S. Pearson & Son, Limited, v. Lord Mayor of Dublin In the House of Lords, May 30, 1907. Reported in [1907] Appeal Cases, 351

The Dublin Corporation having by their agents furnished the appellants with plans, drawings, and specifications, the appellants contracted to execute certain sewage outfall works according to the plans, &c. In the plans, &c., representations were made as to the existence and position of a certain wall. In the contract (clauses 43, 46, 47, 48) it was stipulated that the contractor should satisfy himself as to the dimensions, levels and nature of all existing works and other things connected with the contract works; that the corporation did not hold itself responsible for the accuracy of the information as to the sections or foundations of existing walls and works; and that no charges for extra work or otherwise would be allowed in consequence of incorrect information or inaccuracies in the drawings or specifications. The appellants performed the contract, and brought an action of deceit against the corporation, claiming damages for false representations as to the position, dimensions and foundations of the wall, whereby the appellants were compelled to execute more costly works than would otherwise have been required. The plans, drawings and specifications were prepared by engineers employed by the corporation.

[At the trial before Palles, C. B., the plaintiffs offered evidence tending to show that the aforesaid representations were not sincerely believed by the engineers to be true.] Palles, C. B., refused to leave any question to the jury, and entered judgment for the respondents on the ground that the contractors were bound by their contract to verify for themselves all the information given in the plans, &c.

The King’s Bench Division (Wright, Boyd, and Gibson, JJ., Lord O’Brien, C. J., dissenting) reversed the decision of Palles, C. B., and entered judgment for the appellants on the ground that there was a question of fact for the jury upon the allegation of fraud.

The Court of Appeal (Sir Samuel Walker, L. C., Fitzgibbon and Holmes, L.JJ.) reversed that decision, and restored the decision of Palles, C. B.

Plaintiff appealed to the House of Lords.

The House of Lords (Lords Loreburn, Halsbury, Ashbourne, Macnaghten, James of Hereford, Robertson, Atkinson, and Collins) reversed the order of the Court of Appeal, and restored the judgment of the King’s Bench Division. Portions of the opinions are as follows:—

Lord Loreburn, L. C.... Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clauses from liability for the fraud of his own agents. It suffices to say that in my opinion the clauses before us do not admit of such a construction. They contemplate honesty on both sides and protect only against honest mistakes. The principal and the agent are one, and it does not signify which of them made the incriminated statement or which of them possessed the guilty knowledge.

Earl of Halsbury.... The action is based on the allegation of fraud, and no subtilty of language, no craft or machinery in the form of contract, can estop a person who complains that he has been defrauded from having that question of fact submitted to a jury....

Lord Ashbourne.... [As to clause 43.] Such a clause might in some cases be part of a fraud, and might advance and disguise a fraud, and I cannot think that on the facts and circumstances of this case it can have such a wide and perilous application as was contended for. Such a clause may be appropriate and fairly apply to errors, inaccuracies, and mistakes, but not to cases like the present....

Lord James of Hereford.... Now the learned Chief Baron in respect of this clause expressed the opinion that the contractor was not entitled in point of law to say he acted upon the statement contained in the plans. He was told to act upon his own judgment, and ought to have done so.

If this dictum be read as general in its terms, and so applied, it may be read as conferring considerable advantage upon the designers of fraud. At any rate, by inserting such a clause those who framed it would run a fair chance of the contractor saying, “I assume that those with whom I deal are honest and honorable men. I scout the idea of their being guilty of fraud. An inquiry testing the plan will be expensive and difficult, and so I will not make it.” The protecting clause might be inserted fraudulently, with the purpose and hope that, notwithstanding its terms, no test would take place. When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it. As a general principle I incline to the view that an express term that fraud shall not vitiate a contract would be bad in law, but it is unnecessary in this case to determine whether special circumstances may not create an exception to that rule.

Lord Atkinson.... If, therefore, the direction given to the jury is to be upheld on the grounds upon which it was purported to be based, it must, in my opinion, be because these several articles of the contract, on their true construction, are to be held to embody a contract by the plaintiffs that they in effect are not, under any circumstances, to have a remedy by action for deceit for any fraud which may be practised upon them by the defendants or by those acting on their behalf in the nature of a false representation, that is a contract to submit to a fraud.

As at present advised I am inclined to think, on the authority of Tullis v. Jacson, [1892] 3 Ch. 441, and Brownlie v. Campbell, (1880) 5 App. Cas. 925, 937, 956, that such a contract would be illegal in point of law. And, with the most profound respect for the Chief Baron, I do not think that the articles of the contract relied upon can, on their true construction, be held to have had fraud, whether conscious or unconscious, within their purview or contemplation, or to apply at all to such a case of fraud as the present is alleged to be. They were, I think, intended to apply, and do apply, to inaccuracies, errors, and mistakes, or matters of that sort, but not to fraud, whether of principal or agent, or of both combined.