Isherwoods Limited v Blue Reefs Limited (Civil Case No. 22 of 1934.) [1934] EACA 23 (1 January 1934)

ORIGINAL CIVIL.

Before GAMBLE, Ag. J.

ISHERWOODS LIMITED (Plaintiff)

BLUE REEFS LIMITED (Defendant).

Civil Case No. 22 of 1934.

Held (21-5-34).-Innocent misrepresentation if furnishing a material inducement is ground of resisting an action for breach of contract, but, rescission of an executed contract cannot be granted unless fraud can be proved.

Modera for Plaintiffs.

Harrison for Defendants.

JUDGMENT.-In this suit the plaintiff firm is claiming from the defendant the sum of Sh. 9,500 being the price of a rotary crushing mill supplied to the defendant at Kakamega and erected there by the plaintiff. Defendant alleges misrepresentation and asks that the contract of sale be rescinded: there was a further counter-claim which has been abandoned.

The ground of misrepresentation on which the defendant bases his claim for the rescission is that the machine was claimed to have an output of one ton per hour, whereas in fact it is alleged that the output could not exceed one-third ton per hour.

The first question I have to decide is what is the average output of this mill: is it in the words of the catalogue "about one. ton hourly". In favour of the one ton per hour claimed for the mill is the evidence of Messrs. Green and Tate; against, the testimony of Mr. Jackson. I have considered carefully the evidence of these three gentlemen on this question of output and I have no hesitation in deciding that I must accept the evidence of Mr. Jackson. This gentleman gave his evidence in a very convincing manner; apart from this he is a man of high scientific attainments with fifteen years' practical experience in mining fields in various parts of the world. Messrs, Green and Tate though described as engineers have no engineering qualifications of any sort. I am not in any way impugning their capabilities as engineers but when on the one hand I have a witness with scientific degrees and fifteen years' practical mining experience, I feel bound to accept his evidence in preference to that of the other two gentlemen with no qualifications, no experience in the field and only two years' workshop experience in mining machinery.

$v.$

Moreover the only satisfactory data I have to rely upon asregards the output of the mill is the report (Ex. B.) of Mr. Jackson. He is the only one of the three witnesses who carried out a satisfactory quantitative test.

Tests did take place in Nairobi but no accurate weighing wasdone and no accurate timekeeping; at any rate no evidence oral or written has been produced to satisfy me that meticulous tests. were carried out. I must accept the certificate (Ex. B.) of Mr. Jackson in preference to the memories of Messrs. Green and Tateas regards the output of the mill.

It was suggested, but with no great force, that Mr. Jackson. would have achieved better results had the machine been properly adjusted. The witness was not cross-examined on this point and his evidence is that the mill appeared properly adjusted.

A further point suggested was that the mill was fed with diorite, an exceedingly hard substance. Mr. Jackson's evidence is to the effect that he only put through the mill specially cleaned quartz and that there was no fibrous or vegetable matter. The capacity output of one ton per hour was based on material of 4 inch size. Mr. Jackson conducted his test with material of 1 inch size and the output of the mill was 435 lb. per hour.

I am satisfied on the evidence of Mr. Jackson that the output of the mill did not amount to one ton per hour but that on the test it was 435 lb. per hour and according to the witness' oral evidence could not in any circumstances have exceeded 600 lb. per hour.

$T$ am further satisfied that such a serious misrepresentation regarding the output of the machine would be an essential condition going to the root of the contract. The general rule regarding such innocent misrepresentation was settled in the case of *Derry* v. Peek (1889, 14 A. C. 337). "Innocent misrepresentations if it furnishes a material inducement is ground for resisting an action for breach of contract or for specific performance and also for asking to have it set aside. This relief is of general application and is not peculiar to contracts uberrimae fidei".

