R v. Bates and Another 2 All ER 842
(Judgment by: Donovan J)
R v Bates and AnotherCourt:
Inducement to invest money
"Reckless" making of misleading forecast
Need to prove fraud
Prevention of Fraud (Investments) Act, 1939 (c 16) - s 12(1)
Derry v Peek (1889) - 14 App Cas 337; 58 LJCh 864; 61 LT 265; 54 JP 148; 9 Digest 125, 642
Judgment date: 23 September 1952
The defendants were charged on an indictment which, by counts 1 and 2 alleged that, by false statements and by the dishonest concealment of material facts, they fraudulently attempted to induce persons to invest money in a company, contrary to s 12(1)(a) of the Prevention of Fraud (Investments) Act, 1939, and, alternatively, by count 3 that they attempted such inducement by the reckless making of a forecast which was misleading, false or deceptive, contrary to s 12(1)(a). On an application by the defence to strike out count 3 on the ground that, in the absence of proof of fraud, the defendants could not be convicted on that count,
Held - The word "reckless" in s 12(1) should be given its ordinary meaning and not be restricted to recklessness involving dishonesty, and, therefore, count 3 was properly included in the indictment as being alternative to counts 1 and 2.
For The Prevention of Fraud (Investments) Act, 1939, s 12(1), see Halsbury's Statutes, Second Edn, Vol 16, p 525.
Cases referred to in judgment
Derry v Peek (1889), 14 App Cas 337, 58 LJCh 864, 61 LT 265, 54 JP 148, 9 Digest 125, 642.
R v Hindes & Musgrave (1951), unreported.
Application to quash a count in an indictment alleging an offence under s 12(1) of the Prevention of Fraud (Investments) Act, 1939.
By counts 1 and 2 of the indictment the defendants, Harry Noel Bates and Charles Frederick Russell, were charged with fraudulently attempting to induce persons to invest money, contrary to s 12(1) of the Act of 1939, the particulars of offence alleging, in count 1, that between 1 April 1945, and 30 November 1945, in a letter headed Joseph Sebag & Co, Statistical Department, dated November, 1945, the defendants attempted to induce persons to enter into agreements for acquiring ordinary shares in Specialloid Ltd by the dishonest concealment of material facts. By count 2 it was alleged that by the letter of November, 1945, the defendants attempted to induce persons to acquire shares in Specialloid Ltd by a forecast which they knew to be misleading, false, and deceptive. Count 3 charged the defendants with attempting to induce persons to invest money by the reckless making of a forecast which was misleading and deceptive, contrary to s 12(1). The Crown, in opening the case, stated that count 3 was alternative to counts 1 and 2, and that, whereas the first two counts involved dishonesty, the third count did not, and if the defendants were acquitted on the first two counts they might be covicted on count 3. For the defendants it was contended that "reckless" in s 12(1) should be construed as meaning recklessness amounting to dishonesty, and that, on the Crown's interpretation of the meaning of the word, the count did not disclose an offence and should be struck out.
The Solicitor General (Sir Reginald Manningham-Buller QC), Vaughan QC, Faulks and Syrett for the Crown.
Gardiner QC and S Shaw for Bates.
F H Lawton and R Day for Russell.
23 September 1952. The following judgment was delivered.
DONOVAN J. Objection is taken on behalf of each defendant to count 3 of this indictment. In view, it is said, of the Solicitor General's avowal that the word "reckless" in that count does not necessarily connote dishonesty, the count alleges an offence unknown to the law and should be quashed. Section
12(1) of the Prevention of Fraud (Investments) Act, 1939, under which the charge is laid, provides:
"Any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive, or by any dishonest concealment of material facts, or by the reckless making of any statement, promise or forecast which is misleading, false or deceptive, induces or attempts to induce another person [to invest money] ... shall be guilty of an offence ... "
Counts 1 and 2 of the indictment allege against each of the accused the dishonest concealment of material facts and the making of a statement which each knew to be misleading, false or deceptive. Count 3 reads thus:
"Statement of Offence: Recklessly attempting to induce persons to invest money, contrary to s. 12(1) of the Prevention of Fraud (Investments) Act, 1939. Particulars of offence: [Bates and Russell] on a day between Apr. 1, 1945, and Nov. 30, 1945, in the county of London, in a letter headed 'Joseph Sebag & Co., Statistical Department', dated November, 1945, attempted to induce persons to enter into agreements for acquiring ordinary shares in Specialloid, Ltd. by the reckless making of a forecast which was misleading and deceptive, namely, that the directors of Specialloid, Ltd. anticipate that the profits for the year ended Mar. 31, 1946, should not be less than those shown in the auditors' report for the preceding year, namely, £65,349, before charging income tax."
