Although the number of cases heard and determined in the superior courts remained small, and diminished proportionately, we
should not infer from this that they were unimportant. Quite the contrary, for the larger system of county courts, unlike
the courts of requests they replaced, were part of the same system of courts. After the creation of the Court of Appeal in
1875, appeals from the county courts could go directly to this court, generating important questions of law for the superior
judges to settle. With the mid nineteenth-century boom in legal publications – both in periodical and treatise form – the decisions of the superior judges were disseminated and discussed on a national
stage in a way not possible in the eighteenth century, where the transmission of legal ideas occurred far more informally,
through oral culture and the circulation of manuscripts.
We are led naturally to consider the politics of the judges. It is tempting to focus on the political views of individual
judges. But this is a topic which requires some care, for we must recall the increasing collegiality of the judicial benches,
which increased over time. It is certainly true that in the early nineteenth century, when the King’s Bench dominated the
common law side, the politics of that court, and hence of the common law as a whole, might be set by the politics of the chief
justice. As might be expected, given the general political landscape, the chief justices before 1832 – Lords
Ellenborough and Tenterden – were High Tories. They were both defenders of private property, suspicious of constitutional
change, and hostile to Radicalism. The High Tory
Lord Eldon, who was Chancellor for some twenty years before 1827, was also known to be a defender of the rights of property,
and a resolute opponent of reform proposals, whether of the
‘bloody code’ of criminal law or his own jurisdiction in the Chancery.
13 One might plausibly try to argue for a ‘High Tory’ law before about 1830, though such a categorisation might find it hard
to explain the approach of these judges to a number of modern commercial questions. But it becomes more difficult to argue
for a single political position in the higher courts thereafter.
The
Lord Chancellor’s remained a political position, and the holder of the Great Seal therefore changed with governments. From
1827 to the end of the Chancery as a separate court, no Chancellor would hold office for longer than six years at a time.
Equally importantly, switching the Great Seal between parties often did not import a significant change in political direction
in the office in the middle years of the nineteenth century. For instance,
Lord Cottenham (who sat from 1836–41 and 1846–50) clearly owed his preferment to combining legal skill with party loyalty.
In the view of the conservative
Law Magazine, he ‘surpassed even
Lord Eldon in political bigotry’, and used his patronage to advance Whigs. However, even this journal conceded that he never
‘imported political bias into the
Court of Chancery’.
14 Moreover, mid century occupants of the woolsack generally lacked the political clout enjoyed by
Eldon and Brougham before 1834. They spent much of their time in Parliament concentrating on law reforms, rather than having
a major impact on broader political questions. Although in the era of fusion, Chancellors like
Lord Selborne and Lord Cairns did play a more significant role in the wider world of party politics than their mid century
predecessors on the woolsack had done, their greatest impact was also in the area of law reform, where they were prepared
to co-operate in a non-partisan manner. The other judges of the court – the Master of the Rolls and Vice Chancellors – were
not removed when governments changed. Their politics ranged across the board, from
Lord Langdale, who had been one of
Bentham’s radical followers in the 1820s (but who had lost his radical edge by the 1830s),
15 to Sir
James Knight-Bruce, who was politically conservative.
16As for the common law side, the Tory
Tenterden was replaced by the Whig
Thomas Denman, who remained chief justice of the King’s (then Queen’s) Bench until 1850.
17 By then, this court was no longer the dominant one, for the Exchequer had begun to take more business. While the Queen’s
Bench was largely Whig in the era before 1850 – including
John Williams,
18 the scourge of
Eldon in the 1820s – it also
included some political conservatives, such as the High Church
Tory John Taylor Coleridge.
19 What were the politics of the Exchequer? Again, the answer is mixed. The Chief Baron of the court from 1834 to 1844 was
James Scarlett, Lord Abinger B.
20 Although he started his political career as a Whig, he had definitely converted to the Tory side by the time of the Reform
Act. Abinger was famously subjected to criticism in the House of Commons in 1843 for his handling of Chartist trials. He was
joined on the bench in 1834 by Sir James Parke, who sat until 1856.
Parke, who was first appointed to the King’s Bench in 1828, was largely non-political.
21 He was known in the profession for his devotion to the technicalities of special pleading; and it was he, rather than Abinger,
who dominated the court. The other prominent member of the court in this era,
Edward Alderson, was also largely non-party-political: never an MP, he made his name as a law reporter, before consolidating
his reputation for legal learning with an extensive practice as a Chamber counsel.
After mid century, we can again find judges with strong political views, some of whom seem to reflect the dominant ideology
of the age. The judge most often cited in this context is
George Bramwell, who dominated the Court of Exchequer for twenty years after 1856. Bramwell was a liberal, and a vocal champion
of laissez-faire, whose hostility to socialism led him to be a leading member of the Liberty and Property Defence League.
22 But again care is needed, for the Chief Baron between 1844 and 1866 was Sir
Frederick Pollock, who was a Tory MP in the early 1830s and had been Peel’s Attorney-General. Although dominated by Bramwell
later in his career, he was a powerful force on the court in the 1850s. Moreover, he was succeeded by another conservative
former Attorney-General as Chief Baron
Fitzroy Kelly.
23We should also note that the two mid century judges who were most praised for their legal skill and influence,
James Shaw Willes
24 of the Common Pleas and
Colin Blackburn of the Queen’s Bench,
25 had no strong political affiliations.
26 While Willes was known to have liberal sympathies and to be enthusiastic for law reform, his fame rested on his extraordinarily
extensive knowledge of English case law and the clarity of his thought in searching for legal principles. Blackburn similarly
had no known political views, though his brother was a Conservative MP.
27 But both men were steeped in commercial law, Willes having developed his early practice in shipping (while taking time to
edit his friend
J. W. Smith’s
Leading Cases), and Blackburn having written an influential book on sale, which displayed his knowledge of civilian learning as well as
common law doctrine.
28 If it is true that the Exchequer had a greater share of the business than the other courts, it must be recalled that before
1875, review on questions of law (not appeals as such) from one common law court went to the Court of Exchequer Chamber, whose
judges comprised the judges of the other two courts. Legal doctrine had to emerge by persuasion, not pure politics.
On the equity side, we can see a similar balance. The Master of the Rolls,
Sir John Romilly, was a Liberal, as was the Vice Chancellor, Page
Wood. But the other Vice Chancellors, Stuart and Malins, were Conservatives, and ardent protectionists.
29 Moreover, if Bramwell had the most purist views of political economy, in the 1860s and early 1870s it was often Malins and
Stuart who had to clear up the mess when companies failed. It might thus be paternalist Tories who dealt with the fallout
of capitalist failure, rather than the ardent economists. And
even the Liberals, Romilly and Wood, had a keen sense of what moral conduct was required. Page Wood was often keen to proclaim
in court on the need for truth and fair dealing, and indeed himself gave lectures on truth at Exeter Hall.
