[HOUSE OF LORDS.]

AND

Company - Promoters - Fiduciary Position - Concealment of Material Facts.

Persons who purchase property and then create a company to purchase from them the property they possess, stand in a fiduciary position towards that company, and must faithfully state to the company the facts which apply to the property, and would influence the company in deciding on the reasonableness of acquiring it.

A "syndicate" (or partnership) of persons, of which one E. was at the head, purchased from the official liquidator of an insolvent company an island said to contain valuable mines of phosphates. E., who managed the business of this purchase, prepared to get up a company to take over the island and to work the mines. He named five persons as directors. Two were abroad. Of the three others, two of the proposed directors were persons entirely under his control, and were furnished by him with the shares which were set forth in the memorandum of association as necessary to qualify for the office of director. One of these two persons appeared to have acted as a business agent for E.; the other was a private friend of E. The sale of the island was made, nominally, by a person who had really no interest in the island, and was made to the director who was the business agent of E., and who appeared as the purchaser for the company. The two directors, with whom, through E.'s arrangement, a third person, D. (one entirely uninformed on the subject of the original purchase, and the subsequent sale), was associated, assuming to act as directors of the company, accepted, on its behalf, the purchase. A prospectus was issued, giving a very favourable account of the scheme. Many persons took shares. At the first meeting of shareholders, D. took the chair as a director. Being questioned by a shareholder as to certain rumours relating to the purchase of the island and its price, on the first sale, and then on its resale to the company, D. avowed his want of knowledge, but declared his belief in the goodness of the scheme. The real circumstances of the sale and purchase were not disclosed to the shareholders, but the purchase of the island was adopted by the shareholders then present. This was in February, 1872. In June, 1872, there was a general meeting of the shareholders. The rumours before referred to had become stronger, and a committee of investigation was appointed; on the receipt of whose report in August, 1872, the original directors were, at a public meeting, removed, and a new set of directors appointed, with power to take measures, &c., for the benefit of the company. The new directors entered into a correspondence with the vendors of the island, which terminated

in nothing, and a bill was, in December, 1872, filed to rescind the contract:-

Held, that the contract could not be sustained, but

Dub. THE LORD CHANCELLOR (Lord Cairns), whether there had not been, on the part of the company, such delay in coming for relief as to constitute laches that deprived the company of the title to obtain it.

Observations on the duty of promoters of a company.

THIS was an appeal against a decision of the Court of Appeal which had reversed a decree of Vice-Chancellor Malins (1).

Sombrero is a small island in the West Indies, which was the property of the Crown, but had been leased out by the Crown for twenty-one years from March, 1865, at a rent of £1000 a year. The lease had been assigned to a company called "The Sombrero Company," the business of which was to work the beds of phosphate of lime with which the island abounded. The company got into difficulties, and was ordered to be wound up; and the lease, constituting the most valuable part of the assets, was ordered to be sold. Mr. Chatteris was the official liquidator, and he fixed the price of £55,000 for it. The Appellants, together with one Thomas Westall, formed what was called a syndicate (in this instance meaning a special partnership), for the purpose of purchasing it. It was purchased at the price put on it by Mr. Chatteris, after the syndicate had offered, but in vain, a smaller price for it. The purchase was effected by a provisional contract on the 30th of August, 1871, though, in consequence of the sale being made under the order of the Court of Chancery, it could not be, as a matter of form, concluded at that time. The Appellants having thus become the purchasers of the lease desired to sell it again and obtain a profit on the resale; and with that view to get up a company to purchase it and work the mines.

Erlanger, a Paris banker, was the chief of the syndicate, and his firm managed its pecuniary transactions. On the 16th of September, 1871, the following circular letter was written to the different members of that body, "We have formed a syndicate for the amount of £60,000, for the purchase of the island of Sombrero,including the stores. You are interested in the transaction for £ , for which we beg you will send us a cheque, as we

(1) 5 Ch. D. 73, where the facts, of which a summary is here given, are fully set forth.

have to pay the money into Court." This note was signed, "Emile Erlanger & Co." The cheques were sent, and the money paid into Court, the banking firm being stated on the list as holding an interest in the purchase for "£18,430." The qualification of a director was to be the possession of fifty shares in the company.

A memorandum of association was prepared, and articles and a prospectus were also issued. The memorandum stated, in the usual way, the objects of the company, which were to purchase the lease and work the mines. The articles (among other things), stated that, in the first instance, the number of directors should not be less than four, nor more than seven, but that number might be changed at any general meeting. Two directors were to "form a quorum for the transaction of business." The directors were empowered to adopt and carry into effect the contract for the purchase by the company of the island. The contract for the purchase and the articles of association were both dated on the same day, the 20th of September, 1871, and the company was registered on that day. The contract for the purchase by the company purported to be made between John Marsh Evans, as the vendor, and Francis Pavy, as the purchaser on behalf of the company. This contract recited the purchase by the syndicate of the 30th of August, but did not name the price then given. The price to the company was to be £110,000, of which £80,000 were to be paid down, and the remaining £30,000 to be satisfied by fully paid-up shares in the new company. The money was to be obtained by the subscriptions for the shares, which were to be 13,000 in number, of £10 each. Evans was intimate with Baron Erlanger, and appeared to act on his behalf; Pavy was a person who had visited the island, and whose name was introduced into the business to represent the company until the contract should be submitted to the directors and adopted by them. The directors were in the first instance named by the syndicate. The first name on the list of directors was that of M. Drouyn de Lhuys (who was resident in France, occupied with the political affairs of that country), the second that of Mr. Eastwick, M.P. (then about to start on a voyage to Canada), the third was that of J. Marsh Evans (the person named in the contract as the vendor), the fourth was that of Alderman Dakin, then Lord Mayor of London, and

the last that of Rear-Admiral Macdonald. Westall, a solicitor, acted in the matter; he was himself one of the syndicate, but he claimed to act in the character of agent, and demanded, and received, the sum of £500 for his services.

There was no distinct account of any shares having ever been held by M. Drouyn de Lhuys, nor did he appear to have attended any meeting of the directors of the company, or to have taken any part whatever in the business. Mr. Eastwick was stated to have received, as a loan, from Erlanger's house the requisite number of shares to constitute him a director; these he afterwards returned, and in Erlanger's affidavit it was left doubtful whether he ever took his seat at the board. He resigned his directorship at an early period. Alderman Dakin appeared to have paid for his shares and attended the board. Evans attended, as did also Macdonald; both appeared to have held shares given or lent them by Erlanger. The first meeting of directors took place on the 29th of September, 1871. Three were present, Dakin (who sat as chairman), Evans, and Macdonald. Westall attended in the character of solicitor, and produced the deed for incorporating the company, and also the contract of purchase for £110,000, and it was resolved "that the said contract be approved and confirmed." A prospectus of the intended company was produced. It was intended to be issued to the public. It began by a statement that the contract for the purchase of the island had been made by the directors, it set forth, in the usual way, the advantages of the concern, and gave the names of the directors, and contained some calculations assuming the form of a statement of past, and also of anticipated, profits. After the publication of the prospectus, the number of applications for shares became considerable.

The first ordinary general meeting of the company took place on the 2nd of February, 1872. At that meeting, presided over by Sir T. Dakin, a Mr. Stephenson stated that he had heard a rumour that what the company was to buy at £110,000, had, but a few days before, been sold to the persons who were now the vendors to the company, for £55,000, and he alluded to a person, one of the directors for the company, as one of the persons who had made the original purchase, observing, "I think it was an improper transaction that one of the directors should be both the buyer and

the seller of the property. That requires a little explanation on the part of the board." Sir T. Dakin said that he had heard some such rumours; that he was told that Mr. Evans, with other gentlemen, had bought this fully a month before the company was thought of or projected; that it appeared to him that the contract between Evans and Pavy was fully stated in the prospectus, and all those persons who joined the company were invited to look at them; that whether it cost £50,000 or £100,000 was not material to the question; that "it was not bought by one of our members. The gentleman was not a director then, but bought in concert with other people," adding that what it was bought for, he, Sir T. Dakin,did not know.

The annual general meeting was held on the 19th of June, 1872; Mr. Evans was in the chair. The company had not been successful, and the shareholders passed resolutions appointing a committee of investigation, and adjourned the meeting to a period, at first, of six weeks. The committee reported, recommending the removal of the original directors and the appointment of others, with authority to take such proceedings as they might be advised for the purpose of recovering back the difference between the sums given on the first and on the second purchase. New directors were accordingly appointed at a meeting of the 29th of August, 1872. A correspondence then ensued with Baron Erlanger and the other members of the syndicate. Baron Erlanger denied all legal liability, but offered to give the company the benefit of the full amount of profit which his firm derived in cash and shares from the transaction. The other members of the syndicate did not answer.

On the 24th of December, 1872, the bill in this suit was filed against Erlanger, Evans, Dakin, Macdonald, and others (afterwards amended by the addition of all the members of the syndicate, and others representing interests therein), and prayed that the contract of the 20th of September, 1871, might be set aside; that such of the Defendants as were members of the syndicate might repay to the company the £110,000 with interest, the company delivering up the island and accounting for profits made by working it; or that the members of the syndicate might be ordered to repay the difference, £55,000, between the sum paid by the syndicate and that paid by the company.

The answer of Sir T. Dakin was directed to exonerate himself from any imputation of having known the real facts and having in any way misled the company by misrepresenting them; he had approved the contract without making any independent inquiry as to the value or productiveness of the island, and had merely said what he had heard from others.

The answers of the members of the syndicate denied that they stood in any way in a fiduciary position towards the company, insisted on the fairness of the transaction, and imputed the failure of the concern to causes over which they had no control, such as the conduct of the company in working the mines on the island. The delay of the company in claiming relief was also insisted on.

The cause was heard before Vice-Chancellor Malins in March and April, 1876, and the bill was ordered to be dismissed, but without costs. On appeal (the notice of appeal being served only on the members of the syndicate or their representatives) the contract was ordered to be rescinded as to all who were members, or representatives of members, of the syndicate, the purchase-money paid by the company repaid, and, on payment of the money so ordered to be repaid to the company, the island was to be restored by the company to the syndicate (1).

This appeal was then brought.

The case was twice argued, first before the Lord Chancellor (Lord Cairns), Lord Penzance, Lord O'Hagan, Lord Blackburn,and Lord Gordon, and afterwards before the Lord Chancellor (Lord Cairns), Lord Hatherley, Lord Penzance, Lord O'Hagan,Lord Selborne, Lord Blackburn, and Lord Gordon.

Mr. Southgate, Q.C., and Mr. Benjamin, Q.C. (Mr. Ingle Joycewas with them), for the Appellants, contended that the members of the syndicate stood in no fiduciary position to the company, but were ordinary vendors, who, having purchased a property, were entitled to sell it again at a profit; that the company had ample means to inquire into and ascertain the value of the property, for that it was well Known that the island had been sold under the order of the Court of Chancery, so that consequently the needful information was open to all who chose to take the

(1) 5 Ch. D. 73-125.

trouble to acquire it; that no fraud whatever had been practised; that the bill was founded on charges of fraud, which not being proved, the bill had been in the first instance rightly dismissed; and that, under the circumstances of this case, the Court could not properly adjudge the rescission of the contract.

The persons representing the company had been guilty of laches, which entirely disentitled the company to the relief sought by the bill. The cases cited in the Courts below were again cited, and in addition, Hickson v. Lombard (1), Heymann v. The European Central Railway Company (2), Parker v. McKenna(3); Dent's and Forbes' Cases (4), Bagnall v. Carlton(5), Overend & Gurney Co. v. Gibb (6), Gover's Case(7), and Vigers v. Pike(8), were referred to and commented on.

Mr. J. C. Whitehorne appeared for an individual Defendant, but was not heard.

Mr. J. Napier Higgins, Q.C., and Mr. Davey, Q.C. (Mr. Alexander Young was with them), for the Respondents:-

The members of the syndicate were the purchasers of the island from the official liquidator; they knew its history and its value; they bought it for £55,000, and almost immediately afterwards got up a company and sold it to that company for £110,000, and they sold it without giving any information whatever to the persons whom they induced to become the buyers. Had they been strangers to the company, they might have been entitled to get as much profit as they could on their purchase. But the reverse was the fact; they were the originators and promoters of the company, and, even more, they were, in fact, its managers. They stood in the most undoubted manner in a fiduciary position towards the company which they created, and governed. The pretended directors were the creatures of Erlanger. Marsh Evans and Macdonald were his absolute nominees, owing their nominal qualifications in shares to him; and the meeting of directors, which was represented as making the purchase, was a meeting of three

(1) Law Rep. 1 H. L. 324.

