176

Then pr

cers is not a promoter if he confines him-
Fastness upon the usual terms; but if he
- krtakes to push the company, or is to
benefits dependent on its being successfully
... to the company for payment-he is probably

vi take part in the formation or floating of a com-
lts or servants of promoters, and without any

company,

in the formation or floating of the
skel, promoters. Thus, the solicitor's clerk who
manum of association for registration is not a pro-
Inter who prints the prospectus; nor the advertising
n the insertion of the prospectus in the newspape

But even those pars us, it is conceived, may become promoters-f
of a commission to be paid by a promoter ther
tad, te push the o pany, or agree to act for remuneration acher
or in part o nmnant on the floating of the company.

A per a is not the less a promoter because he keeps his ow
ted and puts others forward as the ostensible pres
Pun hate Serge Co. v. Hartmont, 5 C. Div. 452; Bugnali v. Ca
6 C. Inv. 371.

A person may become a promoter either before or after the f
of the orpaty. Emma Silver Mining Co. v. Lewis, 4 C. P.D. 47
Generally there is very little difficulty in determining
person is or is not a promoter, for in most cases a person who des
in the formation or floating of a company does not confine hing
sme is lated act of promotion, but does a great many things.
leave little room for doubt.

projectus

Interest of

promoters,

The question whether a person is or is not a promoter is a quest r
fact for the jury or the judge sitting as a jury. En S
Co. v. Leicis, 4 C. P. D. 396; Same Co. v. Grant, 11 C. D..
Twycross v. Grant, 2 C. P. Div. 469.

In many cases the prospectus is issued by the promotes
them, and in other cases, though nominally issued by the in
may be considered as constructively issued by the process
Ner &brero Co. v. Erlanger, 5 C. Div. 111, Jessel, M. B. s
this prospectus was issued, in my view of the case, by the pre
was actually prepared by them, and was brought ready prz
meeting. It was nominally adopted by the directors;
said, I look upon two out of three directors as mercy 29-3
promoters, and their adoption would not make it to t
the promoters. It was, in fact, the prospectus of the pin-
Whenever the prospectus can by possibility be demel - -
of the promoters, it should be seen in their interests

(a) That it is free from misrepresentation, otherwise the promoters will be liable to be sued in the same way as directors are liable. Supra, p. 171.

(b) That it complies with section 38 of the Act of 1867, infra, p. 179, otherwise the promoters will be liable to proceedings as below

mentioned.

Moreover, it must be borne in mind that a promoter stands in a fidu- Fiduciary ciary position towards the company he promotes, and accordingly is not position. permitted to make any profit out of his position without the fullest dis

closure to the company.

If, in defiance of this rule a promoter makes a secret profit-e.g., by accepting a commission in cash or shares from a person who sells property to the company-he is accountable to the company, and can be compelled to surrender the profit. Phosphate Sewage Co. v. Hartmont, 5 C. D. 394; New Sombrero Co. v. Erlanger, 3 App. Cas. 1218; Bagnall 7. Carlton, 6 C. Div. 371; Emma Silver Mining Co. v. Grant, 11 C. D. Emma Silver Mining Co. v. Lewis, 4 C. P. Div. 396; Whaley ridge Co. v. Green, 5 Q. B. D. 109.

18;

Nor, having regard to Section 49 of the Bankruptcy Act, 1869, will nkruptcy or liquidation in all cases relieve him. Thus in Emma ning Co. v. Grant, the defendant, who was a promoter of the plaintiff npany, and had accepted a secret commission from the vendor, was ered personally to pay the amount of his profit although he had en proceedings for the liquidation of his affairs and had obtained his harge. See note to Form 200, infra, and also Ex parte Hemming, . D. 163.

essential.

