High Court Of Justice. LAW REPORT, March 24. (Eefore Nit. JusTicE SBmXma.) PE=K V. ]DERRY. This case was decided to-day after a hearinglasting nearly five days. It was one of considerable interest, not only local but general, for the plaintiff sought to recover from the five directors of a tramway company damages for misrepresentation1 upon the ground that a prospectus issued by them containm a statement which they knew or ought to have known was untrme, by which he had been influenced to take shares in their company; while the directors contended that the statement was not untrue or reckless and did not bear the construction the plaintiff put upon it, and moreover that the plaintiff did not, in act, take his shares in reliamce upon the statement. The action was brought by Sir Henry Peek, against Messrs. Derrv, WVakefield, Moore, Pethick, and Wilde, who were, or had been, directors of the Plymouth, Devon- port, and District Tramiways Company,now in liquidation; and according to the statement of claim the defendants in February, 1883, issued a prospectus which contained the following statement :-" One great feature of this under- taking, to which considerable importance should be attached, is that by the special Act of Parliament obtained the company has the right to use steam or mechanical motive power instead of horses, and it is fully expected that by means of this a considerable saving will result in the working expenses of the line as compared with other tramways worked by horses." U pon readiag this prospectus the plaintiff, on February 7, 1883, applied for 40 brsof ?10 each in the company, whEich wvere allotted to him accordingly, and for which he had paid the sum of ?,000. Tho pwaintiff aUeged that the company had not at the date of the prospectus, and never had, the right to use either steam power or any other mechanical power, and that the special Act contained only the folowing provision for conferring suh right-thatwas to say, by seetion 35 it was enacted, that the carriages used on the tramways might, subject to the provisions of that Act, be moved by animal power ; and, with the con- sent of the Board of Trade during a period of seven years after the opening of the same for public traffic and with the like consent during such further periods, not exceed- ing seven years, as the Board might from time to time specfy in any order to be sgned by a Secretary or Assistsnt Secretary of the Board, by steam power or any mechaniceal power; and by the same section it wvas pro- vided that the exercise of the powiers thereby COn- ferred with respect to the use of steam or any mechanical power should be subject as therein particularly pro- vided, and that the company should not use steam power or any mechanical power on the said tramways unless and until they should have obtained the provious consent in writing of the Corporations of Plymouth and Devon- port therefor, and then for such time only and subject to such conditions and regulations as the corporations should think fit. The plaintiff's case was that the company had not at the time when the prospectus was issued obtained the consent of the Board of Trade or of either of the corporations to the use of steam or other mechanical power upon the tramways, and that, therefore, the state- ment contained in the prospectus was untrue. It did not, however, appear that the belief that the company had power to use steam was the sole motive which indured the plaintiff to take the shares, and reports of meetings of the company contained In a local newspaper were pro- duced at the hearing, from which it appeared that the plaintiff bad spoken favourably of the company, its direc- tors, and prospects after he became aware of the fact that the company could not use mechanical powrer on their tramnways. The case of the defendants was that the prospectus did not state that the authority to use steam power was unconditional; that they had never intended to represent it as being so, and tiat the plaintiff him- self knew that an authority for a tramway company to use steam was never or hardly ever unconditional; that at the time of the prospectus they had every reason to believe, and did believe, that all consents would be given that the consent of the Corporation of Plymouth was subsequently given in June, 1883, as regarda the tramways in Plymouth, and that of the Board of Trade as to portions of those tranways; but that, owing to the opposition of the Corporation of- Devonport, an injunction had been obtained until the whole system had been completed, which had had the effect of stopping their undertaking and led to the winding up of the company. Sir Henry Peak gave evidence in support of his case ; and, in answer to the question," What were the motives that induced you to Invest in this particular company ?" stated that he was a Devonshire man and knew the three towns of Ply- mouth, Devonport, and Stonehouse, and believed that therewouldbea considerable trarawaytramfio between them; that the differences between steam and animal power was equal to a dividend of 2 per cent.; and that, as the com- pany had the right to use steam power, and he found on inquiry that Dir. Derry was a most respectable man, and had filled some of the highest offices in the corporation, he had applied for the shares, and had put ?4,000 into the undertaking. Sir Henry was cross-examined by the coun- sel for the various defendants, and although he stated that he should not have applied for the shares but for the state- meat as to steam power, when he was asked whether, sup- posing instead of this statement in the prospectus that they had the right to use steam