(2) Law Rep. 7 Eq. 154.

(3) Law Rep. 10 Ch. App. 96.

(4) Law Rep. 8 Ch. App. 768.

(5) 6 Ch. D. 371.

(6) Law Rep. 5 H. L. 480.

(7) 1 Ch. D. 182.

(8) 8 Cl. & F. 562.

persons styled "directors," but two of whom, namely, these two persons, were in fact mere instruments to execute the will of Erlanger. There was no one at that time to exercise an independent opinion on the transaction; and afterwards, when there was a meeting of shareholders to give to the purchase a formal adoption, there was no one to give the shareholders an independent opinion or proper advice. For Sir Thomas Dakin, who was a director and took the chair at the meeting, was absolutely unacquainted with the circumstances of the transaction, did not quite know for what the island had been bought, and only supposed that, even at the price at which it was sold, it might be a profitable bargain for the company. It was impossible to say that, under suck circumstances, the contract was one which the law could allow to stand. Not only was the real condition of the island concealed from the shareholders, for the prospectus was entirely misleading on that point, but the very date of the sale was misrepresented. It was not true, as was stated on the face of the prospectus, that the directors had entered into the contract on the 20th of September, 1871; for the contract (if it deserved such a name) was merely made between one agent of the vendors to sell and another agent of the vendors to buy. The subsequent transactions were so many additional deceptions practised on the shareholders. The pretended meeting of directors on the 29th of September was in truth no meeting of directors at all, for two of them had not then more than a nominal qualification, and neither then nor afterwards was there any one qualified to give, or capable of giving, disinterested advice to the shareholders.

There had been no delay in this case, such as could affect the right of the shareholders to rescind the contract which had been thus improperly obtained from them. The first ordinary meeting of the shareholders was on the 2nd of February, 1872. Sir T. Dakin, who was completely ignorant of all the real circumstances, took the chair. He could only answer Mr. Stephenson, who mentioned what rumours there were abroad, by saying that he himself had heard something of those rumours, but he believed that if they got this island at the price there named it would be a good bargain. On the 19th of June, 1872, the annual general meeting of shareholders was held, and then the suspicions which had been suggested at the former meeting being put forward more strongly,

a committee of investigation was appointed. That committee met, and at an adjourned meeting of shareholders held on the 29th of August, presented a report, the result of which was the removal of the directors originally appointed, and the nomination of other directors, with power to take such proceedings in the name of the company as they might be advised. These new directors sought to settle matters without litigation, and a correspondence ensued, but no satisfactory conclusion was arrived at, and the bill was filed on the 24th of December, 1872. Considering the difficulties in the way of the committee obtaining information, the necessary distance of time between one meeting and another, the reasonable unwillingness to enter on litigation, and the desire to settle without it, there was no ground whatever for imputing delay, such as the law called laches, to those who represented the shareholders; indeed, they had acted with as much promptitude as the nature of the case admitted.

In addition to the cases cited below, The Imperial Mercantile Credit Association v. Coleman (1), Dunne v. English(2), Baker v. Monk (3), Gover's Case(4), Ashbury Railway Company v. Riche(5), Rothschild v. Brookman (6), Prendergast v. Turton(7), and Clegg v. Edmondson (8), were referred to and commented on.

Mr. Benjamin replied, and in his reply referred to Hallows v. Fernie (9) to shew that a suit could not be maintained in this form on behalf of a company, and Pollard v. Clayton (10) on the subject of laches.

Mr. Davey was heard in observing on these cases.

LORD PENZANCE:-

My Lords, I will state to your Lordships my view of the circumstances under which the purchase now sought to be set aside was originally made.

What happened was this: The syndicate had bought the property

(1) Law Rep. 6 H. L. 189.

(2) Law Rep. 18 Eq. 524, and at p. 535.

(3) 4 D. J. & S. 388.

(4) 1 Ch. D. 182.

(5) Law Rep. 7 H. L. 653.

(6) 2 Dow. & Cl. 188.

(7) 1 Y. & C. Ch. C. 98.

(8) 8 D. M. & G. 789.

(9) Law Rep. 3 Ch. App. 467, at p. 477.

(10) 1 Kay & J. 462.

in question, and it is probable that they bought it with the intention of getting up a company which should buy it of them at an increased price. Baron Erlanger, who acted for the syndicate, took steps for that purpose within a few days of the purchase, and there is no proof that any steps were even considered, much less adopted, for dealing with the property in any other way. No time was lost in carrying this intention into effect. The solicitor of the syndicate is set to work - he prepares articles of association and a prospectus. The articles provide that five gentlemen by name shall be the first directors of the company, and that any two of them shall be a quorum to bind the company. They also provide that without any farther authority from the shareholders, these five directors or any two of them may sanction and accept, on the part of the company, a certain contract bearing even date with the articles for the purchase by the company of the property in question. This contract had been prepared by the syndicate themselves, and was on the face of it a contract between Evans as the vendor, and Pavy, on behalf of the future company, as vendee. Both Evans and Pavy were persons who had no interest in the property, and were the nominees of the syndicate, and remunerated by them for their trouble. In this contract the syndicate fixed their own price at which the future company was to buy, this price being in round numbers double what they had given for it some days before.

The articles of association were therefore so drawn by the solicitor for the syndicate, that the syndicate had it in their power to select, and did select, the five persons, any two of whom were to become the acting agents of the company for the acceptance or rejection of this bargain, by which the syndicate were to obtain for the property double what they had given for it. In exercising this selection they chose first two gentlemen of high standing, one of whom resided abroad, and the other of whom was about to leave England, forthwith for Canada, but neither of whom would be expected to take part in the decision as to whether this bargain, advantageous as it was to the syndicate, was also advantageous to the company. Of the other three persons nominated, one (Evans) was a person residing in Paris, who acted in the matter at the desire of Baron Erlanger, and who was remunerated

by him with the gift of 100 paid-up shares in the company. Another, Admiral Macdonald, was a personal friend of Baron Erlanger, to whom the office of director was offered by him as a pecuniary benefit, and an entrance into business affairs, while the third, Sir Thomas Dakin, was the Lord Mayor of London, against whose capacity, honesty, and independence, nothing can, I think, be said.

Of the whole five, however, only two - Sir Thomas Dakinand, perhaps, M. Drouyn de Lhuys - appear, on the 29th of September, 1871, to have embarked their money in the company, and thereby obtained a bon‰ fide and independent interest in the welfare of the company, such as professed to be secured by the provision in the articles of association that each director shall be the holder of at least fifty shares "in his own right." For Evans'shares were given to him by Baron Erlanger, Admiral Macdonaldwas to hold shares only as trustee for Baron Erlanger, and Mr. Eastwick never had any shares except what Baron Erlanger lent him.

The agents, then, who were to have the power of binding the company to the purchase in question, having been thus selected by the syndicate, and the articles of association having been signed by seven persons, all of whom it was admitted were connected with Baron Erlanger or other members of the syndicate, some of them being clerks of these persons, the next step was to hold a meeting of the directors. This was done on the 29th of September, 1871. It was attended by Sir Thomas Dakin, Admiral Macdonald, and Evans. It was also attended by Mr. Westall, the solicitor of the syndicate, and himself (on his own part or that of his friends) a member of the syndicate. His interest in and services for the syndicate had been further secured by the promise of a special fee of £500.

These three directors, without examination of Mr. Chatteris'accounts, without any report from any competent person as to the then condition of the island, or the cost of raising and shipping the phosphate of lime, and, without any inquiry into facts or figures, proceeded at once, under the auspices of the vendors' solicitor, to adopt and ratify the proposed purchase of the island on behalf of the company, which had been completely formed and registered

only eight days previously, and which became thereby bound to pay for the property double the sum which had been settled shortly before by the Vice-Chancellor as its true and marketable value.

Can a contract so obtained be allowed to stand? The bare statement of the facts is, I think, sufficient to condemn it. From that statement I invite your Lordships to draw two conclusions: first, that the company never had an opportunity of exercising, through independent directors, a fair and independent judgment upon the subject of this purchase; and, secondly, that this result was brought about by the conduct and contrivance of the vendors themselves. It was the vendors, in their character of promoters, who had the power and the opportunity of creating and forming the company in such a manner that with adequate disclosures of fact, an independent judgment on the company's behalf might have been formed. But instead of so doing they used that power and opportunity for the advancement of their own interests. Placed in this position of unfair advantage over the company which they were about to create, they were, as it seems to me, bound according to the principles constantly acted upon in the Courts of Equity, if they wished to make a valid contract of sale to the company, to nominate independent directors and fully disclose the material facts. The obligation rests upon them to shew they have not made use of the position which they occupied to benefit them selves; but I find no proof in the case that they have discharged that obligation. There is no proof that either Sir Thomas Dakinor Admiral Macdonald was aware of the price at which the property had just been brought under the authority of the Court of Chancery, nor, indeed, that they even knew that the real vendors were also the promoters of the company. And there is certainly no proof that in the selection of the directors who were to be the company's agents for accepting and affirming the proposed purchase, the vendors used their power as promoters in such a way as to create an independent body capable of acting impartially in defence of the company's interests.

A contract of sale effected under such circumstances is, I conceive, upon principles of equity liable to be set aside.

The principles of equity to which I refer have been illustrated

in a variety of relations, none of them perhaps precisely similar to that of the present parties, but all resting on the same basis, and one which is strictly applicable to the present case. The relations of principal and agent, trustee and cestui que trust, parent and child, guardian and ward, priest and penitent, all furnish instances in which the Courts of Equity have given protection and relief against the pressure of unfair advantage resulting from the relation and mutual position of the parties, whether in matters of contract or gift; and this relation and position of unfair advantage once made apparent, the Courts have always cast upon him who holds that position, the burden of shewing that he has not used it to his own benefit.

I have no difficulty, therefore, in asking your Lordships to assent to the proposition of the Lord Chancellor, that if, within a proper time after the completion of this purchase, a bill had been filed by the company, the purchase must have been set aside. The question remains whether the present bill has been filed with sufficient promptitude for that purpose.

Now, on this question of delay, I confess that I do not think it easy, guiding myself by any decided cases, to come to a conclusion adverse to the company's claim. The nearest approach to a definition of the equitable doctrine upon this head which is to be found amongst the cases cited, is the statement made in the case of The Lindsay Petroleum Company v. Hurd (1). Delay is there said to be "material where it would be practically unjust to give a remedy either because the party has by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were to be afterwards asserted."

How far the company has brought itself by its conduct within either branch of this definition, I will presently inquire, but I think it is clear that the company having, in the first instance, a right to relieve itself from this contract, which the promoters have unfairly fastened upon it, it is for the vendors to shew affirmatively that the company has forfeited that right. The

(1) Law Rep. 5 P. C. 221.

actual lapse of time before commencing the suit was not very great. Delay, as it seems to me, has two aspects. Lapse of time may so change the condition of the thing sold, or bring about such a state of things that justice cannot be done by rescinding the contract subject to any amount of allowances or compensations. This is one aspect of delay, and it is in many cases particularly applicable to property of a mining character. But delay may also imply acquiescence, and in this aspect it equally bars the Plaintiff's right, for such a contract as is now under consideration is only voidable and not void.

It conduces, I think, to clearness and to the exclusion of a certain vagueness which is apt to hang about this doctrine of delay as a bar to relief, to keep these two different aspects of it separate and distinct when the consequences of delay come to be considered in connection with the circumstances of an individual case. And so dealing with the facts of the present case, I find myself unable to conclude affirmatively that it has been made out by the argument at the Bar that either the character of the property, or the way in which the company had dealt with it, did in point of fact preclude the possibility of justice being worked out on the basis of the contract being rescinded. If the decree which has been made does not work out the justice of the case, it should have been pointed out in what respect it fails to do so, and either an amendment of it prayed, or the impossibility of such amendment clearly shewn.

