Aaron's Reefs Ltd v Twiss

• Jurisdiction: Ireland
• Judgment Date: 26 July 1894
• Date: 26 July 1894
• Docket Number: (1891. No. 1447.)
• Court: Court of Appeal (Ireland)

Aaron's Reefs (Limited)

and

Twiss (1).

Appeal.

(1891. No. 1447.)

DETERMINED BY

THE QUEEN'S BENCH AND EXCHEQUER DIVISIONS

OF

THE HIGH COURT OF JUSTICE IN IRELAND,

AND BY

THE IRISH LAND COMMISSION,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL,

AND BY

THE COURT FOR CROWN CASES RESERVED.

1895.

Company — Prospectus — Misrepresentation — Shareholder — Repudiation oy plea — Forfeiture of shares,

A joint-stock Company, formed to work a gold mine, with a capital of £200,000, in shares of 5s. each, issued a prospectus announcing a first issue of 200,000, payable 6d. on application and 6d. on allotment, and no further call that year. The prospectus then (among other things) stated:—“This Company has entered into a contract to acquire the Concession La Victoria, forming part of the well-known mining property of the Victory Gold Mining Company in Venezuela, and will have the special advantage of taking possession of a property which, already proved to be rich, requires only the erection of machinery (tenders for which are about to be invited) to be at once in a position to make returns. It is proposed, in the first instance, to erect a forty-stamp

mill, and make additions from time to time as the increased output may render it necessary. An average yield of only 1¹/₂ ounces per ton would give a return of 3600 ounces per month, value nearly £14,000, the greater part of which should, owing to the working facilities, be available for distribution as dividends, and (it is not unreasonable to anticipate) the mine should readily and speedily pay dividends to the extent of 100 per cent. Every expert who has visited this property to view its wonderful formation testifies to its wealth, and the consensus of opinion of the many experts is that it must prove to be one of the richest mines in the world.” It then stated that the only contracts entered into were one dated the 3rd February, 1890, between the Victory Gold Mining Co., Limited, of the one part, and the City Stock Exchange Co., Limited, of the other part, and one dated the 14th February, 1890, between the City Stock Exchange Co., Limited, of the one part, and Aaron's Reefs, Limited, of the other part.

It appeared that this was the fourth Company connected with the mine. In 1882 the Victoria Co. was started for the purpose of working the mine. It never paid any dividend, and was wound up in 1885. The Victory Co. was started in 1886. It never paid any dividend, and was wound up in 1887. The mine was sold to one B. for £2000 in cash, the purchaser assuming liabilities for £8000, who re-sold it for £3910 (and £131,000 in shares) to the Victory Gold Mining Co. The Victory Gold Mining Co. never worked the mine, but in 1890 sold a portion of the property on which the mine was situate to the City Stock Exchange Co. for £25,000, to be paid by the plaintiff Company. The City Stock Exchange Co. then sold the same portion of the property to the plaintiff Company for £131,000, which was to be paid by the plaintiff Company. Out of the £50,000 the entire of the first issue, £38,000, was to go to pay the Stock Exchange Co. and the Victory Gold Mining Co. Of the remaining £12,000, £8000 was to go between the same two Companies, leaving £4000 only available as working capital. It was proved that a forty-stamp mill would cost between £20,000 and £30,000.

In September, 1890, the defendant, having heard of the Company from a friend who read the prospectus and the reports to him, applied for 100 shares by letter, and enclosed a cheque for £2 10s. Not having received any answer the defendant wrote to the Company on the 19th January, 1891, complaining of the fact that he had received no acknowledgment, and demanding the return of his money. On the 22nd January, 1891, the secretary wrote that the letter of allotment had miscarried, but as the allotment had been made it could not be cancelled. On the 27th January, 1891, the defendant wrote, asking for a prospectus of the Company, and also if there were any more shares to be disposed of. On the 2nd February, 1891, he wrote, enclosing a cheque for £2 10$. on the allotment, and asking again if there were any more shares to be disposed of. On the 5th March, 1891, a call of 4s. per share was made, payable on the 19th March, and notice was given to the defendant. He then made inquiries in London about the mine, and, in consequence of what he heard, took no notice of the call. On the 27th April a letter was written to the defendant, requiring him to pay the amount of the call, £20 4s. 2d., and that in the event of his failing to do so his shares would be forfeited. He took no notice of this, and on the 5th May his shares were forfeited, and he received notice of the forfeiture by letter of that date.

