[CHANCERY DIVISION]

WILLIAMSON v. BARBOUR.

[1872 W. 185.]

Agency - Commission - Overcharges - Knowledge of Principal - Opening settled Accounts.

Where accounts are impeached and it is shewn that they contain errors of considerable extent both in number and amount, whether caused by mistake or fraud, the Court will order such accounts, though extending over a long period of years, to be opened, and will not merely give liberty to surcharge and falsify; and supposing a fiduciary relation to exist between the parties, the Court will make a similar order if such accounts are shewn to contain a less number of errors, or if they contain any fraudulent entries.

Semble, in an action between principals and agents impeaching the agents' accounts, actual knowledge of antecedent fraud in the agents by one who subsequently became a member of the firm of the principals would not, if proved, be any bar to their claim.

THE Plaintiffs in this suit had for many years carried on business as merchants and agents at Calcutta, under the firm of "Williamson Brothers & Co."

The Defendants had for many years carried on business at Manchester as merchants and commission agents.

In 1850 an arrangement was entered into between Williamson, Herriot, & Co., of Calcutta, in whose names the business of the Calcutta house was at that time carried on, that the Defendants' firm at Manchester should act as agents for them for the purchase and shipment of Manchester goods upon the terms then agreed upon. These terms, as subsequently modified, were agreed upon between the firms of Williamson Brothers & Co. and the Defendants, and were embodied in letters between the parties, and were the terms on which the agency was continued for many years; and the commission allowed by the terms so agreed upon was, as the Plaintiffs alleged, to have covered all the Defendants' profit in respect of the agency.

The object of the present suit was to open, as against the Defendants, the accounts in respect of their said agency from the year 1853 until shortly before the commencement of the suit in 1872,

but as the Defendants' books could not be produced previous to the year 1860, the evidence in the case was limited to the period from 1860 to 1872.

The grounds on which the Plaintiffs impeached the Defendants' account were, in substance, as follows:- The Plaintiffs alleged that the Defendants had, during the whole period of their agency, made false charges in their invoices, debiting the Plaintiffs with large sums which the Defendants had never paid, or which they had received back from other persons to whom they purported to have paid them under the name of discounts, and that they had also made other charges which in their position as agents for the Plaintiffs upon the terms agreed upon they were not entitled to make, particularly for profits which they were alleged to have made in the purchase on behalf of the Plaintiffs of grey and white shirtings, on bleaching the white goods and in packing the goods which they shipped for the Plaintiffs; that, although the Plaintiffs generally sent their bills to the Defendants to be discounted, the Defendants often discounted such bills for themselves and used the money; and that, when bills were entered by the Defendants in the accounts as having been discounted on a certain day, they were often discounted on a later day and at a lower rate.

The Plaintiffs further alleged that, whereas they had instructed the Defendants to insure the goods in the best offices, they had often not done so, but had sent the goods at their own risk, at the same time charging the Plaintiff with insurance premiums higher than would have been charged in the best offices.

The Plaintiffs prayed that the Defendants might be declared liable to pay the amount of the alleged overcharges and the profits alleged to have been improperly made in connection with their agency, and that for this purpose proper accounts might be taken, and inquiries made, and directions given. The Defendants denied that they were agents except for the purpose of purchasing goods for the Plaintiffs; they alleged that they acted in part as principals and in part as agents; that, as regards many of the charges complained of, they were entitled to a fair profit on the goods, and were justified by the course of dealing between the parties, by the custom of the trade in Manchester, and by the knowledge of the

Plaintiffs in respect of the charges complained of. The Defendants also alleged that they were themselves the insurers of the goods, and justified the charges made in respect of such insurance.

The evidence was very voluminous, and it is unnecessary to refer to it for the purpose of the present report.

When the suit came on for hearing the counsel for the Plaintiffs were requested to select two cases of overcharge under each head of complaint.

