[COURT OF APPEAL]

COLLINS v. ASSOCIATED GREYHOUND RACECOURSES, LIMITED.

[1928. C. 621.]

Company - Prospectus before Incorporation - Sub-underwriters - Adoption of Prospectus by Company - Misrepresentation - Principal and Agent - Undisclosed Principal - Allotment Letter - Renunciation in Favour of Principal - Claim for Rectification of Share Register by Principal.

Shortly before the incorporation of a company, a draft prospectus, which was afterwards adopted by the company, was circulated for the purpose of obtaining underwriters of shares intended to be offered to the public by the proposed company. An investment company entered into an underwriting agreement on November 28, 1927, by which they agreed that they would within three days of the issue of the prospectus "either subscribe themselves .... on the basis of the said prospectus for 1,164,000 .... shares of 5s. each or cause the same before the date aforesaid to be subscribed on the terms of the said prospectus by responsible persons," and any reasonable objection might be taken by the company within two days to persons put forward by the investment company. On November 29, 1927, M. and O. signed and remitted an offer to underwrite 12,000 shares addressed to the investment company and also an application for the shares addressed to the proposed company, which was accompanied by a cheque for 600l. On December 12, 1927, the incorporation of the proposed company took place, and the underwriting agreement and prospectus were adopted by the company and the prospectus issued to the public. The public response was insufficient,

and 8160 shares were allotted to M. and O., the allotment letter bearing at the back a form of renunciation. M. and O. were agents for the plaintiff, who had provided the 600l. They renounced the shares in favour of the plaintiff, who paid the further sum of 624l. due on allotment and sent the allotment letter to the company, who replied stating that it had been duly registered in his name and placed his name on the register of shareholders.

The plaintiff, as Luxmoore J. found on the evidence, had applied for the shares on the faith of the draft prospectus which contained, as he also found, an innocent misrepresentation. On learning of the misrepresentation, the plaintiff had brought this action for rectification of the company's register by the removal of his name and for repayment of the sum of 1224l.:-

Held, by the Court of Appeal (affirming the decision of Luxmoore J.), that the plaintiff was not entitled to rescission, because (1.) the contract between M. and O. and the company was of such a class that M. and O. must be treated as the principals, so that the plaintiff, as the undisclosed principal, could not sue on the contract or obtain its rescission, and (2.) the contract constituted by the company's acceptance of the plaintiff's authority under the renunciation to place his name on the register could not be treated as a contract entered into on the basis of the draft prospectus.

Per Luxmoore J. The fourth head stated in Lynde v. Anglo-Italian Hemp Spinning Co. [1896] 1 Ch. 178, 183 as one of those within which a person must bring himself to obtain rescission of a contract to take shares on the ground of misrepresentation should be corrected so as to read: "Where the contract is made to the knowledge of the company on the basis of certain representations and it turns out that some of them were material and untrue."

ACTION.

In this case the plaintiff sought to have his name removed from the register of members of the defendant company as the holder of 8160 shares of 5s. each.

The ground of the application was that the defendant company had committed a breach of contract with the plaintiff by failing to purchase two greyhound racing tracks in Ireland. These tracks had been specially mentioned in a prospectus issued by the company on the faith of which the plaintiff (certain rights of subscription having been renounced in his favour) had, as he alleged, sub-underwritten a considerable number of shares in the defendant company.

The plaintiff further claimed repayment by the defendant company to the plaintiff of a sum of 1224l. (being the total amount paid by him) with interest thereon at 5 per cent.

The following statement of the facts is substantially taken from the judgment of Luxmoore J.:-

The plaintiff, Mr. Manley Collins, carries on business as a financier, and in the course of his business he is in the habit of underwriting shares in companies which are to be offered for public subscription. At the invitation or at the introduction of a Mr. H. C. Mason, who was a director of a company called the Equitable Securities Company, Ld., the plaintiff was at the end of November, 1927, minded to underwrite some of the shares in the defendant company to be offered to the public for subscription. The defendant company was not at this time incorporated, but there were proposals on foot for its incorporation. The company was to be incorporated for the purpose of acquiring as going concerns and of carrying on greyhound racecourses at eight specified places, six of them in England, and two of them in Ireland; the two in Ireland being at Dublin and Belfast respectively. The capital of the company was to be 450,000l. divided into 1,800,000 shares of 5s. each. The promoters had caused contracts to be entered into between the proprietors of the racecourses in all the eight specified places, and had nominated trustees for and on behalf of the proposed company for the purchase of the racecourses as going concerns, for sums amounting in all to the total sum of 312,000l., of which 104,000l. was, at the option of the proposed company, to be satisfied by the allotment of fully paid shares in the company to the like nominal value.

In order to provide the necessary finance to enable the racecourses to be acquired, it was proposed that the bulk of the shares should be offered to the public. 1,600,000 shares were to be offered, but as part of the purchase price was payable at the company's option in shares, it was only necessary to obtain underwriting in respect of 1,164,000 of the 1,600,000 shares. To this end an agreement for underwriting was entered into between two gentlemen as trustees for and on behalf of the proposed company, and a company called the Broad Street Investments, Ld. It is dated November 28, 1927, and it contains recitals, first, of the

intended incorporation of the proposed company and its capital, and as to the proposal to offer 1,600,000 shares for public subscription, and the recital goes on to state that "such offer is to be made on the terms of the draft prospectus annexed hereto, subject to such modification as may be necessary (whether or not incorporating a change of the name of the company) prior to the filing thereof with the registrar of joint stock companies." No draft prospectus was in fact attached to the original agreement, but the parties agreed that the draft prospectus referred to was the document exhibited in the action, and dated November 28, 1927. The agreement provides that "The underwriters" - i.e., the Broad Street Investments, Ld. - "will within three days after issue of the sard prospectus either subscribe themselves on the terms hereinafter stated and on the basis of the said prospectus for 1,164,000 of the said 1,600,000 shares of 5s. each, or cause the same before the date aforesaid to be subscribed on the terms of the said prospectus by responsible persons and/or companies who shall pay the application money payable on the said shares applied for by them respectively and shall not withdraw their applications before allotment provided that the underwriters shall not be responsible for any sub-underwriters whose names have been accepted by the company." Then the agreement states the dates when the various instalments for the shares shall be paid, and clause 2 provides that "The company shall be deemed to have accepted as complying with the provisions of the last preceding clause any proposed subscriber whose name and address and the requisite application for the shares subscribed together with the deposit payable thereon are furnished by the underwriters to the secretary of the company and to which subscriber the company shall not take reasonable objection in writing within two days after receipt by the company of the aforesaid particulars." Then clause 3 provides for the consideration to be payable for the underwriting, and clause 4 says: "The allotment by the company of the said 1,164,000 shares or any part thereof to applicants therefor shall relieve the underwriters to the extent of the

shares so allotted of all further responsibility in respect thereof except so far as the allotment of shares is made to them." Clause 5: "Upon the adoption of this agreement by the company in such manner as to render it binding upon the company the trustees shall be discharged from all liabilities in respect thereof."

Now the draft prospectus referred to in the agreement was obviously prepared for the purposes of the underwriting contract, and as the substantial basis on which it was entered into. On November 29, 1927, Mr. H. C. Mason and a Captain Spencer Ovington signed an offer to sub-underwrite 12,000 of the shares in the proposed company. This offer for the 12,000 shares was addressed to the underwriters, Broad Street Investments, Ld., and was sent together with an application form addressed to the proposed company, and a cheque for 600l., to a firm called Dobree & Sons, who in their turn handed the offer, the application form, and the cheque, to the Broad Street Investments, Ld. This offer was in fact made by Mr. H. C. Mason and Captain Spencer Ovington, who were both directors of the Equitable Securities Company, Ld., for and on behalf of the plaintiff, the plaintiff having authorized the offer, and the application being as a matter of fact made on his behalf as the result of a conversation that he had with Mr. H. C. Mason over the telephone on the same day. On the following day, November 30, 1927, the plaintiff himself signed a similar offer and form of application in respect of the 12,000 shares. This offer and application form was sent by the plaintiff to the Equitable Securities Company, Ld., together with his cheque for 600l., but they were not used, the documents in fact used being the form of application and offer signed by Mr. H. C. Mason and Captain Spencer Ovington, which I have already mentioned. On December 8, 1927, Broad Street Investments, Ld., accepted Mr. H. C. Mason and Captain Spencer Ovington's offer to underwrite the 12,000 shares.