30After 1875, the two jurisdictions of law and equity merged, and appointments were made to ensure that the two branches of
the profession would ‘mingle’.
31 Once again, we can find our supporters of liberal political economy, notably the Master of the Rolls, Sir
George Jessel (1873–83).
32 But again, the politics were mixed. Among the common lawyers,
Charles Bowen was broadly Liberal in his political views, but was another man whose fame rested on legal rather than political
skill. If he was a wiser lawyer, he was generally dominated in the Court of Appeal by
W. B. Brett, who was a Conservative, having been Disraeli’s Solicitor-General. Brett was another who took a highly moralistic
view of the common law. For him, the law should protect the rights of individuals from being harmed by others. He was also
notoriously hostile to trade unions.
33 Given that there were Conservative governments for twenty-one out of twenty-nine years after the union of the judicatures,
it is hardly surprising that we can find more conservative than liberal judges, particularly given
Lord Halsbury’s penchant for appointing judges ‘as much for their political reliability and political services performed as
for any other reason’.
34 But once more, we can find technicians, such as
Nathaniel Lindley, who succeeded Brett as Master of the Rolls in 1881, and who was regarded by
Frederick Pollock as his ‘master in the law’, the teacher who imparted to him the lesson that law was ‘a science’.
35The conclusion from this brief survey is that the politics of the judiciary could be mixed. Despite historians’ repeated invocations
of the names of Bramwell and Jessel as totems of a judiciary keen to advance the particular economic interests – whether those of trade and
industry or finance and banking – there was always a strong countermeasure of conservative voices on the bench, which became
more prominent as the century drew to a close. As has been seen, in many cases, what made a legal reputation, and what helped
to build law, was not a political reputation but legal mastery. Indeed, many of the most innovative judges in the Victorian
era were either non-party-political or Conservative: decisions which constituted startling innovations in legal doctrine might
therefore make no discernible impact on the wider world of political debate.
We need to be cautious of laying too much stress on the political views of individual judges for another reason. Any judge
had to persuade other judges on the bench of his view of law; and this view in turn might be tested on appeal. At the same
time, there were constraints on judgment, since all decisions had to be justified in terms of legal precedent. We also need
to bear in mind the professional identity of the lawyers at this time. This identity had been fostered in a number of ways. The 1830s and 1840s
saw the growth of new professional bodies, in London and the provinces, such as the Incorporated Law Society, which obtained
its charter in 1833. This era also saw the rise of pressure groups, such as the Law Amendment Society, founded in 1844, and
dominated by barristers. A proliferation of legal journals helped foster a sense of collective identity. What we are looking
for is therefore less the particular politics of individual judges, but the institutional politics of the courts.
The judges who contributed to the development of this institutional politics had to take into account several things not generally
found in legislatures. First, they had to resolve disputes between parties, evaluating conduct which had happened rather than
explicitly making policy for the future. Secondly, they had to give reasons for their decisions which would be persuasive
to other judges and stand up to scrutiny. If this was politics, it was a highly reasoned form of it. Thirdly, judges had to
maintain consistency in the law and fidelity to its past. Judges were praised for being able to articulate principles which
they found in cases. This was in part an exercise in interpreting the needs and feelings of the wider community, for the common
law was recognised as being rooted in the customs of the English people. But it was also a technical and analytical exercise,
one of marshalling the precedents and
identifying the structure of law. Many of the most admired judges had made their names as treatise writers early in their
careers, seeking to collect and make sense of areas of law. The search for principle was encouraged by the movement – which
began in the first half of the century, but only bore fruit in the second half – to revive legal education, both at the Inns
of Court and in the universities, and to encourage the study of Roman law.
36 But lest we get too romantic about the developing politics of the law, we need to bear in mind that the courts often acted
in an
ad hoc manner, and one which was also
post hoc. Judges responded to social and economic problems as they came before them, and often had to fill in gaps left by unclear
or imperfect legislation. Their work was therefore often experimental, haphazard and changeable
.
Before analysing the politics of the courts, it is useful to sketch out some of the general trends identified by political
historians for the nineteenth century. We can divide the period roughly into three. The first era, running roughly from the
1820s to 1850, has been described by
Boyd Hilton as one dominated by evangelical religion and the teachings of political economy. It was also a period of political
instability, with the radical and Chartist challenges to the status quo.
37 This was an age of mild reform, but also an age of anxiety, spawned by the great changes wrought by massive population growth,
economic change and popular protest. According to Hilton, the heirs of Pitt reacted to this by taking a mechanistic view of
human action and government. Their views gained ascendancy over the more organic, paternalistic and moralistic views of the
older Tory aristocracy, which had been dominant to the early 1820s. The new view suggested that all governments could do was
to put in place institutions which would allow the natural laws of the economy and society to prevail. Government was to be
small and largely concerned with maintaining sound economic policy, with a currency based
on the gold standard that would encourage ‘sound’ commerce without permitting insubstantial enterprises to grow. This ideology,
Hilton suggests, was informed by evangelical religion, which taught that man’s salvation lay in his choosing good over evil,
and that he had to use reason to control his passions. Those who failed, in business or in life, deserved their fate since
they had failed to make the right moral choices. This was a harsh moral world,
where people were to be punished by the rigid laws of political economy for their failings.
This pessimistic view of the world changed mid century, in what used to be called the age of equipoise, running from the late
1840s to the early 1870s.
38 The mid Victorian era has long been seen as one of prosperity and optimism, as the economy grew with free trade, and as the
political threat of Radicalism faded away. In Hilton’s interpretation, the dissipation of the evangelical
Angst is most clearly exemplified by the passing of legislation in 1855 which permitted joint stock companies to incorporate freely
with limited liability. Investors could now safely be speculators, secure in the knowledge that if the enterprise failed,
they would not lose every penny they possessed, but only the value of their share. It was not a sin to trade and fail: the
new law would cushion you
.
39Free trade, laissez-faire and freedom of contract clearly dominated mid century politics.
Free trade famously triumphed in 1846, with the repeal of the Corn Laws. In this year, the vested interests of the protectionist
landed aristocracy finally gave way to cheap bread for the masses and high commercial dividends for the middle classes. Repeal
of the Corn Laws split the Conservative Party. The legislation was passed by its leader, Sir
Robert Peel, who (as a
Liberal Tory) had long been convinced of the errors of agricultural protection. But it was resolutely opposed by the heirs of Eldon’s
High Tories, who were outraged by Peel’s betrayal. Most of Peel’s followers (including Gladstone) gradually gravitated to
the Liberal side, while the protectionist Tories remained in the wilderness. Between 1848 and 1874, Liberal governments were
in power for all but two years. Their free-trade ideology embraced not merely the notion that there should be no tariffs on
trade, but a wider ideology of minimal state interference, and maximal individual liberty. In terms of economics, business
was to be left largely unregulated (save in the case of large monopolies, such as railways or utilities). It was, as it were,
a guilt-free, optimistic version of the Liberal Tory ideology of the 1820s and 1830s, and left little space for old-fashioned
moralistic paternalism
.