The substantial question, therefore, I think, is whether there was such delay as fairly imports acquiescence.

It is hardly suggested that the company or its executive knew, or had the means of knowing, the material facts before the meeting in February. That meeting was not called to consider any question in connection with the matters now in controversy. It was spoken of as a "pro form‰ meeting," and it was attended by a minority only of the shareholders. What passed there, I think, shewed that Mr. Stephenson had heard the truth about the price at which the promoters had bought, though he had heard it only as a rumour; but he does not appear to have known the circumstances under which Evans and Macdonald had become directors, or the fact that Westall was the solicitor for the promoters, and had received

£500, and many other material matters. The flourishing prospects, however, of the company, laid before the meeting by others, appear to have silenced Mr. Stephenson, and the matter was suffered to drop without farther inquiry at the moment.

Can acquiescence by the company be inferred from the doings of this meeting? I think not. The meeting was so convened that a resolution in favour of acquiescence could hardly have bound the company. How, then, could statements by a single shareholder, coldly received as they were by the others present in the prospect of large profits, go farther to bind the company than a resolution would have done?

How soon, then, after the meeting of February, can the company be said to have known the material facts, or such of them as would make it reasonably their duty to investigate the matter if they meant to take exception to the mode in which the purchase had been effected? There are great difficulties in the way of shareholders in such a case. Those of them who, like Mr. Stephenson,conceive that the company has been wronged, have not only to investigate and obtain proof of the facts, but they have to impress a sufficient number of their fellow shareholders with the strength of their case to enable them to pass a resolution (probably hostile to the directors) for a committee of investigation. All this takes time and trouble, and I am unable to perceive that it could well be expected of them, that by means of a special meeting they should have taken the opinion of the company earlier than the next ordinary meeting which occurred in June. At that meeting they brought the matter forward; a committee of investigation was appointed, which reported to the company in the autumn, when a resolution was at once passed to take legal proceedings. This resolution was followed by attempts to compromise, which were continued through the autumn up to November, and in December the bill was filed.

As I have already said, I do not see how Mr. Stephenson and those who acted with him can be accused of laches in the course which they thus took. But if it were otherwise I should have great difficulty in coming to the conclusion that the laches of Mr. Stephenson was the laches of the company, and that the great bulk of shareholders had lost their relief from an inequitable contract

because a few of them had not been sufficiently prompt in taking steps to obtain that relief.

The position of Mr. Evans, whose name appeared as vendor of the property in the contract made on behalf of the company, and whose name also appears as one of the original directors who attended the meeting of the 29th of December, 1871, and affirmed that contract, was much commented upon in the course of the argument. It was said that Mr. Evans being thus both vendor and purchaser, the company had at once the right to set aside the contract. But this can hardly be so, I think, in all cases. It is a very common thing for individuals having an established business to get up a company which shall purchase their business of them; they taking part payment in paid-up shares of the company, and becoming original directors. In such cases it is often an inherent part of the scheme, in the interests of the company, that they who already understand the business should take a leading part on the board of directors which is to conduct that business in future, and if all is fair and open in the conduct of such persons, the fullest disclosures being made of all matters material to be known to the company, it would be difficult, I think, to maintain that the purchase which had been adopted by an adequate quorum of independent directors could be set aside merely because one of the directors, who was also a vendor, had concurred in that adoption. In the present case there is nothing on the face of the contract with the company to indicate to the shareholders that Mr. Evans was not in a position something like that which I have just described. It might well be surmised by any shareholder who knew nothing of the real facts, that he, either alone or in conjunction with others, had purchased the island and had worked the phosphate of lime previous to the sale to the company of which he was to become a director, taking £20,000 of the purchase-money in paid-up shares of the company, and his position, thus regarded, would hardly, I think, put any shareholder upon inquiry as to the company having been unfairly dealt with.

Upon the whole, then, I am unable to satisfy myself, either that it is not practicable to do justice on the basis of the contract being rescinded, or that the company has by any laches or delay laid itself fairly open to the imputation of having acquiesced in the

contract which they now seek to set aside; and with some hesitation and diffidence, after having been made aware of the opinion of my noble and learned friend on the woolsack, I must advise your Lordships to reject this appeal.

THE LORD CHANCELLOR (Lord Cairns):-

My Lords, the Appellants in this case complain of a decree of the Court of Appeal which has set aside a sale made to the Sombrero Company, of the island of Sombrero, and ordered repayment and re-transfer by the Appellants of large sums of money and shares which had passed to them from the company on the occasion of the sale.

Your Lordships will observe that the Plaintiff in the action in the Chancery Division was the Sombrero Company, and it is necessary to bear this particularly in mind, because it will enable your Lordships to put aside many observations and arguments which are not relevant in the case of an action by the company, although they might have been relevant had an action been brought by a shareholder to throw back his shares on the company, on the ground of misrepresentation or fraud.

In the view which I take of the case, the facts of which it is necessary to remind your Lordships are in a very narrow compass. Sombrero is a small island in the West Indies, about a mile and a quarter long, in which are deposits or beds of phosphate of lime. It belongs to the Crown, and a lease was made of it for twenty-one years from March, 1865, at a rent of £1000. This lease was assigned, in the first instance, to a company called the Old Sombrero Company, who paid £100,000 for it, taking it besides subject to a mortgage of £12,400. This company was wound up by the Court of Chancery, and in the winding-up the lease of the island came in 1871 to be sold. The Appellants along with one Thomas Westall, a solicitor, thought well of the speculation, and wished to buy the lease, and for this purpose they formed what is called a syndicate or partnership, and ultimately, on the 30th of August, 1871, did agree to buy the lease by private contract from the official liquidator, Henry Chatteris, for £55,000, the contract being made in the name of Westall on behalf of his principals.

My Lords, I stop at this point for the purpose of saying that I

think it to be clear that the syndicate in entering into this contract acted on behalf of themselves alone, and did not at that time act in, or occupy, any fiduciary position whatever. It may well be that the prevailing idea in their mind was, not to retain or work the island, but to sell it again at an increase of price, and very possibly, to promote or get up a company to purchase the island from them; but they were, as it seems to me, after their purchase was made, perfectly free to do with the island whatever they liked; to use it as they liked, and to sell it how, and to whom, and for what price they liked. The part of the case of the Respondents which, as an alternative, sought to make the Appellants account for the profit which they made on the re-sale of the property to the Respondents, on an allegation that the Appellants acted in a fiduciary position at the time they made the contract of the 30th of August, 1871, is not, as I think, capable of being supported, and this, as I understand, was the view of all the Judges in the Courts below.

I now proceed to state what happened subsequently to the 30th of August, 1871.

Shortly before the 20th of September, 1871, the syndicate determined to form a joint stock company, and to sell the island to the company for £110,000, and the syndicate took the necessary steps for this purpose; preparing the memorandum of association, and the articles, and also the prospectus which was to be issued.

The memorandum of association stated that the object of the company was the purchasing, leasing, and working of mines or quarries of phosphate of lime in the island of Sombrero. The articles stated that the number of directors should from time to time be determined by a general meeting, and that till any other number was determined there should be not less than four nor more than seven directors. Two directors should be a quorum for the transaction of business; and among the acts which the directors were empowered to do were the adoption and carrying into effect of the contract for the assignment to the company of the island of Sombrero, dated the same day as the articles, namely, the 20th of September, 1871.

This contract was a contract by which John Marsh Evans agreed to sell, and Francis Pavy agreed to purchase, the lease of the

island and the property on it for £110,000, £80,000 to be paid down, and £30,000 in fully paid-up shares of the new company. John Marsh Evans was a trustee or agent for Baron Erlanger and the other members of the syndicate, and Pavy was a person whose name was introduced into the contract as a matter of form, to represent the company about to be created, in case it should adopt the contract. The contract was, on the face of it, a provisional one, subject to the formation of the company, and the adoption of the contract by it.

In the whole of this proceeding up to this time the syndicate, or the house of Erlanger as representing the syndicate, were the promoters of the company, and it is now necessary that I should state to your Lordships in what position I understand the promoters to be placed with reference to the company which they proposed to form. They stand, in my opinion, undoubtedly in a fiduciary position. They have in their hands the creation and moulding of the company; they have the power of defining how, and when, and in what shape, and under what supervision, it shall start into existence and begin to act as a trading corporation. If they are doing all this in order that the company may, as soon as it starts into life, become, through its managing directors, the purchaser of the property of themselves, the promoters, it is, in my opinion, incumbent upon the promoters to take care that in forming the company they provide it with an executive, that is to say, with a board of directors, who shall both be aware that the property which they are asked to buy is the property of the promoters, and who shall be competent and impartial judges as to whether the purchase ought or ought not to be made. I do not say that the owner of property may not promote and form a joint stock company, and then sell his property to it, but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction, and who are not left under the belief that the property belongs, not to the promoter, but to some other person.

My Lords, if this is the position and duty of a promoter, I ask your Lordships, in the next place, to consider how far that duty was discharged by the promoters in the present case.

The company was, as I have already stated, formed to purchase

mines in the island of Sombrero, and the directors were armed specifically with the power of adopting the contract already mentioned of the 20th of September, 1871. The promoters, in framing the constitution of the company, have themselves given us what they considered to be the proper measure of strength of a board of directors who were to be entrusted with the execution of this power. They were to be not less than four nor more than seven, and in point of fact five names were given as the first directors. They were at once to enter upon business, and the first duty they would have to perform would be to consider whether the contract should be adopted or not. How far, then, were they in a position to perform this duty?

The first name was that of his Excellency Monsieur Drouyn de Lhuys. I will assume that there is some evidence that he had been communicated with, and had given some assent to the use of his name; but it is not pretended that the idea was ever entertained by the promoters that he either would or could take any part in the first great act of the directors - the adoption of the contract, or that he could attend any meeting for the purpose. Of the second director named, Mr. Eastwick, the same may be said. He was absent at a distance from England, and did not take his seat at the board till the end of December, 1871. The third director, John Marsh Evans, was himself the vendor, and whether he was vendor as being beneficially interested in the property, or as trustee for the syndicate, is, in my opinion, immaterial. There remained two directors, and two only - Sir Thomas Dakinand Admiral Macdonald, and of these I will speak when I come, as I shall next do, to the first meeting of the directors.

The company was registered on the 21st of September, 1871, and the first meeting of directors took place on the 29th of that month. There were present of the directors, Sir Thomas Dakin,Admiral Macdonald, and John Marsh Evans, who, as I have already said, was himself the vendor. There was also present Mr. Westall, who had been appointed and was acting as solicitor for the company, but who was himself one of the syndicate, although it is said that on the syndicate he merely represented certain other names not disclosed, and had himself no interest beyond the promise of a payment of £500.

At this meeting a prospectus was produced ready for issue to the public, stating that the contract for purchase had been made by the directors; and the first resolution proposed and carried, almost as a matter of course, was that the contract should be approved and confirmed. Neither Sir Thomas Dakin nor Admiral Macdonald has given evidence in the case, and it is difficult to say positively what they knew or what they inquired, or whether they knew anything or inquired anything, about that which they were professing to buy. The conclusion at which I have arrived from such materials as are before your Lordships is, that both Sir Thomas Dakin and Admiral Macdonald treated from the first the adoption of the contract as a foregone conclusion. But whether this was so or not, it was the duty of the promoters to take care that the contract for the purchase of their property was submitted to the intelligent consideration of a complete number of independent directors; and I cannot but regard a meeting at which two of the principal directors did not and could not attend, at which one who did attend and take part in the deliberations was at once a person buying and selling, where the legal adviser present and assisting was virtually another vendor, and where the two remaining directors are not shewn to have had the means of exercising, or to have exercised, any intelligent judgment on the subject, as little else than a mockery and a delusion.

I have said nothing, my Lords, as to the provision that two directors should be a quorum. That is a provision which, in my opinion, could not be held to remedy defects such as I have pointed out as going to the entire constitution of the board.

I cannot, therefore, my Lords, entertain any doubt that if, within a proper time after the completion of this purchase, a bill had been filed by the company impeaching it on the grounds that I have stated, the purchase must have been set aside.