On December 12, 1927, the proposed company was incorporated, and on the same day various agreements were executed by the company adopting the agreements for the

purchase of the racecourses, and also adopting the underwriting agreement of November 28, 1927. A prospectus substantially in the same form as the draft prospectus referred to in the underwriting agreement of November 28, 1927, was signed by the directors.

On December 15, 1927, this prospectus was issued to the public, and the subscription lists for 1,600,000 shares offered under it were open. The public response was not as large as was hoped, but on December 17, 1927, the directors decided to allot the shares. 388,022 shares were allotted in response to applications by members of the public, and 775,978 being the balance of the 1,164,000 shares underwritten, were allotted to the underwriters or sub-underwriters put forward by Broad Street Investments, Ld. The allotments to the underwriters included one of 8160 shares to Mr. H. C. Mason and Captain Spencer Ovington, the 8160 shares being the proper proportion of the 775,978 shares, not subscribed for by the public, referable to the 12,000 shares applied for by Mr. Mason and Captain Spencer Ovington. The company by this allotment accepted Mr. H. C. Mason and Captain Spencer Ovington as sub-underwriters, and to this extent released the Broad Street Investments, Ld.

The allotments having been resolved upon, the defendant company sent out allotment letters to the respective allottees. These allotment letters were in the same form, except that those which were sent to the underwriters or sub-underwriters had printed on the top right hand corner, the letters "U. W." - meaning "Underwriting" - with a space for the insertion of the appropriate code numbers. Each allotment letter had on its back a form of renunciation. It states "Allotment of 8160 shares," and calls for payment of the amount, 624l., which was now payable on allotment. On the back of it there is a form of renunciation to be signed by shareholders only whose rights are renounced. The letter is in this form: "When the balance (if any) due on allotment has been paid by you, this letter of allotment can be renounced until January 21, 1928, in favour of any other person, provided the form of renunciation below is duly completed

and signed, and that the person in whose favour the renunciation is made signs the form of acceptance, also below." Then it goes on to state: "Renounced allotment letters must be forwarded to the transfer office of the company as shown on the reverse side of this letter, on or before January 21, 1928. Thereafter it will only be possible to transfer such shares by deed in the ordinary way." Then there is a form for renunciation, which is in this form: "To the Directors of Associated Greyhound Racecourse, Ld. Gentlemen, I we hereby renounce my/our rights to the within-named shares, and nominate" - then that form is filled in with the name of the plaintiff, Mr. Collins - "to have all the benefits thereof," and then it says: "Signature of Holder," and it is signed by Mr. Mason and Captain Ovington. Then there is a form of acceptance to be signed by the nominee: "I/we hereby accept the nomination to the rights to the within-named shares, and I/we authorise you to place my/our name(s) on the register of members in respect of the said shares." Then follows the name and address of the plaintiff, and that is signed by him with his signature.

Now Mr. Mason received the allotment letter in respect of the application made by him and Captain Ovington on December 18, 1927. On December 20, 1927, he forwarded it to the plaintiff together with the renunciation form, filled in in favour of the plaintiff and signed by Captain Ovington and himself. On January 6, 1928, the plaintiff sent his cheque for 624l. to the Midland Bank, as required by the allotment letter, the receipt for this sum was acknowledged by the bank on January 7, 1928, and a receipt for it indorsed on the allotment letter. On January 17, 1928, the plaintiff wrote to the defendant company enclosing the allotment letter in respect of the 8160 shares duly renounced in his favour and asking for "allotment letter in my name by return." On January 18, 1928, the defendant company returned the allotment letter in respect of the 8160 shares stating that it had been "duly registered in your name as required." On January 21, 1928, the plaintiff's name was entered on the register of shareholders of the defendant company, and his

name was the first name registered in respect of the 8160 shares.

I have dealt with the events which resulted in the allotment of the 8160 shares and the registration of the plaintiff as the holder of those shares, without reference to some important events which transpired between the date of the allotment on December 17, 1927, and the registration of the shares on January 21, 1928, in the plaintiff's name. These events have an important bearing on the case, and I will now state them. Apparently on December 16, 1927, a letter was written to the Broad Street Investments, Ld., on behalf of a group of sub-underwriters to the effect that they repudiated the sub-underwriting contracts entered into by them with the Broad Street Investments, Ld. The directors were not informed of this until December 17, 1927, when they allotted the shares. Two of the directors, Admiral Sir Sydney Freemantle and a Mr. Hill, and the secretary of the company, Mr. Anderson, were called as witnesses, and each of them said he knew nothing of any difficulty with regard to the underwriting at the time of the allotment. They were not cross-examined on this point, and Mr. Topham on behalf of the plaintiff accepted their evidence that at the date of allotment, December 17, 1927, the directors had no knowledge of any difficulty with regard to the underwriting; and sub-underwriters were in fact accepted by the defendant company; and to this extent the Broad Street Investments, Ld., was released from its liability as underwriters.

On December 19, 1927, the cheques given by some of the sub-underwriters were returned to the defendant company by their bankers marked "payment stopped." It is admitted that the sub-underwriting in respect of which cheques were stopped, affected a large number of shares, the total nominal value of such shares being in excess of 97,000l., and it therefore became clear to the directors that it would, to say the least, be very dangerous to proceed with all the contracts for purchase as they stood, and that it was essential to communicate with the respective vendors to see if arrangements could be made for variation of the terms as to payment of the

purchase price. The contract for purchase of the Dublin and Belfast racecourses is in evidence before me, and this shows the difficult position in which the directors were placed, because by an agreement dated November 28, 1927, between the National Greyhound Racing Company, Ld., and S. W. Penwill and A. J. Falkner as trustees for the proposed company (which agreement was adopted on December 12, 1927, by the defendant company), it was provided that the purchase price for the Dublin and Belfast racecourses and assets should be paid as to 7600l. upon allotment by the defendant company (but not later than December 22, 1927), and 21,650l. three days after allotment (but not later than December 25, 1927), and as to the remainder in two instalments, the last being payable before February 29, 1928. By clause 16 of the agreement it was provided (inter alia) that if the payment of 7600l. was not duly made, either party might by notice in writing rescind the contract; and further, if from any cause other than the wilful default of the vendors the said payments of 21,650l. and the other two instalments or any of them were not made within seven days of the dates fixed for payment, then either party could rescind the agreement, the deposit of the 7600l. being forfeited to the vendors.

It was obviously impossible at that time to call a meeting of the subscribers in view of the short time at the disposal of the directors. They endeavoured to obtain time for payment and succeeded in the case of the vendors of the English racecourses, but the Irish vendors were not ready to give any facilities whatever, and on December 23, the defendant company's solicitors received a telegram from the Irish vendors' solicitors: "Absolutely refuse to vary contract"; and on December 24, 1927, the defendant company's solicitors received a letter from the Irish vendors' solicitors which, so far as it is material, says this: "It was impossible to summon a board meeting to deal with your communications, but we consulted as many of the directors as possible, and they consider the failure of the company to pay the preliminary instalment as an unjustifiable breach of faith, and are in favour

of rescinding the contract in exercise of the power in that behalf contained in clause 16."

