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

Judges: Lord Halsbury LC
Lord Watson
Lord Herschell
Lord MacNaghten
Lord 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

Judgment by:
Lord Davey

My Lords, I also concur in the opinion of your Lordships that the judgment appealed from should be affirmed. I adopt the reasons which have been so fully and clearly stated in the judgment of FitzGibbon L.J., and the reasons which have just been given by your Lordships. In particular I agree that giving the names and dates of the contracts in compliance with the statute did not give notice of circumstances which apart from the statute were material to be stated, and the omission of which made the statements in the prospectus untrue, or at least calculated to give an erroneous impression.

I do not desire to add anything on the question whether the respondent was induced by fraud to become a shareholder of this company, or was entitled to repudiate the contract. I will only say a few words on the question whether he has lost his right to repudiation by unreasonable delay.

I entirely agree in the observations of the Court of Exchequer Chamber delivered by Mellor J. in the case of Clough v. London and North Western Ry. Co., ^[F11] to which I may add the judgment delivered by Lord Selborne in the Privy Council in Lindsay Petroleum Co. v. Hurd. ^[F12]

"The question is,"

to quote Mellor J.,

"has the person on whom the fraud was practised having notice of the fraud elected not to avoid the contract? or has he elected to avoid it? or has he made no election?"

Lapse of time without rescinding will furnish evidence of an intention to affirm the contract. But the cogency of this evidence depends upon the particular circumstance of the case and the nature of the contract in question. Where a person has contracted to take shares in a company and his name has been placed on the register, it has always been held that he must exercise his right of repudiation with extreme promptness after the discovery of the fraud or misrepresentation for this reason: the presence of his name on the register may have induced other persons to give credit to the company or to become members of it.

"If a man claims,"

says James L.J.,

"to rescind his contract to take shares in a company on the ground that he has been induced to enter into it by mis-representation, he must rescind it as soon as he learns the facts, or else he forfeits all claim to relief": see Sharpley v. Louth and East Coast Ry. Co. ^[F13]

In In re Scottish Petroleum Co. ^[F14] Baggallay L.J. expressed a doubt whether the delay of even a fortnight in repudiating the shares after the shareholder was fully informed of all the circumstances and no further investigation was necessary would not be fatal. The point was not, however, necessary to the decision of that case. It may be observed that in the Court of Chancery and the Chancery Division questions of this kind usually arise in suits to rescind the contract where the shareholder is plaintiff. In those cases laches or lapse of time is treated as a defence, and requires to be alleged and proved by the defendant.

In this case the circumstances are very special. Neither party seems to have cared to ascertain exactly when the respondent ascertained the facts upon which he relies for his right to repudiate his shares. He apparently discovered something in March; but no cross-examination was directed to ascertain what he discovered, or when he ascertained the facts on which he now relies, and no finding of the jury was asked for by the plaintiffs on that point. But the matter does not rest there. On April 27, 1891, the respondent's shares were declared to be forfeited, and on May 5 he received notice of the forfeiture. The company thereby severed the relation between themselves and the respondent as shareholder, and the respondent became a mere debtor to the company. It is not proved by any evidence that the respondent had lost his right to repudiate at the date of the notice; and I think that, not having done any act to affirm the contract, he was not then bound to take any step for the mere purpose of getting rid of his liability to pay this call. But I am also of opinion that if the appellants had intended to rely upon the delay they ought to have cross-examined the respondent for the purpose of ascertaining when he learnt the facts, and to have asked for a direct finding of the jury on the subject.

I am therefore, my Lords, of opinion that the appeal should be dismissed.

Orders appealed from affirmed and appeal dismissed with costs.

Lords' Journals, April 30, 1896.