This would appear to dispose of this suit were it not for the undoubted rule of law that fraud must be proved to enable recission to be granted of an executed contract. I quote from the judgment of MACARDIE J. in Armstrong v. Jackson (1917, 2 K. B. 285): "Now it is undoubted law that when the vendor has procured the sale of his property by misrepresentation the purchaser can set aside the contract of purchase, prior to completion, even though the misrepresentation be innocent; see per JESSEL M. R. in *Redgrave v. Hurd* (1881, 20 Ch. D.1, 12); per LORD BRAMWELL and LORD HERSCHELL in Derry v. Peek, supra. But if the contract has been executed by the completion of a

conveyance or lease or the formal assignment of a chattel, then rescission cannot be obtained on the ground of innocent misrepresentation by the vendor or lessor. When the contract is so completed fraud must be proved before rescission can be granted."

I will also quote the head note in Seddon v. The N. E. Salt Co. Ltd. (1905. 1 Ch. 326): "The Court will not grant rescission of an executed contract for the sale of a chattel or chose in action on the ground of an innocent misrepresentation. In order for the plaintiff to succeed in such a case fraud must be proved." An exception to this rule would appear to be when there is a fiduciary relationship between the parties, Armstrong v. Jackson (1917, 2 K. B. 822). No fiduciary relationship exists between the parities to this suit. The law being as stated and fraud neither being alleged or proved, I now have to consider whether the contract of which the defendants seek rescission has been wholly or partially executed. "It is well settled that a contract can only be rescinded on the ground of an innocent misrepresentation if the parties can be put back again to their original position and it cannot be rescinded if the contract has been so completed that this cannot be done." Hindle v. Brown (98 L. T. 44). This is the well-known principle of restitutio in integrum.

I have already commented on the extremerly unbusinesslike way in which the parties drifted into the contract; it will be necessary to deal with the somewhat voluminous correspondence in care to ascertain whether the contract was completed or not. By letter No. 3 of 22-8-33 the defendants endeavoured to ensure that before they were liable to accept final delivery of the mill they were entitled to a three months' trial on the reef. The relevant paragraph reads: "Providing the preliminary trial is satisfactory we want to be assured that the mill is reserved to us for a three months' trial on our claim, with the further proviso that you will remedy any faults of construction or design during that period." To this stipulation the plaintiffs did not agree and in letter No. 6 of 29-8-33 they state: "We regret we do not quite understand your request that you want to be sure that the mill is reserved for you for a three months' trial at your claims. The mill on completion and having passed the running tests to your entire satisfaction would be consigned to your instructions." And again in the plaintiffs' letter No. 8 of 9-9-33: "We shall be pleased to have your confirmation that on completion of the machine and satisfactory tests, that your company will be taking same in accordance with the terms offered you in our letter of 29-8-33." To this the defendants replied in letter No. 9 of 12-9-33: "Regarding the final paragraph of your letter under review I am instructed to advise you that provided the test date is not delayed beyond the 25th instant and we are satisfied with this test, we are prepared to take the machine on the terms offered." The test actually took place on September

28th and 29th, but no objection was taken to this slight alteration This test took place in presence of Mr. Ullmann, in date. Managing Director to the defendant company. In my opinion on the evidence I can come to no other conclusion but that the tests were satisfactory to this gentleman at any rate. If they were not satisfactory why did Mr. Ullman order the machine? It was quite open to him at the conclusion of the test, to say that he was not satisfied on the question of capacity and would not purchase the mill until he was so satisfied. He did not do so and the next step in the correspondence is the telegram No. 18 of 18-10-33 from the defendants: "When may we expect the mill." It appears to me that on the question of capacity Mr. Ullmann took a chance and unfortunately for him the chance did not come off. From the correspondence I have quoted and from the fact that on the conclusion of the Nairobi test Mr. Ullman ordered the mill, I am of the opinion that the contract was completed by the delivery to the defendants of the mill at Kakamega.

There being no allegation of fraud, on the authorities I have quoted above and regard being had to the provisions of section 59 (2) of Ordinance XXXIII of 1930 it is impossible to grant rescission of the executed contract.

For these reasons, though I confess to a certain amount of sympathy with the defendant company, there must be judgment for the plaintiff as praved with costs.

The counter-claim is dismissed with costs.