On December 29, 1927, the defendant company's solicitors again wrote to the Irish vendors solicitors in these terms: "We are instructed by the board of the above company to inform you that a block of sub-underwriters have made default in payment of allotment moneys due on their shares, and that, pending the result of legal proceedings to recover payment from them, the company is not in a position to carry out its full purchase programme. The company does not dispute that power of rescission has arisen, and we hope that this letter makes their position clear to you."

On January 6, 1928, the Irish vendors' solicitors wrote to the defendant company's solicitors a letter in which they acknowledge the receipt of the letter I have just read. They say this: "Our clients entered into this contract on the faith of representations that the issue would be underwritten by responsible and solvent underwriters, and we assumed that your clients' board took steps to satisfy themselves that this was so. They should therefore not be embarrassed by any default on the part of sub-underwriters. We would also assume your clients' board took these matters into consideration before going to allotment"; and then they end up by saying: "We are advising that the proper course is to take legal proceedings without further correspondence." On January 12 the Irish vendors rescinded the contract for sale.

No information was in fact given to the allottees, and it was not until February 3, 1928, that the plaintiff had any idea of what had happened. On that date he received a circular letter dated February 2, 1928, from Broad Street Investments, Ld., which stated in the only material paragraph: "The directors of the company have purchased the six English greyhound tracks but have decided not to proceed with the purchase of the two Irish tracks, and now the spring racing season is approaching the company have every appearance of proving a great success." The plaintiff, on receipt of that circular letter, consulted his solicitors, who on February 9 wrote to the defendant company saying:

"Our client in pursuance of a sub-underwriting agreement signed a form of application for 12,000 shares in the above named company upon the basis of the company's prospectus and paid a deposit of 600l. On December 18, our client received an allotment letter allotting him the above-mentioned 8160 shares and he has paid the further sum of 624l., being the sum payable by him on allotment, making 1224l. in all. Our client has now learned to his complete surprise that the company does not propose to proceed with the purchase of the Dublin and Belfast tracks. If this is so, it means that the company will not acquire two assets from which, according to the company's prospectus, more than one-third of the estimated profits of the company, as appearing in such prospectus, were to be derived. Our client only signed the form of application and agreed to take shares from the company upon the basis and upon the representation and definite statement by the company in its prospectus that it would acquire the Dublin and Belfast tracks. The actual words used are 'The company is acquiring the benefit of the above freeholds and leaseholds.' In the above circumstances any decision by the company not to proceed with the purchase of the Dublin and Belfast tracks will amount to a breach by the company of a material term of the contract between the company and our client under which our client agreed to take shares, giving him a right to treat such contract as at an end," and then they ask for the removal of the plaintiff's name from the register and the return of the 1224l. already paid by him.

The company's solicitors replied to that letter on February 13, 1928, in a letter in which they say: "The non-acquisition of the racecourses, at Dublin and Belfast was due to the action of a group of sub-underwriters who attempted to withdraw their underwriting on the second day of the public issue, and to repudiate the shares duly allotted to them. Legal proceedings were at once instituted to compel payment to the company of the amounts due on these shares, and the directors are advised by two eminent counsel that the company has a clear case against these

defaulters. The immediate consequence, however, was that the company found itself unable to make the whole of the very large payment due to its vendors upon allotment. The directors succeeded in making arrangements for extended terms of payment in respect of certain of the tracks proposed to be acquired, but the amount of money received at that date did not justify them to complete these arrangements with all the tracks, and in consequence the vendors of the Irish tracks withdrew from the sale. The directors have exercised very great deliberation and care, and they are convinced that their actions have been to the best advantage of the shareholders, ...." - and then they say: "We have advised the directors that neither the statements in the prospectus nor the events which have happened entitle your client to repudiate his shares." Accordingly on February 18, 1928, the writ in this action was issued.

I should add that the defendant company proceeded against the sub-underwriters who had stopped payment of their cheques; it was found that they were unable in the main to carry out their underwriting agreement, and in the result some 5000l. only out of the 97,000l. which should have resulted from the sub-underwriting contracts in question, has up to the present been recovered.

A. F. Topham K.C. and H. Wynn Parry for the plaintiff. The plaintiff is entitled to have his name removed from the register. He underwrote these shares on the faith of a statement in the defendant company's draft prospectus that the Irish tracks would be secured.

There was a misrepresentation, it is submitted, in the prospectus, even though it was issued before the incorporation of the company, and the contract which exists between the plaintiff and the company can be rescinded: see Buckley on the Companies Acts, 10th ed., p. 89, and In re Metropolitan Coal Consumers' Association; Karberg's Case (1), and the earlier case of In re Russian (Vyksounsky) Iron Works Co.; Stewart's Case. (2) The plaintiff was a party to the contract,

(1) [1892] 3 Ch. 1.

(2) (1866) L. R. 1 Ch. 574.

in the sense that although not actually a direct party, he was in the position of a principal, and Mr. Mason and Captain Ovington were acting as his agents. The misrepresentation therefore of the defendants rendered the contract, nugatory: see Lindley L.J. in Karberg's Case. (1)

Before the allotment was made the facts had altered; and although there were the words "will purchase" in terms future, they will not prevent misrepresentation if a purchaser buys shares on the faith of it: see Karberg's Case (1) and Stewart's Case. (2)

See also for cases where an applicant was entitled to have his name removed from the register: In re Scottish Petroleum Co.; Anderson's Case (3) and In re Scottish Petroleum Co. (4), in the judgment of Fry L.J.

Although the plaintiff was not a direct allottee, yet the plaintiff in effect had direct relations with the company: Peek v. Gurney (5), where the principle is laid down in the judgment of Lord Chelmsford. He is entitled to have his name removed from the register and to repayment of the amount paid by him for the shares.

Gavin Simonds K.C. and Lionel Cohen K.C. for the defendants. The plaintiff is not entitled to rectification of the register of members of the defendant company. The transaction between the plaintiff and Spencer and Ovington did amount to a transfer, and his name should not be removed: see In re Pool Shipping Co. (6) There can be no action for deceit: see Peek v. Gurney (7); nor was there, it is submitted, any misrepresentation by the defendant company: see per Lord Cairns in that case. There was no misrepresentation by the defendants to Spencer and Ovington; therefore how could the defendants be in any way liable to the plaintiff?: see Hyslop v. Morel. (8)

The plaintiff relies on the statements in the draft prospectus; no misrepresentation was contained in it. The contracts referred to in the prospectus were those which the

(1) [1892] 3 Ch. 1, 13.

(2) L. R. 1 Ch. 574.

(3) (1881) 17 Ch. D. 373, 377.

(4) (1883) 23 Ch. D. 413, 438.

(5) (1873) L. R. 6 H. L. 377, 395.

(6) [1920] 1 Ch. 251.

(7) L. R. 6 H. L. 377, 389, 391, 403, 406.

(8) (1891) 7 Times L. R. 263.

company had entered into to acquire certain rights. The company had not actually contracted to purchase the tracks but only stated they were going to enter into contracts to purchase them. There was no misrepresentation. Karberg's Case (1) has never been properly understood, but is very different from this present one, and cannot assist the plaintiff. The whole basis of Lindley L.J.'s judgment there was one of misrepresentation, which does not arise here. Further, the case of Lynde v. Anglo-Italian Hemp Spinning Co. (2) clearly shows what a plaintiff must show to make a company liable for misrepresentation. In re Canadian (Direct) Meat Co.; Tamplin's Case (3) cannot be relied on.

A. F. Topham K.C. replied. The case of Hyslop v. Morel (4) is different from the present one. The company put the principal on the register, not the nominee. It is a question whether the undisclosed principal can sue for, e.g., fraud: Karberg's Case. (1) See also Lynde v. Anglo-Italian Hemp Spinning Co. (2), the fourth head. See also Palmer's Company Precedents, 13th ed., p. 180. On the question of a principal suing see Spurr v. Cass. (5)

[LUXMOORE J. referred to Humble v. Hunter (6) - this particular point of an undisclosed principal does not seem to have arisen before.]

