribed. The third respondent not having herself subscribed for any shares, suffered no damage.

Roger Willis for the respondents. First, if the respondents fail on what was called the Benmax point - question whether the Court of Appeal were right in interfering with the findings of the trial judge - the appeal will succeed. This is not a case where there is a divergence of evidence given on behalf of the plaintiffs and the defendants in the courts below, so that the judge had to make up his mind whether or not he accepted the evidence of one or the other. The basic facts are not in dispute. For the purpose of drawing the correct inference from those facts the Court of Appeal were in as good a position as was the trial judge, except for the advantage of seeing the first defendant in the witness-box. This case is different from the Powell case,25 where the Court of Appeal had interfered with the finding of the trial judge where there was a dispute of evidence between the plaintiff and the defendant. Watt (or Thomas) v. Thomas26 is distinguishable, because here there is no dispute with regard to the basic facts; it is a question of the correct inference to be drawn. There is here no conflict of evidence: Powell's case.27 The law on this matter is correctly stated in Mersey Docks and Harbour Board v. Procter,28 and is relied on. The present case, it is conceded, must be brought within the third rule stated by Lord Thankerton in Watt (or Thomas) v. Thomas.29 In any event, Lord Thankerton is saying that even where it is a question


24 (1877) 2 C.P.D. 469, 489, 543.

25 [1935] A.C. 243.

26 [1947] A.C. 484.

27 [1935] A.C. 243, 247, 249.

28 [1923] A.C. 253, 258; 39 T.L.R. 275.

29 [1947] A.C. 484, 488.




[1959]

 

799

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

of credibility of witnesses the appellate court may nevertheless draw an inference; the trial judge is not treated as infallible simply because he has seen the witnesses. There are some passages in Yuill v. Yuill30 which are helpful in the present case. When one comes to look at the judgment of the trial judge here, in which he found that the first appellant was honest in making the representations which he did, the judge has not in fact checked as it were, that finding by a critical examination of the whole of the evidence. If he had, the result might well have been different. It is submitted that he went wrong in acquitting the first appellant of fraud and that the Court of Appeal were right.

With regard to the representations concerning the patent rights and the subscription in Denmark, in the case of the patent rights there is in the forefront the point made for the appellants that there is in their favour a concurrent finding by the two courts below, and that in the printed case for the respondents there is no ground alleged which would justify the Board in departing from the rule of practice. There is, in fact, no concurrent finding as to whether or not the representation was true or false. The trial judge found it was false, the Court of Appeal did not decide it because, in any event, they thought it was honestly made. Propositions (4) and (6) in Srimati Bibhabati Devi's case31 are the only ones from which the respondents can draw any real comfort or assistance. On the evidence the only proper result was a finding of dishonesty, and there was no evidence the other way. As to proposition (6), this, it is conceded, is a somewhat unusual case, but looking at the documentary and oral evidence the proper inference is that the representation with regard to the patent rights was made fraudulently. It is established, principally on the documents, that this representation was untrue, and the appellants must have known that it was. Both courts below were wrong in acquitting the appellants of fraud in this matter.

With regard to the representation that one-third of the capital was subscribed in Denmark, the respondents have the advantage of a concurrent finding of fact of the two lower courts on falsehood - that the representation was untrue. Both courts were wrong in so far as they declined to hold that "subscribed" meant subscribed in cash. In the circular letter the word meant subscribed in cash and nothing else. See Arniso v. Smith,32


30 [1945] P. 15, 19-20; 61 T.L.R. 176; [1945] 1 All E.R. 183.

31 [1946] A.C. 508, 521.

32 (1899) 41 Ch.D. 348, 357; 5 T.L.R. 413.




[1959]

 

800

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

where it was said that "subscribed" could only have one meaning, and per Wynn-Parry J. in Governments Stock and Other Securities Investment Co. Ltd. v. Christopher33 that "subscribed" meant subscribed for cash - but that was in reference to the Companies Act. If "subscribed" in the circular letter did mean subscribed for cash it was obviously untrue.