The part of the case which, however, has given me the most anxiety is the question whether, having regard to what was made known at the time that the company was formed, and to what became known, and to what also might farther have become known, shortly after it was formed, and having regard, farther, to the very peculiar nature of the property which had been purchased, and to the impossibility of restoring the parties to their original

position, relief can or ought now, consistently with the principles of equity, to be given to those who seek to impeach the contract. On this question I have entertained, and still continue to entertain, considerable doubt, or more than doubt. The case has, however, been twice argued most elaborately and ably, and all of your Lordships are, I believe, of opinion that the company has not lost the right, which undoubtedly it had, to set aside the sale. I do not therefore think it necessary to do more than express generally the grounds of the doubts which on this part of the case I have felt.

The prospectus conveyed to those who became shareholders in the company, and conveyed, therefore, to the company, notice of some facts with regard to this contract which appear to me to be of great importance. The company was informed that the contract was already entered into by its directors. It was termed, no doubt, a provisional contract - that is to say, provisional on the shares being taken and the company completely formed; but, subject to those contingencies, it was a contract actually made. Farther, it was not one out of many contracts that might be made in the course of a business; it was the great central contract of the company, underlying and supporting the whole of their undertaking. The terms of the contract, or at least the principal terms of it, are stated, the price is given, and also an accurate statement of the lease, buildings, machinery, &c., sold. Coupled with this the company is informed that the vendor is one of its own directors, and, therefore, that the contract has been negotiated on behalf of the shareholders between the directors and one of themselves, and they are informed that this contract may be seen at the office of the company's solicitors. We start, therefore, with this, that with reference to a contract which I hold to be voidable, because there was not the exercise upon it of the intelligent judgment of an independent executive, the shareholders are, on the one hand, informed what the terms of the contract are, and, on the other hand, are told that one of their directors has been the vendor in a contract in which he was also, on their behalf, a purchaser.

It is necessary, however, farther to consider the nature of the property as to which the shareholders had this information.

They are told by the prospectus that it is bought substantially as a going concern, with produce ready for shipment, and contracts for produce pending, which require to be executed. The lease, they know, is a running-out lease, with some years expired, and not a great many to come, and the value of the undertaking dependent not merely on the amount of the deposits in the island, but on the extent to which those deposits could be worked during the lease. The lease is one for the obtaining and putting on the market an article of commerce, the price of which is varying, uncertain, and speculative; outlay is required, the amount of which must vary with circumstances from time to time. Again, the company is aware that it is about to use the name of the property as a trade name, the effect of which will be that, if used unsuccessfully, the name cannot be restored to its original owners otherwise than injured irretrievably by the use thus made of it.

These considerations would, in my opinion, go far to cast upon the company the duty of taking steps at the earliest possible moment, and even before the first general meeting, to examine into and repudiate, if they did not desire to affirm it, a contract which was thus set before them as one prim‰ facie open to impeachment.

No step, however, appears to have been taken by any person connected with the shareholders to impeach the contract. They are content to ignore the fact both that they have not had the independent judgment of all the directors exercised for their protection in making the contract, and also the farther fact, still more calculated to prejudice them, that one of the directors sitting at the board has been a person with an interest entirely antagonistic to their own.

I think it must be taken that those who did not attend the first general meeting of the company held in the month of February had no desire to make any inquiries into the circumstances under which Mr. John Marsh Evans, their director, had come to be at once the vendor and the purchaser of the property. With regard to those who did attend that meeting, their views may fairly be taken from what was expressed at the meeting. It is stated that there were about sixty-two shareholders present, and the report

of Mr. Mackay, the manager of the company, who had been at Sombrero, was read. Francis Pavy also explained to the meeting the nature and prospects of the island, with which he was acquainted. I do not go through what was stated at the meeting in detail, but the inference which I draw from the report of the meeting is that no doubt was entertained or expressed by any one present that the rumour, which was openly referred to, that the island had been bought for £55,000, and re-sold for £110,000 within a few days, was otherwise than true; and it was, I think, in substance, admitted by the chairman that Mr. Evans might be looked upon as having bought it for the lower sum in concert with other people; but that although he was a director at the time that he sold, he was not a director at the time that he bought. And I cannot but come to the conclusion that those present at the meeting, being impressed with the expectation that the concern was going to turn out a very prosperous one, determined that they would not make any inquiry or raise any objection as to the manner in which the property had come to their hands.

Nothing was done, and no objection was made by any person until the meeting in June, 1872, at which time the shipments of the phosphates had turned out, commercially, to be a failure. At this meeting a committee of investigation was appointed; but even that committee did not suggest that the contract could or should be rescinded, but only that proceedings should be taken for recovery of the profit made by the vendors on the re-sale to the company, and the present bill was not filed until December, 1872, fourteen months after the company had taken possession of and commenced to work the island.

Under these circumstances, looking to the very peculiar nature of the property, and the utter impossibility of restoring the property, and the commercial undertaking connected with it, to the vendors in the state in which it was when the company took possession of it, looking to the amount of notice which the company had by the prospectus, and to the knowledge which they might have obtained by pursuing the inquiries which the prospectus ought to have suggested, I should be of opinion that it would be contrary to the principles of equity to give to the

company the relief which, at an earlier period, they might have obtained.

LORD HATHERLEY:-

My Lords, after the view which has been so clearly expressed by my noble and learned friend on the woolsack, I certainly feel diffidence in coming to a conclusion contrary to that which he has adopted with reference to whether or not it is competent to the parties who are Plaintiffs in the suit to succeed in their contention, or whether they are not bound in consequence of delay and laches in seeking their remedy, to acquiesce in what has taken place in a matter in which, had they taken proceedings at the earliest moment, they would have been entitled to succeed.

Now, my Lords, in the present contention between the Plaintiffs and the Defendants, there were in the Court below, and there have been in your Lordships' House, three several heads argued, as to some of which every Judge who has heard the case has been agreed.

In the first place the Plaintiffs endeavoured to set aside this contract on the ground of the persons who sold the property having filled a fiduciary position as actual trustees for the company which was formed, and being disentitled to participate in any profit which could be made in the sale in consequence of that trusteeship. The Court below, as well as, I believe, all your Lordships, have been of opinion that they were in no such sense as that trustees for the company; that that which has been called the syndicate, which was formed for the original purchase of the mines, which they did purchase for £55,000 under arrangements made in Vice-Chancellor Malins' Chambers in the winding-up of the old company, were entitled to hold that purchase as a syndicate, and to deal with it as they thought proper. Consequently, any authority derived from those cases which insist that no profit can be derived by a trustee out of that which is the property of his cestui que trust, has no application to the present case, inasmuch as the syndicate never constituted themselves trustees, but intended to sell, and did sell, this property to the new company or association which was about to be formed, and for the purpose

of making which sale they desired that the company should be formed, and took an interest in its formation. The property was sold for £55,000 to the syndicate, who thereupon became absolute owners of it, and were at liberty to sell it to whomsoever they pleased, and for whatsoever they pleased.

Secondly, my Lords, it was urged in this case, and upon this point also the Courts were agreed, that although the purchase so made was not liable to be interfered with on the ground that I have stated as being a purchase made by persons who were trustees for the company, nevertheless it was liable, if due steps were taken at the proper time, to be impeached upon other grounds disclosed by the bill, and sustained by the evidence. Upon that point my noble and learned friend, who has just addressed the House, has concurred in the view unanimously taken by the learned Judges in the Courts below, and I believe your Lordships are also unanimous on the point. The circumstances of this particular case are such that, if there was no delay and no laches in asserting the remedy, the remedy which the Plaintiffs seek was open to them.

My Lords, the question is therefore reduced simply to this point of delay, and in considering it I think it very important to see what the exact position of the parties was at the moment when the contract was entered into by the company.

My Lords, the Courts of Equity have at all times carefully abstained from attempting a nice definition of imposition with reference to the rights which the practice of such imposition may confer upon the parties injured by it. It is notorious that every mode that can well be conceived of dealing with contracts which ought not to be maintained, in consequence of some deception which vitiates them, has from time to time come before the consideration of the Courts of Equity, and there is scarcely any one which can be set on foot that is not struck at by the general doctrines of the Courts of Equity, although the precise circumstances of this case may have never yet come before the Court. There are three particular classes of cases of what the Court terms fraud which may be pointed to as having some analogy with, or some bearing upon, the present case. The first is as between vendor and purchaser; the next is as between partner and co-partner; and the

third is the case in which an agent for a purchaser receives a gratuity from the vendor. As to the first of these, a vendor need not do what was at one time asserted by this bill, namely, disclose what he has paid in effecting his own anterior purchase before asking an enhanced price from him to whom he seeks to sell the property; but he must not be guilty of any conduct which amounts to unfair concealment on his part of the real facts of the case, which ought in common fairness to be disclosed to a person seeking to purchase or entering into a treaty with him for that purpose. As regards partners, there is no doubt that one partner is bound to exercise uberrima fides with regard to any transactions in which the partners may be engaged in common. There is another class of cases well known in Courts of Equity which has some bearing upon the case before us, and that is where a person acting as agent for a purchaser, that is to say for a person who is minded to purchase, receives a gratuity or a bribe of some description from the intending vendor. In that case again the Courts interfere and say that a negotiation carried on between the agent for the purchaser and the vendor as principal, in which the agent for the purchaser receives benefits or advantages of any kind from the intending vendor, is one which can be impeached, and which would be set aside in a Court of Equity.

My Lords, what has happened here is this: It seems to have come to the knowledge of a gentleman whose name has frequently been before us, a solicitor named Mr. Westall, that there was a property to be sold in consequence of the winding-up of the Old Sombrero Company, which, as far as he could hear - and I see no reason to impeach the information which he acquired on the subject - was worth more than it appeared likely to fetch in the course of its being put up to auction by the official liquidator in the winding-up case before Vice-Chancellor Malins. He took several tentative steps to ascertain what would actually be accepted for the property. First of all he offered £20,000, a very small sum compared with what was afterwards offered and taken; but at last, being compelled to raise his offers, he found that he could acquire the property for £55,000. Thereupon he communicated, apparently, with Baron Erlanger, the principal Defendant in the present case, and, without entering into more detail, the result

was that it was contemplated, by those persons who constituted the syndicate (which was principally formed by Baron Erlanger), to purchase the property for £55,000, and to sell it, for what they could get, to a company.

All that would be very well; and I am not indisposed to say with my noble and learned friend who first addressed your Lordships, that it would not be made otherwise even by the position of one of the syndicate afterwards as a director of the company, if all had been fully and fairly disclosed by the prospectus to everybody concerned, especially to the persons who were to be formed into a company. If they knew that he was a vendor, or one of the vendors, then, looking to the terms of one of their articles of association (which indeed was only an enunciation of what, I take it, the law would almost presume for them), that he would not be able to take any part in proceedings which concerned his own special and peculiar interests, it might well be that those who were forming themselves into a company would not be indisposed to take such a gentleman into their co-partnership and to let him act even as a director of their company, he being a very competent person, one may suppose, to manage and direct the affairs of the company when once the sale was completed, in which they naturally supposed he would have no voice.

Now, my Lords, that being so, what actually took place? Baron Erlanger and those associated with him in the syndicate prepared articles of association and a prospectus to be submitted to the public. The purchase by the syndicate was not actually completed till November. Although it was in September that the deed was executed, it was not to be completed and held valid, as between the official liquidator representing the Old Sombrero proprietors and those to whom he was selling, until two months after Vice-Chancellor Malins' certificate, and the certificate is, I think, dated in September. Therefore the sale would become finally settled and completed to the syndicate in November. However, the articles of association were executed in September; they thought it well to be prepared with a purchaser by the time the matter should be ripe.