Wynn Parry replying. It is submitted that is so.

[LUXMOORE J. The law seems to be correctly stated in Pollock on Contracts, 9th ed., p. 108.]

Wynn Parry referred to Mayhew v. Eames. (7) Knowledge of the principal is knowledge of the agent. The case of Hyslop v. Morel (4) can be distinguished by a reference to the Stamp Acts.

LUXMOORE J. This is in effect an action for rescission of a contract to take 8160 shares of 5s. each in the capital of the defendant company; and the plaintiff asks for rectification

(1) [1892] 3 Ch. 1, 13.

(2) [1896] 1 Ch. 178, 182, 183.

(3) [1892] W. N. 94, 146.

(4) 7 Times L. R. 263.

(5) (1870) L. R. 5 Q. B. Cas. 656, 659.

(6) (1848) 12 Q. B. 310.

(7) (1825) 3 B. & C. 601, 603.

of the defendant company's share register by the removal of his name therefrom as the holder of 8160 shares, and also for the return of the moneys paid by him in respect of those shares amounting to the total sum of 1224l.

Before formulating the questions which actually arise for decision, I will state the material facts. [His Lordship stated the facts as set out above.] Now, the plaintiff claims rectification of the company's register; and he bases his claim on the fact that he sub-underwrote 12,000 shares on reliance on the draft prospectus. He says that that prospectus in fact contains material misrepresentations which entitle him to the relief claimed. It is not suggested that the directors are guilty of anything in the nature of fraud or deceit. The plaintiff's case is based solely on the ground of misrepresentations made innocently.

In these circumstances, what are the questions which arise for decision? I think there are three - namely: (1.) Does the draft prospectus contain any material misrepresentation? (2.) If it does, did the plaintiff rely on the draft prospectus? and (3.) If he relied on the draft prospectus, is he entitled to any relief in the circumstances of the case, the application for the shares in question having been made not in the plaintiff's name but in the names of Mr. H. C. Mason and Captain Spencer Ovington?

I propose to deal with these questions in the order in which I have stated them. No. 1: Does the draft prospectus contain any material misrepresentation? As I have pointed out, the document to be considered is the draft prospectus marked Draft "A," dated November 28, 1927, for this is the only prospectus which the plaintiff ever saw.

The draft prospectus must be read as a whole. It states as a fact that the company has been formed to acquire as going concerns and carry on eight named greyhound racecourses, of which particulars are given. The named racecourses include those at Dublin and Belfast; these two racecourses are the racecourses which have the largest accommodation for spectators. The prospectus goes on to note: "The company is acquiring the benefit of all the above

freeholds and leases," and under the heading of "Valuation," it sets out a letter from Messrs. Duncan B. Gray & Partners, with regard to the value of the property, in which it is stated that: "In accordance with your instructions, we have inspected the eight greyhound racing tracks which your company are purchasing." It then states the auditors' report, showing the profits earned from the various tracks for the period specified in the report, and it shows particularly the profits from each racecourse. The profits from Dublin and Belfast together amount to 24,200l. 14s. 6d.; the total profits for the eight tracks amount to 61,048l. 15s. 3d. Therefore, the Dublin and Belfast tracks together amount somewhere in the neighbourhood of two-fifths of the total profits. Then it sets out under the heading "Working Capital" that: "The total amount of cash to be received from this issue is 395,000l., and after paying the purchase price of the courses, that is, 312,000l., the preliminary expenses, underwriting and overriding commissions amounting to 39,500l., there will remain a sum of 43,500l. for working capital and general purposes of the company which the directors consider adequate." It also sets out the minimum subscription. "The minimum subscription on which the company may proceed to allotment is fixed by the articles of association at seven shares, but as 1,164,000 of the shares offered for subscription have been underwritten, the directors will proceed to allotment upon the closing of the list." It then offers inspection of the various contracts which have been entered into, and states that various other underwriting contracts have been entered into, to which the company is not a party.

Now, reading this prospectus as a whole, I have come to the conclusion that the basis of the prospectus is that the company will start business with eight racecourses, including the two in Ireland, and that after acquiring the whole of the properties, the company will have a working capital of 43,500l. There is no suggestion that the company might in some circumstances only acquire some of the businesses, and the prospectus in fact invites subscriptions

to a company which will carry on the eight racecourses, which is manifestly a different proposition to subscribing to a company which will only carry on some of those racecourses. No doubt the directors honestly thought that the arrangement which had been made justified the statements in the draft prospectus, but in fact those arrangements failed, and the company has never been in a position to acquire all the eight racecourses. The statements in the prospectus as to the company's business were therefore untrue. That they are material statements is plain from the fact that the Dublin and Belfast racecourses, which were to be acquired, were together earning about two-fifths of the total profits stated in the prospectus as having been earned by the eight racecourses which the defendant company was to acquire. I am, therefore, of opinion that the first question must be answered in the affirmative.

Now the second question is: Did the plaintiff rely on the prospectus? He has given his evidence very clearly and fairly, and he has stated that before offering to underwrite the 12,000 shares and authorizing the application for these shares, he read the draft prospectus carefully and considered the statements as to the profits earned by the eight racecourses and the available working capital, and he came to the conclusion that on this statement the proposition showed a reasonable prospect of a 12 per cent. to 13 per cent. return on his money if the public issue was unsuccessful, and he had to take up the 12,000 shares or any of them. Mr. Gavin Simonds, having regard to the way in which the plaintiff gave his evidence, really did not cross-examine him, and in his argument for the defendant company he very frankly admitted that he accepted the plaintiff's statement that in authorizing the application for the shares in question, he did so in reliance on the accuracy of the statements in the prospectus to which I have already referred. The second question, therefore, must also be answered in the affirmative.

The third question therefore arises, and it is this: Is the plaintiff in the circumstances of this case entitled to any

relief? This question resolves itself into two heads, dependent on what the contract is that the plaintiff is asking to have rescinded. The statement of claim does not specify what the contract is of which rescission is asked, but in the course of the argument of the case, it became clear that there were two possible contracts. The first: The contract constituted by the resolution to allot 8160 shares to Mr. H. C. Mason and Captain Spencer Ovington on December 17, 1927, in response to their application attached to the sub-underwriting letter signed by them and addressed to Broad Street Investments, Ld., dated November 29, 1927; and the second, the contract constituted by the acceptance by the plaintiff of the renunciation by Mr. H. C. Mason and Captain Spencer Ovington of their rights under the allotment letter, and the authority of the defendant company to place the plaintiff's name in the share register, followed by the registration of the plaintiff as the shareholder in respect of the 8160 shares on January 21, 1928. So far as the first of these contracts is concerned the plaintiff can only be entitled to have this rescinded on the ground that Mr. H. C. Mason and Captain Spencer Ovington in fact entered into it as his agents. I am satisfied from the evidence that the company had no knowledge that the plaintiff was in any way concerned with the application for the shares in question on December 17, 1927, when the allotment was made, and, therefore, the plaintiff cannot be in any better position than that of an undisclosed principal, the company having no knowledge but that Mr. H. C. Mason and Captain Spencer Ovington were acting in any other capacity than as principals.