In turn, this was replaced in the late nineteenth century by another era of uncertainty and rapid change. Mid Victorian complacency
was dealt a blow after 1873, when the economy began to slow (in common with all Western ones). If manufacturing industry suffered,
things were far worse in agriculture, where cheap imports from distant overseas markets generated a severe agricultural depression.
This lowered rents for landlords, and drove unemployed farm workers into the towns. Urban poverty again became more visible
and a source of social anxiety, leading to fears of social degeneration. Labour unrest grew once more, finding organisational
focus in the new unionism of the late 1880s. Reform Acts in 1867 and 1884 extended the franchise and made working-class voters
much more important, especially to the Liberal Party. The mid Victorian commitment to free trade and laissez-faire was thus
increasingly challenged by those who called for collectivist intervention. Governments responded not by implementing socialist
or collectivist programmes, but by increasing intervention. Particular attention was devoted to the social fabric – public
health, housing – and there was a marked retreat from the ‘dismal science’ of political economy.
The thumbnail sketch I have just given of the political history of mid nineteenth-century England fits very well with
Patrick Atiyah’s theory that the nineteenth century saw the rise and fall of
‘freedom of contract’ which matched the rise of the dominance of classical political economy, replacing an older moral economy,
and its subsequent decline with the rise of a welfare state. It is certainly true that the legislative framework of the eighteenth-century
moral economy was dismantled in the early nineteenth century. Nineteenth-century magistrates were no longer expected to regulate
the price of bread or set fair wages. But for the poor,
the moral economy was not replaced by freedom of contract
. Instead, there was a new system of regulation created by Parliament. In place of paternalism, a Tory government enacted
the Master and Servants Act of 1823, making it a criminal offence for a labourer to
break his contract of employment, and a Whig government enacted the New Poor Law, which sought to discipline, rather than
to relieve the poor.
40 Judges famously joined in with what has been called the creation of ‘class law’ by Paul Johnson
,
41 with repeatedly hostile judgments respecting trade unions,
42 and the development of the rule of common employment which shielded employers from claims for accident compensation.
43 When it came to the politically disenfranchised nation, the judiciary was even less interested than the legislature in developing
rules which would protect the common people from economic hardships.
44In fact, the main
focus of attention for the early and mid nineteenth-century judiciary was not on issues relating to the disenfranchised, but
on economic questions which were of central interest to the politically enfranchised nation. Questions concerning property
were those which came most often before the courts. In 1860, for instance, the judges of the common law courts heard 1,437
cases which were concerned one way or another with questions to do with real or personal property rights. They heard only
613 tort cases, of which only 156 were personal injury or negligence cases.
45 Of the cases to do with property rights, only 245 concerned issues arising from land. The common law courts, it may be said,
dealt very prominently with the issues growing out of commercial society. Chancery was also a court of property
par excellence, though here the business pertaining to real property was clearly larger. But in the
era after 1852, an increasing amount of its time was spent dealing with the problems arising from commercial investment
.
In what follows, three areas will be examined where lawyers and the courts developed policies for regulating economic activity.
If the mid nineteenth-century state favoured a policy of laissez-faire and retrenchment, commercial activity could not be
carried on without a base-set of rules. In the first area, the law of contract, Parliament did not intervene, and it was left
largely to the judiciary to develop the framework of rules within which trading activity would take place. In the second,
company law, Parliament did create a framework of rules, but these rules were found in practice to leave many questions unanswered.
Here, again, it was left to the judiciary to devise the rules. In the third area, the law of insolvency, it was the legislature
which created the framework. However, insolvency law was not politically contentious. Instead, it was a system largely fashioned
by lawyers and law reformers. In developing the law in these areas, lawyers and judges were not simply promoting freedom of
contract and maximizing business opportunity.
The notion of freedom of contract was not one new to the nineteenth century. The principle of
caveat emptor, which established (for instance) that a seller gave no guarantee either of the quality of goods, or even that he had a full
title to sell them, was a principle as familiar to equity judges as common law ones, and one for which authority was found
in seventeenth-century law manuals.
46 Whereas English law in the eighteenth century had rejected any formal principle of good faith in contracting, nineteenth-century
judges sometimes qualified and amended this view and developed a set of moral principles regulating the contracting process.
This was not to do with setting fair prices, or ensuring that needs were met – the topics we associate with
E. P. Thompson’s notion of a ‘moral economy’. It had to do rather with preventing fraud
and ensuring fair dealing. The common law certainly took a highly individualistic approach, but it was a conservative view
of individualism, one based on protecting individuals from being cheated, rather than giving them the chance to cheat.
In analysing how the judges developed rules for the market, we need to recall the artificial forum in which they made rules.
Instead of developing rules in the abstract to promote business, judges responded to problems posed by individual litigants
when things went wrong. As
Mackenzie Chalmers pointed out, ‘lawyers see only the pathology of commerce and not its healthy physiological action, and
their views are therefore apt to be warped and one-sided’.
47 Their views of how law should develop were shaped therefore by the sharp practice which came before them.
In many areas of contract, early and mid nineteenth-century judges sought to develop a moral view which did not always go
down well with the values of the commercial community. This can be seen in two approaches taken by the judges. First, courts
sought to protect buyers, to ensure that sellers would not be able to cheat them with sharp practice, passing off substandard
goods. Secondly, and sometimes running counter to the first, judges also sought to protect owners of property where they had
been cheated out of their goods. In both areas, the courts protected potential victims of fraud, but in ways which were not
always good for business – for which free trade might best be promoted by upholding the validity of transactions, even at
the cost of the occasional fraud.
The first approach can be seen in the early nineteenth-century development of
implied warranties of quality in the sale of goods.
48 As they sought to figure out what was entailed by contractual relations, judges qualified the principle of
caveat emptor in an attempt to protect buyers.
Lords Ellenborough and Tenterden of the King’s Bench and Best CJ of the Common Pleas in particular developed the idea that
there was an implied warranty of merchantability of goods sold for a purpose. It is interesting to note that their decisions
caused disquiet among those who felt that the rule would be bad for business, since it would encourage litigation over how
durable goods should be.