This being done, unfortunately the case takes this turn. Baron Erlanger is very active in arranging the board of directors, who

were to appear as the first directors upon the prospectus of the intended company, and when you look at the constitution of that board (I need hardly say much about it after what was stated by my noble and learned friend on the woolsack), you find that there really was only one independent person as to whom it was in the least degree probable that he would act, and at first there was only one independent person on the board who did act. When I say an "independent person," I mean a person wholly independent of Baron Erlanger and what is called the syndicate. One of the first directors was Mr. Evans, who was a member of the syndicate, and who was himself, nominally at all events, the purchaser from the official liquidator, the person to whom the conveyance was made for £55,000. Then there was introduced Admiral Macdonald, and the correspondence is in evidence which led to his being so introduced. None of your Lordships, after reading that correspondence, would look upon him as a person to stand in an independent position as between Baron Erlanger, the principal vendor, or one of the principal vendors, and the company. That makes two out of the body who were likely to act, that body being only three, because the only other person who was at all likely to take part in the proceedings, or indeed who could do so from physical circumstances as to residence, was the then Lord Mayor of London, Sir Thomas Dakin, as to whom my noble and learned friend on the woolsack has said, and I entirely concur in the observation, not a single remark is to be made as to any want of integrity or capacity. But there he stood alone, because although there were two other persons nominated as original directors of the company, and whose names may have adorned the prospectus, neither of them was really in a position to take part in the business of the company. One of them was a person of considerable eminence, who had been Ambassador to this country from France, Monsieur Drouyn de Lhuys, and the other was Mr. Eastwick, who was then about to leave England, and did not attend the first meeting of the directors.

The first meeting of the directors was held, I think, on the 29th of September, after the memorandum and articles of association had been duly registered and the company formed in that sense. The only persons who appeared at this first meeting were Sir

Thomas Dakin, who was in the chair, Mr. Evans, Admiral Macdonald,and Mr. Westall, who, as has already been stated, was the solicitor to the company and also solicitor to the syndicate, and who appears in addition to have derived some benefit from the vendors. It was that circumstance which caused me to make the observation that it was in some degree like the case of an agent for a purchaser receiving a gratuity or present from an intending vendor. Mr. Westall had received a present from the syndicate anterior to this first meeting, which was held as I have described.

Now, my Lords, what was done at this first meeting? A resolution was immediately passed that this contract should be carried into effect. I think it has been sufficiently demonstrated by what has been said by both the noble Lords who have preceded me, that a contract so effected cannot, according to any of the ordinary doctrines of the Courts of Equity, be allowed to stand. Therefore, with regard to the purchase made at this first meeting, if any steps had been taken by any persons who had then heard the particulars of this transaction to apply to the Court, it must at once have been set aside. But then, how was any one to apply?

My Lords, when we come to the doctrine of laches, I most readily agree that it must be applied in the most strict form possible to a case like the present, for the reasons which have already been assigned by my noble and learned friend on the woolsack. The whole scheme, object, and intent of the company would be frustrated, of course, if this purchase were set aside. The object for which the company was formed was to deal with mineral property - property of a very delicate character, according to some of the evidence we have before us, and requiring a good deal of sound judgment in the mode of dealing with it, and in the shipping of the produce of the island, so as not to mistake tinsel for gold. In a case of that kind a vendor would be most materially damaged in two ways if the purchase were set aside. In the first place, his property must itself physically be damaged, and in the second place, the character, the good name, and goodwill, which form, no doubt, a part of the property he so sells, would be, I do not say irretrievably, but in a material degree damaged, if not entirely destroyed. That is a case in which persons should be put very

strictly to immediate and active exertion if they intend to dispute the contract into which they have entered.

But, on the other hand, the objection, that there has not been such immediate and active exertion, does not lie in the mouths of persons who have kept back anything which ought fairly to have been disclosed to those with whom they have been dealing. And in this case it does not, whether we regard the vendors in the first place, or whether we regard Mr. Evans' proceedings as a director in the next place. I say it does not become them to find fault with their not being earlier assailed in respect of that which, of course, they desired, by the proceedings they took, as long as possible to conceal. It is not persons who do such things who develop or disclose them. Now, it is not to be supposed that the shareholders in the company would, if they had had the least inkling of those transactions which were kept below board altogether, have entered into the contract. Neither is it to be expected that in the absence of anything which would be likely to induce them to suspect that there was any bad faith, they would suspect anything of the kind. Nor ought they to have the duty imposed upon them of making shrewd inquiry after a contract has been concluded by their own directors, with which they had in the first instance every reason to be perfectly satisfied.

Why should they suppose that Admiral Macdonald was in the position he was as to dependence upon, and association with, the principal member of the syndicate? It is true they were told that Mr. Evans was the person who received the property from the hands of the official liquidator, and that the contract made with him might be seen. I have already observed upon that. But, as the noble and learned Lord who first addressed your Lordships said, it is possible that a person in that position may discharge his duty, and may carefully abstain from doing more than he ought to do in carrying into effect that transaction, in which he has a double interest. Therefore, although they were told that, to my mind it rather works the other way. The telling them this looks like candour; and, if they were inclined to make minute investigations as to whether they had been deceived or not in the making of the first contract, it would give them reason to suppose something of this kind: "We have been fairly told about Mr. Evans,

and we must take care of ourselves as far as we are engaged in any contract with him, but that is all." Could they conceive that, besides having Mr. Evans as a director, they had also Mr. Westalladvising them, a person who had been and was an agent of the syndicate? Could they conceive, farther, that another of the directors, Admiral Macdonald, was in the position he was - a fact of which they had no intimation? Could they imagine that their affairs were all in the hands of those who met at that meeting? As to M. Drouyn de Lhuys, they might suppose that he was not likely to come here often; but they had no intimation as to his absence, or that of Mr. Eastwick. Mr. Eastwick was not at that meeting, and he was never likely to be at the board meetings for a considerable time to come - indeed, at this time I think he had not properly qualified himself with shares as a director. Until they knew some of these facts, it seems to me that the simple circumstance of their being told what Mr. Evans' position was would not suggest to them the other objections, which, as is agreed by everybody, including my noble and learned friend on the woolsack, constituted a reticence and a hiding of real facts, which, if they had acted upon them at once, would have entitled them to relief.

Now let us see how have they lost it, and when have they lost it. It is very important to consider this. I cannot see what there was (and nothing is alleged) to lead them in any way to entertain a suspicion as to the contract, at all events up to the 2nd of February. For reasons I shall mention presently, I do not think they had anything to make them take a different view on the 2nd of February; but certainly between September and the 2nd of February I cannot see that there was anything in the least degree to make them suppose it was not a bon‰ fide contract, like any other contract. I may observe - it is in favour of the Defendants - as regards the prospectus, that although it is perhaps rather highly coloured, I do not see in that prospectus (and I am glad to say so) any indicium of those frauds which are so constantly perpetrated on the public. However, the real constitution of the board is kept back from the knowledge of the company.

Now, my Lords, at the meeting held on the 2nd of February what takes place? We have at the end of the book a full report of that meeting by a shorthand writer. I call your Lordships'

attention first to this fact, and ask you to compare that with the report of that same meeting of the 2nd of February, as referred to in the directors' minutes. It is a little curious, as shewing the working of these things, when you seek to bind all the absent shareholders by something that took place at that meeting of sixty out of 400. You find in the note made of the meeting in the directors' book no minute whatever (you would not expect to find it) of anything said by Mr. Stephenson, or by any other shareholder, or by anybody concerned in the matter. Now if it was wished to raise any question on the part of those who might be conscious that there was something behind, and desired that that should be brought out, or at all events that the rest of the shareholders should be consulted, as there were only sixty shareholders present at the meeting, this might have been done; there was a shorthand writer's note of all that took place, of all that was said by Mr. Stephenson and answered by Sir Thomas Dakin, and that report might have been sent round to every shareholder. And it is remarkable that this course was suggested in reference to the meeting of the 29th of August, which received the report made by the committee appointed in June to investigate the affairs of the company. At that meeting of the 29th of August, at which there was a great deal of important discussion, Mr. Stephenson,the originator of the discussion and the originator of all the proceedings which were taken to set aside the contract, asked Sir Thomas Dakin, towards the end of the meeting, whether it would not be better for the directors on their responsibility - he says he should not like to do it himself - to send an account of the meeting to every shareholder. I merely mention that because it occurred to me that I had frequently seen cases before the Courts in which the notice was brought home to every shareholder in that way; it is not infrequently done by sending to them the fullest report, that is to say, a shorthand writer's report, of all that took place, and then of course they are fixed with the notice of all that was said, suggested, or done on the occasion.

My Lords, how any one of the 400 shareholders except those who were present, was to be brought into a position of supposed cognizance and acquiescence by any conversation that took place at that meeting on the 2nd of February, I confess I am at a loss

to see. I have taken some trouble in going into the authorities which were referred to, and I confess I feel myself at a great loss to find anything to say that those shareholders who were absent from the meeting of the 2nd of February, would be bound by anything there said or done, beyond that which was actually resolved. Of course, whatever was resolved at that meeting they would be bound by. According to the report that we have of those proceedings, there is no suggestion of any doubt or hesitation as to the propriety of the contract. The only doubt or hesitation arises in the conversation of one shareholder with the chairman, and that one shareholder speaks of what he has heard and what he has been told as being mere rumour, and says he only comes to raise the question for this purpose, that whatever may have been done before, he does not think it very well that Mr. Evans should remain on the board of direction, if he was really one of the original purchasers. He says, I have heard this talked about, and I do not think it desirable that he should be in that position. I do not see how it would be possible to affect any one of the absent shareholders with any notice of those observations of Mr. Stephenson's. It has been suggested that they might become aware of them from the newspapers. Now they might or might not be persons who read the newspapers; and it has never been held that the possibility of their having informed themselves indirectly, when they were not actually informed in any direct way whatever, could be held sufficient to bind absent parties as having received notice of the statements made at a meeting.

Now, my Lords, after the 2nd of February the next meeting was the ordinary meeting of the company held on the 19th of June. At that meeting a thing was done which was of very great importance - a committee of investigation was appointed. Mr. Stephenson had, probably by the time this next meeting was held, furnished himself with more detailed information of what had been going on in the previous part of the transactions, and he seems to have brought before that meeting the expediency of appointing a committee of investigation. I do not think there was any direct notice given of that, but whether there was or not, I should hold the absent shareholders bound by that which was done, namely, the appointment of the committee of investigation.

They were so far led to believe that there was something to be inquired into, and that that was of importance in regard to the concerns of the company.

Now, my Lords, I must look, indeed I have looked anxiously, to see whether any delay or laches can be imputed from that time. The shareholders were to meet again six weeks afterwards. They did meet six weeks afterwards, but that was found not to have given time enough for the committee to pursue their investigations to the utmost, and they therefore enlarged the time to the 29th of August. On the 29th of August there was a full meeting held, when everything of course was known, the report of the committee was received, persons were chosen to fill the places which had been occupied by the former directors, and the shareholders must be taken at that time, the 29th of August, to have had full knowledge, or to have been in a position to have acquired full knowledge, of all their rights. But what do they upon that? They resolve (and it seems to me to have been a very reasonable resolution to have come to) that instead of "rushing into litigation," as they express it, that is to say, going at once into litigation, they should endeavour to ascertain all the facts concerning this contract, and endeavour to enter into negotiation with the members of the syndicate who were impugned by the report of the committee. They aimed at the recovery, no doubt at first, of £55,000, as to which they took an erroneous step; but it will be seen by the letter they wrote, which I will next refer to, that there was a full reservation of all their rights.

A resolution to the effect I have stated having been carried on the 29th of August they write on the 16th of September, having in the meantime been advised by counsel as to their rights, this letter to Baron Erlanger: "Sir, - You are doubtless acquainted with the report of the recent shareholders' committee of this company, and also with what took place at the late general meeting in reference to the profit of £55,000 made between the price paid to Mr. Chatteris and the sum charged to this company for the island of Sombrero. The board of directors has now been reconstructed, and the first great object is to obtain a return of this amount for the benefit of the company. They desire, therefore, to open a negotiation with you and the other

gentlemen who were interested in the formation of the company, so as to bring about, if possible, a settlement of this very important question in a perfectly amicable manner." They do not attempt, at this time, to do anything more than obtain what they thought they had a right to ask for, namely, the return of the money which they thought had been unduly obtained from them. But they go on to say, "The directors, therefore, suggest that in this spirit, and entirely without prejudice to the legal rights of the company or yourself, you will be good enough fully to consider the matter in all its bearings, and make such a proposal to them for approval by the shareholders as the unfortunate position of the company and all the circumstances seem to warrant."

