Ewbank, a chartered accountant, in March 1935, conceived the idea of selling for Griggs, who had built and owned it, a block of flats and shops called Dudley Court, in Upper Berkeley Street, London. Ewbank got from Griggs figures of income and outgoings with a view to putting the proposition before a purchaser and then approached Hutton, a chartered surveyor and chartered land agent, who inspected the property and thought that he could get someone to float a company to buy the building, which was held on a lease of 90 years or thereabouts. He was told that the price for which Griggs was looking was about £160,000 or £170,000, and the figures he got were the figures contained in a document marked “Private and confidential” and dated January 1935. It has figures relating to what are called actual out-goings, charges recoverable from tenants for electricity and refrigeration.
Hutton in turn knew Russell, who is the member of the defendant firm concerned in this action. Hutton discussed the value of this block of flats and shops with Russell in a friendly way, in order to get confirmation of his idea that £160,000 or £170,000 was a reasonable price. Anyhow, by September 1935, Russell had seen the property, and, with the aid of Ewbank's figures, which had been shown to Russell either by Hutton or by Procter, Russell roughed out a valuation. In the meantime, Hutton had been to Procter for help on the financial side. Procter was a chartered accountant, but he does not, I think, practise as a chartered accountant now, though he is a recognised expert in dealing with, and managing, property of this kind. Procter in turn went to Kinross, who was at that time a director of the Cheviot Trust Ltd, and understood and carried on the promotion of companies. When first approached, I think in September, Kinross, after having looked the matter over, and formed quite a favourable view of it, said that in view of the continental crisis the matter had better be postponed until December. It was revived again some time in December.
Hutton's idea was, first of all, to raise by far the larger part of the purchase price, which was to be paid to Griggs, by a mortgage of the property, and to raise the balance by the flotation of a company and the issue of shares to shareholders. This proposal of Hutton's was adopted and approved by all concerned—namely, Ewbank, Hutton, Procter and Kinross. With this aspect of the case Russell was not concerned. Hutton had reserved Russell for the role of a person who was to appear as the independent valuer in the prospectus when the prospectus came to be issued, and this was, indeed, held out by Hutton to Russell as an inducement to him to give his advice and friendly assistance in September, when he made his first visit to the premises and roughed out that first valuation. Hutton had, therefore, to negotiate a loan, and this he did. The scheme was that Griggs was to part with the property for £166,000. The purchasers were to be Procter and Hutton, calling themselves the Prochut Management Co (an unlimited company), and also Frederick Ewbank and the Cheviot
[1939] 3 All ER 209 at 211 Trust Ltd. Those four parties or persons were to be the purchasers, and the scheme was that they should purchase the property from Griggs for that sum of money and on the same day should sell it to the company which was to be floated at this time. The value to be put upon the property to the company was a figure of £205,727, and the money was to be found in this way. First of all, there was to be a mortgage for £128,865. Then there was to be preference capital of £40,000 raised by the issue of 6 per cent cumulative preference shares of £1 each. Then in addition there was to be some ordinary capital, £20,000 being given to the four men who had planned the enterprise—the four persons or parties I have mentioned—and some 40,000 ordinary shares of 5s each being issued to the public.
That, of course, involved a prospectus, and the keystone of this prospectus, to use Russell's appropriate language, was to be Russell's valuation, which must speak as to both the maintainable income and the capital value of the property, which was to be sold to the company for £186,000 by those four persons who purchased it from Griggs, the £20,000 profit taking the form of ordinary capital issued to those four parties in four equal shares.
In December, Hutton got the approval of Kinross, as representing the Cheviot Trust Ltd, to the employment of the defendants in this action in the role of valuers. As I have said, one of the partners of that firm, Russell, had already helped Hutton in a friendly way in September and December. In January, therefore, Russell was instructed to value the property, and was given to understand that he was not to receive the full scale fee. There is a conflict of evidence as to why Russell was told this. Having regard to the evidence, I have come to the conclusion that I can and do believe Russell, and that he was told, when the question of fee was raised, and when he was first instructed formally by Hutton and Procter, soon after 10 January, that they would supply him with the figures, and that his fee, therefore, would not be the scale fee.
A letter was written by Procter to Russell on 23 January 1936, which enclosed the up-to-date figures promised to be supplied about the middle of January. That letter is as follows:
'I return the schedule of flat tenancies and particulars of gross rents and out-goings which you handed me this morning and send at the same time an up-to-date schedule of tenancies which has been supplied by the owner [Griggs] and particulars of the gross rents and outgoings which Hutton and I have been into and agreed. There are one or two points in connection with the whole matter which I think it would be a good idea for the three of us to discuss personally, and when you have had another look at the property, shall be very pleased to come along if you would telephone through.'