Next, the Court of Appeal were right in interfering with the trial judge's finding that the representation as to subscription was made honestly, and were right in holding that that statement was made fraudulently. That court were right when they said that Hollister ought to have been called; the defendants ought to have called him; it was never for the plaintiffs to do so. O'Rourke v. Darbishire34 shows that for privilege to be destroyed there must be prima facie evidence of fraud in addition to an allegation of fraud in the pleadings. In Derry v. Peek35 Lord Bramwell is saying that if it is proved that a statement is made, and then it is proved that it is untrue, that is prima facie evidence of fraud. The fact that a defendant says that he honestly believed what he said was true is not enough, for a critical examination of all the circumstances may show that the representation was fraudulent, and here the Court of Appeal were right in holding that it was fraudulently made. Each case must depend on its own facts. The larger the amount subscribed is made, the more confidence one gives to the public: Arnison v. Smith.36

Different considerations apply to the second appellant - he did not go into the witness-box; there was a prima facie case against him. It is a complete misconception that the onus of proof was on the plaintiffs throughout. All that the plaintiffs had to do was to make out a prima facie case - a case which required explanation by the defendants: Lek v. Mathews,37 which makes it entirely clear that in a civil case the burden of proof does not remain throughout on the plaintiff; it shifts, as Viscount Sumner said in the last cited case, and that passage is referred to in Hornal v. Neuberger Products Ltd.38 The plaintiffs proved the case sufficiently to entitle them to judgment.

Every man must be taken to intend the consequences of his own act, and looking at this case as a whole it does not follow that the plaintiffs were not induced by the representation to take shares: Arnison v. Smith.39 It is quite clear that they were


33 [1956] I W.L.R. 237, 242; [1956] 1 All E.R. 490.

34 [1920] A.C. 581.

35 14 App.Cas. 337, 346, 350.

36 41 Ch.D. 348, 357.

37 (1927) 29 Ll.L.Rep. 141, 164.

38 [1957] 1 Q.B. 247, 258.

39 41 Ch.D. 348, 369.




[1959]

 

801

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

induced, probably by this representation, certainly by the documents as a whole, and that is sufficient to enable the plaintiffs to recover.

The position with regard to the wife (the third respondent) was that at the time when the shares were allotted she went straight on to the register, and as a subscriber. There is a contractual relationship between her and the company; and the representation was made to her which induced her to enter into the contract and she can recover damages.

The date of allotment is the correct date for assessing the damages: Broome v. Speak.40 If the shares of the wife were a gift by the husband, then he is entitled to the whole of the damages. The Court of Appeal were right on damages.

Fisher in reply. With regard to the representation as to patent rights, there is no ground for taking this out of the established rule relating to concurrent findings. As to the representation about subscription, this is a case where an appellate court should be slow to interfere because it has not the material, or it lacks an essential part of the material, namely, the demeanour of the witnesses: Watt (or Thomas) v. Thomas.41 Yuill v. Yuill42 does not lay down any different test. The material point is, did Baron Akerhielm make the representation honestly? [Reference was made to Powell's case.43] There is nothing in the Mersey Docks case44 inconsistent with this argument. The first appellant is entitled to succeed on this appeal on the Benmax point - that the Court of Appeal should not have interfered with the decision of the trial judge. If the Board are against the appellants on that, then on the evidence the Board ought to find that fraud was not established. [Reference was made to Angus v. Clifford,45 Derry v. Peek46 and Buckley on Companies, 13th ed., pp. 284, 285.]

A person cannot be convicted of fraud merely because he uses language carelessly: Kerr on Fraud and Mistake, p. 490. Derry v. Peek 446 fortifies the proposition that the test is a subjective one, and justifies the submission that the test is not, would a reasonable man take the statement to be true, but did this particular man, stupid as he may have been, believe in the statement he made?