49 But these Tory judges felt
that the buyer should get what he ordered. It was not that the judges wanted to make contracts for parties in a paternalist
way. Ellenborough, indeed, was therefore happy enough to throw all the risks on the buyer if the contract stipulated a sale
‘with all faults’,
50 where the price would be lower. But it was to ensure that parties dealt fairly with each other.
The rule was qualified over time. It became established that where one bought existing goods,
caveat emptor applied, whereas if one had goods manufactured to purpose or bought fungible goods, there was an implied term. Judges and
jurists put forward various theories to explain this doctrinally, at the heart of which was the issue of what the parties
had in mind when one person ordered goods and the other agreed to supply them. One might assume there was a tension between
judges who favoured
caveat emptor fighting those who wanted protection, and that each might have staked out claims to territories of doctrine. But it was not
a party political matter. The rule, that where one bought existing goods one assumed the risk, was developed by judges including
the Tory
Abinger,
51 the neutral Parke, and the Peelite Cresswell.
52 In 1847 and again in 1862, the Exchequer decided that there was no implied warranty of quality when a carcass of meat was
sold for human consumption, since it was an existing thing which could be checked by the buyer. Certainly, the decisions came
from the apparently pro-business Exchequer – but they were handed down respectively by Parke B and Pollock
CB. It was not that the Tory Pollock was suddenly happy for bad meat to be foisted on an unsuspecting public. But he was aware
that in the modern age, when railways brought large supplies of meat to London from all over the country, the retail butcher
who bought from intermediary salesmen who imported it were in as good a position to judge its quality.
53 The moral economy which was developed was not paternalist or protectionist, but was a way of establishing a fair rule for
the market.
Implied warranties
of title were slower to develop, but here again the courts came to focus on the buyer’s expectations. Here, the trajectory
is perhaps unexpected. The mid century defender of the rule that a vendor only sold what title he had was
Parke B, in the 1849 case of
Morley v.
Attenborough. Here, it was held that a pawnbroker selling forfeited goods only passed such title to goods as he had, and was hence not
liable
to repay a purchaser who lost them when the true owner turned up.
54 Parke’s decision was not a ringing endorsement of freedom of contract (for he said a different rule might apply to the sale
of unascertained goods). It was rather a decision designed to protect pawnbrokers, whose right to sell forfeited goods was
highly regulated. Pawnbroking was of course an essential source of credit for the working class, and pawnbrokers had in earlier
times been defended by such morally minded judges as
Lord Kenyon.
55 For Parke B, those who bought from pawnbrokers knew the risks they ran. The judge who sought to make an implied warranty
of title the default rule (leaving an exception for men such as pawnbrokers and sheriffs) was
Erle J, the Whig liberal defender of freedom of trade at common law.
56 Erle J’s decision – that where one bought goods from a shop or warehouse, one expected to obtain property in the goods –
was a sensible enough decision, again protecting the buyer to ensure that he got what he wanted. Freedom of contract meant
receiving what you wanted, not the freedom to cheat.
The second approach can be seen in how judges handled fraudulent sales. Just as judges were concerned to protect the buyer,
so they sought to give a high level of protection to owners of property. Protecting rights in property was often regarded
as more important than protecting freedom of contract. The results of their attempts were often not good for business and
were themselves incoherent, as can be seen from the common lawyers’ attitude to the acts of commercial agents. From the viewpoint
of merchants, it was essential that those who had been entrusted with apparent ownership of property should be able to pass
it. The risk of losses caused by fraud were not regarded as sufficiently significant to outweigh the need to be able to deal
confidently with goods. As
Bowen LJ observed in 1883, ‘credit, not distrust, is the basis of commercial dealings; and mercantile genius consists principally
in knowing whom to trust’.
57 One area where this was particularly important was when dealing with factors – agents who bought and sold goods on behalf
of other merchants. Throughout the middle years of the century, judges repeatedly frustrated the desire of the commercial
community to allow factors to deal fully with the goods of others which
remained in their possession. It had been settled in the eighteenth century that factors could sell, but not pledge, the goods
of their principals.
58 But in fact, it was often in the business interest of both principal and factor to allow the latter to raise money on the
faith of the goods, waiting for a turn in the market. In the commercial world, it was essential to be able to raise money
on the credit of goods pledged; but in order to do so merchants had to be entirely confident that the loan was secure. Merchants
seem to have been largely unaware of the rule regarding pledges until the early 1810s, when after the bankruptcy of a number
of factors (during a collapse in the West Indian coffee market), principals recovered the value of their goods from lenders.
Lord Ellenborough’s decisions showed that the common law protected the owners, and not the lenders, even when the factor had
not been guilty of any fraud in pledging the goods.
59 There was mercantile uproar and a Factors Act followed in 1823 which sought to protect the lender. Yet the Act was soon restrictively
interpreted by the judges, led by
Lord Tenterden
60 and Parke B,
61 who instinctively sought to protect the original property owner. After amending legislation was passed in 1843 to protect
the lenders, another series of restrictive interpretations was put on the new Act by
Blackburn J
62 and Willes J.
63 In taking these views, the judges, regardless of their political views, were keen to prevent fraud. It was a view which may
have seemed odd to merchants. Judges like Willes were worried that a law which expanded the doctrine of apparent ownership,
which existed in the realm of bankruptcy, would promote fraud. The view of these technical judges was one which was commercially
conservative, and protective of property.
If this was bad for business, it was also often incoherent. This can be seen when judges dealt with the vexed question of
whether a seller who had been cheated out of his goods could recover them. Early nineteenth-century judges began to assert
that where goods had been acquired by fraud, no property passed (which went against the eighteenth-century
criminal rule). If someone bought goods without intending to pay for them, it was said, no property could pass. This view
was taken by the Tory
Tenterden.
64 The Whig
Lord Denman confirmed in 1835 that no property could pass where there was fraud.
65 In bankruptcy cases, where property had been obtained via fraud, courts held that the doctrine of apparent ownership did
not apply, and the original owners could recover the property which would not go to the bankrupt’s creditors. But by the 1840s,
the common law judges had begun to change tack, now saying that contracts for goods induced by fraud were voidable, and not
void, so that if the seller affirmed the contract, or an innocent third party acquired rights, the seller would have to bear
the loss, as property had passed.
Lord Abinger
66 and Parke B
67 led the way here.
Just as this rule was put in place to protect innocent buyers, so another one was found to protect sellers. In 1856, in
Kingsford v.
Merry, the Exchequer and then Exchequer Chamber heard a commercial case where the plaintiff had sold a cargo of acid to a merchant,
William Anderson, who claimed (falsely) to be acting as factor to another merchant. The plaintiffs gave him delivery orders
for the goods, which he used to obtain dock warrants for them. He used these in turn to raise a loan from the defendants.
