L.JJ. Panama, etc., Telegraph Co. v. India Rubber, etc., Telegraph Co. 1875 repay to the plaintiffs the £40,000; and that Sir C. T. Bright might be decreed to repay the £600 commission. The Telegraph Works Company, by their answer, denied that the directors of the Panama Company entered into the contract of the 12th of January, 1870, under the advice of Sir C. T. Bright, and denied that the specification was not sufficient. They also denied that Sir C. T. Bright was then about to enter into the sub-contract, and alleged that previous to the letter of the 8th of February there was no agreement or understanding on the subject, and that his letter was only a tender by him. They denied that there was any concealment of the sub-contract; and said that the fact of Sir C. T. Bright being employed by them to lay the other cables was enough to put the Panama Company upon inquiry as to the laying of their own cable. They said that it was clearly for the interest of the Panama Company to have the work undertaken by an engineer thoroughly experienced like Sir C. T. Bright. They also pleaded that the plaintiffs were barred by acquiescence. A great quantity of evidence, documentary and otherwise, was adduced, and several persons were examined viva voce on the hearing before the Vice-Chancellor Malins. One of the witnesses, a former secretary of the Telegraph Works Company, stated that on the occasion of a similar sub-contract with respect to the West India cable, he had told the chairman of the company that such a sub-contract would be illegal. The evidence is further mentioned in the judgment of Lord Justice Mellish. The Vice-Chancellor Malins made a decree that, under the circumstances in the plaintiffs' bill appearing, the agreement of the 12th of January, 1870, was invalid, and not binding upon the plaintiffs; and that the same ought to be set aside and delivered up to be cancelled; and ordered repayment of the £40,000 and £600, and ordered the defendants [520 to pay the costs of the suit ('). (1) 1875. March 13. SIR R. MALINS, V.C., after stating the facts of the case, and stating and commenting on the evidence, said that affidavits had been made that there was no concealment or intention of concealment on the part of the defendants. But on such a subject as this there should not only have been an absence of concealment, but full and complete disclosure and information. The counsel for the defendants admitted that it would have been better if the plaintiffs had been told of the sub-contract, but his honor considered that upon every principle of justice and fair dealing it was absolutely necessary that they should have been told. It might be assumed that if the plaintiffs had been told of the proposed sub-contract they would not have objected to it, and would gladly have adopted it, as was suggested. But that did not in the slightest degree tend to relieve the defendants from the consequences of not having made the disclosure, and of not 1875 Panama, etc., Telegraph Co. v. India Rubber, etc., Telegraph Co. 521] *The Telegraph Works Company appealed. L.JJ. Mr. Cotton, Q.C., and Mr. Lindley, Q.C. (Mr. Graham Hastings with them), for the appellants: It was argued on 522] the hearing before the Vice-Chancellor that *there was giving to the plaintiffs the option of saying whether they would or would not acquiesce in their engineer being placed in an anomalous and dangerous position in which his interest would necessarily conflict with his duty. 66 Several authorities were cited upon that subject, and they were all distinct in showing that the obligation of full disclosure was imposed upon the defendants. In the case of Randall v. Er. rington (10 Ves. 423), which was one of setting aside a purchase by trustees of trust property, Sir William Grant said: Acquiescence may have the same effect as original agreement, and may bar such a remedy as this. But the question as to acquiescence cannot arise until it is previously ascertained that the cestui que trust knew his trustee had become the purchaser, for while the cestui que trust continued ignorant of that fact there was no laches in not quarrelling with the sale upon that special ground." The case of Central Railway Company of Venezuela v. Kisch (Law Rep. 2 H. L., 99), was a case of a misrepresentation in a prospectus, upon the faith of which the plaintiff Kisch had taken shares. In that case, Lord Chelmsford, in affirming the decision of the Lords Justices, said: "But it appears to me that when once it is established that there has been any fraudulent misrepresentation or wilful concealment by which a person has been induced to enter into a contract "-and no doubt his Lordship would not have hesitated to say, "enter into or continue a contract"-"it is no answer to his claim to be relieved from it to tell him that he might have known the truth by proper inquiry. He has a right to retort upon his objector, You, at least, who have stated what is untrue, or have concealed the truth, for the purpose of drawing me into a contract, cannot accuse me of want of caution because I relied implicitly upon your fairness and honesty.' 333 The case of Imperial Mercantile Credit Association v. Coleman (Law Rep. 6 H. L., 189), was a remarkable instance of the obligation of full dis closure. That case came before his honor, who made a decree against Mr. Coleman with costs; and although Lord Hatherley reversed that decree, his decision was afterwards reversed in the House of Lords, and his honor's decree was affirmed. Everything, however, which his honor said upon the subject was agreed to by Lord Hatherley, because Lord Hatherley did not differ from him as to the principle, but only thought that the clause in question in that case enabled Mr. Coleman to enter into the contract without making more disclosure than he had done. Lord Cairns, in delivering judg ment in the House of Lords, said that a director must comply in the letter and in the spirit of the clause, and that though Mr. Coleman, as a director, did state that he had an interest, yet, as he did not state what that interest was, he must repay what he had received. The case of Dunne v. English (Law Rep., 18 Eq., 524) illustrated the same principle-a most valuable principleand always acted upon by this