The Solicitor General, in opening the case, said that count 3 was an alternative to counts 1 and 2, in the sense that it would be possible to convict under count 3 even if each accused were acquitted under counts 1 and 2, for counts 1 and 2 obviously involved charges of dishonesty, whereas count 3 did not. A man, it was said, might make a forecast which was false, misleading, and deceptive, through recklessness falling short of dishonesty. In the present case he (the Solicitor General) would be content, in supporting count 3, to allege such recklessness. Even though it fell short of dishonesty, such a case, he argued, is still caught by the words of s 12(1). That view is challenged on behalf of each accused, and it is said that, unless the prosecution allege recklessness amounting to dishonesty, count 3 has no legal basis, and since no such allegation is made, that count is bad and ought to go. The issue which this argument raises is purely one of construction of s 12(1), and, in particular, the construction of the passage "the reckless making of any statement, promise or forecast which is misleading, false or deceptive".
The rival constructions of this passage appear from what I have already said. Counsel for Bates contends that one, at least, of the meanings of the word "reckless" in this context is careless whether the statement be true or false, and he quotes the speeches of Lord Bramwell and Lord Herschell in Derry v Peek to the effect that a man who makes a statement, careless whether it be true or false, and induces another to act on it to the latter's detriment, would be guilty of fraud so as to make him liable to an action for deceit. Lord Bramwell, in particular, says (14 App Cas 350):
"... a man who makes a statement without care and regard for its truth or falsity commits a fraud. He is a rogue. For every man who makes a statement says 'the truth is so and so, and I know it or believe it'."
So, it is argued that the word "reckless" in s 12(1) should be construed in the same sense, that is, as meaning, and meaning only, a statement made by a person careless whether the statement be true or false, and, therefore, dishonest. This is purely a question of the construction of s 12(1), in which the word "reckless" finds its setting. Obviously I am not constrained by what was said in Derry v Peek to decide that in s 12(1) the word connotes only something dishonest, and it is not suggested that I am. Derry v Peek was an action for deceit, to succeed in which the plaintiff had to establish fraud, and the House of Lords said, among other things, that a statement made recklessly-that is, without belief in its truth-would be fraud for that purpose. They contrasted such a statement with one made recklessly, but with belief in its truth, which could not be fraud. Obviously the word "reckless" may be used as connoting something entirely free from any moral stigma. It is, however, said that it is not so used in s 12(1), but is used only in the sense that Lord Bramwell used it in Derry v Peek, that is, dishonest or fraudulent, and the reasons are these. First, the long title to the Act proclaims as one of its purposes
"... to make general provision for preventing fraud in connection with dealings in investments ... "
Secondly, the cross-heading which immediately precedes s 12(1) reads thus:
"General provisions for the prevention of fraud."
Thirdly, the marginal note to the section is:
"Penalty for fraudulently inducing persons to invest money."
I agree that the long title is a legitimate aid to the construction of s 12(1), and I take the same view, in this case, of the cross-heading. When Parliament proclaims what the purpose of an Act is, it would be wrong to leave that out of account when construing the Act-in particular, when construing some doubtful or ambiguous expression. In many cases the long title may supply the key to the meaning. The principle, as I understand it, is that where something is doubtful or ambiguous the long title may be looked to to resolve the doubt or ambiguity, but, in the absence of doubt or ambiguity, the passage under construction must be taken to mean what it says, so that, if its meaning be clear, that meaning is not to be narrowed or restricted by reference to the long title. I take the same view about the cross-heading. Instances, indeed, abound where Parliament, proclaiming in an Act that its purpose is to prevent people doing such and such a thing, has caught people who never had any intention of doing it. The patch, in other words, has been larger than the hole. A neat example is s 21 of the Finance Act, 1922, which has been held to apply to persons altogether innocent of the mischief which Parliament said it intended the section to prevent. The section has frequently come under review in the House of Lords without that construction ever being questioned by their Lordships.
The marginal note I reject as a guide to construction. As I said during the argument, it is not the subject of debate or amendment in Parliament, and it follows that during the passage of a Bill amendments may be made to a clause which extends its effect beyond the scope of the marginal note, which, nevertheless, remains unamended. The note, therefore, would then become actually misleading if used as a guide to construction. I might point out that in s 12 of the Act of 1939, the marginal note gives no indication that a fraudulent attempt to induce people to invest is an offence. It refers only to the completed act of inducing.