Well, my Lords, more than a month passes before the directors get an answer to that letter. The answer is dated the 23rd of October. Baron Erlanger explains the delay by his being out of town; but of course it cannot affect the rights of the company or prejudice them in respect of laches that there should have been that long interval of time, nearly five weeks, before they received the answer. When they have got that answer a farther correspondence goes on for some little time between the new directors and Baron Erlanger. It is only just to him to say that he makes a very considerable offer with reference to a return of the profit in money and shares; it may not have been all the company were entitled to; that is quite a different matter. The negotiation breaks off at last, on Baron Erlanger's declining to disclose the names of the different persons interested in what I have called the syndicate. He may have done so from honourable feelings. I cannot tell what his reason was, but whatever the reason was, it operated effectually in putting a stop to the negotiation.

Now, my Lords, we have the company quite right, as appears to me, down to the 23rd of October with regard to the question of laches. Then the bill was filed on the 24th of December. I confess, that being so, considering the magnitude of the case and the difficulties there would be in the way of any rapid progress, the quantity of information that had to be obtained, and the desirable action of the committee in endeavouring to bring about a compromise, I do not see in that interval between the 23rd of October and the 24th of December, filled up as it was in a great degree,

although not wholly, with communications with Baron Erlanger,that amount of laches which would induce your Lordships to say that the right which, as every Court and every Judge before whom the case has come agrees, once clearly existed, was waived and lost in consequence of the neglect of the company to take steps in due time to free themselves from the contract.

No doubt the case of a mine is one which we must look into with very great accuracy; and if once we saw the slightest appearance of mala fides, if we saw the slightest indication of wavering and indecision as to whether or not the remedy should be taken until they saw how the thing would turn out, that might be a very different matter; but although it is true that things were so prosperous in February that Mr. Stephenson seems not to have obtained such a hearing as he otherwise would have done, that was not brought home to the minds of all the shareholders who were not present at that meeting. And even if there was such a degree of wavering on the part of Mr. Stephenson, there was certainly no such wavering on the part of any body else. At the next meeting the appointment takes place of the committee of shareholders, obviously for the purpose of seeing what can be done to free themselves from the contract. Negotiations take place immediately after that, because the committee were recommended to see what could be done by negotiation; and after the failure of the negotiation there is no long or unreasonable time until the filing of the bill.

My Lords, I am sorry to have gone at such length into the matter. Perhaps if I had been present at the original hearing I should have brought my ideas into a more condensed shape. The last hearing was the first as far as I was concerned; it is only just concluded, and I have not had time to put into such a form as I could have wished the observations I have-thought fit to offer to your Lordships, and which satisfy me, my Lords, that in this case the appeal ought to fail, and should be dismissed with costs.

LORD O'HAGAN:-

My Lords, in this case all the facts material for our consideration, and all the questions raised upon them, have been so elaborately stated and discussed by my noble and learned friends, that

I cannot, with propriety or advantage, trouble your Lordships by any lengthened observations. I shall only indicate, as briefly as possible, the conclusions to which I have arrived, after anxious consideration.

The original purchase of the island of Sombrero was perfectly legitimate - and it was not less so because the object of the purchasers was to sell it again, and to sell it by forming a company which might afford them a profit on the transaction. The law permitted them to take that course, and provided the machinery by which the transfer of their interest might be equitably and beneficially effected for themselves and those with whom they meant to deal. But the privilege given them for promoting such a company for such an object, involved obligations of a very serious kind. It required, in its exercise, the utmost good faith, the completest truthfulness, and a careful regard to the protection of the future shareholders. The power to nominate a directorate is manifestly capable of great abuse, and may involve, in the misuse of it, very evil consequences to multitudes of people who have little capacity to guard themselves. Such a power may or may not have been wisely permitted to exist. I venture to have doubts upon the point. It tempts too much to fraudulent contrivance and mischievous deception; and, at least, it should be watched with jealousy and restrained from employment in such a way as to mislead the ignorant and the unwary. In all such cases the directorate nominated by the promoters should stand between them and the public, with such independence and intelligence, that they may be expected to deal fairly, impartially, and with adequate knowledge in the affairs submitted to their control. If they have not those qualities, they are unworthy of trust. They are the betrayers and not the guardians of the company they govern, and their acts should not receive the sanction of a Court of justice.

Now, my Lords, for reasons repeatedly given by my noble and learned friends, which I shall not detail again, I think that the promoters in this case failed to remember the exigencies of their fiduciary position, when they appointed directors who were in no way independent of themselves, and who did not sustain the interests of the company with ordinary care and intelligence. Of

the five selected, two were absent from England. Mr. Evans was the agent of Baron Erlanger, Admiral Macdonald avowedly held his shares to be used for the Baron's purposes; and Alderman Dakin, so far as we are informed, was the only one of the five who fulfilled the conditions which should have been fulfilled by all of them. A member of the syndicate was made the secretary of the directors. He got £500, and Evans and Macdonald had their shares from the promoters. These persons seem to have represented simply the financier to whom they owed their appointments. They were not independent directors dealing for the shareholders with single regard to their security and advantage.

The value of the island was ascertained by a learned Judge to be £55,000, and, a few days after, circumstances remaining wholly unchanged, a contract for the sale of it, at £110,000, was confirmed, in the absence of M. Drouyn de Lhuys and Mr. Eastwickby three of the five directors, two of them being Mr. Evansand Admiral Macdonald, assisted by their solicitor, who, as I have said, was a member of the syndicate. Apparently, there was no inquiry as to the enormous advance in the price beyond that which the Vice-Chancellor had accepted on his judicial responsibility, no consideration of the state of the property - and no intelligent estimate of its capabilities and prospects. If the directors had been nominated merely to ratify any terms the promoters might dictate, they discharged their function; if it was their duty, as it certainly was, to protect the shareholders, they never seem to have thought of doing it. Their conduct was precisely that which might have been anticipated from the character of their selection, and taking that conduct and character together, I concur in, I believe, the unanimous opinion of your Lordships that such a transaction ought not to be allowed to stand.

The promoters, who so forgot their duty to the company they formed, as to give it a directorate without independence of position or vigilance and caution in caring for its interests, must take the consequences. And this without the necessary imputation of evil purpose or conscious fraud. The fiduciary obligation may be violated though there may be no intention to do injustice. If the protection, proper and needful for a person standing at disadvantage

in relation to his guardian or his solicitor, or to the promoters of a company, be withheld, the guardian, the solicitor, or the promoters, cannot sustain a contract equitably invalidated by the want of it, merely because it may be impossible to prove that he is impeachable with indirect or improper motives.

My Lords, if for any of the reasons which have been given, the purchase should have been set aside by a Court of Equity, on the filing of a bill immediately after it was made, the remaining question is, whether the Respondents, by their laches or acquiescence, have deprived themselves of the right to a rescission? I cannot think so. No doubt, there is force in the arguments which have been urged as to the peculiar nature of the property, the shortness of the lease, the deterioration of the value, and the consequent difficulty of replacing the parties, on either side, in statu quo ante. But, notwithstanding, I have seen no sufficient reason to hold that the lapse of fourteen months, before the suit was instituted, under the peculiar circumstances of the case, disentitled the Respondents to seek relief.

As to the unprosperous dealing with the island and the decrease of its value, Mr. Higgins forcibly urged, in his concluding speech, that the persons who dealt with it were those whom the promoters, directly, or through the executive they created, had put in charge of it, and that they could not complain of any injurious change accomplished under the management of their own nominees. But, without reference to this, I am unable to see that there was any unreasonable or avoidable delay in the proceedings. I am not satisfied that anything was disclosed at the meeting of February which, per se, would have warranted a suit. The double position of Mr. Evans, as vendor and purchaser, which was mentioned on the authority of a rumour, would not alone, of necessity, have nullified the bargain. A vendor may, in certain circumstances, transfer himself with his property and unite, as a director, with them to whom it has passed, making it profitable, on new conditions, for them and for himself. Alone, therefore, the position of Mr. Evans, so far as it was apparent, did not necessitate the conclusion that anything unlawful had occurred, and the mere diversity of price, startling as was the increase within a few days from £55,000 to £110,000 would not, of itself, even if it had

been fully ascertained, as it was not, have made that conclusion necessary.

But, again, be this as it may, the consideration remains, that, whatever occurred at the meeting of February, and whatever may have been the significance and effect of the discussions there, some hundreds of shareholders were absent who were not bound to be present, who had no duty of attendance cast upon them, and no special reason to induce them to attend. The meeting, as the chairman announced, was only "pro form‰." There was no notice affecting the directorate or the contract. There was no power at that meeting effectually to meddle with the directors, or to assail their policy. No balance-sheet was to be shewn; no accounts were to be scrutinised. The whole affair was merely formal, and of the doings and speeches on the occasion no notice whatever was given to any one of the hundreds of absent shareholders. In this condition of facts, I think it impossible to say that the occurrences, on that occasion, were of such a nature as to require the company to take immediate action, on peril of the sacrifice of their claim to rescission.

Even as to the persons present, I should not be prepared to say that any knowledge was communicated or any motive for investigation supplied, sufficient to make the delay of proceedings fatal to that claim. It may be that the apparently prosperous state of the business made the shareholders content with their condition, and averse from inquiry; but they did not, therefore, forfeit a right which was vested in them, if I am correct in my opinion as to the first question in the case. And, at all events, I cannot see that those who were absent, the majority, were in any way affected by matters which never came within their cognizance, and which they had neither the obligation nor the capacity to know. Certainly, no authority was produced to shew that they could be so affected; and the attempt to deny them their equitable claim, as if they had been, appears to me unreasonable and unjust.

My Lords, it this view as to the meeting of February be correct, I cannot believe that the subsequent transactions established any case of laches or acquiescence. It would have been very difficult to have had any effective meeting afterwards before the 19th of June. In the meantime, information had been gathered as to the

position of the directors, their relations with the promoters, and other things unknown to those who attended the meeting of February; and a committee was appointed to make farther inquiry. Until the 29th of August, when its report was received, nothing could have been judiciously done. Then came a delay of five weeks, attributable not to the company, but to the Appellants, who did not answer a letter addressed to them on the 16th of September, until the 23rd of October; and two months afterwards, on the 24th of December, the bill was filed.

We must look to the practical possibilities of things in such a case as this, and considering the difficulty of bringing a company into motion against its directorate, the necessity of a careful and minute examination of facts, and the time essential for the preparation of complicated pleadings, I cannot say that the delay of fourteen months is not accounted for, or is so long and so unjustified as to deprive the Respondents of their right to sue.

In matters of this kind, every case must be judged according to its own circumstances. In each, the question must be one of degree - of more or less - and the delay which might be sufficient to bar relief, in one condition of things, may be without any effect in another. But it is notable that in none of the cases has laches been imputed without a lapse of time very much greater than that which we have to consider. All along, for many months, the shareholders had pressed for a return of the £55,000. They do not seem to have been advised to seek rescission of the contract until a late period; but a temporary mistake of the remedy does not extinguish the right to one. As soon as they were fully informed, the proper demand was made and the suit was instituted; and, as I have said, in my opinion, without such delay as disentitled them to maintain it.

Holding, therefore, that on both the points the Court of Appeal was right, I am of opinion that the decree should be affirmed and the appeal dismissed with costs.

LORD SELBORNE:-

My Lords, the contract in this case was adopted as the contract of the company (having been previously prepared for that purpose by the vendors) through the machinery of a board of directors of

the vendors' own creation, who were so constituted as to be practically incapable of exercising (and who did not, in fact, exercise) any independent judgment on the subject. All the documents were prepared by the vendors' solicitor, who was also made solicitor to the company, and who participated, to the extent of £500, in the vendors' profit. Of the five directors named in the articles of association, two were absent from this country, and were at that time practically incapable of acting; the other three were present when the contract was adopted; but of these, one was the nominal vendor, and the paid agent and trustee of the real vendors; another was a mere instrument in the hands of the vendors, qualified (contrary to the articles) by a loan of shares from Baron Erlanger. The third was the Lord Mayor of London, and it seems only fair to him to suppose that he was too much occupied with other duties to be able to give much attention to this. The consideration for the sale was £110,000, (partly in shares of the company,) being twice as much as the vendors had paid for the property a month before. Whether this was, or was not, an excessive price to be asked from a company, is a question into which I do not enter. If there had been an independent purchaser and a real bargain, the vendors would have been at liberty to ask what price they pleased; and if that purchaser had agreed to pay more than the property was worth, he could not complain. But there was, in fact, no such purchaser and no such bargain. The vendors themselves managed the whole thing, and they made those who through their means undertook a trust for others, their passive instruments.