40 [1903] 1 Ch. 586; 19 T.L.R. 187; affd. sub nom. Shepherd v. Broome [1904] A.C. 342; 20 T.L.R. 540.

41 [1947] A.C. 484.

42 [1945] P. 15, 19.

43 [1935] A.C. 243.

44 [1923] A.C. 253.

45 [1891] 2 Ch. 449; 7 T.L.R. 447.

46 14 App.Cas. 337, 348, 350, 368, 377.




[1959]

 

802

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

In Arnison v. Smith,47 on which the respondents relied, the words were construed in the context and in the surrounding circumstances, and it was held that the word "subscribed" was used in the sense of subscribed for cash. In the present case, however, it is abundantly clear from the context that it does not mean that. The courts below are with the appellants on this. Subscribed for cash means to accept an offer from the company for an allotment of shares. Where the situation is that no company exists, capital subscribed cannot be used in that sense. Further, the advantage to the company is the same whether the shares are consideration for services or are paid for in money: In re Wragg Ltd.48: In re China Steamship and Labuan Coal Co.49 It is of no materiality to prospective subscribers to the company whether the phrase means money out of which the promoters had met the expenses, or whether it means those expenses have been incurred and shares will be allotted to the persons who have provided the services.

Finally, this case must be determined on the evidence. There is no evidence that either of the plaintiffs relied on the representation about capital subscription in Denmark at all. So far as the second appellant is concerned, the burden of proof remains on the plaintiffs throughout: Derry v. Peek.50 There is no evidence against Beyer except that the representation was false. So far as the standard of proof is concerned, reliance is placed on Angus v. Clifford.51 Beyer is entitled to rely on the evidence of Baron Akerhielm; it is impossible to hold that one was honest and the other dishonest both had the same knowledge and the same interest, and if the Board find fraud not proved against Baron Akerhielm, it should not be found against Beyer.


June 1. The judgment of their Lordships was delivered by LORD JENKINS, who stated the facts set out above and continued:

The appeal has been fully and elaborately argued, but the essential issues fall within a relatively small compass, and may be thus summarised:

The first question is whether the Court of Appeal were warranted in reopening Corrie J.'s finding to the effect that the defendants honestly believed representation (c) to be true; and, if so, whether the Court of Appeal, treating the matter as at large, were justified in concluding as they did that the defendants


47 41 Ch.D. 348, 357.

48 [1897] 1 Ch. 796, 826, 829; 13 T.L.R. 302.

49 (1869) L.R. 4 Ch. 772.

50 14 App.Cas. 337.

51 [1891] 2 Ch. 449, 474.




[1959]

 

803

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

did not honestly so believe. A distinction is here to be observed between the first defendant, Baron Akerhielm, who gave evidence at the trial, and the second defendant Ole Beyer who did not.

The second branch of this first question only arises if the defendants fail to secure a negative answer to the first.

The second question is whether the circumstances of the case are, as the plaintiffs contend, such as to warrant their Lordships in reopening the concurrent findings of the trial judge and the Court of Appeal to the effect that the defendants honestly believed representation (b) to be true; and, if so, whether a finding to the effect that they did not honestly 50 believe would be justified on the facts.

If the defendants succeed on the first question in either of its branches, then the appeal must be allowed unless the plaintiffs succeed on both branches of the second question. All else failing, it is still open to the defendants to contend that the representations complained of were true or that they were immaterial and did not induce the plaintiffs' purchases of shares.

Finally, the defendants contend that even if the decision of the Court of Appeal is held to have been right in other respects the damages awarded by that court are excessive.

[Having stated the facts and referred to the relevant documents his Lordship said that, assuming, without deciding, that representation (b) was not wholly true, their Lordships might say at once that they saw no sufficient reason for disturbing the concurrent findings of Corrie J. and the Court of Appeal in favour of the defendants on that point.]