The crook in question here obtained goods by pretending to be the factor of another. In the Exchequer,
Pollock CB applied the recently developed rule as to fraud, and said that property had passed, and that the plaintiffs could
no longer recover it. In his view, commerce could not be carried out if lenders could not rely on the security of these warrants.
68 But his decision was overturned in a court whose leading judgment was given by
Coleridge J, the nephew of the well-known high priest of early nineteenth-century conservatism, who held that here no property
passed since, by a correct analysis of the contractual relation, the parties were not in the position of vendor and vendee.
While property passed where there was fraud, it did not pass where the nature of the deception was such that the crook could
not be held a party to the
contract.
69 The mercantile community was soon up in arms at the decision,
70 feeling that such warrants should be considered as secure as bank notes for the lender. Public meetings were called, but
no reform was passed, and subsequent judges pointed to the inability of the merchants to agree to a change to show that they
must have been right. This case helped pave the way for the decision in
Hardman v.
Booth in 1863, often seen as the first mistake-of-identity case, where the Exchequer held that no contract was made when a supplier
of goods sold to a man who had lied about his identity, so that an innocent buyer in the market could not retain the goods
bought.
71 The leading judgment here was given by
Pollock CB. These decisions seem an odd move away from the line taken in fraud. Commercially speaking, they were odd. It was
surely easier commercially to put the risk of loss due to fraudulent sales on the seller than on the buyer in the market;
and certainly a supplier was in a better position to insure. It is therefore hard to explain these decisions, though the fact
that in both cases the perpetrator of the fraud had been convicted and gaoled may have influenced the courts’ moral views
of the cases. It may also be significant that in both cases the innocent third party was someone lending money on a pledge
of goods – in other words, someone the courts felt should have taken more care. But in any event, the result left the still
troubling doctrine that contracts obtained by fraud are voidable, but those obtained by mistake of identity are void.
Despite the ideology of freedom of contract, then, it is hard to see the development of this area of law as notably
political or in thrall to commercial interests. In general, lawyers developing the law of contract sought a doctrine which was coherent
and systematic. At the same time, however, we can perceive a kind of moral economy at work, which looked at the wellbeing
of the individual property owner and property seeker. The dominant political language here was not one which left people free
to enter whatever contracts they liked, being left to their fate if they chose badly. It was a view which sought to protect
the individual from fraud. This law was not often very pro-business. In fact, the
mercantile community often disliked the rules elaborated by the judges, and so contracted out of them, or developed their
own forums of dispute settlement. But the rules, often developed in commercial contexts, generated a body of contract law
which county courts would apply to consumers.
For mid century ideologues, such as Robert Lowe, freedom of contract did not, of course, mean the set of technical rules which governed the sale of goods. It
meant the freedom to invest in enterprises of one’s choice, including limited liability firms, without requiring any particular
governmental authorisation. However, the highly non-interventionist company law regime created by legislation proved insufficient
to resolve many of the practical problems encountered by investors who needed the courts to sort them out. It was in this
area that the courts’ concern with fraud was so central. It is also here where we can see a divergence in the politics of
the courts and the politics of the legislature.
The legislative history of joint stock enterprise follows
Hilton’s model very clearly.
72 Until 1844, any
joint enterprise seeking corporate powers needed to get either a statute to incorporate it or be granted corporate status
by royal charter. Corporate status – which might (but need not) include limited liability for shareholders – was a privilege,
and was not available as a right. Any unincorporated joint stock enterprise was a partnership, in which every member had unlimited
liability. The 1844 Joint Stock Companies Act changed this. Under the Act, every partnership with more than twenty-five members,
and any enterprise with freely transferable shares, had to register as a company. It had to register twice: first, provisionally,
giving details of its projected activities and directors; and secondly when it could commence business, at which point the
firm gained full corporate status. This Act also made a large number of regulatory provisions over how companies were to operate,
but it did not grant limited liability. This was granted in 1855 to any firm of at least twenty-five members. In 1856, limited
liability was extended to all companies of seven people, and a legal regime was introduced which
removed most of the regulatory controls established in 1844. By 1856, England had the most liberal company law regime in Europe,
and had set out a legal framework which was to remain largely in place for the rest of the century. This history seems to
reflect a move in 1844 away from paternalistic discretion – with the state having the power to incorporate at will, but with
continued hostility to speculative activity – to a mechanical form of regulation, which was more welcoming to joint stock
activity. The 1844 Act aimed at providing publicity so that those who invested would see which companies were safe and which
were not; but if they chose badly, they would suffer unlimited liability. This looks like an appropriately Peelite piece of
lawmaking. In 1856, it was thought that the protection the regulation seemed to offer was wholly deceptive. People should
be left wholly to themselves to choose; and they should be left to their own devices in supervising and administering companies.
But if they chose badly, they were to be cushioned from losing their fortunes. This seems to reflect an optimistic laissez-faire
approach.
If the
legislative history fits Hilton’s historiographical model, it is not clear that the history of judicial attitudes reflects it so well.
We should recall that there was a good deal of unincorporated joint stock enterprise before 1844, particularly in the life
insurance sector. Moreover, there were periodic booms in joint stock company flotations. In 1825, there was a notorious stock
market crash, with a large number of failures. It is well known that in this era, Tory judges like
Tenterden and Eldon expressed views very hostile to joint stock enterprise, and applied the
Bubble Act of 1720 which made it illegal for unincorporated companies to deal in shares. At first glance, this seems to endorse
the historians’ view that reckless speculative investors were to be left to their fate so they would be punished for their
sins. But we should look more closely. Generally, these judges were seeking not to punish the
investor but the speculating
dealer. Tenterden and Eldon did not share the evangelists’ dismal theology. Take the case of
Josephs v.
Pebrer in 1825. Here, Tenterden applied the Bubble Act and condemned the ‘gaming and rash speculation’ which had occurred on the
Stock Exchange and spoke of the need for ‘fair mercantile transactions’ where each party would ‘reap a profit in his turn’.
73 But in this case, significantly, the loser was the stockbroker who was suing an investor who failed to pay for the shares
when the market collapsed. The court refused to order the customer to pay him. It was therefore the dealer who was punished
for his
trade, not the customer who had wanted to buy. In another case of the same year,
Nockels v.
Crosby, the King’s Bench judges refused to apply the Bubble Act in a way which would have prevented an investor recovering money
he had put into a project which had failed. Echoing the approach taken in sales of goods, the court found that he should not
pay when the project he was investing in never got off the ground. Again, the court protected the investor who had been caught
in a speculative transaction.
74If courts gave relief to the investor who wanted to join a company which turned out to be a fraud, they were less keen on
helping out those who merely regretted their investment. Eldon’s approach to companies in effect put them beyond the help of the law, at least where it came to internal disputes.
