Nash v Lynde
[1929] A.C. 158(Judgment by: Viscount Sumner)
Between: Nash - Appellant
And: Lynde - Respondent
Judges:
Lord Hailsham LC
Viscount SumnerLord Buckmaster
Lord 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:
Viscount Sumner
My Lords, the question is whether in the circumstances of this case a "prospectus" was "issued" to the respondent within the meaning of s. 81 of the Companies (Consolidation) Act, 1908. This involves two inquiries, first, the meaning of the word "issued," and, second, the application of that word to an accumulation of incidents in themselves perhaps unimportant. The Legislature has not thought fit to define the word "issued," but it is possible to attempt some indication of the ideas, which are implicit in it, and a decision that particular facts do not amount to "issue," though in itself a negation, goes some distance to determine positively the content of the word.
Under a direction, which is not complained of, the jury found, and their finding is not challenged, that two documents, A and B, constituted a "prospectus." The question was put in words taken from the definition in s. 281 - "Was A and B an offer of shares made by the company to the public?" and the answer was "Yes." Then a question founded on s. 81 was put - "Was A and B issued to the public?" and the answer was "There is no proof of this."
Scrutton L.J., agreeing with Salter J., the trial judge, held that s. 81 involves in the word "prospectus" an invitation to the public to subscribe, effected by an "issue" of that invitation to the public, and that, although communication of the prospectus to the respondent was admitted, the jury was not bound to find an issue to the public on that alone, but on the evidence could find either way. Atkin L.J., with whom Eve J. agreed, though not on identical grounds, pointed out that s. 81 does not actually say "issued to the public"; that it is the offer of shares which is to the public and that a document may be a prospectus before and independently of issue, as for example for the purpose of filing a copy of it, and he concluded, that on the undisputed facts the prospectus was issued to a Mr. Alcock, from whom it reached the respondent. As admittedly the prospectus lacked some of the particulars required by s. 81 there was accordingly a breach of that section, which constituted the cause of action remaining undisposed of after the jury had negatived the charge of fraud, and so the respondent got judgment.
My Lords, perhaps I may be pardoned if I repeat a few of the facts in order to make a continuous statement. The documents were typewritten: they were not manifolded mechanically but typed one at a time. About twenty or thirty were ultimately prepared, but what became of them, except the pair which reached the respondent, we do not know. There is no proof that any of the others were in any sense issued to anybody or at all, but a copy was sent to each of the directors and several were sent in the case of Mr. Alan Eshelby, who was then away, with the idea of getting capital. The names of the four directors were typed at the end in the usual position of signatures and bracketed as "directors." This is the evidence of the typist, who prepared the document. Mr. Eshelby was a friend of Mr. Alcock, a Liverpool solicitor with a moneyed clientele, and after an interview sent him documents A and B. Mr. Alcock happened to know that the respondent wanted to find a business in which he could invest some money and find some salaried employment, and he sent A and B to a Major Wrigley, the respondent's brother-in-law, to be forwarded to him, if they seemed likely to be of interest. Thus it was that the respondent got them from Major Wrigley. It is quite plain that what the respondent fixed upon, when he got these documents descriptive of the business and its prospects, was the salaried employment, for he at once went to London, saw the appellant, and began a negotiation with him, which resulted in his getting it. He never applied for any of the shares offered in the prospectus, but took up part of the original ordinary shares, which remained unissued. No resolution of the directors for the creation of any of the new shares and no alteration in the articles, enabling such shares to be issued, was ever proved, and there is no evidence that any of these new shares were created or allotted at all.
My Lords, both Atkin L.J. and Eve J. dwell on the transmission of the documents to Mr. Alcock as an issue of the prospectus in his case, whether because they doubted if one invitation and one prospectus could make an "issue," or whether upon the view that a prospectus is "issued" as soon as the machinery of issue is set in motion by instructing an agent of the company to deal with one of their prospectuses. To my mind it is clear on the facts that Mr. Alcock was nothing but an agent to place the prospectus in the hands of possible investors on the company's behalf. This was what he was asked to do in terms. In receiving it he was not receiving any invitation or offer. In sending it on he acted for the company, and the issue, if issue there was, must have been made by him and have been an "issue" of a single offer. Unless a prospectus is "issued" as soon as it is shown to any expert in the business of issuing, in order to get his advice as to the kind of person likely to be tempted by that kind of thing, there was no issue to him. I am sure that no one, Mr. Eshelby as little as Mr. Alcock himself, ever supposed that Mr. Alcock would take shares in a company obviously in much need of cash, whose chief business was to popularize a patent dining-room table, without mechanism, but mysteriously capable of having its leaves extracted or inserted without being handled.
Though the word "issue" is not defined in the Act, it must be noticed that in dealing with such a subject-matter the Legislature inevitably uses in many places the idiom of company business. In connection with the issue of a prospectus the word does not mean mere delivery. I am anxious not to say anything that would make the way of the share canvasser less hard than s. 81 makes it already, but to me it is difficult to think of a prospectus being issued without some measure of publicity, however modest, and I think it is also impossible to do so, unless the steps taken are taken with the intention of inducing a subscription by the person invited to subscribe for the securities. I do not think that the term is satisfied by a single private communication between friends, even if they are business friends, or even though preparations have been made for other documents to be used in other communications, if none such take place. In the present case all that constituted the "issue" was that one of the directors, in the course of a general endeavour to find money, was furnished with some copies of these typewritten documents and gave one of them to a friend who, as requested, passed it on to a friend of his own. I cannot believe that any one in business would call this the issue of a prospectus.
Mr. Eshelby accompanied the documents with a statement, that the terms of the document were a basis for discussion and might be modified, and I do not think that the document was either intended or taken as anything more than introductory to other business of a different character. It was not issued as a prospectus of preference shares, but as particulars, with which to raise money in any form. This is not the subject to which s. 81 is directed. Though literally it is true that the issue is not expressly said in the section to be an issue to the public, I think that it must be so in substance, otherwise any private letter, written by a person engaged in forming a company and advising his correspondent to take shares, would become an issued prospectus if other letters were written by him asking others to do the same. "The public," in the definition s. 285, is of course a general word. No particular numbers are prescribed. Anything from two to infinity may serve: perhaps even one, if he is intended to be the first of a series of subscribers. but makes further proceedings needless by himself subscribing the whole. The point is that the offer is such as to be open to any one who brings his money and applies in due form, whether the prospectus was addressed to him on behalf of the company or not. A private communication is not thus open, and I do not think that the communication to the respondent was any the less private, though it was left to Mr. Alcock to select him, and the document began with the word "Gentlemen."
My Lords, the trial judge asked the jury the question - "Is his financial position worse in consequence of either fraud or the breach of legal duty, which I have been discussing with you?" - and he did so on the authority of In re South of England Natural Gas and Petroleum Co., [F6] a decision by which he was bound. Before your Lordships this decision is open to review, but as no question was raised on this branch of the case, either here or below, it does not arise for consideration now. I reserve my opinion about it, as also on the question whether the somewhat remote connection of the respondent's subscription of some old shares with the omissions from this prospectus of new ones was sufficient to entitle him to recover damages for a breach of s. 81, when the prospectus had in fact been nothing but the medium of his introduction to the appellant personally, with whom he proceeded to discuss the situation, which he eventually obtained.
I think that the appeal should be allowed with costs here and below, and that the judgment of Salter J. should be restored.