Witnesses were examined especially with the view of establishing on behalf of the Defendants that the Plaintiffs had actual or constructive knowledge of the course of business pursued in the Defendants' house, and of thee mode in which their charges were made, and also of the custom of the trade in Manchester.The Defendants endeavoured to establish that the Plaintiff, W. C. Williamson, had had conversations many years ago with gentlemen connected withe thee Defendants' business, especially with Mr. Herriot, who was for many years one of thee Defendants' clerks, and had thus become acquainted with the course of business pursued by the Defendants and the nature of their charges. They also adduced evidence to shews that one of the Plaintiffs, William Craik, had been in thee house of Mr. William Graham, a Manchesterand Indian merchant, and had the chief management of the department for buying preparing, and packing goods in Manchesterfor export to India, and was therefore conversant with the manner in which the charges in respect of such goods were made out, and with the custom of the Manchester trade.

Sir Henry James, Q.C., Chitty, Q.C., Robinson, Q.C., and Bryce,for the Plaintiffs.

Sir John Holker, A.G., Benjamin, Q.C., Marten, Q.C., and Romer, for the surviving partner of the Defendants' firm, and for the representative of a deceased partner.

Southgate, Q.C., Edwards, Q.C., and K. M. Mackenzie, for one of the Defendants who had retired from the firm.

Davey, Q.C., and Levett, for one of the Defendants who was dismissed from the suit.

JESSEL, M.R.:-

I do not desire to hear a reply in this case, upon which I have for some considerable time made up my mind. A very large portion of the evidence has been given in writing; I have therefore had full opportunity of considering it during the long period which the case has taken in discussion, and during the interval which elapsed between the opening of the case and its further prosecution. I have also received, as I generally receive, a great deal of assistance from counsel.

This is a bill by principals against their agents to take accounts or rectify accounts which have been settled. The period over which they extend is nearly twenty years, and the substance of the allegations is that the accounts contain numerous and serious errors. The form of pleading, no doubt, is not quite in accordance with what the judgment will be, because by the form of pleading the Court is asked to do that which no Court can do, namely, to go through the accounts and to disallow a large number of items in taking those accounts, and make declarations accordingly. That is a thing which the Court, so far as I know, never did. The practice of the Court of Chancery, which of course is the practice of the High Court of Justice, is to consider whether the accounts shall be opened, or whether there shall be liberty to surcharge and falsify; that is, if the Court is of opinion that errors of sufficient number and sufficient magnitude are shewn, it is not, as I understand it, necessary that the errors shewn should amount to fraud. If they are sufficient in number and importance, whether they are errors caused by mistake or errors caused by fraud, the Court has a right to open the accounts. I have known cases - for instance, Clarke v. Tipping (1), which we are familiar with - in which the Court abstained purposely from using the term "fraud," although I am afraid no other term could be properly applied. That is not necessary. But there is this to be considered, that when the account is between persons in a fiduciary relation and the person who occupies the position of accounting party - that is, the trustee or agent - is the Defendant, it is easier to open the account than it is in cases where persons do not occupy that position - that is to say, that a less amount of error will justify the Court in opening the account.

(1) 9 Beav. 284.

Then I have one other observation to make, which is that, where you shew a single fraudulent entry in the case of persons occupying the position of principal and agent, or trustee and cestui que trust,the Court has actually opened an account extending over a greater number of years and closed for a much longer period than the account I have before me; I mean in the case of Allfrey v. Allfrey, before Lord Cottenham(1). We therefore have this as a sort of guide without laying down any general rule, because every case must depend on its own circumstances, that where the accounts have been shewn to be erroneous to a considerable extent both in amount and in the number of items, or where fiduciary relations exist and a less considerable number of errors are shewn, or where thee fiduciary relation exists and one or more fraudulent omissions or insertions in the account are shewn, there the Court opens the account and does not merely surcharge and falsify.

The effect of course is very different. Where you open the account, the account is taken from the beginning, and in those cases where, as in this case, the books are lost for a certain period, the Court does not now do what it formerly did, namely, insert special directions in the judgment which were necessary to protect the person accounting who, in the ordinary course of business, as has happened in this case, destroyed his books. Up to 1860 some of the books seem to have been destroyed - not improperly, because of course merchants do not keep their books for ever, and the loss of those books might put the Defendants into a difficulty. Formerly, when the accounts were sent to the master, it was the custom of the Court to insert special directions in the decree in order to avoid the hardship which the innocent loss of the books or the innocent destruction of the books might subject Defendants to. That is not necessary now, because the same Judge who orders the accounts to be opened presides over the taking of the accounts in Chambers.