Now, what are the rights of an undisclosed principal in respect of a contract where the agency is unknown to the other party? The rights, I think, are accurately stated in Sir F. Pollock's Principles of Contract, 9th ed., p. 108. He says: "When a party contracts with an agent whom he does not know to be an agent, the undisclosed principal is generally bound by the contract and entitled to enforce it as well as the agent with whom the contract is made in the

first instance." But there are important limitations to this rule. The learned author points out a little lower down on the same page that the rule does not apply where the agent for an undisclosed principal contracts in such terms as import that he is the real and only principal. In such a case the principal cannot afterwards sue on the contract; and for this statement he quotes the well known case of Humble v. Hunter. (1)

In the present case the contract results from the acceptance of the application for shares signed by Mr. H. C. Mason and Captain Spencer Ovington, and is an application for shares on the terms of the prospectus and of the memorandum and articles of association of the company. The articles of association of the company contain the usual provisions that the company shall be entitled to treat the registered holder of any shares as the absolute owner thereof (art. 14). In addition to this, in accepting a particular application, the company is from the very nature of the transaction entitled to consider the personality of the applicant before deciding to accept the application, and on both these grounds I think the application itself imports that it is made by Mr. Mason and Captain Spencer Ovington as the real and only principals. I am, therefore, of opinion that the plaintiff would be unable to sue on the contract between the company and Mr. H. C. Mason and Captain Spencer Ovington, and a fortiori he would be unable to sue for rescission of such contract. I should here point out that even if the plaintiff could sue on the contract, and so was in a position (as I think he would be) to sue for rescission, he would in such a case be subject to all equities in the same way as if the agents were the sole principals. In my opinion, the statement in Palmer's Company Precedents, 13th ed., vol. i., p. 180, to the effect that, "Where A. takes shares as agent for B., but without disclosing to the company the agency, B. cannot claim relief unless A. was deceived," is too broadly stated, and is not borne out by the cases there cited - namely, Capel & Co. v. Sims' Ships Composition Co. (2) and Hyslop v. Morel.(3)

(1) 12 Q. B. 310.

(2) (1888) W. N. 97.

(3) 7 Times L. R. 263.

Of course, if the undisclosed principal cannot sue on the contract he could not obtain its rescission. In such a case the only person entitled to rescind would be the agent for the undisclosed principal, and in order to succeed in such a case the agent must necessarily prove that he was himself induced by the misrepresentations to enter into the contract.

It follows therefore that in my judgment the plaintiff cannot sue for the rescission of the contract between the company and Mr. H. C. Mason and Captain Spencer Ovington. This leaves the only question remaining - namely, can the plaintiff sue under the contract (if any), constituted by the acceptance by the defendant company of his authority to it, under the renunciation letter, to place his name on the share register? In this aspect of the case I assume that the putting on the register of the plaintiff's name in pursuance of the renunciation letter and the authority signed by the plaintiff constitutes a contract. It is then essential to consider what the position is as between the defendant company and the plaintiff with regard to the representations relied upon. Those representations are contained in the draft prospectus which I have already referred to, and was issued before the defendant company was incorporated. The company can, in my judgment, only be responsible for these representations under one or other of the four heads enumerated by Romer J. in Lynde v. Anglo-Italian Hemp Spinning Co. (1)

The four heads begin at p. 182 of the report, where the learned judge says: "It appears to me that, speaking generally, to make a company liable for misrepresentations inducing a contract to take shares from it, the shareholder must bring his case within one or other of the following heads: (1.) Where the misrepresentations are made by the directors or other the general agents of the company entitled to act and acting on its behalf - as, for example, by a prospectus issued by the authority or sanction of the directors of a company inviting subscriptions for shares; (2.) Where the misrepresentations are made by a special agent of the company while acting within the scope of his authority - as, for example,

(1) [1896] 1 Ch. 178, 182, 183.

by an agent specially authorised to obtain, on behalf of the company, subscriptions for shares. This head of course includes the case of a person constituted agent by subsequent adoption of his acts; (3.) Where the company can be held affected, before the contract is complete, with the knowledge that it is induced by misrepresentations - as, for example, when the directors, on allotting shares, know, in fact, that the application for them has been induced by misrepresentations, even though made without any authority; (4.) Where the contract is made on the basis of certain representations, whether the particulars of those representations were known to the company or not, and it turns out that some of those representations were material and untrue - as, for example, if the directors of a company know when allotting that an application for shares is based on the statements contained in a prospectus, even though that prospectus was issued without authority or even before the company was formed, and even if its contents are not known to the directors."

It is said that the present case falls either within head 2 or head 4. What are the material facts here? The representations complained of were made to obtain the underwriting contract. The draft prospectus was passed on by the underwriters, Broad Street Investments, Ld., to the plaintiff through the Equitable Securities Company, Ld.; but neither the Broad Street Investments, Ld., nor the Equitable Securities Company, Ld., was the agent of the company specially authorized to obtain subscriptions for shares, and the company has not by any subsequent action adopted either the Broad Street Investments, Ld., or the Equitable Securities Company, Ld., as its agent for any such purpose. In my opinion, therefore, the case cannot be brought within head 2. Now can it be brought within head 4? There has been some controversy as to what the fourth head is. The fourth head, as stated by the learned judge in his judgment, is this: "Where the contract is made on the basis of certain representations, whether the particulars of those representations were known to the company or not, and it turns out that

some of those representations were material and untrue." Then he gives as an example: "If the directors of a company know when allotting that an application for shares is based on the statements contained in a prospectus, even though that prospectus was issued without authority or even before the company was formed, and even if its contents are not known to the directors." The example which the learned judge gives there I think explains what he means by the fourth head. It is I think made clear by what is said on p. 185, where he is referring to In re Metropolitan Coal Consumers' Association; Karberg's Case (1) in dealing with the particular case before him. He says this: "Lastly, this is not a case like Karberg's Case (1), or coming at all within the fourth head. The application for shares made by the plaintiff was not one made conditional upon, or to the knowledge of the directors based upon, any special or other representations. ...."

In my view the headnote of the report is inaccurate so far as it states what constitutes the fourth head. The fourth head in the headnote is in the following terms: "Where the contract is made on the basis of certain representations, whether the particulars thereof were known to the company or not, and it turns out that some of them were material and untrue." In my opinion the headnote should be amended in the manner stated in Buckley on the Companies Acts, 10th ed., p. 90, where the fourth head is stated thus: "Where the contract is made to the knowledge of the company or its agents on the basis of certain representations and it turns out that some of them were material and untrue." The learned author comments on the fourth head and says:- "In stating the fourth head, the author has varied the language of the headnote for the purpose of expressing, as he hopes, more correctly the effect of the learned judge's words. The instance which he gave of the fourth head is not apt, unless the words 'made on the basis' mean 'made to the knowledge of the company on the basis.' At the same time, if this is so, Tamplin's Case (2), if correctly reported, creates a

(1) [1892] 3 Ch. 1.

(2) [1892] W. N. 94, 146.

difficulty. Romer J. refused Tamplin relief on the ground that the directors did not know that he applied on the faith of the draft prospectus. The Court of Appeal are not reported to have found that the directors did know, and yet allowed the appeal on the ground that Karberg's Case (1) applied."

So far as this comment is concerned, I should point out that Romer J.'s judgment in Lynde v. Anglo-Italian Hemp Spinning Co. (2) was subsequent to the decision of the Court of Appeal in Tamplin's Case (3), which was cited in the argument in Lynde's case. (2) Tamplin's Case (3) is only reported in the Weekly Notes, and for the purpose of this case I think I am entitled and indeed bound to proceed on the footing that Tamplin's Case (3) is not in fact correctly reported in the Weekly Notes, and to accept Romer J.'s decision in Lynde's case (2) as binding upon me.

Applying the fourth head in Lynde's case (2) to the present case, the fact has been established before me that at the time the plaintiff's name was entered on the register, the defendant company had no knowledge of the circumstances under which the renunciation by Mr. H. C. Mason and Captain Spencer Ovington in favour of the plaintiff had been made. The defendant company had no reason to suspect that the plaintiff was a sub-underwriter, or to think he was in any different position to that of a purchaser of the right of renunciation, and the defendant company therefore had no knowledge that, so far as the plaintiff was concerned, his application had been induced by any representations made before the company was incorporated.