The particulars of gross rents and outgoings which Procter said that he and Hutton had gone into and agreed contained an error which has led to the trouble in this action.
Both Hutton and Procter are men experienced in this kind of thing, as those figures show, and Russell, when he was instructed, was told by
[1939] 3 All ER 209 at 212 two people, each of whom was quite competent to collect the figures for him, that in fact they would collect those figures and supply them to him. Unfortunately, however, as I have said, those figures contained an important error, which was due to an oversight. The deduction in respect of rates was a stale figure, and was not up-to-date. It was in fact about £1,100 too small. This error resulted in Russell forming an estimate as to the maintainable income from this property which was about £1,100 greater than that which it would have been if he had had the true figure. By reason of that error, Russell's opinion as to the capital value of the premises was about £14,000 too high, the number of years' purchase used for this calculation by Russell being, I think, 14.3 years.
A deficit was found at once. An inquiry which was instituted by the chairman of the company revealed that the defendants had under-estimated the outgoings by £1,100 in respect of rates. He, therefore, having discovered this error, took advice, and the board brought these proceedings alleging negligence against the defendant Russell, and claiming on behalf of the company that the defendants should pay to the company the value of the error as it has been capitalised in the statement of claim.
There is no doubt as to the persons from whom this error emanated. It emanated from Procter and Hutton, and originally, I suppose, from Ewbank. The plaintiffs say, however, that Russell, one of the defendants, should have disregarded those figures and made his own inquiries, and they say that failure to do that was a neglect by him of his duty to the company. The defendants agree that in an ordinary valuation it would be negligent for a valuer to value a property without himself collecting the material upon which the valuation is made, such as the income and the outgoings, but they say that this was not an ordinary valuation, and that what Russell did was what he was asked to do by the only people with whom he dealt—namely, Hutton and Procter—which is true. Hutton and Procter are claimed by the plaintiffs to have purported to act as agents for, and on behalf of, the proposed company in instructing the defendants, and it does seem a little difficult in those circumstances for the company now to say that the defendant was in the wrong because he acted on the instructions given to him by the persons who were purporting to act as their agents before the company was formed, because, of course, there was at that time no means by which anybody could find out what this non-existing company did think except through these self-appointed agents. Even supposing Russell were wrong and negligent in accepting these figures, there arises the question as to whether or not he neglected any duty that he owed to the company. In so far as his duty was the result of the retainer which he had received from Hutton and Procter, it was a retainer from them, and, therefore, any contractual position in which he stood was one which connoted a duty towards his clients Hutton and Procter, and probably not, I think, to
[1939] 3 All ER 209 at 213 Kinross, who only promised to pay, and gave no instructions, except, at the last moment to write into the valuation which had been prepared the name of a certain company. However, even if he were liable to Kinross—and I think that Kinross does seem to have suffered in this case—Hutton and Procter were Kinross's agents, and Kinross is no better off than either Hutton or Procter.
It is agreed in this case that there can be no ratification by the company, and it is unnecessary for me to refer to the authority on that—namely, Natal Land etc Co v Pauline Colliery Syndicate.
Those being the facts—that Russell was instructed by Hutton and Procter, purporting to act in advance for a company to be formed, and was told that he would be paid by whoever did pay him at less than the scale fee, but, on the other hand, that he had to remember that they would find him the figures, which meant that he would be saved that trouble—the question now arises whether or not, in that state of facts, the plaintiff company can successfully bring an action against the defendant firm, of which Russell is a member.
I proceed now to deal with the submissions of law on either side. The plaintiffs put their case in two different ways, in the main. In the first place, they say that, although it is quite true that there can be no ratification of a contract which pretends to have been, or which is pretended to have been, made between a person and a non-existing company, but one which afterwards comes into existence, it has always been true also that a company, when it comes into existence, can make contracts the same as those contracts which were of no force when they were made before. They point to the terms of the valuation as showing that really here there took place a new contract between the defendant valuers, on the one hand, and the company, on the other hand, which was constituted by the valuation being sent by the defendants to the directors of the company and by the acceptance by those directors, or by the company, of the valuation. It was suggested—perhaps not very forcibly, but it was suggested, I think—that the law of estoppel applied here, and that, having regard to the terms of the valuation, the defendants could not be heard to say that they had not been instructed by the company.