power there had been in- serted the statement in the Act that the company could use the steam power for seven years if certain consents were obtained, that would have made any difference he said, " Yes, if my attention had been called to it. i do not mean to say I should not have taken the shares ; but I should have looked at it critically under the circum- stances." The five directors were also put in the witness- box, and they one and all strongly disclaimed the slightest intention to mislead. But it was elicited that with re ard to all of them except Mir. Wilde they had been paid w50G wherewith to purchase their qualifying shares, either by a Mr. Freeman, the chief promoter of the company, or DIr. Quicke. However, it appeared that aU or nearly al of them had repaid the money to the person from whom it came. The remainder of the facts wil sufficiently appear from the judgment of the Court. TIr. Bompas, Q.C.,and Mr.WiddingtonByrne were coun- sel for the plaintiff; Mr. W. Pearson,Q.C.,and Mr. Seward Brice, Q.C., appeared for DIr. Daery * Dir. Moulton, Q.C., and Mr. Buckley, Q.C., for Mir. Wakefield ; Mr. Levitt and hIr Upjohn for Dir. Moore; 3Ir. Binlay, Q.C., and Mr. Muir MIaienzie for Dir. Pethick- and Dir. Graham Hastings, Q.C., and Mir. Phipson Beale for Mr. Wilde. IAIs. Jnsricn SlrnsaN said that this case had occupied a very considerble time in discussion, but not longer than was Justified by its importance. It was important to Sir H. Peek because he claimed to recover a considerable sum of money. It was still more important to the defendants not only on account of the damages which they woula have to pay if thejplaintiff succeeded, but also be- cause it involved a serious question of character. Eaving had to-day the benefit of a most exhaustive reply by Mr. Bompas, and having also had the opportunity, during the course of the case of fnUyconastderingth evidence, he did not think that any advantage would bel gained by his reserving his judgment. The questions involved were mainly questions of fact. The action wasI onecommonly ca.led anaction of deceit, and in suchan action in order that the plaintiff mightsucceed it was necessary for him to prove several things :-(1) That the person whom he sued was responsible for the statement upon which he sued; (2) that the statement itself was untrue in fact; (3) that, if untrue, it was fraudulent; (4) that he had been induced by the statement to act upon it; (5) that he had suffered damage by so acting. N ow, the defendants in this case were the five directors of the Plymouth, Devonport, and District Tramways Company and the plaintiff complained of the statements made in the prospectus issued by them. As to four of the defendants there was no dispute as to their rasPonsibility for those statements, and as to the fifth he (the learned Judge) thought that the responsibility was made out, because, although he took no part in the actual prepara- tion of the prospectus, yet it was proved that he had received 100 copies of it and had proceeded to issue them. There was, therefore, great difliculty in separating him from his co-defendants. The next question to be considered was whether the plaintiff had proved that the statement in the prospectus was untrue in fact. The company in question was a tramway company incorporated by special Act of Parliament. In the prospectus which was issued in Pebruary, 1883, various things were stated. It contained a heading In large type as follows :-" Incor- porated by special -Act of Parliament, 45 and 46 Vict., authorizing the use of steam or other mechanical motive power ;" and then in the body of the prospectus this state- ment appeared. HisLordship then read the statement above set forth, and continued,-Now, it was stated, and no doubt truly, that the Act of Parliament conferred by Section 35 not an absolute right to use steam, but only a right to use it for limited perods with the consent of the Board of Trade, and subject to a proviso that steam should not be used until the company had obtained the consent in writing of the respective Corporations of Plymouth and Devonport, and then for such time only and subject to such conditions as the Corporations might prescribe. It was said, also truly, that at the date of the issue of the prospectus the company had not obtained the consent of the Board of Trade or of the Corporations. First of all, the question was whether the statements in the prospectus were true or untrue. In his (the learned Judge s) opinion it was not an accurate statement of the legal position of the company. At the time of the issue of the prospectus the company had not,and could not have,the absolute legal right to use steam. The consent of the Board of Trade was a conoition precedent, and even when obtained it was only available for periods of seven years. Further, the consent of the Coporations had notin form been obtained, and if this had been an action for rescission of the con- tract to take the .hares he might have had difculty in coming to the conclusion that the statement was otherwise than untrue in fact. But that was not the only issue here. It must be shown that the statement was fraudulently made. What did that mean ? Sometimes there was difficulty in arriving at the meaning of the term " fraudu- lently made." If a man wilfully madea statement knowing itto be false then hemade itfraudulently. Again, if he made it without any belief one way or the other, but recklessly, that was also fraudulent. But there were reported dicta which went to this, that a statement might be fraudulent without falling within either of those classes. This was well illustrated in the