The vital question is: Is there such an ambiguity or doubt about s 12(1) in this particular respect that I ought to restrict the meaning of the word "reckless" by reference to the long title and the cross-heading? In other words, although "reckless" may mean "careless, but without dishonesty", am I to say that the word does not bear that meaning here? If one analyses s 12(1), it is found to deal with three categories of persons who have induced or attempted to induce other persons to invest money. The first is the person who makes a statement which he knows to be misleading, false or deceptive; the second is the person who dishonestly conceals material facts; and the third is the person who recklessly makes a statement, promise, or forecast which is misleading, false, or deceptive. Categories 1 and 2 obviously refer to persons who are dishonest, but, after referring to a person who has knowingly made a false statement or has dishonestly concealed material facts, the legislature, introducing its third category by the disjunctive "or", changes its language altogether. It does not specify a person who knowingly makes a misleading, false, or deceptive statement, promise, or forecast, or dishonestly makes it. It simply specifies a person who recklessly makes these things.
It is admitted that, if the arguments to which I have listened are right, the word "reckless" means, and means only, something dishonest. If that be so, why did Parliament not use that word as it had done in the line immediately before? Am I to say that the change of words involves no change of meaning? The ordinary meaning of the word "reckless" in the English language is "careless", "heedless", "inattentive to duty". Literally, of course, it means "without reck". "Reck" is simply an old English word, now, perhaps, obsolete, meaning "heed", "concern", or "care". In accordance with the accepted principles of construction I ought to give that meaning to the word, and, therefore, include that recklessness which is not dishonest, unless it is clear that in s 12(1) it bears a restricted meaning. On what grounds can I say that that is clear? Because, says counsel for Bates, the long title and cross-heading apart, Parliament cannot have intended that recklessness which would not even have supported a civil action for deceit should amount to a criminal offence carrying a maximum penalty of seven years' imprisonment, and because, says counsel for Russell, Parliament cannot have intended to treat alike dishonest rogues and persons who were honest, but careless. Those are cogent arguments. Against them there is this important consideration. The first two things with which s 12(1) deals are false statements of fact and dishonest concealment of facts. It is not a difficult matter to decide in any given case whether a false statement of fact is false to the knowledge of him who makes it, nor whether a concealment of facts is dishonest. But then the section goes on to deal, among other things, with forecasts which are misleading, false or deceptive. The case of a forecast seems to me to be a different matter. A man may say: "I expect the profits to go on increasing, or to be not less than last year", or: "I expect the value of the company's land and property to appreciate considerably". Those forecasts may turn out to be falsified by the events. How, in the majority of cases, could one prove that they were made dishonestly, even if such were the case? There would, I suppose, be glaring cases where it could be done, but such are the vicissitudes of human affairs, and their reaction on trade and business, that forecasts such as I have instanced might be made quite honestly, although they turned out to be unjustified. Obviously, therefore, it might be very difficult to bring to justice the person who had made such a forecast dishonestly.
It would seem to be quite understandable, in those circumstances, if Parliament, intending to do something about misleading, false and deceptive forecasts, took the view that, as a practical matter, it ought to go a step further than in the case of false statements and dishonest concealment of facts, and, besides striking at the dishonest prophet, do something to ensure that even the honest ones should take due care to see that their forecasts were not misleading, false and deceptive, and if, although honest, they were reckless, they should be liable to a penalty. There is nothing in this so repugnant to natural justice that I ought to limit the meaning of words which Parliament has used. It has given the courts, after all, ample latitude in the matter of punishment, enabling them to discriminate properly between moral turpitude and mere recklessness. It is not without interest to observe that Lord Herschell in Derry v Peek foreshadowed (14 App Cas 376) that Parliament might one day provide against negligence which was merely a breach of moral duty. Such weight as attaches to that which I have just said is not diminished because this part of s 12(1) deals also with statements and promises. With those considerations in mind and remembering all that has been urged on behalf of the accused, I am unable to accede to the argument that the word "reckless" in s 12(1) should receive a restricted meaning connoting only such recklessness as is dishonest. I think it must be left to bear its full meaning, and be construed, therefore, as covering also the case where there is a high degree of negligence without dishonesty. I thus reach independently the same conclusion as Humphreys J did in R v Hindes & Musgrave, and I hold count 3 of the indictment to be good.
[The trial proceeded and the defendants were convicted on counts 1 and 2, the jury being discharged from giving a verdict on count 3.]
Solicitors: Solicitor to the Board of Trade (for the Crown); E P Rugg & Co (for Bates); Claude Hornby & Co (for Russell).