Aaron's Reefs Ltd v Twiss

[1896] A.C. 273

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(Decision by: Lord MacNaghten)

Between: Aaron's Reefs Ltd - Appellant
And: Twiss - Respondent

Court:

Judges: Lord Halsbury LC
Lord Watson
Lord Herschell

Lord MacNaghtenLord Morris
Lord Davey

Subject References:
COMPANY
Prospectus
Fraudulent Misrepresentation
Shareholder
Repudiation by Plea
Forfeiture of Shares

Legislative References:
Companies Act, 1867, c. 131 - s. 38

Judgment date: 30 April 1896

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Decision by:
Lord MacNaghten

My Lords, I am of the same opinion. To my mind the case is so clear and the judgment of FitzGibbon L.J. is so complete in all respects and so convincing, that I only propose to add a very few words.

The prospectus in my view is not only a dishonest prospectus, but it is, I think, one of the most dishonest documents of that class I have ever seen.

The case presented to your Lordships is an extremely simple one. A jury has found that the contract on which Captain Twiss is sued was induced by fraud, and particular instances of the fraud are specified. Is there any reason to displace the verdict?

In the first place, the jury has found that the two contracts with the company which styled itself the City Stock Exchange Company were material to be disclosed and were fraudulently concealed. Can there be any doubt about either of those propositions? The prospectus invites the public to subscribe to a first issue of shares in a mining company. The issue was of a substantial amount - and the prospectus represents most clearly that with the proposed subscription the company would go to work at once with every prospect of earning handsome dividends on the shares of that particular issue and without asking the public for more money. The two contracts tell a different story. The design was to obtain not a subscription towards a mining adventure, but a subvention in aid of a set of fraudulent adventurers. The gentleman who prepared the prospectus with the help of the person who was apparently both the inventor and the proprietor of the City Stock Exchange Company admits that "there could be no money available for working purposes out of the first issue of 200,000 shares." In the finding on this head the learned judge who tried the case concurred.

Then the jury found that the statement in the prospectus that the property had been "already proved rich" was false. If that statement was false it must have been false to the knowledge of the promoters. The learned judge thought there was no evidence in support of the finding. I think there was ample evidence to support it. I do not think that the statement was intended to mean that the mine was proved rich by what had been discovered in the usual course of prospecting, I think it was intended to mean much more than that. Mr. Larchin, one of the two directors whose names are on the prospectus, puts himself forward as "Director, Victory Gold Mining Company." The prospectus states that the property to be acquired by the Aaron's Reefs formed part of "the well known mining property of the Victory Gold Mining Company."

The person who makes the only report set out in the prospectus which is up to date is described in the heading of his report as "Superintendent of the Victory." Almost all the reports represent that the great lode in the Aaron's Reef property, the champion lode, as Mr. Nicholls calls it, was the same as that on the property retained by the Victory Gold Mining Company, only perhaps better. I think that the statement that the property had been already proved rich, taking all the statements in the prospectus together, was intended to mean that it had been proved rich through its connection with the Victory Gold Mining Company - a company which under various transformations had, as the Lord Justice observes, beggared everybody who had undertaken the experiment of working the property.

On the other point also I agree with FitzGibbon L.J. It is quite plain that up to the time when his shares were forfeited the respondent did not know, and had no means of knowing, the fraud that had been practised upon him. Before the action the respondent appears to have heard rumours that the company was a swindle; but he had no certain information on which he could act. The fraud was not disclosed until the trial of the action. After the respondent's shares were forfeited he ceased, as the Lord Justice observes, to be a shareholder, and became merely a debtor. After that date it was not, in my opinion, incumbent upon him to take any active step to avoid the contract. He was perfectly justified in waiting the company's attack.

I am, therefore, of opinion that the appeal must be dismissed with costs.