By such an adoption of such a contract the company could not be bound in equity, if, when the material facts became known to the shareholders, they sought to be released from it within a reasonable time; nor could the nature of the property (a lease of minerals for years, of speculative value) make any difference in this respect. It was the act of the vendors to put their property, being of that character, in such a position; and, unless some equity arises against the Plaintiffs from some conduct or omission of their own, the vendors must take the consequences of that act. The shareholders were put into possession of the property as a going concern; they took over the manager and all the other agents

whom they found upon it, and did not alter or interfere with the course of management until they found that the manager was not doing his duty properly, when they promptly did what was right, and appointed a new and a fit person to succeed him. There has, therefore, been nothing done, or left undone, to the injury of the property since it came into the company's hands which can now stand in the way of the Plaintiffs' right to relief, unless they have precluded themselves from it by acquiescence; and the relief given by the decree is such as, under these circumstances, is proper and usual, and is granted upon the usual equitable conditions.

With respect to the question of acquiescence, I will first consider how it would have stood if nothing important had taken place at the general meeting of the 2nd of February, 1872 - premising that when acquiescence is a bar to an equitable right (which it may be much more easily than to a legal right, especially in mining cases), two things are generally necessary - first, that there should have been sufficient knowledge of the facts on which the equity depends; and, secondly (when a contract is sought to be rescinded), that there should have been substantial freedom of choice and action, independent of the original influence under which the voidable contract was made.

Now, in this case, the original influence of the board of directors nominated by the vendors, who had adopted the contract on the 29th of September, 1871, continued till the meeting of the 19th of June, 1872, when the committee of investigation was appointed; and the new board, resulting from the report of that committee, was not formed until the 29th of August following. After the resolution passed at the meeting of that date authorizing the new board to endeavour to come to "an early settlement with the vendors of the property to the company, so that litigation might, if possible, be avoided" the whole time down to the filing of the bill, appears to me to be sufficiently accounted for; and I think it immaterial that, if the vendors would have consented (which they did not) to give back £55,000, the shareholders would have been willing, on those terms, to retain the property. That the company should, until a settlement was arrived at (or a decree made in case of litigation) continue in possession, and keep the concern going, in a due course of management, was an inevitable necessity

under the circumstances. A different course (since the vendors did not offer to take back the property) would have given the vendors much more reason to complain of the conduct of the Plaintiffs (so far, at least, as my opinion is concerned) than they now have.

From the formation of the company till the inquiry by the committee of investigation, the shareholders had such knowledge as was communicated to them by the articles of association and the prospectus: and (unless by means of what passed at the meeting of the 2nd of February, 1872), they had no more. They knew, from these original sources of information, that the directors had power to adopt, and had adopted, a contract, previously prepared, for the sale of the property by Evans (himself a director), as vendor, to Pavy, on behalf of the company, for £110,000; of which contract a copy might be seen at the office of the company's solicitor; and that Evans had bought from Mr. Chatteris, as liquidator of a former company, under the direction of the Court of Chancery; also, that the working by Mr. Chatteris had been profitable. If any shareholder had referred to the contract (as he was invited to do), he would have found in it the date of Evans's purchase (30th of August, 1871); but he would not have found what price Evanshad paid. If this had been sufficient information, no shareholder taking shares on the faith of the articles and the prospectus could have had any ground of complaint: and I should have thought that in that case the company would never have had any equity to rescind the contract. But there was in truth (so far) nothing to suggest to any shareholder that the board of directors had not been properly constituted, or that the directors had been nominated by, or had acted under the influence of, the vendors; or that they had not properly exercised their judgment, and performed their duty. Evans was, indeed, stated to be both vendor (as far as appeared, sole vendor) and a director. But this might well be without any interference on his part with the judgment and discretion of his co-directors, as to adopting, or not adopting, the contract. It is no unusual thing for a vendor to be asked, in the interest of a purchasing company, to take a place in its direction. The names with which that of Evans was, in this case, associated, were at least sufficient to justify the shareholders in

taking it for granted that everything had been properly and bon‰ fide done on their part; and I cannot think that, under these circumstances, it would be equitable to hold that they were put upon making farther inquiry, merely by what appeared in the articles of association and in the prospectus.

The remaining question is, whether the discussion which took place at the first general meeting, on the 2nd of February, 1872, alters the case? I think it does not. No notice was given to the shareholders, before that meeting, that any business would be brought before it relative to this contract: and after the meeting no information as to the conversation relative to the contract, which had taken place at it, was communicated to the absent shareholders. The whole number of shareholders was 496, of whom only sixty-two were present. Even as to those sixty-two (I lay aside the particular case of Mr. Stephenson who brought the matter forward as a dissatisfied shareholder, but whose individual knowledge or acquiescence, even if he did acquiesce, could not affect the rest), it does not appear to me that any communication was then made which added to their previous knowledge more than one material fact; viz., that the price paid by Evans to Chatteriswas £55,000. If this had been all, if the other directors had dealt bon‰ fide, and at arm's length with the vendors, as in the due discharge of their duty they ought to have done, the fact that Evans, or those whom he represented, had made this large profit by the resale, would not, by itself, have enabled the company to rescind the contract. The suggestion that the contract was or might be voidable, for that or for any other reason, does not appear to have been in any way presented to the minds of the shareholders who attended the meeting; not even by Mr. Stephenson himself. So far were the directors from then treating the case as one in which there was an option to rescind or not, that the chairman, Sir Thomas Dakin, professed ignorance of the price which Evans had paid, and treated it as a matter with which the company had nothing at all to do. It is true that he also represented the bargain as a good one; on grounds, which he doubtless at that time believed to be sufficient; but which afterwards proved to be fallacious. If the question of ratifying or rescinding a contract, then understood or supposed to be voidable, had been

before the meeting, this might have been very important as leading to the conclusion that the shareholders present desired to ratify and not to rescind it. But, in the actual circumstances of the case, I can only regard such a statement as calculated (especially when taken in connection with the answer made to Mr. Stephenson), to confirm the confidence which the shareholders had down to that time placed in the board, and to put them off any farther inquiry into the way in which the duty undertaken by the directors, had been discharged. I cannot, therefore, impute any acquiescence, which would make it inequitable now to rescind the contract, even to those shareholders who were present on the 2nd of February, 1872; much less to those (being seven-eighths of the whole number) who were not there, and who were altogether ignorant of what passed at that meeting.

I think that the decision of the Court of Appeal in Chancery was correct, and ought to be affirmed.

LORD BLACKBURN:-

My Lords, in this suit the Plaintiffs being a limited company, incorporated under the provisions of the Companies Act, 1862 (25 & 26 Vict. c. 89), and suing as such, can only ask for relief on grounds affecting them in their corporate capacity. If individuals were deceived by misrepresentations a case might exist entitling such individuals to be personally relieved against the consequences of such misrepresentations, but the company would not have any title to be relieved on account of such misrepresentations to individuals, especially if the misrepresentations were made by those who at the time represented the company. All this is clearly stated by Lord Cottenham, in your Lordships' House, in Vigers v. Pike (1).

But inasmuch as corporations act by individuals who have the proper authority to manage their affairs, and by those who are duly appointed by that governing body to act as agents for the company, it may well happen that proof that the Defendants have deceived the individuals who form the governing body, or the agents appointed by them, is proof that they have deceived the

(1) 8 Cl. & F. at p. 647.

corporation, and gives the corporation a substantive title to relief. And it may happen that the Defendants have corrupted, or unduly influenced, the governing body without deceiving them, so as to get the corporation to make a contract, from which the corporation, on proving such corruption or undue influence, has a right to relief. This again is stated by Lord Cottenham (1). And I own it seems to me that, as soon as these distinctions are stated, they appear to be obviously right, and, if they had been borne in mind, a good deal of the first eight days' argument in this case might have been spared.

But I think that, though representations made by the governing body of the company and the Defendants in concert, or by the Defendants alone, with intent to deceive individuals, do not afford any substantive ground for relief to the company, it by no means follows that the statement of such representations in a bill by the company is necessarily impertinent. It may be that such representations may be so made, as to afford strong evidence that the Defendants had either deceived or corrupted that governing body and so obtained the contract against which the company seeks to be relieved, and so tend to prove what, if established, would be a ground for relief to the company.

In the present case the suit was commenced by a bill filed on the 24th of December, 1872, before either of the Judicature Acts was even brought into Parliament. The Vice-Chancellor did not make his decree till the 2nd of June, 1876, after both the Judicature Acts were in force. But the case was conducted throughout according to the old procedure.

The bill originally was against five Defendants, Baron Erlanger, John Marsh Evans, Jane Westall, the executrix of Thomas Westall,Sir Thomas Dakin, and Reginald John Macdonald. After answer, it appearing that Erlanger was acting as representative of what is called a syndicate, and asserted that the other members of the syndicate were necessary parties, the bill was amended, making eight persons now along with Erlanger, Appellants, and Frederick Vilmet and Alexander McEwen, and Thomas Souvene McEwen,parties to the bill, as Defendants, along with the representative of a person called Wanklyn. Frederick Vilmet having died, his personal

(1) 8 Cl. & F. at p. 648.

representative was made a party in his place. And the McEwens having become bankrupts, their trustees, Henry Diverand Samuel Price, were made parties.

The Vice-Chancellor Malins, delivered an elaborate judgment (1), and came to the conclusion (2) in these words: "Upon the whole case I find it impossible to make a decree which would do complete justice. It would not, in my opinion, be just to make the extreme decree which is asked for by the Plaintiffs, and I can find no ground for the alternative relief which is asked for, in the return of the difference between what was given and received for the property." As the nearest approach he could make to justice he dismissed the bill without costs against all parties.

The Plaintiff company appealed against this decree, giving notice only to the members of the syndicate and their representatives. The two McEwens, and Price, their trustee, though duly served, did not appear.

The Court of Appeal declared that the contract of the 20th of September, 1871, was not binding on the company and ought to be rescinded and set aside, and it made a decree that Baron Erlanger and the eight members of the syndicate, and the estates of the Defendants, the two McEwens, and the estate of the deceased Frederic Vilmet, were liable to refund the price paid by the company with interest, and ordered them so to do, and that on their doing so the Plaintiff company should give up possession of the island, and pay any profits that might have been made. The decree was varied by dismissing the bill against Diver and Wanklyn, with costs.

Against this decree Baron Erlanger, the eight members of the syndicate, and the representative of the deceased Frederick Vilmet,appeal against the Plaintiff company, and, as a nominal party, against Price, who has not appealed.

The Master of the Rolls says (3):- "The object of the action is to set aside the contract upon the ground that it was a contract unfairly obtained, and was not binding upon the company. The defences set up are that it was fairly obtained; that whether it was fairly obtained or not, the company has, by its laches or acquiescence,

(1) 5 Ch. D. 73.

(2) 5 Ch. D. at p. 102.

(3) 5 Ch. D. at p. 103.

precluded itself from suing; and, thirdly, that whether or not the company has so precluded itself, it is not a transaction which could be set aside by the company, though damages might be claimed, in an action by individual shareholders, against those persons who made misrepresentations to them to induce them to accept their shares."

The Appellants' counsel at your Lordships' Bar, I think, made, in addition to those stated above, a farther point that the bill was not so framed as to raise the objection that the contract was unfairly obtained, in the sense in which the Court of Appeal thought it proved. The Master of the Rolls proceeded to state his view of the earlier facts, which I need not repeat. It is in substance what has been already stated by the noble and learned Lord on the woolsack. The Respondents' counsel did not, I think, acquiesce in that statement, but the Appellants, as far as that goes, make no complaint of it.

I think it a correct view, and that it completely negatives the ground of complaint set forth in the 11th paragraph of the bill, that the syndicate had purchased the island as promoters and on behalf of the company for £55,000, and made arrangements by which it was to be made to appear that the company had bought it for £110,000. This, if made out, would have entitled the company not to return the island on the hands of the syndicate and take back the £110,000, but to keep the island and claim the difference, £55,000.