court, namely, that there should be no concealment, no contrivance by which one man was to be deprived of his right against another. His honor then stated the facts of that case, and said that the Master of the Rolls there laid down the law to be "It is not enough to say that the directors were sufficiently informed to be put upon inquiry. They ought, in such a case, to have the fullest information given to them, and ought not to be driven to inquiry," and came to the conclusion, therefore, that, inasmuch as the defendant had not disclosed to the plaintiff the nature of his interest, the whole thing must be set aside, and the defendant must repay the whole amount. His honor entirely acquiesced in the judgment of the Master of the Rolls; and though that case was appealed, and the appeal withdrawn by arrangement, his honor had not the slightest ground for supposing that the decision would have been reversed by any tribunal whatever. The case of Rarlins v. Wickham (3 De 6. & J., 301) was very remarkable, and showed that every person making a L.JJ. Panama, etc., Telegraph Co. v. India Rubber, etc., Telegraph Co. 1875 actual, and not merely equitable, fraud on the part of Sir C. Bright, but it is clear that there was none, and that there was no *motive for any, as it must have been to his [523 interest to have a good cable laid. At the time when Sir representation, upon the faith of which another dealt, was answerable for the misrepresentation if it turned out not to be true, although he was not guilty of any intentional fraud and himself believed the representation to be true; and it was no laches on the part of the person deceived not making inquiry until he had reason to believe that he had been deceived. That was entirely applicable to this case. There was no laches on the part of the plaintiffs in not making inquiry whether Sir Charles Bright had such a contract, because it was so improbable that any man would enter into such a contract, and they were entitled to believe that he was acting fairly by his employers until the contrary was shown. In the case of Lindsay Petroleum Company v. Hurd (Law Rep., 5 P. C., 221), the vendors of property combined together to make a representation which was not true, and which led to the defendants entering into a contract to purchase the property, the contract was set aside, and the parties to those false representations were made to pay all the costs. His honor had already stated his reasons for coming to the conclusion that there must have been, at least, the expectation of a contract for laying the cable when the contract between these two companies became binding upon the parties on the 4th of February, 1870. Being of that opinion, the question whether the fraud, or unfair dealing, which would avoid that contract, must exist when the contract was entered into, or the contract could be avoided by that which occurred afterwards, did not necessarily arise. But, as that point might be very material if his conclusion as to the expectation of the contract at the time should be erroneous, his honor thought it right to express his opinion upon the point. Upon principle he could not entertain any doubt that a contract might be just as well avoided by the fraudulent conduct of the parties to it in executing it as if the fraud had existed at the time when the contract was entered into, and, in fact, led to the contract itself. The only authority to the contrary which was cited was the dictum of Vice-Chancellor Wood in the case of Onions v. Cohen (2 H. & M., 361). It was only a passage in the judgment, and not necessary for the decision of the case before him; the Vice-Chancellor said: " Except Gwillim v. Stone (14 Ves., 128), there is no instance of a contract being delivered up to be cancelled, unless there was fraud in obtaining the contract itself." From the respect which his honor entertained for the decisions of Vice-Chancellor Wood, now Lord Hatherley, if he had formally decided the point in a case anything like this, his honor would have very much hesitated in coming to a contrary conclusion. But it was unnecessary for the purpose of the case which he had to decide to do so; and his honor could not, contrary to the current of authorities, come to the conclusion that because Vice-Chancellor Wood there used that obiter dictum, those principles, which appear to be perfectly sound, were not to govern the court. It was admitted on all hands that if there was fraud in inducing a contract, that contract was void, and if there was fraud in the execution of the contract, his honor's opinion was equally clear that that would avoid the contract from the time when the fraud was discovered. Suppose, as suggested in the course of the argument, that A. agreed to sell an estate to B. at a price to be named by C., and A. afterwards gave C. a bribe to name a higher price than he would otherwise have done; could any one doubt that such a contract would be avoided and cancelled by this court? and yet there was no fraud at the time of entering into the contract-the thing occurred afterwards; or, in the case of A. entering into a contract with B. to supply him with certain articles to be approved of by his servant or agent; if B. bribed the servant to accept inferior articles, could there be a doubt that this or any other court would hold such a contract not to be binding after the discovery of the fact? The articles 1875 L.JJ. Panama, etc., Telegraph Co. v. India Rubber, etc., Telegraph Co. 524] C. Bright undertook to become *engineer of the Panama Company he had not entered into any engagement with the Telegraph Works Company, and it is obvious that nothing which occurs subsequently to a contract can render previously delivered must, of course, in such a case be paid for; but his honor was clearly of opinion that A. would be entitled to treat the contract as void from the moment when he discovered the fraud. Or, suppose a railway company to employ an engineer, whose duty it was to see that the railway was properly constructed with good and proper materials, and the company discovered that the engineer had entered into partnership with the contractor, could there be a doubt that the company would be at liberty to dismiss the engineer and to treat the contract with