>w, the promoters of a company generally propose to obtain some Disclosure it at the company's expense, and in every such case it is, in their sts, necessary in settling the prospectus, to see that the requisite sure is made. See further, as to the mode of making disclosure, p. 178. noters may also render themselves liable to criminal proceedings- Criminal : conspiracy to defraud. The Queen v. Aspinall, 2 Q. B. Div. 48; Fold Co., 11 C. Div. 723. And see supra, p. 174.

AS TO THE INTERESTS OF THE VENDOR.

liability.

vendor.

ready observed (supra, p. 1), a company is generally formed to Interests of some particular property or right. In many cases the vendor noter of the company, and where this is so, the observations

175 et seq.) apply.

settling the prospectus in the interests of the vendor, the fol- Special points. itters should, in particular, be borne in mind:

ere

a company is promoted by a person or persons whose perty the company is intended to purchase, the real ownership the property should be disclosed to the company by the cont, prospectus, or otherwise.

N

Interests to be considered.

Interests of applicants.

same time, for these documents are very commonly framed in contem-
plation of the prospectus, and with reference to what it is desired
therein to say or not to say. The prospectus should not be finally
settled until after the formation of the company.

A prospectus has in general to be considered in the interests--
1. Of the applicants for shares ;

2. Of the company;

3. Of the directors;

4. Of the promoters ;

5. Of the vendor ;

and in many cases the same hand has to settle the document with a due regard to the interests of all these persons.

It may be convenient here to refer to these interests separately :

:

AS TO THE INTERESTS OF APPLICANTS FOR SHARES. In the interests of applicants for shares the prospectus should be so framed that persons taking shares upon the faith of it may not have any cause for complaint. Accordingly it should not contain any misrepresentation, and should disclose all material facts. As was said by Vice-Chancellor Kindersley, in the case of the New Brunswick and Canada Ry. Co. v. Muggeridge, 1 Dr. and Sm. 38-"Those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares."

The rule laid down in this passage was termed a "golden legacy" by Page-Wood, V.-C., in Henderson v. Lacon, 5 Eq. 262, and it was cited with approbation in the case of the Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. 113. In this case Lord Chelmsford, L. C., in giving judgment, said: "In an advertisement of this description [i.e., a prospectus] some allowance must always be made for the sanguine expectations of the promoters of the adventure, and no prudent man will accept the prospects which are always held out by the originators of every new scheme, without considerable abatement. But although, in its introduction to the public, some high colouring, and even exaggeration, in the description of the advantages which are likely to be enjoyed by the subscribers to an undertaking may be expected, yet no mis-statement or concealment of any material facts or circumstances ought to be permitted. In my opinion, the public, who are invited by a prospectus to join in any new adventure, ought to have the same opportunity of judging of everything which has a material bear

ing on its true character, as the promoters themselves possess. It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the cooperation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterise their published statements." It should also be seen, in the interests of shareholders, that s. 38 of the Act of 1867 is complied with. See infra, p. 179 et seq.

AS TO THE INTERESTS OF THE COMPANY.

It is obviously for the interest of the company that its members Interests of should have no cause to complain that they have been entrapped into company. taking shares by an improperly framed prospectus, for such complaints

are calculated seriously to damage the company's credit, and to cripple

its operations.

But in the interest of the company the main point to be looked to Repudiation of is, that the members shall not be able to repudiate their shares. In shares. this view the utmost care must be taken that the prospectus is free from misrepresentations, and that it discloses all material facts, for it is well settled that a person taking shares upon the faith of a prospectus which does not comply with these rules, is entitled, upon discovering the truth, to have the contract rescinded, and to recover any money paid to the company in respect of his shares.