I will now read the valuation. It is addressed to the directors of the Old Gate Estates Ltd, Farleigh House, Lawrence Lane, EC2, and is dated 11 February 1936:
'Dudley Court, Upper Berkeley Street, W.1. In accordance with your instructions [i.e., those of the directors of the company], we have made a survey of the property known as Dudley Court to be acquired by your company. The property comprises a block of 7 shops and 105 flats, situated within a few minutes' walk of Hyde Park, held on lease for a term of 90 years from Mar. 25, 1932, at a ground rent of £2,500 per annum. A portion of the ground floor has been let to the Midland Bank, Ltd., on lease for 90 years (less 10 days) from Mar., 1932, and one shop has been let on lease for a term of 7, 12 or 21 years from June, 1935. Of the 105 flats situated on the 8 upper floors, 101 are let (and occupied) on agreements or leases at moderate inclusive rentals, ranging from £97 to £243 per annum. In our opinion the annual income derivable from this property should be the sum of £21,786, and we estimate that, after making due allowance for outgoings, including ground rent, rates, wages, lighting, heating, insurance, maintenance and voids, but before allowing for income
[1939] 3 All ER 209 at 214 tax, the net annual income should be £14,175. In our opinion the value of this property to your company is the sum of £205,727.'
It is said, therefore, by the plaintiffs, that the defendants have alleged that they had received instructions from the directors of Old Gate Estates Ltd, and that, therefore, in accordance with the principles of the law of estoppel, they cannot now be heard to deny it—that they were so instructed, and that they cannot, therefore, be heard now to set up that they were in fact instructed by Hutton and Procter long before the company was formed. The law of estoppel is that, if a person tells a lie to another person, and that person to whom the lie is told believes the lie, and acts upon it, the person who told the lie cannot in a court of justice in this country afterwards be heard to tell the truth. That, as I understand it, is the law of estoppel. It will be seen, however, that it is necessary, before that principle can be invoked, that the person to whom the lie has been told, and who has acted upon it, shall have believed the lie. When one looks at this case, it is perfectly clear that the directors of Old Gate Estates Ltd, or three of them, at any rate—namely, Kinross, Hutton and Procter—knew quite well (and I have no doubt that Ogle must have known quite well) that no instructions ever were given by the company. The only instructions given were those given by Hutton and Procter, and, to some extent, by Kinross later, just before the company was formed. Therefore, the law of estoppel cannot be invoked in this case, because the directors to whom the statement was made were not deceived. Of course they were not deceived, because even Ogle knew that the company had instructed nobody, because the company had only just been born. Thus, the law of estoppel cannot be invoked.
I therefore ask myself whether there is any other reason why I should ignore the true facts of the case. I know of no such principle, and therefore I must deal with the matter upon the real and true facts. That is to say, as I have said, the instructions were given, not by the company, but by Hutton and Procter, and Russell's carelessness, therefore, was not his own carelessness at all, but the carelessness of those who instructed him. Therefore, as it seems to me, in so far as the case might have been based on contract, it is impossible to base it, as between the company and Russell of the defendant firm, on contract, because the only contract which ever existed was a contract with a self-appointed person purporting to act for a company which had not yet come into existence. Therefore, of course, on the principle laid down in cases like Kelner v Baxter, there can be no ratification when there never was an enforceable or, indeed, any contract.
That does not dispose of the matter entirely, however, because counsel for the plaintiffs suggests that there is another cause of action here, a cause of action which arises from the facts of the case, and which can be based upon the fact that Russell, when he gave that valuation, knew quite well that it was going to be used for the purpose of a company, to be put into the prospectus of a company. It is suggested that, knowing that,
[1939] 3 All ER 209 at 215 it was his duty to take care, and that he had a duty towards the company to take care, and that this cause of action is similar to that in M'Alister (or Donoghue) v Stevenson, and is justified by the language there used by Lord Atkin. The way it is put is this. Russell knowing that his name was to be used at the foot of the valuation to be issued to the public at large, it was his duty, whatever instructions he had received from Procter and Hutton, to go into the matter himself, and that, although the company cannot now, as I hold, sue him, none the less he is culpable on the principle laid down by the House of Lords in M'Alister (or Donoghue) v Stevenson. The passage upon which counsel for the plaintiffs relied is at p 580:
'At present I content myself with pointing out that in English law there must be and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances. The liability for negligence whether you style it such or treat it as in other systems as a species of “culpa,” is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay. But acts or omissions which any moral code would censure cannot in a practical world be treated so as to give a right to every person injured by them to demand relief. In this way rules of law arise which limit the range of complainants and the extent of their remedy. The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer's question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be—persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.'