The court would only interfere in any internal matters if a firm was to be dissolved, and to dissolve a partnership there
had to be proper notice given to all partners, which might be practically difficult. Eldon’s hostility to joint stock enterprise
translated into effective laissez-faire, as he well knew. As he put it in one case, companies generally had the good sense
to avoid going to court:
as they were usually governed by some moral principle, which was found sufficient for all their purposes, and as they took
care to do justice for themselves to all persons who were in a situation to claim anything from them, they went on without
inconvenience.
75
Companies were effectively left to run themselves.
The result of Eldon’s
approach was also, paradoxically, to give unincorporated joint stock companies the perpetual existence which was the hallmark
of incorporated ones. In practice, his technical doctrine shielded companies both from disgruntled shareholders and from creditors.
A company could generally find ways to sue its debtors (if its company deed were well-enough drafted),
76 but if sued by creditors it could claim that not all the members had been named. Even where a creditor won at law, he might
not gain his money. For although shareholders had unlimited liability, this did not help creditors who did not know the names
of shareholders and who might be given power to sue only an impecunious officer. So, we
may conclude that the courts in the 1820s were concerned to protect the innocent investor from frauds where possible, but
otherwise to leave business largely unregulated. This was hardly a legal regime which was hostile to commerce, or tough on
naive investors. Dour evangelicalism clearly did not reach company law
.
The courts’ willingness to protect the naive investor can be seen once more in the 1840s in the era of railway failures, when
legions of widows and clergymen sank their savings into projected railway lines which failed. The legislative framework was
sloppy and the courts had to sort out the mess, and decide who was to pay when firms failed. As was so often the case with
nineteenth-century company law reforms, legislation served to confuse rather than to clarify.
77 When the disputes came to courts from the late 1840s, they took a sympathetic view of those who had invested in failed firms.
For instance, the gentlemen who had agreed to act as provisional committeemen for railways – that is, the first directors
of the company – were protected by the courts.
Pollock CB ruled that such men were not to be seen as partners in a concern seeking to make a profit, but rather like members
of those committees set up to build ‘a proprietary school, or literary institution, or assembly-room’.
78 Pollock was sympathetic to such men, men like him. Provisional committeemen were seen as part of a genteel world of improvement,
not as part of the world of trade. This meant that such a gentleman would only have to pay for any goods he had personally
ordered. Once more, the commercial creditor was the one who suffered. The investing public was also protected.
79 Those who subscribed for and had been allotted shares were not regarded as partners in a firm. Even those who had bought
and traded ‘scrip’ – the certificates giving an entitlement to a share – could recover their money if the firm had failed,
again on the principle that those who bought something should get what they ordered.
80 Once again, it was
commercial creditors who picked up the tab,
81 since the company they lent to often turned out to be only an empty shell. Nor should we identify this with a decline in
the hold of evangelical guilt: for the arguments which courts used, and the precedents they cited, often derived from the
1820s.
This was, in effect, a paternalistic approach to the naive investor
often inspired by Tory judges.
82 But it was matched by a continued unwillingness to interfere in the internal affairs of a company. The leading case – one
still cited in current textbooks – was
Foss v.
Harbottle, decided in 1843.
83 The case was brought by members of the Victoria Park Company – a company incorporated by statute to develop and sell some
property near Manchester. It turned out that some of the directors had sold their own property to the company at a profit.
Since this defrauded the company, some shareholders sought to sue the directors. But the Vice Chancellor, Sir James
Wigram, held that any action could only be brought by the company as a whole, not by individual shareholders. If shareholders
disapproved of the action of the directors, they had to deal with it within the corporation, and could not ask the court to
intervene for them. In effect, companies were regarded as little democracies, so that minority shareholders could not ask
for the intervention of courts. This looks very much like a key principle of laissez-faire. But we should note that it was
settled early – three years before the repeal of the Corn Laws – and by a Conservative Vice Chancellor.
84 The decision was not an ideological one nor one driven by political economy theory.
What of the period after 1855? As has been seen, Parliament abandoned the aim of regulating company formation, feeling that
any regulations would be a snare rather than a safety net. In this era, governments took the view that it was up to shareholders
to exert the maximum control over their companies, rather than leaving it to the paternalistic control of state regulation.
Protecting shareholders by a strong regulatory regime,
Lowe and his cohorts felt, was a pointless attempt to protect shareholders who needed to exert their own controls. As for
creditors, they were best protected by knowing what the firm’s capital was and by
knowing that it had limited liability. In the event, harsh business reality revealed Parliament’s ideological framework to
be miscued. While shareholders could, if they chose to, take control of the company, the information they most needed was
information about the prospects of the company at the moment of its formation. Once they had taken control, it was often at
a late stage when they discovered the firm’s inherent insolvency and had to recover assets from fraudulent promoters. They
then discovered in addition that they really did not have limited liability, since most firms until the 1880s called up only
a small proportion of the nominal capital of the firm. As for creditors, they were the very people who needed to know the
real solvency of the firm, which would have been available through published audits.
85The result was that the non-regulatory model of the liberal free-trade state broke down in the real world, where a regulatory
framework was needed to sort it out. The court where much of this business went in the 1860s and 1870s was the Chancery or
the Chancery Division of the new High Court. The men who dealt with these disputes were the Vice Chancellors, Masters of the
Rolls and Lords Justices of the Chancery Court of Appeal. Long-term judges in these courts before fusion included John
Romilly, William Page Wood, George Turner,
86 Richard Kindersley, John Stuart and Richard Malins. Although they represent a fair spread of Liberals and Conservatives,
they all subscribed to a business morality concerned to protect investors and curtail fraud. They also had a keen sense of
natural equity in the law of obligations. They were not free-trade ideologues but felt the need for good faith in contracting.
Romilly MR
87 and Page Wood VC,
88 for instance, applied the doctrine of undue influence so as almost to put the onus on anyone receiving a large gift to prove
that the donor understood what he was doing in giving it. Stuart VC wanted to extend the rules of undue influence to protect
poor
borrowers from money lenders. In 1866, he observed that the repeal of the usury laws brought into operation ‘that principle
of the Court which prevented any oppressive bargain, or any advantage exacted from a man under grievous necessity and want
of money, from prevailing against him’.
89 Malins VC also took a tough view on money lenders, stating in one case that he would not allow money lenders ‘to entrap persons
by offers of easy terms and then charge exorbitant ones’.