On the question whether representation (c) was true or false, the plaintiffs' main argument was to the effect that the word "subscribed" in the circular letter meant "subscribed in cash" and in support of this proposition they relied on Arnison v. Smith.1 The learned trial judge rejected this contention, saying than it was clear that the "Capital already Subscribed" included shares issued for considerations other than cash.

Briggs J.A. in the Court of Appeal agreed that representation (c) did not mean that one-third of the capital had already been subscribed in cash, so that it could not be held false on the ground that the 70,OOOs. of capital referred to in the "specification of capital required," or some part of it, was in fact to be issued for consideration other than cash, but also agreed that it could not be said that the whole of this 70,OOOs. of capital


1 (1899) 41 Ch.D. 348; 5 T.L.R. 413.




[1959]

 

804

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

was in fact to be subscribed "in Denmark." Representation (c) was thus held false on the narrow ground that while the representation as to the amount of capital already subscribed was correct the representation that this amount had already been subscribed "in Denmark" was untrue.

Their Lordships agree on both points. It seems to them impossible to maintain that the defendants and Von Huth could not, consistently with the representation, pay (for example) the formation expenses by allotting fully paid shares of the appropriate nominal amount to the persons to whom the expenses were payable instead of issuing shares to a like nominal amount for cash and paying the cash so raised to those persons, or by allotting fully paid shares to the appropriate nominal amounts to Muritas A/S or Von Huth in respect of the patent rights. On the other hand, their Lordships cannot regard the words "subscribed in Denmark " as apt, according to their ordinary meaning, to include shares allotted as fully paid to persons resident in Kenya for services rendered in Denmark in connection with the formation of the company.

The only witness called on the defendants' side was the Baron, and accordingly the question whether the defendants honestly believed representations (b) and (c) or either of them to be true depended before the trial judge not only on the content of the Baron's evidence but also in great measure on the view formed by the trial judge of the Baron's credibility as a witness and honesty as a man, after seeing and hearing him give his evidence.

Their Lordships would observe, first, that there was no crossexamination of the Baron as to the honesty of his belief in the truth of representation (c) that "about one-third of the capital" had "already been subscribed in Denmark," or the sense in which according to his evidence in chief he understood that statement; and, secondly, that on a perusal of the Baron's evidence as a whole it is in their Lordships' judgment impossible to hold that there was no evidence upon which the trial judge and the Court of Appeal could find, as they did concurrently find, that the Baron honestly believed representation (b) as to the patent rights to be true, whether or not objectively considered it was wholly true.

The Court of Appeal, considering themselves as free on the grounds they stated to go behind the judge's conclusion that the defendants honestly believed representation (c) to be true,




[1959]

 

805

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

based though it was (so far at all events as the Baron was concerned) essentially on his acceptance of the Baron as an honest man and a witness of truth after hearing and seeing the Baron give his evidence, proceeded without these advantages to form their own opinion upon this vital issue.

In their Lordships' view the Court of Appeal erred in taking this course. Their Lordships are of opinion that neither the trial judge's comment on the plaintiffs' omission to call Hollister [the solicitor to the company when it had been formed] nor the fact that Hollister was not called by the defendants afforded sufficient ground to justify the Court of Appeal in reversing the trial judge's view, formed after seeing and hearing the Baron give his evidence, that the Baron did honestly believe representation (c) to be true.

On the assumption that contrary to their Lordships' opinion the Court of Appeal were justified in substituting their own conclusion for that of the judge on the question of honest belief, the conclusion so substituted appears to their Lordships to be open to the criticism that the Court of Appeal construed the language of representation (c) as they thought it should be construed according to the ordinary meaning of the words used, and having done so went on to hold that on the facts known to the defendants it was impossible that either of them could ever have believed the representation, as so construed, to be true. Their Lordships regard this as a wrong method of approach. The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made. This general proposition is no doubt subject to limitations. For instance, the meaning placed by the defendant on the representation made may be so far removed from the sense in which it would be understood by any reasonable person as to make it impossible to hold that the defendant honestly understood the representation to bear the meaning claimed by him and honestly believed it in that sense to be true. But that is not this case. It cannot be said that representation (c) could not have been understood by any reasonable person in the sense attributed to it by the Baron in his evidence, or that it was impossible that he should honestly have understood it in that sense, and honestly believed it in that sense to be true. He