In these circumstances I think the plaintiff fails to establish any right to have any contract to take the shares in question rescinded, and his action, therefore, fails.

There is a counterclaim for payment of the amount remaining due in respect of the calls - namely, 816l. The plaintiff's counsel has admitted that if the plaintiff fails in his action, he has no defence to the counterclaim. By the articles of association, calls in arrear are to bear interest from

(1) [1892] 3 Ch. 1.

(2) [1896] 1 Ch. 178.

(3) [1892] W. N. 94, 146.

the date appointed for payment at the rate of 10 per cent. per annum. It is admitted that the date so appointed was January 17, 1928, and there will, therefore, be judgment for the defendant company on the counterclaim for 816l. with interest at 10l. per cent. per annum until payment. The plaintiff will pay the costs of the action and the counterclaim.

A. R. T.

The plaintiff appealed. The appeal was heard on May 31, June 4 and 5, 1929.

Topham K.C. and H. Wynn Parry for the appellant. The plaintiff was throughout the principal in the contract to take shares, and Mason and Ovington were his agents. Luxmoore J. has held in the plaintiff's favour that there was a misrepresentation in the draft prospectus on which the plaintiff relied. It is true that effect was given to the transaction by Mason and Ovington's renouncing in favour of the plaintiff. But this was not a transfer of the shares but a renunciation of the right to become shareholders. There is nothing to prevent an undisclosed principal from taking the benefit of a contract entered into by his agent in a case where the person with whom the contract was made had no knowledge whether the agent was contracting as principal or agent: Cooke v. Eshelby. (1) There was nothing in the contract in the present case to import that Mason and Ovington were principals. The plaintiff was principal from the beginning, and it was his money that was paid. He is entitled therefore to rescind the contract on the ground of misrepresentation: see Peek v. Gurney. (2)

But even if the plaintiff cannot succeed as an undisclosed principal, the act of the company in registering the letter of allotment renounced in favour of the plaintiff amounted to a contract between the plaintiff and the company; and that contract was to take shares on the basis of the application signed by Mason and Ovington and therefore on the terms of the prospectus. The acceptance by the company of the plaintiff's offer to become a member shown by remitting

(1) (1887) 12 App. Cas. 271, 275.

(2) L. R. 6 H. L. 377.

the letter of allotment with a renunciation in his favour upon it, constituted a contract. That offer was made by the plaintiff on the faith of the prospectus, and on this ground also he is entitled to rescission. The plaintiff was the assignee of Mason and Ovington's contract that they should be members of the company on the terms of the prospectus. This case falls within the third proposition laid down by Lindley L.J. in Karberg's Case. (1) The prospectus was "the basis of the contract." The contract between the company and Mason and Ovington was a contract of allotment on the basis of the prospectus. As part of that contract Mason and Ovington were given power to renounce in favour of another. The acceptance by the plaintiff of the renunciation in his favour and the authorization to the company to place him on the register of shareholders were made on the same basis. The plaintiff took over the rights of Mason and Ovington, that is, he agreed to pay instalments of purchase money on the footing of the prospectus.

[RUSSELL L.J. The document would be the same if the plaintiff had never heard of the prospectus but bought these shares from Mason and Ovington on the market.]

The plaintiff accepted the renunciation of the rights of Mason and Ovington, whose contract to take the shares was based on the prospectus. If the plaintiff was not bound by the terms of the prospectus, then, apart from the question of misrepresentation, the company's counterclaim for calls ought to have failed.

[RUSSELL L.J. It is too late to say that after admitting liability on it in the Court below.]

That admission was made in the belief that the plaintiff contracted on the faith of the prospectus.

[LAWRENCE L.J. The payment of calls was provided for in the allotment letter.]

Yes, but not the payment of 10 per cent. interest, as claimed by the company. Leave is asked to withdraw the admission.

A person acquiring shares in a company on the faith of a draft prospectus issued before the company's incorporation

(1) [1892] 3 Ch. 1, 11.

can obtain rescission on the ground of misrepresentation: Karberg's Case. (1) Nor is it material that the directors are ignorant of the application being made on the faith of the prospectus: Karberg's Case (1); Tamplin's Case.(2) At least that is so when the person doing the act is constituted agent by subsequent adoption of his act: Lynde v. Anglo-Italian Hemp Spinning Co. (3) Here the company did so by adopting the prospectus and the agreement with Mason and Ovington.

This case is also covered by the fourth head in Romer J.'s judgment (4): "Where the contract is made on the basis of certain representations, whether the particulars of those representations were known to the company or not, and it turns out that some of those representations were material and untrue." In fact it is contended the directors knew of the draft prospectus and that the offer for shares was made on the faith of it. These cases are discussed in Palmer on Companies, 13th ed., vol. i., p. 180, and reference is also made to Hyslop v. Morel (5), which helps the plaintiff's case. The cases show that when a person applies on the faith of a prospectus issued before the company's incorporation, then if the prospectus is adopted by the company, he can sue for rescission on the ground of a misrepresentation contained in it. On the other hand, there is no such right on a transference of shares. This is a case between the two. The plaintiff is the undisclosed principal of the persons contracting for the shares. He entered into that contract by the agents and was misled by the misrepresentation in doing so. In such a case the principal can, it is contended, rescind. It is not essential that the agents should also have been misled: compare Mayhew v. Eames. (6) In any case there is nothing to show here that the agents were not misled.

Lionel Cohen K.C. (Gavin Simonds K.C. with him) for the company. Two points arise, first, whether Luxmoore J. was right in holding that there was a misrepresentation, and secondly, whether even if there was misrepresentation

(1) [1892] 3 Ch. 1.

(2) [1892] W. N. 94, 146.

(3) [1896] 1 Ch. 178, 183.

(4) [1896] 1 Ch. 183.

(5) 7 Times L. R. 263.

(6) 3 B. & Cr. 601.

the plaintiff is entitled to sue in respect of it. The company contends that there was no misrepresentation, but it may not be necessary to go into this, though the right to do so, should there be an appeal, is reserved.

As regards the second question, there are two contracts that the plaintiff contends he may be entitled to rescind. The first is the original contract entered into by Mason and Ovington, but this is a contract of the class which an undisclosed principal is not entitled to come forward and adopt: Pollock's Principles of Contracts, 8th ed., p. 106. The company had a right to reject any sub-underwriter, and it was essential therefore that the company should know who is contracting in that capacity. This is inconsistent with an undisclosed principal being allowed to adopt the contract: Humble v. Hunter. (1) It was there laid down that a man has a right to the benefit which he contemplates from the character, credit and substance of the person with whom he contracts. That is the principle underlying the decision in Hyslop v. Morel. (2) That the person underwriting was of importance here is shown by clauses 1 and 2 of the agreement of November 28, 1927. It follows that the undisclosed principal cannot sue in a case like this, unless the agents were misled, and it becomes a vital question whether the agents were misled by the alleged misrepresentation. It was for the plaintiff to discharge the onus of proving this, and he has failed to do so. He cannot therefore sue for rescission of the original contract. Further, it is submitted that even if the plaintiff had proved this, he still could not sue. The agents must be treated as the real principals.

Then it is said that a contract was made between the plaintiff and the company when the company accepted him as an assignee. No such contract arose till the company registered the plaintiff as a shareholder, and this was not entered into on the faith of the prospectus. The contract is created by the allotment, renunciation and nomination and the acceptance of the person nominated by the company.

(1) (1848) 12 Q. B. 310.

(2) 7 Times L. R. 263.

That registration was effected on the footing that the plaintiff was a transferee of Mason and Ovington. The renunciation was merely a simplified mode of transfer, and there is no possible reference to the prospectus in any contract between the plaintiff and the company. The plaintiff does not bring himself within Karberg's Case. (1) For the prospectus to be the basis of the contract, it must be so to the knowledge of both parties. Here, as far as the company knew, the plaintiff stood in the position of an ordinary transferee.

