Nash v Lynde
[1929] A.C. 158(Judgment by: Lord Buckmaster)
Between: Nash - Appellant
And: Lynde - Respondent
Judges:
Lord Hailsham LC
Viscount Sumner
Lord BuckmasterLord Carson
Lord Warrington of Clyffe
Subject References:
COMPANY
Prospectus
'Issue'
Non-compliance with statutory Requirements
Subscription for Shares on Faith of Prospectus
Damage
Legislative References:
Companies (Consolidation) Act, 1908 (8 Edw. 7, c. 69) - ss. 81, sub-s. 1 (e); 285
Judgment date: 12 November 1928
Judgment by:
Lord Buckmaster
My Lords, the question on this appeal is whether the documents referred to as documents A and B constituted a prospectus issued by the respondent as managing director of the company known as British and Foreign Industrials, Ld. - the circumstances attending the preparation and the use of these documents have been already stated and do not need repetition.
The sole point upon which I desire to express my view is the true construction of ss. 81 and 285 of the Companies Act of 1908. The first of these sections states what it is necessary that a prospectus issued by, or on behalf of a company or by any person who is or has been engaged or interested in the formation of the company, must contain, and the second defines what a prospectus means. The first thing necessary to notice is that s. 81 contains no reference of any issue to the public. It is sufficient that the prospectus should be issued. The question of what does or does not amount to an issue is a question of fact in each case and is not capable of a rigid and exact definition, but in my opinion it certainly does not necessarily involve a general application impartially made to all members of the public.
A distribution of a prospectus among a well defined class of the public would be an issue within the meaning of s. 81. Many illustrations might be given of such a use of a prospectus, for example: A company like the Army and Navy Stores, Ld., originally confined its membership to members of His Majesty's forces; the Civil Service Stores in a similar way was I believe originally limited to members of the Civil Service. There may be, there probably are, assurance companies whose membership is similarly limited to members of the legal or clerical profession; in each of these instances the only source from which membership could originally be obtained would be from a class of people selected out of the general body of the public and having marked and definite characteristics.
A prospectus, the distribution of which was so limited would none the less be issued, and that this is the meaning of the statute is I think made plain by considering that sub-s. 7 of s. 81 excludes from the application of the section a circular inviting existing members of a company to subscribe for shares. This would be unnecessary if an issue to such a limited class were not prima facie included. The definition gives rise to greater difficulty. A document is not a prospectus unless it is an invitation to the public, but if it satisfied this condition it is not the less a prospectus because it is issued to a defined class of the public. Whether a prospectus so limited in its invitation that only a special set of people were invited could be properly defined as a prospectus, it is not necessary for the present case to decide, for the documents A and B were in terms quite general.
They did, in fact, satisfy all the necessary requisites of a prospectus for the purposes of s. 285. The remaining point is, was it issued within the meaning of s. 81? Now it is, I think, clear that the issue there mentioned involves issue as a prospectus; a document answering in all respects to the definition of s. 285 may be used by placing it before people to inform them of some of the facts it contains without its issue as a prospectus. If following on such use application is made for shares in response to the invitation contained, and such application were accepted, the company and the person named in s. 81 might then be prevented from saying that the original use was not an issue, but that does not arise here.
The letter accompanying the documents A and B shows that the original communication to Mr. Alcock was not intended as the issue of a prospectus at all, but merely as a convenient means of enabling him to place facts before people who either on the basis of the document itself or on some modification of its terms might be prepared to come to the assistance of the company.
It was in this sense that it was actually used, and the ultimate arrangement by which the appellant took shares was not a response to the definite invitation in the documents. In these circumstances there never was an issue of a prospectus, and I agree with Salter J. in thinking that in consequence the plaintiff must fail.
The action, which originally involved a charge of fraud, was tried by a jury. This was a suitable tribunal for that issue, but when once that was negatived the jury in question 4 were in substance being asked to construe an Act of Parliament while the real question was that which the judge was called upon to decide.
I have only to add that in this opinion silence must not be assumed as assent to the principle upon which the right to damages was established or their amount assessed.