90 In an age of freedom of contract, such judges were keen to apply ideas about unconscionable bargains – which were often associated
with the eighteenth-century Chancery – to new contexts in which they felt the economically vulnerable needed protection. Men
like
Romilly, Malins and Stuart were also among those keenest to extend the doctrine that a person would be held by a court of
equity to make one’s promises good, even where they were not backed by consideration. In their view, it would be a fraud for
a person to go back on a relied-on promise, especially one relating to a vested right.
91In practice, poor men and women were not likely to be able to get before the Chancery Division to ask for its help against
money lenders. By contrast, middle-class investors who had been duped by bad promoters were in a much better position to seek
the aid of Chancery judges. When they got to court, they found that the judges were willing to develop doctrine which protected
their interests. Two developments are particularly significant. The first was the development of the rule that an investor
could rescind a contract to buy shares in a company, where the prospectus had been misleading without being fraudulent. Rescission
of executed contracts for non-fraudulent misrepresentations was not a remedy which had been available in early nineteenth-century
equity.
92 But it began to develop mid century. Perhaps the most
important figure in its development was Sir
George Turner, who in a series of cases sought to weave together a series of equitable strands to give relief to shareholders
misled by untrue prospectuses. Turner LJ held that a shareholder could rescind a contract to buy shares in a company when
his consent was induced by the fraud of a promoter, on the ground that the company could not retain property obtained by fraud.
He also held that where a statement was not fraudulent, but misleading, a party could rescind. This was because he felt that
a company which issued information had to be taken to warrant its truth. Turner died in 1867, but by the early 1870s, his
arguments had won over other judges dealing with company cases,
93 and in the aftermath of fusion, the equitable notion that executed contracts for the purchase of shares or businesses could
be rescinded where there had been a non-fraudulent misrepresentation became firmly rooted.
94 It was in many ways a position which was
necessary – almost in a legislative sense – to protect investors. But it produced doctrinal problems. In
Derry v
. Peek, the House of Lords famously rejected the idea that one could also have damages for negligent misrepresentations, rejecting
a rule (initially wanted by Lord
Kenyon) that people must be held to warrant the truth of all their statements. This put the common law into opposition to
the equitable view. Ironically, while the decision in
Derry v.
Peek was repealed by legislation in respect of companies,
Turner LJ’s notion – that one could rescind for negligent misstatements – was generalised by treatise writers to mean that
the buyer of goods could rescind a contract entered into on a negligent misrepresentation, even if the matter about which
the representation was made was a minor one, the breach of which (were it a term) would not justify termination. The doctrine
developed by judges in response to problems presented to them in cases was hence not always elegant or coherent.
The second area is the set of rules developed in the 1870s which set forth that promoters of companies owed fiduciary duties
to companies they formed and to the investors in those companies.
95 These rules derived from a series of cases arising from the failure of speculative ventures formed in the early 1870s. Here,
we can see the judges as a collective body developing a set of protective rules. And as they figured it out, so their positions
changed. In 1875, for instance,
Malins VC, in
Phosphate Sewage Company v.
Hartmont, fulminated against the fraudulent acts of a promoter, and groped towards a notion of fiduciary duty applying negative sanctions
to repress misconduct.
96 But
Bacon VC in
Gover’s Case opted for a view which allowed promoters to buy assets and
sell them to companies they formed without disclosing their interest, seeing it as a mere commercial transaction.
Malins VC therefore changed his approach in
Erlanger v.
New Sombrero Phosphate Company, following the ‘free contract’ model of the earlier case, which seemed to have been endorsed by the Court of Appeal. But
in the Court of Appeal, a fiduciary principle was articulated by
Jessel MR. In the same year Jessel would tell a select committee than no more protection should be given investors – the same
committee Malins had asked for more protection for investors. The Lords in
Erlanger endorsed Jessel’s view.
97 In
Twycross v.
Grant, the Court of Appeal further developed the duties of promoters, in a case where
Bramwell B’s view that investors should not be pampered was not followed.
98As these developments show, there were clear limits to freedom of contract in company matters: even at the height of the mid
Victorian boom, courts looked to moral duties. The drive to these moral duties was in part driven by equity judges with a
moral and often Tory disposition. But the course of judgments did not divide on neat party lines. Rather there was a framework
of policy developed by the judges collectively, stepping in when Parliament was inactive and injustices and inefficiencies
seemed to demand correction.
There is another commercial area where the politics of English law seems out of kilter with the characterisation of political
trends described above: the law of insolvency.
99 The law here saw repeated legislation, and frequent parliamentary debates. But the framework of insolvency law was created
by, and tinkered with, by lawyers, rather than being a party matter. When dealing with the problem of insolvency, the law
at the start of the nineteenth century was in many ways ‘mechanical’ and tough-minded, for it gave creditors an undifferentiated
power to gaol (or release) debtors who failed to pay, and gave little power to the judges to intervene. A series of reforms
starting in 1813 and continuing into the mid Victorian era gave judges an increasing power to decide whether
creditors should be able to imprison their debtors. This power was a discretionary one, and led judges in insolvency cases
to evaluate the moral conduct of the debtor. At the time when the ideology of laissez-faire was reaching its apogee, the law
of insolvency turned judges into arbiters of commercial morality.
The early nineteenth-century English law of debt was notoriously tough. It was assumed that all people were solvent, and only
failed to pay their debts because of fraud. Imprisonment lay at the root of the law of debt. The easiest way to get a debtor
to pay up was to arrest him. Imprisonment on mesne process was designed to force the debtor to come to court and answer to
the debt, but it was generally used to coerce the debtor to pay up. If he refused to do so, and a judgment was obtained in
court, he could be imprisoned on ‘final’ process. The debtor would remain in prison until he paid, but the court was often
powerless to reach his money. At the same time, the application of the law was haphazard, for the instrument of punishment
was not a court, but a creditor. There was nothing inevitable about being imprisoned for financial failure. Everything was
left to the discretion of the creditors.
If the idea of a tough law, which allowed any debtor to be punished for his failure to pay, seems to fit
Hilton’s picture of a society which sought evangelical atonement for the sin of over-trading, it is also the case that by
the early nineteenth century there was increasing unease at the notion that innocent debtors were being punished by imprisonment
at the suit of their creditors. A system which allowed insolvent debtors to defy their creditors, and which allowed malicious
creditors to imprison their debtors, seemed irrational and unfair. From 1810 onwards, we can see increasing attempts to distinguish
between fraud and innocent failure, and to give courts the power to determine which was which. In 1813, an
Insolvent Debtors Court was set up, which freed non-trading debtors after they had been imprisoned, provided that they gave
up their assets.
100 The court would investigate the conduct of the debtor, and refuse to release him if it suspected fraud. This was only a start
on the road to giving the courts full control. For, since the creditor had the power to imprison, he also had the power to
release even if the court felt there had been fraud.
