The Components Tube Company, Ltd v Naylor

• Jurisdiction: Ireland
• Judgment Date: 08 November 1898
• Docket Number: (1897. No. 6456.)
• Date: 01 January 1900
• Court: Queen's Bench Division (Ireland)

The Components Tube Company, Limited

and

Naylor.

CASES DETERMINED BY THE QUEEN'S BENCH DIVISION 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. 1900. THE COMPONENTS TUBE COMPANY, LIMITED v. Q- B. Biv. NAYLOR (1). 1898. June 20, 21. 2, 23, 27, 28; Nov. 8. (1897. No. 6456.) 22, 23,27, 28 ; IN CompanyPromotersProspectusFraudMisrepresentation and suppression of factCompanies Act, 1867, sect. 38UnderwritingEvidence. Where a person subscribes for shares in a Company upon the faith of a prospectus in which the promoters of that Company have as well made actual misrepresentations of material facts that were false to their knowledge as suppressed material facts that were within their knowledge, such person, if he takes no benefit under the contract, and repudiates within a reasonable time after he becomes aware of the fraud, can successfully rely on the fraud of the promoters as a defence to an action by the Company for calls, can rescind his contract, and can recover all moneys paid in respect of the shares subscribed for by him. (1) Before Sie Peteb O'Biuen, L.C.J., Palles, C.B., and Madden, J. 1900Vol. II. B 2 THE IRISH REPORTS. [1900. Tube Co. Naylor. underwriting. The measure of the obligation of disclosure, in a Company's prospectus, discussed. Observations on Lindley on Company Law (5th ed.), p. 70. ^"EW TRIAL MOTION. This action, tried before Mr. Justice Gibson and a special jury of the city of Dublin, which occupied seven days in the hearing, ending the 3rd May, 1898, was brought by the plaintiff Company against the defendant, an allottee of shares, for a balance due for calls on 100 shares allotted to him, and interest thereon. The defence was based on misrepresentation and fraud in the prospectus of the Company, with a plea of repudiation within a reasonable time, and a counterclaim for rescission of the contract to take the shares, for rectification of the register, and for the return of the amount (£17 10s., application money), paid by the defendant in respect of the shares taken. The prospectus of the plaintiff Company, dated the 30th January, 1897, was as follows : The List of Applications will OPEN on MONDAY, the 1st Febiuta.ry, and CLOSE on or before WEDNESDAY, the liitr. of Februaey, 1897, for London, and on or before the following day for Country. THE COMPONENTS TUBE COMPANY, LIMITED. Incoepobated tjndee the Companies Acts, 1862 to 1893. CAPITAL, .... £150,000, In Ordinary Shaees of £1 each, Payable :2s. 6d. on Application ; 7s. Gd. on Allotment; Balance, 10s., on 1st March. Directors : Harvey dtj Ceos, Junr., Metchley House, Edgbaston, Birmingham, (Managing Director, Cycle Components Maunfacturing Company, Limited). Frederick Faber MacCabe, M.B., Belleville, Donnybrook, Dublin (Director, Singer Cycle Company, Limited). Will join the Board after Allotment. Q. B. Div. The omission in a prospectus of the names of the real vendors of the under -'898. taking : and the employment, to conceal their identity, of a nominee as the Components ostensible vendor, may, if misleading, amount to such fraud as will vitiate the contract. So may also the omission to state that money was to be spent in Vol. II.] QUEEN'S BENCH DIVISION. 3 Richard James Mecredy, Gortmore, Dundrum, Co. Dublin (ex-Director, Q. B. Div. Pneumatic Tyre Company, Limited), 1898. Charles Sangster, Bristol Road, Edgbaston, Birmingham (Director, Cycle Components Components Manufacturing Company, Limited). Tube Co. Alexis M. DeBeck, St. Joseph's, Edgbaston, Birmingham (Managing j^Ay^0B Director, Singer Cycle Company (Russia), Limited). Benjamin B. Tdke, Coventry (Director Austral Cycle Agency, Limited). Bankers : Lloyds Bank, Limited, 222, Strand, London; and all other Branches. National Bank, Limited, College Green, Dublin, and all Country Branches. Solicitor : John B. Purchase, 11, Queen Victoria-street, London, E.C. Brokers : LondonBasil Montgomery & Co., 19, Throgmorton Avenue, E.C, and Stock Exchange. BirminghamW. & F. Cutheert, 103, Colmore-row, and Stock Exchange. DublinDaniel D. Bulger, 16, College-green, and Stock Exchange. LimerickThomas McSwiney, George's-street, Limerick. Auditors : Felton & Walker, Chartered Accountants, 5, Waterloo-street, Birmingham. Secretary (pro tern.) : Charles Feeake. Offices (pro. tern.): 5, Waterloo-street, Birmingham. Registered Offices: The Works, Boumbrook, Birmingham. PROSPECTUS. This Company has been formed to acquire, carry on, and develop the well-known profitable and extending Tube manufacturing business carried on by The Cycle Components Manufacturing Company, Limited, at Bournbrook, Birmingham. This business was established by Mr. James Hudson in 1882, and carried on by him till 1892, when it was converted into a Company under the title of Hudson & Company, Limited, and successfully carried on by that Company till taken over by The