That, I think, is the passage upon which, not unnaturally, the plaintiffs rely in this case. However, it is always dangerous to take a passage out of its context, and to see whether any given set of facts can be brought inside that statement, and, if so, to say to oneself: “Here is a cause of action.” That observation is, I think, applicable to the endeavour in this case to frame a cause of action upon that particular passage in the opinion of Lord Atkin. As a matter of fact, what was decided in M'Alister (or Donoghue) v Stevenson is, I think, quite clearly and succinctly set out in the headnote:
'By Scots and English law alike the manufacturer of an article of food, medicine or the like, sold by him to a distributor in circumstances which prevent the distributor or the ultimate purchaser or consumer from discovering by inspection any defect, is under a legal duty to the ultimate purchaser or consumer to take reasonable care that the article is free from defect likely to cause injury to health.'
I draw attention to the words “defect likely to cause injury to health.”
That case has, in point of fact, been applied twice recently to a set of facts which was not exactly the same, once by Branson J, and once by Lewis J. They are interesting applications of that principle to facts by no means the same as those dealt with by the House of Lords in M'Alister (or Donoghue) v Stevenson. In 1935, Malfroot v Noxal Ltd, a case of the negligent fitting of a sidecar to a motor cycle, came up for discussion, and in that case Lewis J, applied the principle of M'Alister (or Donoghue) v Stevenson to that set of facts. It will be observed that, if one takes a sidecar and negligently attaches it to a
[1939] 3 All ER 209 at 216 motor cycle, although perhaps neither of the two things can be called a thing dangerous in itself, it is obvious that, if one does not do it rightly, one is creating something which is a source of danger to the user. More recently still, in Stennett v Hancock and Peters, decided in March 1939, Branson J, applied the same principle to a garage-owner, one of whose servants had carelessly replaced a wheel on a lorry. As in the former case, the result was that there was an accident, due to the negligent way in which this particular work was done. There, again, Branson J, applied the principle of M'Alister (or Donoghue) v Stevenson to the facts of that case. Again, there one has something which, if the act is not properly done—and a motor car has not yet become regarded as a thing dangerous in itself, although I have no doubt that it is quite possible to make out a good case for so regarding it—may be dangerous. At least it is a dangerous thing when a wheel is carelessly attached to it. In passing, I see that Branson J, distinguished Earl v Lubbock, and I cannot help thinking that Earl v Lubbock would not be decided to-day as it was then—at any rate, if it were properly pleaded. The thing which runs through these cases alike, however, both in those applications of the principle and in the original case of M'Alister (or Donoghue) v Stevenson itself, is that that which was negligently created or put into circulation was something which was dangerous either to life or limb—those are, I think, the very words of Lord Atkin himself and the other learned Lords who delivered opinions, or the opinions of the majority, in M'Alister (or Donoghue) v Stevenson—or else was a thing which, carelessly handled, carelessly made, or carelessly mended, would become dangerous to life or limb or health. I think that to-day it is as true as it was in 1893, when Le Lievre v Gould was decided, that, to use the words of Bowen LJ, at p 502:
'It is idle to refer to cases which were decided under totally different aspects, and upon totally different considerations of the law. Take, for example, the case of an owner of a chattel, such as a horse, a gun, or a carriage, or any other instrument, which is in itself of such a character that, if it be used carelessly, it may injure some third person who is near to it; then it is as plain as daylight that the owner of that chattel, who is responsible for its management, is bound to be careful how he uses it. Exactly in the same way with regard to the owner of premises. If the owner of premises knows that his premises are in a dangerous condition, and that people are coming there to work upon them by his own permission and invitation, of course he must take reasonable care that those premises do not injure those who are coming there.'
A little later, Bowen LJ, says, at p 502:
'How has it [the case of a certificate given by an architect] any application to the present case? Only, I suppose, on the suggestion that a man is responsible for what he states in a certificate to any person to whom he may have reason to suppose that the certificate may be shown. But the law of England does not go to that extent: it does not consider that what a man writes on paper is like a gun or other dangerous instrument, and, unless he intended to deceive, the law does not, in the absence of contract, hold him responsible for drawing his certificate carelessly.'
I think that that is as true to-day as it was when it was said by Bowen LJ, and that there is nothing in M'Alister (or Donoghue) v Stevenson which makes that bad law. The exceptions laid down by M'Alister (or
[1939] 3 All ER 209 at 217 Donoghue) v Stevenson—the exceptions to the rule that a man is obliged to be careful only to those to whom he owes a duty by contract—are, as I understand the decision in that case, confined to negligence which results in danger to life, danger to limb, or danger to health, and, this being no one of those, I think that the plaintiffs have no cause of action on the analogy of M'Alister (or Donoghue) v Stevenson.
That disposes, I think, of all the various points which were put before me, and it is therefore unnecessary for me to deal with the question of damages in this case.