The debate over imprisonment for debt continued to rage from the late 1820s. In the late 1830s, imprisonment on mesne process
was abolished. One was not to be gaoled without a trial first. After much
debate, however, reformers chose to retain imprisonment after judgment (on failure to pay). This was on the assumption that
there had to be a means to punish fraudulent debtors and that the best way to do this was to continue to allow prison for
all debtors, and then to release the innocent after they had petitioned the Insolvent Debtors’ Court
. Legislation in 1842 went one step further, allowing ordinary debtors to petition the Court of Bankruptcy prior to imprisonment.
If the court decided that the debt had not been contracted in a fraudulent way, or without ‘reasonable assurance’ of being
able to be paid, then protection from imprisonment would be given.
101 Judges hearing the petitions of insolvent debtors were thus asked to make judgments about the character of the debtor’s conduct.
If protection was not given, the creditor (but not the court) could enforce imprisonment. The regime of allowing imprisonment
for debt at the suit of the creditor remained in place until the 1860s, though various mechanisms were put in place to ensure
that the innocent were released. The 1840s saw one further important development. The County Courts Act of 1846 provided for
imprisonment for small debtors. But under this act, the debtor was to be gaoled not for debt, but for fraud, on the judgment
of a judge, and not on arrest by a creditor. Fraud was very broadly defined, and included the incurring of debts when one
did not have the means to pay them. But the Act is indicative of both the desire to judicialise the process of imprisonment
for debt and to distinguish between good moral behaviour by the debtor and bad conduct.
We can see a moralistic dimension more clearly in the law of bankruptcy. The law of debt was different, depending on whether
one was a trader or not. Since Tudor times, bankruptcy laws had empowered the Lord Chancellor to seize the property of traders
unable to pay their debts and to distribute it among their creditors. They could still be gaoled, but unlike non-traders,
they could not keep their money. However by the eighteenth century, bankrupt traders were given protection from imprisonment
if they were granted a certificate of conformity by the bankruptcy commissioners.
102 In fact, the decision whether or not to grant a certificate to a bankrupt remained entirely in the hands of the creditors.
As Lord Eldon noted in 1811, it was not his task ‘to look into the moral life of the bankrupt’.
103 If Eldon’s view seems odd for someone we think
of as a Tory paternalist, it may seem odder that by the 1840s, reformers wanted precisely to ask the judges to make these
moral judgments. An Act of 1842 sought to judicialise the process of granting certificates to the bankrupt. Under the Act,
the court was to decide whether the certificate was to be withheld, after considering the ‘conduct of the bankrupt as a trader
before as well as after his bankruptcy’.
104 Judges were increasingly keen to inspect exactly how and why the debtor had got into debt. The bankruptcy commissioner Cecil
Fane, for instance, argued in 1847 that the courts should be given the power of imprisoning for up to a year any one who contracted
debts through gross improvidence.
105 This moralistic view reached its high point in 1849, when a consolidating Bankruptcy Act was passed. This Act introduced
three different classes of bankruptcy certificate, to distinguish between the degrees of blameworthiness in the trader’s conduct
prior to bankruptcy.
106 It made no difference in law whether one’s certificate was of the first, second or third class; but the judge was to give
a signal to the commercial world as to the moral worthiness of the trader. In deciding whether to grant a certificate, the
judge was also to take into account the nature of the trader’s conduct prior to his bankruptcy. The result was quite odd.
As one bankruptcy judge, Commissioner
Goulburn, stated in 1850,
it was no part of the duty of the Court to punish the bankrupt for having been engaged in a foul conspiracy to defraud the
credulous, even if he were guilty. Other courts possessed abundant powers for that purpose. His [the Commissioner’s] duty
was to determine upon the conduct of the bankrupt as a trader.
107
It was to be a court of morals and not of punishment, which was still left in the hands of the creditors. But in the 1850s,
the bankruptcy commissioners were regularly quite moralistic in examining the conduct of traders.
At the same time that courts dealing with companies were showing themselves keen to protect those who had been defrauded by
businessmen, those dealing with bankruptcy were being asked to make comments
on the commercial morality of traders. This, it may be noted, was happening in the 1850s, the era generally associated with
the high point of freedom of contract and commercial laissez-faire. Mid nineteenth-century courts, no less than social commentators,
were extremely concerned about commercial morality, and were not content to leave all be. In practice, however, a system which
gave
lawyers the say over commercial morality and
merchants the say over imprisonment proved controversial with both traders and lawyers. The system was reformed again in 1861 and 1869.
In 1869 – just about the time that equity courts were beginning to develop the moralistic rules we have seen regarding company
promotion – a system was developed which was much more liberal. In that year, imprisonment for debt was finally abolished,
except for small debts in the county courts. After 1869, a new philosophy permeated this area of law. Anything which was regarded
as criminal was to be left to the criminal courts. Anything which was to be seen as commercially immoral was to be left to
merchants to judge. Under the Act, a debtor would get his certificate if he paid a 50 per cent dividend; if he did not, his
creditors were to decide if he were to get one. There was no room now for the court to make discretionary judgments, and the
structure of the bankruptcy courts was largely dismantled, with control of bankrupt estates being given to the creditors.
But we should note that this was less an ideological change of direction than a pragmatic one. The old system was perceived
by merchants not to work. In particular, there was concern about legislation passed in 1861, which had made it easy for debtors
to obtain a discharge from prison. Merchants were afraid that the old harsh system could be used collusively by insolvent
people, getting an associate to imprison them, and then securing their release. They felt that a reform which put matters
back in the hands of creditors would prevent the ‘whitewashing’ of debts.
This regime was not to last. By 1883, the merchants themselves asked again for greater court involvement to police morality.
A London committee of merchants declared in 1879 that commercial morality was a public matter and that it should not be left
to creditors to expose the faults of an insolvent. There was also worry that the 1869 Act left too much power with the debtor
to come to voluntary arrangements without any scrutiny. The 1883 reform was piloted by the Liberal President of the Board
of Trade,
Joseph Chamberlain. Chamberlain noted that bankruptcy was a matter of public interest. Henceforth, it was to be supervised
by the Board of Trade. A public official would examine the person
seeking bankruptcy and would report on his conduct. Granting a certificate again became a matter for the court, and not the
creditors. The court was once again to be a moral agent, if not such a crude one as in 1849. As the Inspector General in Bankruptcy,
John Smith, declared in 1887, ‘full publicity and exposure of commercial irregularities’ had ‘a powerful effect in repressing
the grosser forms of misconduct, and in promoting a healthier tone of commercial morality’.
108 Writing in an age which was anxious about the depression of trade, Smith was of a view (which we might also see in the 1840s)
that commercial failures were often due to misconduct rather than misfortune, and that misconduct
had to be exposed and made an example of.