Cycle Components Manufacturing Company, Limited, in 1894. In dealing with the acquisition of Hudson & Co., Limited, the Prospectus of The Cycle Components Manufacturing Company, Limited, said: " It would be difficult to exaggerate the importance of this purchase in view of B2 4 THE IRISH REPORTS. [1900. Q. B. Div. the improvements contemplated and the exceptional facilities of which the 1898. amalgamation has obtained control. This Company has hitherto depended Components almost exclusively upon the demands of the cycle trade for tubing; but it is Tube Co. now intended to develop other branches of the tube trade, such as boiler tubes, Natloe. tubes for gas conveyance, tubular shafting and a multitude of other articles which are made from weldless steel tube." The manufacture of weldless tubing has become such an important feature of businesses, other than the cycle industry, that it is desirable that a separate Company should be formed to work and extend this important and long established business, which, under the style of Hudson & Co., Limited, and later as a branch of The Cycle Components Manufacturing Co., Limited, has maintained a great reputation for tubing of the highest grade. Since the date of sale of this branch of the business by The Cycle Components Manufacturing Company, Limited, contracts for the alteration and extension of the machinery and plant are heing entered into at a cost of £20,000, which when complete will be capable of increasing the output from the present figure of 35,000 to about 100,000 feet per week. This sum has been guaranteed by the Vendor out of the purchase moneys. An additional £20,000 will be reserved for working capital, and will be provided out of the first subscriptions to the capital of the Company. The Company will thus be strengthened by the addition of £40,000 of fresh capital, and the Directors claim that this sum will place the Company in the forefront of the tube trade and enable it to compete most successfully with any other concern. Orders for tubing at remunerative prices have been received from the following Companies : Singer Cycle Co., Ltd. Riley Cycle Co., Ltd. Swift Cycle Co., Ltd. Allday& Onions Engineering Co., Ltd. Birmingham Small Arms, Ltd. Raglan Cycle and Anti-Friction Ball Triumph Cycle Co., Ltd. Co., Ltd. Bayliss Thomas, Ltd. Fulwell Cycle Co., Ltd. Thomas Smyth & Sons, Ltd. Tyne Cycle Mfg. Syndicate, Ltd. New Buckingham & Adams Cycle Co. B. F. Williams, Wolverhampton. In addition to these Orders the Cycle Components Manufacturing Company, Limited, has undertaken to take the whole of the balance of the output for the current season, after all orders received by the Company have been satisfied. The Cycle Components Manufacturing Company, Limited, one of the largest consumers of Weldless Steel Tube, has also undertaken to purchase, at remunerative prices to this Company, its full requirements for the subsequent two years. It will thus be seen that the Company starts under most favourable and exceptional circumstances. In addition to its already large clientele, new and important markets are being exploited. Vol. II.] QUEEN'S BENCH DIVISION. 5 It is also contemplated to lay down plant for the drawing of aluminium q, Dir. tubes, for which there is an increasing demand. The Directors anticipate 1898. that the next development in cycle and other light vehicle construction will be Components in this direction. Tube Co. The works are situated alongside the works of the Cycle Components j^y^oB Manufacturing Company, Limited, at Bournbrook, within easy reach of the centre of the city of Birmingham. Important railway and canal communication adjoins the premises. The property comprises an area of about 9040 square yards, and is held under lease for 21 years from the Cycle Components Manufacturing Company, Limited, at an annual rental of £400, with the option of renewal or purchase on very favourable terms. The business will be taken over as a going concern as from the 1st September, 1896, and all profits accruing from that date will belong to the Company. The purchase price has been fixed by the Vendor at £130,000, out of which he provides the £20,000 above-mentioned for alteration and extension of the plant and machinery. The Vendor undertakes to accept payment of the purchase-money in cash or shares at the option of the Directors, hut he stipulates that he may subscribe for and require the Directors to allot to him at least a third of the capital. The Company has been fortunate in securing the valuable services of Mr. Harvey Du Cros, junior, who has undertaken to give every assistance in his power, and to at all times place the benefit of his experience at the disposal of the Directorate. The Vendor fully recognising the great importance of Mr. DuCros' experience, has, at his own expense, entered into a contract with Mr. Du Cros, securing his services, as above, to the Company. Mr. Charles Sangster, who has heen so prominently connected with the economic and energetic management of the Cycle...