well-known case of the " Western Bank of Scotland v. Addie" (1, So. Ap ., 145), where Lord Chelmsford, approving what was said by the Lord Presi- dent, said, " 3upposing a person makes an untrue state- ment which he asserts to be the result of a bond fide beliel of its truth, how can the tonea JZes be tested exept by considering the grounds of such belief? And if an untrue statement is made, founded upon a belief which is destitute of all reasonable grounds or which the least inquiry would immediately correct, I do not see that it is not fairly and correctly characterized as misrepresentation and deceit." And in more recent times the question came before the Court in "Weir v. Bell " (3, RE. 15.,23S where Lord Justice Cotton said :- " lt is well established that in an action of deceit a de- fendant may be liable not only it he has made statements which he knows to be false, but if he has made statements which, in fact, are untrue recklessly-that is, without any reasonable grounds for believing them to be true, or under circumstances which show that hcewas careless whether they were in fact true or false." L t would not5 perhaps, be riht to take tha t as an absolute expression of his opinion, because it ought to be taken in coniunction with what he said in " Arkwright v. New- bould " ("Law Reports " 17. Ch. Div., 320) .- " This also must be borne in mind-that in an action for setting aside a contract which has been obtained bv misre- presentation, the plaintiff may succeed, although the mis- representation was innocent; but in an action for deceit the representation to found the action must not he inno- cent-that is to say, it must be made either with know- ledge of its being false or with a reckless disregard as to whether it is or is not true. That difference is material in regard to the question whether or not the plaintiff is en- titled to succeed." It was not necessary,however,now to decide which view was accurate. Practically, the question very seldom arose. What had to be considered was whether the directors had easonablegrounds for making the statements ; and, in dealing With the facts at the conclusion of the plaintiff's I case, it appeared to his Lordship that there were drcum- stances of suspicion. I' ;was proved that some of the directors had received sums of money from the pIomoters, | and there was evidence that the prospectus was the work of the promoters. But the defendants had all given evi- dence before him, and he could not help 6aying that, in bis opinion, it was most regrettable that gentlemen in such a position as theirs, and having such a kLnowledge of the world, should have permitted themselves to act as they had done with reference to the taking of these sums of money from the promoters. They had, undoubtedly, by their con- duct laid themselves open to censure. However, having seen and heard the defendants in the witness-box as re- garded this prospectus he conld not bring himself to be- ueve that any one of them intended to defraud or was wilfully dishonest' on the contrary, he thought they had acted under the beiief that the company had the right to use steam. But that did not end theematter. Did they entertain that belief on reasonable grounds P His Lord- ship came to the conclusion that they did. It was clear when the Tramways Act was looked at. tha' in a general way mechanical power could not be used unless the right to use it was conferred by the special Act ; and, that bemig so, it vwas important that the special Act should contain a clause conferring that right, and in this case the special Act did contain a section which. subject to certain conditions, authorized the use of mechanical power. If any one of the directors had had his attention drawn to these conditions he would have said, "No doubt we h.ave to,et the consent of the Board of Trade and the Corporation, but their consent we have practically ob- tained." The Corporation did,infact, shortlyafterwardsgive their consent. And as to the Board of Trade, it was a pub- lic body controlled by Parliament, and it w as well knowin 'oy all ousiness men that it never in an arbitrary manner placed useless restrictions upon public undertakings, so that although in this case there was a special duty cast upon the Board of Trade the directors might not unreason- ably have come to the conclusion that the obtaining of its consent was merely a matter of complying with the re- quirements of the Board. Under these circumstances, his Lordship could not come to the conclusion t:aat their belief was so unreasonable as to oblige him to say that they acted frudulently in any sense which would render them liable in an action for deceit. But it was further necessary for the plaintiff to show that in taking the shares he relied upon the statements in the prospectus. His Lordship then commented upou the evidence of Sir Henry Peek bearing upon this question, and drew atten- tion to the fact that after he had become aware that the company had not an absolute right to use steam he had attended a meetin- of shareholders, and expressed the fullest confidence in the directors, and continued,-Sir H. Peek would never have done this if he had thought that the directors bad acted fraudulently with regard to the statements in the prospectus. Moreover, Sirlieury Peek had not stated, in answer to the questions put to him upon the point, that if he had known of the Act of Par. liament he would not have taken the shares. On these garounds it seemed to his Lordship that the plaintiff had failed to prove what was necessary for him to succeed, and the action must be dismissed with costs. HIGH COURT OF JUSTICE. CHANCERY DIVISION. -