[He was stopped.]

Topham K.C. replied.

LORD HANWORTH M.R. In this case, which raises an important and interesting point, we have come to the conclusion that the judgment of Luxmoore J. is right. I should be prepared to leave the matter there, and to accept his careful judgment, but that I feel it is due, out of respect for the argument presented to us with great ability by Mr. Topham, that I should shortly state my reasons.

It is unnecessary to recapitulate the facts stated by the learned judge in his judgment, except to emphasize one or two features.

A prospectus had been issued at a time before the company was formed, and there was also an agreement made on November 28, 1927, between the trustees for the company and Broad Street Investments, Ld. The terms of that agreement were in effect that Broad Street Investments, Ld., were to be the underwriters of the complete capital of the proposed company. In terms it states that these underwriters, Broad Street Investments, Ld., are to be responsible for the whole of the capital. Para. 1 of that agreement states: "The underwriters will within three days after issue of the said prospectus either subscribe themselves on the terms hereinafter stated and on the basis of the said prospectus for One million one hundred and sixty four thousand of the said One million six hundred thousand Shares of Five shillings each or cause the same before the date aforesaid to be subscribed

(1) [1892] 3 Ch. 1.

for on the terms of the said prospectus by responsible persons and/or companies who shall pay the application money payable on the said shares applied for by them respectively and shall not withdraw their applications before allotment provided that the underwriters shall not be responsible for any sub-underwriters whose names have been accepted by the company."

Then para. 2 of the agreement is: "The company shall be deemed to have accepted as complying with the provisions of the last preceding clause any proposed subscriber whose name and address and the requisite application for the shares subscribed together with the deposit payable thereon are furnished by the underwriters to the secretary of the company and to which subscriber the company shall not take reasonable objection in writing within two days after receipt by the company of the aforesaid particulars."

That agreement was subsequently adopted by the company after it had been incorporated. To my mind its terms make two points plain. The first is that Broad Street Investments, Ld., were responsible for the full amount of the contemplated issue of capital, and secondly, that they could discharge themselves from that responsibility only by putting forward underwriters whose names should be accepted by the company; and in relation to the second point that the company had an opportunity of rejecting any particular candidate so put forward for the purpose of releasing Broad Street Investments, Ld., and that they could exercise their discretion as to whether or not they would take objection to the substituted underwriters or underwriter proposed by Broad Street Investments, Ld. It emerges, therefore, from that agreement that the character of the persons who were to be underwriters so put forward was of importance, and was not abandoned entirely by the company.

Mason and Ovington, being sub-underwriters, applied for shares. They had seen the prospectus, and on December 17, 1927, an allotment letter was sent to them in these terms: "I am instructed to inform you that, in response to your

application the directors have allotted you 8160 ordinary shares in this company numbered" so and so. It is on that date that the company, which had been incorporated on December 12, in making its allotment, definitely allotted to Mason and Ovington these numbered shares. The letter showed that the immediate sum payable was 624l. Mason and Ovington, it is said, were acting as agents for the plaintiff, who having received that letter of allotment, sent a cheque for 624l. direct to the company's bankers, the Midland Bank. He sent that cheque on January 6, and on the 7th he received it back with the receipt for the 624l. noted by the stamp of the Midland Bank, which is dated January 7. The plaintiff, having thus paid the sum due on allotment, sends the whole of the allotment letter to the company on January 17: "I herewith enclose Allotment Letter No. U.W. 4/6 in respect of 8160 shares fully renounced in my favour. I shall be obliged if you will kindly let me have Allotment Letter in my name by return." The company did not issue any fresh allotment letter, but they replied on January 18 by the secretary. "I am in receipt of your letter of the 17th instant, and enclose herewith Allotment Letter in respect of 8160 shares in this company duly registered in your name, as desired." What they had done was this, they had put upon the allotment letter dated December 17 a stamp which says: "This allotment letter is registered under date 18th January." Mr. Collins had therefore got back from the company, and held in his hand, an allotment letter upon which he had paid the amount due on allotment. It was a letter which had been registered in the books of the company as being an allotment letter which had reached him, and it was also an allotment letter upon which there had been a renunciation signed by Mason and Ovington, who were the persons to whom the allotment letter itself was directed. At the time when they signed that renunciation they had not filled in the date; the date apparently was not filled in even at the time when Mr. Collins sent his cheque to the Midland Bank on January 6. It was not filled in until he wrote on January 17 to the company, when it was necessary

for him to show that the interest of Messrs. Mason and Ovington had passed to him on a certain date. He filled in the date of January 16 before he enclosed the allotment letter in his letter of January 17. I have only added those few facts because I want to emphasize them for the purpose of what I intend to say.

Now the learned judge, on going into the facts, has held that there was an innocent misrepresentation in the prospectus, and he has found that the plaintiff relied upon the terms of the prospectus. The prospectus was adopted by the company upon its incorporation, and although in this Court the question whether or not there was a misrepresentation has not been discussed, it is a matter which Mr. Lionel Cohen has desired to keep open. But there is no question that upon that prospectus, whether it in fact contained a misrepresentation or not, the plaintiff did rely. For the purposes of the present judgment, it is right to accept the view arrived at by the learned judge, that the prospectus did contain an innocent misrepresentation. It is said on behalf of the plaintiff as appellant that upon these facts he is entitled to have the contract set aside and the company ordered to rectify the register by removing his name from it.

The first point on which the plaintiff relies is that he was the undisclosed principal, and entitled to enforce his rights as a principal of Mason and Ovington, who applied for the shares on his behalf, and obtain a release from the contract on the ground of misrepresentation. Mason and Ovington have not given any proof that they relied upon any misrepresentation. They were both called, and they have not proved that they were misled by any misrepresentation at all. The question therefore arises whether, upon this contract made between them as agents (so it is said) for an undisclosed principal and the company, the undisclosed principal can come and set up the fact that he had acted upon a misrepresentation contained in the prospectus.

I have come to the conclusion that upon what I may call the principal and agent point, it is impossible for the plaintiff to establish his case. I think the learned judge was right

in saying that the rule stated in Sir Frederick Pollock's Principles of Contract, 8th ed., p. 106, applied: "When a party contracts with an agent whom he does not know to be an agent, the undisclosed principal is generally bound by the contract and entitled to enforce it as well as the agent with whom the contract is made in the first instance." But that does not apply where an agent for an undisclosed principal contracts in such terms as import that he is the real and only principal.

Let us consider for a moment what was the position of the company vis-ˆ-vis Mason and Ovington at the time the allotment letter was sent out. By sending out the allotment letter, they released, pro tanto, Broad Street Investments, Ld., from their liability under the adopted agreement, and were no longer able to call upon Broad Street Investments, Ld., in respect of those 8160 shares. For that purpose it was necessary for the company to form an opinion as to whether or not they should take a reasonable objection within a limited time to the sub-underwriters who were put forward as being responsible persons. It appears to me that there was just that element in the contract as between the company and Mason and Ovington which did require that Mason and Ovington should be taken for this purpose to be the persons with whom the company were contracting.

The question of the knowledge of the agent, or the position of the agent and the position of the principal of course introduces very difficult questions. But, as stated by Lord Halsbury, in the well known case of Blackburn, Low & Co. v. Vigors (1), it is too loose to talk of principal and agent as if those words necessarily connoted in all cases the same relation. "When a person is the agent to know, his knowledge does bind the principal." But that must be shown to be one of the characteristics of the agent. Equally the employment of the agent in a particular matter may be so restricted that you cannot introduce the loose suggestion that the rights of the principal and the agent are interchangeable.

(1) (1887) 12 App. Cas. 531, 537 et seq.

