Nash v Lynde
[1929] A.C. 158(Judgment by: Lord Warrington of Clyffe)
Between: Nash - Appellant
And: Lynde - Respondent
Judges:
Lord Hailsham LC
Viscount Sumner
Lord 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:
Lord Warrington of Clyffe
My Lords, the action in which this appeal arises came before the Court of Appeal and comes before this House as an action by the respondent as plaintiff against the appellant as defendant for damage occasioned to the respondent by the omission from a prospectus alleged to have been issued by or on behalf of a company of which the appellant was the managing director of certain particulars required to be inserted therein by s. 81 of the Companies (Consolidation) Act, 1908.
That section provides that every prospectus issued by or on behalf of a company must state amongst other things (1.) (e) the number and amount of shares which within the two preceding years have been issued or agreed to be issued as fully or partly paid up otherwise than in cash. In the case of the company in question certain shares had been so issued, and that fact was not stated in the document alleged to be a prospectus.
The action was tried before Salter J. and a jury. On July 28, 1927, the learned judge, after hearing arguments on the findings of the jury, directed judgment to be entered for the defendant (the appellant). By an order of the Court of Appeal made on February 21, 1928, the judgment of Salter J. was reversed and judgment was directed to be entered for the plaintiff (the respondent) for 2000l., the damages awarded by the jury. The order of the Court of Appeal was that of a majority (Atkin L.J. and Eve J.; Scrutton L.J. dissenting).
After the judgments which have already been delivered it is unnecessary again to state the facts in detail, and I will content myself with stating the conclusions at which I have arrived with a reference to such of the facts as bear upon them.
The real question, and one which I do not think either of the Courts below have really dealt with, is whether under the circumstances under which the document alleged to be a prospectus was made use of by the representatives of the company any prospectus was in fact issued by or on behalf of the company.
In the Act "Prospectus" is defined as follows (s. 285):
"Prospectus means any prospectus, notice, circular, advertisement, or other invitation, offering to the public for subscription or purchase any shares or debentures of a company."
So far as form is concerned the document in question falls within the definition of prospectus, so far at all events as the preference shares therein mentioned are concerned.
But admitting this, the use made of it does not in my judgment amount to the issue of a prospectus by or on behalf of the company.
The company was registered as a private company, and its articles accordingly prohibit any invitation to the public to subscribe for shares. The issue of a prospectus would therefore be ultra vires the company unless the articles were first altered, and the company would then cease to be a private company.
At the time the document A contained in the compound document was prepared the directors were contemplating an increase of capital, but no final resolution as to the issue of preference shares or as to the mode in which further capital should be obtained was arrived at, and there is no trace of a proposal to alter the constitution of the company.
The purpose of the document was "That the information concerning the company should be in a condensed form so that the directors might discuss the matter with their friends." (Evidence of the appellant, Appendix, p. 94, F.)
About twenty or thirty copies were typed. There is no evidence as to the mode in which any of these were used except the one communicated to the respondent. It is merely said (Appendix, p. 101, H) that they were in the hands of the directors to use as they thought fit for private information.
One of the directors was Mr. Eshelby. In sending the compound document to Mr. Alcock, through whom it reached the respondent, Mr. Eshelby describes document A as a general scheme for increase of capital as laid before the directors, and says:
"This scheme is merely a basis and could be altered to accommodate any party proposing to invest a substantial sum."
I call particular attention to the expression "laid before the directors." I believe this expression describes precisely what had happened.
The result was that the respondent, who was intending shortly afterwards to give up a job in India and was anxious to obtain employment in England, after personal interviews with the appellant and others, and after the directors had satisfied themselves as to his character and position, agreed to take up 3000 1l. ordinary shares at par, the directors on their part agreeing to appoint him a director at a salary.
On these facts the conclusion I should come to is that there was no issue of a prospectus by or on behalf of the company. The matter had not gone beyond the stage of proposal or suggestion; there is nothing from which it can be inferred that the directors had decided to invite subscriptions, and the use made of the document is as far as possible from an invitation for subscriptions to the proposed preference shares; no others are mentioned in it as the subject of subscription except as incident to the taking of preference shares.
Am I precluded by the verdict of the jury from giving effect to this view? I think not. The questions and answers relating to this part of the case are: (4.) "Was A and B an offer of shares made by the company to the public?" - Answer "Yes." (5.) "Was A and B issued to the public?" - Answer "There is no proof of this."
As to (4.), if the summing up of the learned judge on this point is referred to it will be seen that he directs their minds to the form of the document alone, and in my judgment it is only fair to the jury that their answer to this question should be considered as referring only to the form. As I have already said, so considered the conclusion I have arrived at is consistent with it.
As to (5.), if the answer means anything material to the case, it means that the plaintiff did not prove the issue of the document to the public. I do not think it was issued at all in any sense of the word material to the case, and this view may supplement but is not inconsistent with the verdict.
The question whether the plaintiff if he made good his case was entitled to compensation or to some other form of relief was not raised here or in the Court of Appeal and, in the view I take, does not arise. In the case of In re South of England Natural Gas and Petroleum Co. [F7] it was decided by Swinfen Eady J. that the proper remedy is compensation, but this decision is open to review in a proper case. Here, as the question does not arise and has not been argued, I prefer to say nothing about it.
In my opinion the order of the Court of Appeal should be reversed and the judgment of Salter J. restored with costs here and below.
Order of the Court of Appeal reversed, and judgment of Salter J. restored. The respondent to pay the costs in the Court of Appeal and also the costs of the appeal to this House. Cause remitted back to the King's Bench Division to do therein as shall be just and consistent with this judgment.
Lords' Journals, Nov. 12, 1928.
- Solicitors for the appellant: Godden, Holme & Ward.
- Solicitors for the respondent: Lake & Son.