In an action by the Company for the amount of the unpaid call the defendant pleaded (amongst other defences) that he was induced to become the holder of the alleged shares by the fraud of the plaintiffs, and within a reasonable time after he had notice of the said fraud, and before he had received any benefit from the said shares, he repudiated or disclaimed the said shares and all liability in respect thereof, and stated the particulars of fraud relied on:—

Held, by the Lord Chancellor and by Porter, M.R., (1) that the statements in the prospectus did not amount to a fraudulent statement of fact, or to a concealment of material facts; and (2) that the repudiation of the shares by the defendant by his statement of defence was not sufficient repudiation of liability against the Company, and that judgment should be entered for the plaintiffs.

Held, by FitzGibbon and Barry, L.JJ., (1) that the statements in the prospectus, being incapable of being accomplished from the terms of the contracts, entered into by the Company and referred to in the prospectus, were fraudulent representations; and (2) that, having regard to the forfeiture of the shares, the defendant's repudiation by plea was sufficient; and that judgment should be entered for the defendant.

The judgment of the Exchequer Division (Andrews and Murphy, JJ.) for the defendant accordingly stood affirmed.

This action, which was tried before Holmes, J., and a common jury on 26th and 27th October, 1892, was brought to recover £20 4s. 2d., money due from defendant in respect of 100 shares in the plaintiffs' capital formerly held by the defendant, but forfeited on the 27th April, 1891, £20 being amount of call of 4s. per share on said shares, payable the 19th March, 1891, and 4s. 2d., being interest at 10 per cent. from date of call to date of forfeiture.

The defendant traversed the allotment of the shares to him, the due appointment of the directors, the qualification of Larchin and Pym, as directors of the plaintiff Company, to make the alleged call, pleaded that the alleged allotment and the alleged call were not made by any persons having authority to make same, that the alleged call was made for purposes other than those for which the Company could make calls, and was not made bona fide for the benefit of the Company, and was not authorized by the constitution of the Company; and (paragraph 8) further pleaded that the defendant was induced to become the holder of said shares by the fraud of the plaintiffs, and, within a reasonable time after he had notice of said fraud, and before he had received any benefit from or in respect of said shares, repudiated the said shares and all liability in respect thereof: the particulars of fraud being given as—1, the making of the call within a year; 2, the statement in the prospectus that Larchin and Pym were directors and that the other directors were to be elected by the shareholders; 3, the statement in the prospectus that assays of the different lodes had been made by competent authorities, and the reference to reports therein, whereas no reports had been obtained for the purpose of the Company and no authorities had been employed to make such reports, nor had the persons issuing the prospectus any reasonable grounds for believing that the persons making the reports (if any) were competent to make them; 4, the statement in the prospectus that the Concession La Victoria had been already proved to be rich and required only the erection of machinery (tenders for which were about to be invited) to be in a position to at once make returns, whereas the said Concession had never been proved to be rich nor had tenders ever been nor were they ever invited for the erection of machinery; 5, that the promoters of the plaintiff Company were connected with a Company called the Victory Gold Mining Company, Limited, which was a failing Company, the business of which had been unprofitable, and the plaintiff Company was got up by the said promoters for the purpose of recouping the losses of the Victory Gold Mining Company, and the losses that they had incurred or were liable to incur thereby, by selling to the public through the medium of the plaintiff Company what they were aware was an unprofitable business and mine, while representing the said mine to be of a highly profitable character. The defendant subsequently gave notice that he would apply at the trial to amend his defence by adding the following plea:—

“As a further defence the defendant says that Shirshaw Powell Gilbert, Thomas Gilbert, Robert Larchin, Arthur Malcomson, F. G. Pym, Francis Malcomson, J. Nicholls, Abraham Norman, W. Norman, J. Bridegroom, L. Greenwell, and others acting with them, being members of or connected with a notorious gang of Company Promoters known as the Gilbert Gang, in the city of London, combined, confederated, and conspired together to cheat and defraud the defendant and other persons members of the public, by inducing them to contribute monies to, and take shares in, bogus Companies got up and promoted by said Gilbert Gang for their own advantage and for their private ends; and for the purpose of so doing the said Gilbert Gang, or some of them, in the year 1882, got up and...