In the present case it appears to me that the contract between the company and Mason and Ovington was one in which importance attached to the personality of the persons with whom the company were contracting. In such a case it is not right to treat the agents as necessarily interchangeable with their principal so as to enable the principal to come forward and seek to disaffirm the contract on the ground of a misrepresentation on which he alone had relied. I think that disposes really of the question of the prospectus, for Mason and Ovington have given no proof that they were deceived by any misrepresentation, and the contract that was made on the basis of the prospectus was, to my mind, the contract that was made by means of the allotment letter sent on December 17.

Different considerations apply to the other ground upon which an argument has been presented on behalf of the plaintiff. When the letter of allotment containing the renunciation was forwarded to the company on January 17, the plaintiff asked that he should have an allotment letter in his name. I do not pause to consider precisely the nature of that application; but what he did receive was an indication that the renunciation in his favour had been accepted by the company, and the allotment letter registered in his name in the books of the company. But what was the nature of his position upon the renunciation? It is said that what had been renounced was the contract that had been made on December 17 with Mason and Ovington, and that all rights which they might have had have passed to him. In terms, what is given is this: "We hereby renounce our rights to the within-named shares, and nominate Mr. Collins to have all the benefits thereof" - that is, of the shares. It appears to me, when this allotment letter is examined, that it shows a contract between the company and Mason and Ovington to place them on the register and issue a certificate for shares when the full sums are paid. The right which they have, is a right to certain shares. The contract appears to be complete between the company and Mason and Ovington, a contract the fruit of which is shares, and it is those shares

which are assigned or renounced to the plaintiff, without a transfer deed, it is true, but that is because by the structure of the contract a transfer deed did not become necessary until a later date.

I do not think it can be said that the acceptance at that date of the plaintiff was an acceptance by the company of the plaintiff on the basis of the prospectus. No reference is made to the prospectus. The events which had taken place since the company had become responsible for the prospectus were of very considerable importance; and all that is tendered by the plaintiff is a renunciation letter of the shares and an application by him that he should be accepted as holder of the shares, and the answer is: "Yes, you shall be the holder of the shares, and we register that application."

I do not see that it is possible in face of what had been renounced in the plaintiff's favour to go back to the original issue of the prospectus, and to treat the proceedings which took place between the company and the plaintiff as being based upon the terms of the prospectus. It appears to me that it is much more like cases such as Peek v. Gurney (1), where after shares have been allotted a third party has become possessed of those shares either by a transfer or by assignment, and in relation to the company I cannot find that the contract entered into on January 17 was on the basis of the prospectus.

It is to be observed that for the purpose of the nexus between the company and the plaintiff to whom the shares were renounced, it does not seem to be vital to consider when the actual registration of the shares took place. It appears to me there was a contract, it may be by novation. Thus in Hyslop v. Morel (2) Chitty J. said: "The company placed Hyslop on the register, but it was clear that the title to these shares was derived from Morrison. It was also clear that Morrison was not misled. Morrison could not set aside the original contract, and clearly Hyslop could not now set aside the contract, for he claimed to do so through a person who was not misled." It is clear that the emphasis there is not

(1) L. R. 6 H. L. 377.

(2) 7 Times L. R. 263.

laid upon the question of registration, but upon the source and means whereby Hyslop became entitled to ask for registration.

It appears to me, therefore, for these reasons that the learned judge was right, and that Mr. Collins is not in a position to establish as against the company that the prospectus became the basis of the contract which was reached in January between him and the company, and thus that he is not entitled to enforce his claim to be removed from the register of shareholders.

For the reasons stated by Luxmoore J. and for the reasons I have added, this appeal must be dismissed with costs.

LAWRENCE L.J. But for the forcible and able argument of Mr. Topham on behalf of the appellant I should have contented myself with simply expressing my agreement with the judgment delivered by Luxmoore J. In deference to Mr. Topham's argument, however, I will state quite shortly my reasons for concluding that this appeal fails.

Mr. Topham has presented the case in two fundamentally different aspects. His first contention was that the plaintiff was throughout the undisclosed principal and as such entitled to sue for rescission of the contract made between the company and Messrs. Mason and Ovington on the ground of misrepresentation in the prospectus, on the statements in which that contract was admittedly based. In my judgment this contention fails, and I agree with the learned judge that Messrs. Mason and Ovington contracted in such terms as to imply that they were the real and only principals. The directors of a company owe a duty to their fellow members and to the company to see that an applicant for shares is a responsible and fit person to become a member: none the less so because the applicant may in fact turn out to be an underwriter or sub-underwriter and may have applied for the shares on behalf of a client of his. The directors are not bound to accept as the applicant for shares an unknown person because he happens to be a client of an underwriter or other agent and thus be deprived of the opportunity of seeing

whether the applicant is a fit and proper person to become a member of the company. A contract to become a member of a company is, in my opinion, one of that class of contracts in which an undisclosed principal cannot insist on taking the place of a party apparently contracting on his own account. In the circumstances therefore the plaintiff, who was not known to the company to be a party or privy to the contract between it and Messrs. Mason and Ovington, cannot rely upon a misrepresentation contained in the prospectus as ground for rescinding that contract, at all events without proving that Messrs. Mason and Ovington in applying for the shares relied upon and were misled by that misrepresentation. There is no such proof in the present case.

Mr. Topham's second contention was that a new contract was created between the plaintiff and the company, and that this contract was induced by the misrepresentations contained in the prospectus. This new contract is said to be constituted by the acceptance by the company on January 18, 1928, of the renunciation and nomination signed by Messrs. Mason and Ovington in respect of their rights to the shares allotted to them in favour of the plaintiff and the latter's acceptance of such nomination. For the purposes of my judgment I will assume that such a contract was then constituted, although I think there is a good deal to be said for the view presented by Mr. Lionel Cohen that no contractual relationship between the plaintiff and the company was constituted until the plaintiff was placed on the company's register of shareholders. Assuming however that there was such a contract, there is no evidence to show that the company made any representation to the plaintiff by the prospectus or otherwise to induce him to enter into such contract or that the company knew that he had ever seen the prospectus. The prospectus, as a matter of fact, ceased to function before the date of any such contract, and in the absence of evidence to the contrary it is not to be presumed that the company would make fresh contracts on the basis of the prospectus after it had achieved the object for which it was issued and the

company had allotted all the shares applied for under it. The prospectus is not mentioned in terms in the allotment letter, and I think it would be too far fetched to imply that the statements in the prospectus formed the basis of the alleged new contract between the plaintiff and the company by reason of the reference in the letter of allotment to the application made by Messrs. Mason and Ovington.

For the reasons stated I agree that the appeal fails and ought to be dismissed with costs.

RUSSELL L.J. I have come to the same view. I find myself in agreement with the learned judge's decision on what he has called the third question. In my opinion, the plaintiff became a shareholder in this company not by reason of any contract between himself and the company, but by reason of a contract between Mason and Ovington and the company. He assented to his name being put upon the register of shareholders by the direction of Mason and Ovington. In my opinion, rescission of that contract between the company and Mason and Ovington could only be obtained at the suit of Mason and Ovington, and upon proof of an allegation that Mason and Ovington had been misled by the prospectus. Both those elements are absent in the present action. If, contrary to this view, the plaintiff became a shareholder in the company, by virtue of a contract between himself and the company, a contract somehow constituted by the secretary having entered in the books of the company a receipt of a form of acceptance signed by the plaintiff, then there is no ground shown for rescinding that contract, because that contract is in no way expressed to be made upon the faith or subject to the terms of the prospectus. It contains no reference to the prospectus at all, and there is no suggestion in the evidence or the documents in this case that the company knew either that the plaintiff was applying in reliance upon the prospectus or that the plaintiff, in fact, ever saw the prospectus at all.

For these reasons I am of opinion that the appeal fails and must be dismissed.

Solicitors: Forsyte & Kerman: O'Shaughnessy & Wills.

H. C. G.