[1959]

 

806

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

gave evidence to the effect that he did understand representation (c) in that sense, and did honestly understand it in that sense to be true, and was not cross-examined on either of those points. (For the general proposition that regard must be had to the sense in which a representation is understood by the person making it, see Derry v. Peek2; Angus v. Clifford3; Lees v. Tod,4 which authorities must, in their Lordships' view, be preferred to Arnison v. Smith5 so far as inconsistent with them.)

But this aspect of the matter need be pursued no further. Suffice it to say that their Lordships are satisfied that this is not one of those exceptional cases in which an appellate court is justified in reversing the decision of a judge at first instance when the decision under review is founded upon the judge's opinion of the credibility of a witness formed after seeing and hearing him give his evidence (see as to this The Hontestroom6; Watt (or Thomas) v. Thomas7; Yuill v. Yuill8; Benmax v. Austin Motor Co. Ltd.9. Their Lordships can hardly imagine a case in which the credibility of a witness could be more vital than a case like the present where the claim is based on deceit, and the witness in question is one of the defendants charged with deceit. Their Lordships would add that they accept, and would apply in the present case, the principle that where a defendant has been acquitted of fraud in a court of first instance the decision in his favour should not be displaced on appeal except on the clearest grounds (see Glasier v. Rolls10.

For all these reasons their Lordships are of opinion that the Baron should succeed in this appeal.

The case against the second defendant, Ole Beyer, is, as the judge pointed out, on a different footing, in that he did not give evidence. He is, however, entitled to rely on the evidence of the Baron and its acceptance as establishing the Baron's honest belief in the truth of representation (c). He is also entitled to rely on the fact that Hollister was consulted. It is improbable that if the Baron was honest Beyer was fraudulent in the common enterprise in which they were both engaged. The Baron signed the circular honestly believing its contents


2 (1889) 14 App.Cas. 887; 5 T.L.R. 625.

3 [1891] 2 Ch. 449; 7 T.L.R. 447.

4 (1882) 9 Rettie 807, 854.

5 (1889) 41 Ch.D. 348; 5 T.L.R. 418.

6 [1927] A.C. 87; 42 T.L.R. 741.

7 [1947] A.C. 484; 68 T.L.R. 814; [1947] 1 All E.R. 582.

8 [1945] P. 15, 19: 61 T.L.R. 176; [1945] 1 All E.R. 183.

9 [1955] A.C. 370; [1955] 2 W.L.R. 413; [1955] 1 All E.R. 326.

10 (1889) 42 Ch.D. 436, 457; 5 T.L.R. 691.




[1959]

 

807

A.C.

AKERHIELM v. DE MARE. (J.C.)

 

to be true, and the reasonable inference is that Beyer signed it in the same frame of mind. It is improbable that if Beyer had any fraudulent intent in this matter he any more than the Baron would have employed a solicitor, unless, indeed, he had it in mind to deceive the solicitor as well as the recipients of the circular. Moreover, according to the Baron's evidence, the figures were supplied by Von Huth. In all the circumstances their Lordships see no sufficient reason for differing from the judge in his conclusion that the case against Beyer had not been made out.

Accordingly, their Lordships are of opinion that in his case also the appeal should succeed.

For the reasons above stated their Lordships will humbly advise Her Majesty that this appeal should be allowed, the judgment of the Court of Appeal for Eastern Africa set aside and the judgment of the Supreme Court of Kenya restored. The respondents must pay the costs of this appeal and the appeal to the Court of Appeal for Eastern Africa.


Solicitors: Clifford-Turner & Co.; Gordon Dadds & Co.


C. C.