The substance of the case is really very simple indeed, although the details are enormous. The Plaintiffs say that they employed the Defendants as agents to buy and ship goods for them. When I speak of the Plaintiffs I mean the firm for the time being, and in the same way when I speak of the Defendants I mean the

(1) 1 Mac. & G. 87.

Defendants' firm for the time being. They were not the same people throughout, but for all substantial purposes I treat them as one, though in drawing up the judgment care will be taken only to make the separate Defendants responsible for what occurred in their own time.

The Plaintiffs say that from the very beginning of their connection they had two sorts of engagements or arrangements with the Defendants' firm. As to one class of business they make no complaint, and therefore the judgment will not relate to that in any way. But, as to what I may call the commission business, they say that they employed the Defendants as their commission agents in Manchester, they being a firm in Calcutta. The Plaintiffs employed the Defendants as agents to buy and forward goods to them at Calcutta, and they allege that, being such agents and being paid on commission, the Defendants throughout the period of the connection made gross and fraudulent overcharges in their accounts. That is the charge. It is not necessary of course to prove the whole of that charge, as I have already explained.

Some of the charges may not be fraudulent; some of them may not be such as would justify me in opening the accounts. But if I once come to the conclusion that there are a sufficient number of errors proved, and of sufficient amount to entitle me to open the accounts, it will then be of course necessary to consider the other charges when we come to take accounts in Chambers. If I arrive at the conclusion that one or more overcharges are proved, it may not be perhaps strictly necessary to consider so very nicely the number or the amount of the other overcharges, but I am bound before opening the account to shew that there are sufficient grounds for opening that account and nothing more. I am not bound to decide upon the propriety of every item which is challenged by the Plaintiffs in the Defendants' account. Were I to do so, I do not know when my judgment would end.

That being so, the first question to be decided between the parties is a question of fact. Were the charges made against the Plaintiffs merely the prices paid by the Defendants? As to that there is no contest. For all material purposes that is made out by the Defendants' books, or is admitted by the answers. The Defendants justify the making of the charges on various grounds,

but there is no dispute between the parties that on the items of invoice very frequently sums were charged which were not paid.

[His Lordship then went through in detail the various allegations of overcharge as regarded the various classes of goods, and the charges for packing, the allegations in respect to discounts and insurance, and the various grounds of defence set up by the Defendants, and considered that the Defendants had failed to rebut the Plaintiffs' charges. He then considered the defence raised withe respect to the additions made by the Defendants to the cost of bleaching the white goods, as to which the Defendants said that such charges were fair charges according to the custom of the Manchester trade, and that the Plaintiffs must have known of it and be bound by it. With reference to the effect of the alleged knowledge of Mr Craik and Mr. Herriot, his Lordship observed:-]

I should like to say a word or two as to thee principle which I think ought to guide the Court in deciding these questions. The case set up by the defence appears to me to savour somewhat of novelty. As I understand the doctrine of partnership, which for this purpose is a branch of the law of agency, notice to a partner in a partnership matter during the continuance of the partnership is as a general rule notice to the firm. It has not, so far as I know, been held that notice to a man who afterwards becomes a partner is notice to the firm. It might be so held. We have the analogous case of notice to a solicitor who is also for this purpose an agent. Notice to a solicitor in the same transaction, or in any connected transaction, while he is acting for the same client, is notice to thee client, but notice to him even prior to his acting for the client may be constructive notice to the client where it is clear he must have had it present to his mind, that is, he could not be supposed to have forgotten it when he was transacting the business of the client. It might well be that such an extension of the doctrine might apply in some cases to the case of partnership, but I am not aware that it has ever been so applied.