The following are some of the cases in which relief has been given on the ground of misrepresentation. The Central Ry. Co. of Venezuela v. Kisch, L. R. 2 H. L. 99, where the prospectus untruly stated (1) that the contract for the execution of the company's works had been entered into with a responsible contractor, (2) untruly stated that the contract price was considerably within the available capital, (3) did not mention that the concession which the company was formed to carry out had been purchased from the original grantees at a cost of 50,000l., (4) held out the advantages of a guarantee as to interest on capital given by the contractor, but did not mention that it was limited to a certain amount; and upon the application of a person who had taken shares on the faith of the prospectus, the contract was rescinded. So in Ross V. Estates Investment Co., 3 Eq. 122, 3 Ch. 682, the prospectus untruly stated that "more than half the first issue of shares has been already subscribed for," and that "upwards of 70,0007. has already been expended on this estate by the vendor in buildings and improvements, in addition to the purchase money paid by him for the land." It was held that the plaintiff, who had taken shares on the faith of the prospectus, was entitled to have his contract set aside, and his deposit returned. See the decree, Form 192, infra.

In another case the prospectus of a mining company stated that a particular mine, containing "several very valuable claims, some of which are in full operation, and make large daily returns," had been

Careless language.

Company liable in damages.

contracted to be purchased. The mine was, in fact, worthless, and there were no claims in operation. It was held that a person who had taken shares on the faith of the prospectus was entitled to relief. Smith's Case, 2 Ch. 604; L. R. 4 H. L. 64. See also Kent v. Freehold Land Co., 4 Eq. 588, 3 Ch. 493; Henderson v. Lacon, 5 Eq. 249; Blake's Case, 34 Beav. 639; Cargill v. Bower, 10 C. D. 502; Hall v. Old Talargoch Co., 3 C. D. 749. And Forms 192 et seq., infra.

Moreover the danger of ambiguous statements should be borne in mind, for “if persons publishing a prospectus use such careless language that their statements, literally read, are untrue, although this literal sense is different from what they intended, this amounts to a misrepresentation, for which they may be responsible to any one who is deceived or injured by it." Per Lord Chelmsford, L. C., Hallows v. Fernie, 3 Ch. 475. And à fortiori the person deceived will be entitled to repudiate his shares.

And where a misrepresentation as to a material fact in a prospectus is untrue in point of fact, it is wholly immaterial, where rescission of contract is sought, that the directors, when they made it, believed it to be true. See judgment of Lord Cairns, L. C., Smith's Case, 2 Ch. 604; L. R., 4 H. L. 79.

Nor if a prospectus contains misrepresentations, can the evil results be prevented by offering applicants the opportunity of examining documents which would correct the misrepresentations. Central Railway Co. of Venezuela v. Kisch, L. R. 2 H. L. 120.

It is not every misrepresentation or suppression that will confer a right to relief. Denton v. Macneil, 2 Eq. 352; Hallows v. Fernie, 3 Ch. 467; Heyman v. European Central Co., 7 Eq. 154; Kennedy v. Panama Mail Co., L. R. 2 Q. B. 580; Gover's Case, 1 C. D., 182; but in settling a prospectus it is desirable, as far as possible, to avoid risk.

And although a person who has been induced by misrepresentation to take shares may lose his right to relief by delay: Sharpley v. South Co., 2 C. Div. 685; Heyman v. European Central Co., ubi supra; Peel's Case, 2 Ch. 674; or by dealing with his shares in a manner inconsistent with repudiation: ex parte Briggs, 1 Eq., 483; Nicol's Case, 3 De G. & J. 387; or by reason of a winding up supervening before he has commenced proceedings to rescind the contract: Oakes v. Turquand, L. R. 2 H. L. 325; Stone v. City and County Bank, 3 C. P. Div., 282; Houldsworth v. City of Glasgow Bank, 5 App. Cas. 317; Burgess's Case, 28 W. R., 793; these considerations are of little moment in the preparation of the prospectus.

Where a person has been induced to take shares by fraudulent misrepresentations contained in a prospectus issued by the company's directors, he is entitled not only to have the contract rescinded but he may also sue the company for the damages he has sustained. Houldsworth v. City of Glasgow Bank, 5 App. Cas. 317. But he cannot sue the company for damages unless he rescinds his contract to take shares, S. C. And if by reason of delay, or the winding up of the company, or