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United Kingdom House of Lords Decisions |
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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Broome v. Shepheard and Another [1904] UKHL 476 (17 May 1904) URL: http://www.bailii.org/uk/cases/UKHL/1904/42SLR0476.html Cite as: 42 ScotLR 476, [1904] UKHL 476 |
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Page: 476↓
(Before the
( On Appeal From The Court Of Appeal In England.)
Subject_Company — Joint-Stock Company — Promotion — Prospectus — Omission to Mention Contract — Untrue Statement — Liability of Directors — Directors' Liability Act 1890 (53 and 54 Vict. c. 64), sec. 3.
The prospectus of a company incorporated under the Companies Acts stated that the contracts mentioned in it were the “only” contracts entered into by the company. It omitted to mention a contract which was in fact material but which the directors had been advised and believed to be immaterial. A shareholder who took shares in the company on the faith of the prospectus raised an action of damages against the directors. Held that the directors were liable.
The Directors' Liability Act 1890 (53 and 54 Vict. c. 61), sec. 3 (1) enacts—“Where after the passing of this Act a prospectus or notice invites persons to subscribe for shares in debentures or debenture stock of a company, every person who is a director of the company at the time of the issue of the prospectus or notice, and every person who, having authorised such naming of him, is named in the prospectus or notice as a director of the company, or as having agreed to become a director of the company either immediately or after an interval of time,… shall be liable to pay compensation to all persons who shall subscribe for any shares, debentures, or debenture-stock on the faith of such prospectus or notice for the loss or damage they may have sustained by reason of any untrue statement in the prospectus or notice, or in any report or memorandum appearing on the face thereof or by reference incorporporated therein or issued therewith, unless it is proved.”…
The Companies Act 1897 (30 and 31 Vict. c. 131, sec. 38), which was repealed as from 1st January 1901 by the Companies Act 1900 (63 and 64 Vict. c. 48), sec. 33, provided that every prospectus of a company should specify the dates and the names of the parties to any contract entered into by the company, and that any prospectus which omitted to do so should be deemed fraudulent on the part of the promoters, directors, and officers of the company, knowingly issuing the same as regards any person taking shares in the company on the faith of such prospectus.
The London and Northern Bank, Limited, while in its initiatory stage, proposed to acquire the business and assets of the Leeds Joint-Stock Bank, Limited. To effect this it was necessary to lodge a deposit of £14,250, and the bank, being at that time without funds, arranged with William Bowden, the promoter of the company, for this being done for it. The terms of the arrangement were embodied in a letter dated September 21st 1898 written by the “trustee for the bank” to Craig in the following terms:—“Dear Sir, In consideration of your advancing the sum of £14,250 to enable me to pay the same to the Leeds Joint-Stock Bank, Limited, as a deposit on the purchase of their undertaking and assets, and your taking the risk of forfeiture, I hereby agree to repay the same on directors going to allotment or on the 30th October next, together with £7500 bonus for such loan.” An agreement with the Leeds bank was afterwards drawn up and adopted by the directors on behalf of the company, “it being understood that the bank,” i.e., the company, “incur no liability under such agreement either to complete the purchase or to find the deposit therein referred to, such deposit having been found by Mr Craig at his own risk.”
The subsequent actings of parties so far as concerns this matter are shown by the following resolutions of the directors of the company. A resolution of October 1, 1898, was in these terms—“That the agreement with the Leeds Joint-Stock Bank, Limited, be referred to Messrs Walker & Rowe, the solicitors of the company, to peruse on behalf of the company, and to advise the directors as to its full effect, particularly as to whether it is clear that the bank incur no liability either for completion or on account of the deposit.… The subject of the commission-note to Mr Craig was considered, and it was resolved that in consequence of Mr Craig having found the deposit at his own risk the board agrees to repay the same with a bonus of £7500 if the directors go to allotment, and when the purchase is completed.” A resolution of 30th October 1898 was in these terms—“That after full discusison and hearing the views of the directors of the Leeds Joint-Stock Bank, Limited, and upon the chairman giving Mr Bowden assurance that his right to receive proper remuneration for commission on introducing the business of the Leeds Joint-Stock Bank, Limited, and raising the necessary deposit, shall be honourably met at a future meeting of the directors of the London and Northern Bank, Limited, it is resolved, with the assent of Mr Craig, that the contract contained in the letter of the 21st September 1898 be cancelled, and that the subject be adjourned to a future meeting of the board.”
On October 20th the prospectus of the company was issued. It stated that the “only” contracts entered into by the company were those mentioned in it. It contained no reference to the letter of September 21st or to the resolution or contract of October 10th.
Joseph Broome received a copy of the prospectus, and on the faith of it applied for and had allotted to him 400 ordinary
Page: 477↓
shares of £10 each, upon which he paid £1000. Subsequent to the issue of the prospectus Bowden, through Craig, sued for his commission or bonus, and by settlement received £1500.
The company went into voluntary liquidation on 29th December 1899, and on 17th January 1900 the liquidation was placed under the supervision of the Court.
Broome raised an action of damages against Shepheard and others, directors of the Company, based upon the companies Act 1867, sec. 88, and the Directors' Liability Act 1890, sec. 3, and the Judge ( Buckley) found for the plaintiff, and ordered an inquiry as to the damages sustained. On appeal this judgment was affirmed by the Court of Appeal ( Collins, M.R., Romer and Cozens-Hardy, L.J.J.)
The defendants appealed.
At delivering judgment—
Page: 478↓
Appeal dismissed and judgment appealed from affirmed.
Counsel for the Plaintiff and Respondent— Astbury, K.C.— Roskill, K.C. Agents— Rowcliffes, Rawle, & Company.
Counsel for the Defendants and Appelants— Haldane, K.C.— P. Cassel. Agents— Waterhouse & Company.