the contractor as void from the time the discovery was made? His honor considered it clear that any fraudulent or unfair conduct on the part of either of the parties to a contract in the execution of it, would avoid it so far as it was not already performed. Kemp v. Rose (1 Giff., 258) was a case in which the certificate of the architect as to the price to be paid for altering and improving a church was to be conclusive. The builder afterwards discovered that the architect had entered into an arrangement with the persons who were to pay for the improvement of the church that the expense should not exceed a certain amount; there Vice-Chancellor Stuart decided that that put the architect in a position of undue bias, and that the builder ought not to be bound by his certificate, and the contract was avoided. Kimberley v. Dick (Law Rep., 13 Eq., 1) followed the same principle. Those were cases in which the instrument was avoided when the contract was entered into. But Pawley v. Turnbull (3 Giff., 70) was a case where the contract was avoided by reason of dealings subsequent to the time when it was entered into. That was a remarkable decision, and, as his honor had ascertained from counsel, it was affirmed on appeal by Lord Westbury, though it did not appear to be reported. It was a case entirely contrary to the rule laid down by Vice-Chancellor Wood-there was no fraud at the time when the contract was entered into, but there was fraud in the course of its execution; and that fraud was fatal to it. So, in this case, if the cable or any part of it had been delivered, the plaintiffs must, of course, have paid for it; but the certificate of Sir Charles Bright would not have been received as to the amount. His honor had carefully considered the evidence as to the omission of a specification as to laying the cable in the contract, and was satisfied from the evidence that such a specification ought to have formed part of the contract. But he was unable to come to the conclusion that its omission by Sir Charles Bright arose from the fraudulent-motives which were attributed to him by the plaintiffs. The circumstance of two persons having been directors of both companies would not affect the question be tween those two companies, as appeared from the case of In re Marseilles Extension Railway Company (Law Rep., 7 Ch., 161). His honor might well assume that the charges of fraudulent intention which the plaintiffs attributed to the defendants were not well founded, and yet upon general principles he should come to the conclusion that such transactions could not stand. He must apply to them the rules which were applied by Lord Eldon to dealings between solicitors and clients, and trustees and cestuis que trust, in the case of Ez parte James (8 Ves., 337); the words of the judgment in which case could not be too strongly impressed upon all persons having dealings with each other, and upon the mind of every practitioner in these courts, and every member of the legal profession. Whe ther it was a contract, or whether it was a purchase-whether it was, as in the present case, a contract which might bias the judgment or might influence the conduct, his honor said with Lord Eldon, that the doctrine of the court rested upon this general principle that the purchase is not permitted in any case, however honest the circumstances; the general interests of justice L.JJ. Panama, etc., Telegraph Co. v. India Rubber, etc., Telegraph Co. 1875 the contract void. In similar cases, all that the court has done has been to strike out the provision as to the engineer's certificate being necessary. No contract has ever been set aside on the ground of subsequent fraud: Onions v. Cohen (). Gwillim v. Stone (") is clearly wrong: Sugden's Vendors and Purchasers ("). In·· Kimberley v. Dick () the contract was not set aside. It does not follow that a contract is avoided even if there has been fraud, Atwood v. Small ("), as the parties may have been able to judge for themselves, and not have been affected by the fraud. The case set up by the bill, that Sir C. Bright was the adviser of the plaintiffs in making the contract, has completely failed. Mr. Fry, Q.C., and Mr. Davey, for the plaintiffs: We say that there was fraud ab initio, and then the contract may be rescinded, though in some cases it may be performed with compensation: Cutter v. Powell(); Planchè v. Colburn ('); Palmer v. Temple (); Keys v. Harwood (). But this contract cannot now be performed. Even at common law the contract may be treated as rescinded, and any money paid may be recovered. In *Milner v. Field (") [525 the question was not before the court. An analogous class of cases is where work has been done on land. There, if fraud is proved, the contract has been rescinded, the landowner paying for what has been done. The rule in equity is the same: Pawley v Turnbull ("). The express contract is gone, but something is recovered under a quantum meruit. If any other engineer but Sir C. Bright is to be employed, it must be under some special contract, which does not exist in this case. The agreement between the two companies is requiring it to be destroyed in every instance, as no court is equal to the examination and ascertainment of the truth in much the greater number of cases." Applying those general principles to the present case, his honor came to the conclusion that the plaintiffs would have been entitled to treat this contract as void, and to recover the money paid under it if they had discovered the subcontract with Sir Charles Bright immediately after it had been entered into; and as they had done no act to confin it since they became aware of it, his honor was of opinion that they had the same right when they discovered this fact in December, 1871. There must, therefore, be a declaration in conformity with the prayer of the bill, and a decree for the return of the £40,000 by the company and of the £600 by Sir Charles Bright, with interest, and the plaintiffs must have their costs of the suit. (1) 2 H. & M., 354. (2) 14 Ves., 128. The authenticity of this case has been doubted. The name is not to be found in the Registrar's index of decrees for Trinity Term and Michaelmas Term, 1807. (3) 14th ed., 233. (4) Law Rep., 13 Eq., 1. (8) 9 A. & E., 508. |