When we come to a question of fraud different considerations arise. It is not true that the knowledge of a fraud by a partner is necessarily the knowledge of the firm. A very obvious instance of the absurd result that would follow from such a doctrine may be shewn, and is best shewn, by an example. Suppose there is a firm

with half-a-dozen partners who have a clerk, and the clerk has been in the habit of receiving presents from one of the sellers to the firm in order to pass goods of short weight, and further suppose that the clerk, not having been found out, is taken into partnership as a junior partner and continues the practice. Is it to be imagined, under these circumstances, that in a Court of Equity the other partners could not sue the vendor of the goods for the fraud, and not only sue him but their partner also? Could it be said that the knowledge of the partner was the knowledge of the firm for this purpose? I emphatically deny that any such doctrine could by any possibility be laid down by any Judge, and I need not say it never has been laid down.

Of course fraud must be an exception. I put the case of a clerk knowing it before he became a partner, and not interfering with it afterwards. But it is immaterial that the knowledge was acquired during the partnership. Suppose, either from corruption, that is, from receiving presents or otherwise, or affection, the goods being supplied by a relative, one of the partners knows that thee vendor is defrauding the firm. I am satisfied that, according to sound doctrine, that knowledge would not prevent the remaining partners from suing the parties to the fraud, and recovering in a Court of Equity. It appears to me that that kind of notice will not do when it is applied to cases of fraud.

But when you come to notice before the partnership, relating not to those transactions but to prior transactions, there are some other considerations. First of all, if the clerk has been employed, we will say, in the house of the persons committing the fraud, and then goes into the house which has been defrauded, it by no means follows that he knows that the former house will continue their course of fraudulent conduct. He may think, "They are aware that I know all about it, and they will not attempt to go on now that I have become a member of the firm," or if he has thee opinion that they will go on, then you can only look upon him as an accomplice. He may be influenced by gratitude in the case of the former masters having recommended him to the firm in which he has become a partner, or he may be influenced by that curious feeling of honour which is said to extend to a very low class as regards morality, and think that he ought not to betray the interests

of his former masters, but that he ought rather to suffer the small loss attributable to his small share as junior partner in the house than be guilty of that which he may think a breach of duty. But in no way that I can see is actual knowledge of an antecedent fraud to be carried by the partner into the new firm of which he becomes a partner and thereby notice to be imputed to them.

But I am bound to say on looking to the evidence, that I do not think it comes up to anything of the sort.

[His Lordship reviewed the evidence respecting Mr. Herriot'sknowledge when a clerk in the Defendants' firm many years before he became a partner with Williamson, and considered that the Plaintiffs could not through him have knowledge imputed to them. His Lordship further reviewed the evidence of the question whether, as the Defendants alleged, the Plaintiff Craik was fully conversant with the custom of the Manchester trade as to these charges, which custom, His Lordship considered, had not been proved to exist (the different houses in Manchester carrying on business in different ways), and therefore, in His Lordship's opinion, no knowledge of it could be imputed to Craik. His Lordship further considered that the allegation that Williamsonhimself knew of these charges was disproved. His Lordship added:-]

It appears to me that it is impossible to acquit these Defendants either of the knowledge of what was being done, or the knowledge that what was being done was wrongfully done.

[After a lengthened review of the various grounds of defence, His Lordship concluded thus:-]

It seems to me on all these points the Defendants fail. For the reasons I have given it is not necessary for me to go into the other cases of overcharge. When the accounts are taken in Chambers I shall be able to do justice between the parties by allowing them remuneration where remuneration is due, though not charged in that character, and by disallowing other overcharges, if it turns out that they are in excess of fair charges. But I do not make those other charges the grounds of my present judgment. In my opinion the charges which I hold to be proved are fourfold more than enough to induce me to have the whole of the account opened from beginning to end, and therefore I refrain from going into the other

details. The judgment will be to open the accounts in the usual way, with the limitation which I have before explained as regards each of the Defendants, and that the Defendants do pay the costs of the action up to and including the trial.

An appeal from His Lordship's decision was for a long time pending, but it was subsequently abandoned, and an arrangement was come to between the parties.

Solicitors for Plaintiffs: Phelps, Sidgwick, & Biddle, agents for Sale & Co., Manchester.

Solicitors for Defendants: Milne, Riddle, & Mellor, agents for Hinde, Milne, & Sudlow, Manchester; Bower & Cotton.