The Justices of Appeal said that the syndicate might lawfully sell to a stranger without telling him anything farther than that they had the island for sale, and that the £110,000 was the price at which it suited them to sell, and leaving it to the purchaser to find out for himself whether it suited him to buy at that price; and that, though no doubt the fact that they had a few days before bought for £55,000 would, if known to that purchaser, make him inquire much more before he came to the conclusion that it was worth £110,000, there was no legal or equitable obligation on the vendors to disclose that fact. Whether a vendor of delicate feelings would like to leave such a fact undisclosed is an irrelevant inquiry. And in this I agree.

They farther said that when the vendors promoted and formed

a company for the purpose of purchasing at that price, they were not entitled to treat that company as a stranger. As promoters of a company they stood in a fiduciary position towards the company they were creating, and that the bargain between the promoters and that company could not stand unless more was done for the purpose of protecting the interest of that company than was done in this case. It seems to me that the 21st paragraph of the Plaintiff's bill does sufficiently allege such a case; and the first question which I think has to be considered is whether enough is proved in fact, to make a case good in law under which, if the Plaintiffs had come promptly, they would have been entitled to the relief given by the decree appealed against.

The Justices of Appeal were also of opinion that the Defendants' plea of laches was not made out, and that under all the circumstances, the Court could do complete justice by rescinding the contract. The second question is whether the facts proved are such as to justify this decision. The Respondents' counsel contended that if this second question were decided against them, they still were entitled to the alternative relief, and ought to have the £55,000. This third question does not arise if the first and second are decided in favour of the Respondents.

The decision is of very great importance to the parties, from the largeness of the sums involved, but I think it is of even more importance to the public, from the great general importance of the principles which must be considered, and to some extent at least decided, in answering those questions.

I proceed to consider the first of these questions. Throughout the Companies Act, 1862 (25 & 26 Vict. c. 89), the word "promoters" is not anywhere used. It is, however, a short and convenient way of designating those who set in motion the machinery by which the Act enables them to create an incorporated company.

Neither does this Act in terms impose any duty on those promoters to have regard to the interests of the company which they are thus empowered to create. But it gives them an almost unlimited power to make the corporation subject to such regulations as they please, and for such purposes as they please, and to create it with a managing body whom they select, having powers such as

they choose to give to those managers, so that the promoters can create such a corporation that the corporation, as soon as it comes into being, may be bound by anything, not in itself illegal, which those promoters have chosen. And I think those who accept and use such extensive powers, which so greatly affect the interests of the corporation when it comes into being, are not entitled to disregard the interests of that corporation altogether. They must make a reasonable use of the powers which they accept from the Legislature with regard to the formation of the corporation, and that requires them to pay some regard to its interests. And consequently they do stand with regard to that corporation when formed, in what is commonly called a fiduciary relation to some extent. Some reference was made in the argument to the Companies Act, 1867 (30 & 31 Vict. c. 131, s. 38), on the construction of which there has been a great diversity of judicial opinion. That section does contain the word "promoters," which, as I have already observed, is not to be found in the Companies Act, 1862, but it imposes no fresh duty on them with regard to the company. It imposes a fresh duty towards, and gives a new cause of action to, persons who take shares in the company as individuals; it does not affect the obligation of the promoters towards the corporation. I think that the extent of that fiduciary relation, which, as already said, in my opinion, the promoters bear to the company, is a very important consideration in construing that section; and I am desirous to avoid prejudging that question by saying in this case more than is necessary for its decision. I think, as already said, that the promoters are in a situation of confidence to some extent towards the company they form.

Where, as in the present case, the company is formed for the purpose of becoming purchasers from the promoters as vendors, the interests of the promoters and of the company clash. It is the vendor's interest to get as high a price as possible, and they have a strong bias to overvalue the property which they are selling; it is the purchasers' interest to give as low a price as possible, and to secure that the price actually given is not more than the property is really worth to them.

Lord Eldon, in Gibson v. Jeyes (1), says that "it is a great rule

(1) 6 Ves. 278.

of the Court that he who bargains in matters of advantage with a person placing confidence in him, is bound to shew that a reasonable use has been made of that confidence - a rule applying to trustees, attorneys, or any one else." I think persons having property to sell may form a company for the purpose of buying it in such a manner as to shew this, and when they do so, the sale will be unimpeachable. I will not attempt to define how this may be done. Probably there are many ways. What I shall do is to inquire what, on the evidence, appears to have been done in this case, and then to confine myself to saying whether, on the facts of this particular case, it appears that an unreasonable use has been made of that confidence which the company did not indeed place in the promoters, for the company did not then exist, but which the Legislature did place in them for the company when it gave the promoters power to create it.

The Plaintiffs gave in evidence as against the syndicate the answer of Baron Erlanger, whom they did not cross-examine; and most of the facts as to the mode in which the company was formed are proved by his answer. There is, therefore, no dispute as to most of the facts material to the question I am now considering. It appears that Thomas Westall (now deceased), a solicitor in a respectable position, was aware that Mr. Chatteris was endeavouring to sell the lease of this island under the sanction of the Court of Chancery. In fact the minimum price at which the lease was to be sold was fixed at £55,000, but this Mr. Westall did not know. He knew that no one had offered as much as Chatteris required, and he formed the opinion (which seems to have been a correct one) that the lease might be purchased at such a price as to be a profitable purchase. He went to Sir James Anderson and some others, and brought them to be of the same opinion; but as they thought the matter too heavy for them, he was introduced to Baron Erlanger, and negotiated with him to induce him to join with some of his friends in the projected purchase. There were negotiations amongst them which resulted in the formation of the syndicate. It seems that Westall had at first wished that his friends, or, whom he represented, should. be interested to the extent of one-half in profit or loss of the purchase, and that if the proposed purchase should be brought about by him, he should

receive from the purchasers a special fee of £500 for his professional services in so doing. This share was thought by Erlangertoo large. Ultimately it was agreed, on the 10th of August, that Westall's friends should have one-third share.

It may be as well to read the words of the 15th and 16th paragraphs of the answer: "15. The said Thomas Westall mentioned to me the names of several of his friends whom he represented, but, with the exception of the said Sir James Anderson, I am unable to remember any of their names; I remember, however, that with the exception aforesaid, I was not acquainted with any of the persons whom the said Thomas Westall named, and I stated to him that inasmuch as they were strangers to me, I objected to be mixed up with them individually in the business, and it was then and there agreed between us that I should individually have no dealings with any of them, except the said Sir James Anderson,and that with that exception, none of them should be considered members of the syndicate when formed, but that the said Thomas Westall should, with the exception aforesaid, represent his friends, and should, with reference to the other members of such syndicate, be considered as a principal, but merely in the character of representing his said friends. At the interview last aforesaid, and also repeatedly on subsequent occasions, the said Thomas Westallassured me that he himself had no personal or pecuniary interest in the transaction over and above the fee which he had, as hereinbefore mentioned, stipulated to receive, and that he merely acted for others who were intending purchasers, and on whose behalf he should have sought for some other combination if I had declined to join with them. 16. At the same interview, acting on behalf of myself and my friends hereinbefore mentioned, I authorized the said Thomas Westall to make the said Henry Chatteris an offer of £45,000 for the said property." Westall could not obtain the property for £45,000. Mr. Chatteris appears to have told him he might have it for £55,000 if he offered that sum on the 30th of August. This was communicated by telegraph to Baron Erlanger,then in Scotland, who by telegram authorized the purchase at that price, and Westall on that day (30th August, 1871) signed a memorandum of purchase, signed it in his own name - "Thomas Westall,for principal to be declared." His principal really was the syndicate.

When, however, the formal contract came to be drawn out, Mr. Westall gave in the name of John Marsh Evans, who was a person nominated by Baron Erlanger to act as agent for the syndicate in that behalf, and the formal contract was drawn out in his name. It was subject to approval by the Vice-Chancellor.

The contract was not approved till the 15th of September. The deposit of £10 per cent. was paid out of the funds of the syndicate, and the balance of the price was also paid in that way, and it was completely their purchase, though the name of Evans was used.

All who were concerned in this purchase must have known that the phosphate in the island could hardly practically be worked except through the medium of a company. And though it was possible that they might find persons willing to purchase their bargain, on behalf of a company to be formed by those persons, without any intervention of the syndicate in its formation, they must, I think, have known that it was most likely that they would have to form, or at least to take part in forming, that company themselves. And as early as the 5th of September, six days only after the bargain was bound, subject to the approval of the Vice-Chancellor, and ten days before that approval, Westall began to take steps to form that company.

Up to this time I see nothing illegal or inequitable in what was done, but I think and submit to your Lordships that Westall and Evans, though having no share in the profit and loss of the syndicate, had so connected themselves with it as to be quite as incapable of giving a disinterested protection to the interests of the company, as if they had been beneficially interested in the sale to the company.

Mr. Westall proceeded to take all the legal steps for the formation of the company. He drew up the memorandum of association. He prepared a contract, the contract to be made between Evans (in whose name the contract with Chatteris had been made) and one Pavy, for the sale to Pavy of this property for £110,000, subject to the new company, then in process of formation, being duly formed and completed. And by a memorandum, signed after it was formed, Pavy declared himself to have signed as agent for that company. Pavy was a nominee of the syndicate,

who certainly could give no independent protection to the interests of that company. But it was never pretended that he would do so, or could do so. He had no more to do with the substance of the matter than the releasee to uses has to do with the substance of the conveyance. His name was used as a part of the machinery by means of which, under the powers in the articles of association, the property of the promoters was to be transferred to the company for £110,000. Other machinery might have been adopted to effectuate this, but if sufficient steps had been taken otherwise to protect the interest of the company, I do not see that any complaint could justly have been made of the adoption of this machinery.

The memorandum of association was signed by John Marsh Evans and six other persons, all of whom it was admitted were mere nominees of the syndicate, and none of them was in a condition to afford disinterested protection to the interests of the company.

Mr. Westall also prepared the articles of association for the company. Two of the articles were important, namely: "(65) The number of directors shall from time to time be determined by the company in general meeting; until any other number is so determined there shall not be less than four directors nor more than seven. The first directors shall be, His Excellency Monsieur Drouyn de Lhuys, E. B. Eastwick, Esq., the Right Honourable Thomas Dakin, John Marsh Evans, Esq, and Rear-Admiral R. John Macdonald." Of those five persons thus named as the first directors, one, Mr. Evans, was from his position incapable of affording the company disinterested protection. In my mind, the real question here is whether the other four, or any of them, were persons so situated that they could form an unbiassed judgment for the company, and, if they were, whether the promoters had given them such information, and so acted towards them, as to be entitled to act on the belief that they had exercised that unbiassed judgment.

Before proceeding to this, I must mention the 82nd article of the association, which is: "In their management of the business of the company the directors may, without any farther power or authority from the members, do the following things, viz.:- 1st. They may adopt and carry into effect the contract for the

assignment to the company, bearing even date herewith, of the island of Sombrero, in the West Indies, and the factory, buildings, aud works thereon, for the residue of a term of twenty-one years from the 16th day of March, 1865, subject to the provisions contained in the lease thereof."

On the 5th of September Westall proceeded to get evidence of the value of the island for the purpose of using it in the prospectus. This consisted of two letters, one from Mr. Chatteris to Messrs. Pickford and Winkfield, who had been largely engaged in the sale of phosphate for the former company, and one from Mr. Pickford,a member of that firm, to Mr. Westall. These letters were as follows:- "London, 5th September, 1871. - Re Sombrero Phosphate Company, Limited. - Messrs Pickford, and Winkfield, 148½Fenchurch Street. - Dear Sirs, - Since I have been liquidator, I have sold and received the proceeds of thirty-five cargoes representing tons 16,127:3:15, which have realized the sum of £38,960. 3s. 6d. To raise and ship these cargoes there has been sent to the island £11,300 in cash, and in stores £4579. 2s. 8d.; so that the cost has been £15,879. 2s. 8d., and the profit £23081. 0s. 10d., or 28/7½per ton. - I am, Dear Sirs, yours truly (Signed) Henry Chatteris,Official Liquidator." The other letter is this: "148½, Fenchurch Street, London, 6th September, 1871. - Thomas Westall, Esq. - Dear Sir, - With this I send you statement of cargoes of phosphate sold by Mr. Chatteris, together with a letter from that gentleman shewing a nett profit of 28/7½ per ton. I may mention this was the result of working from July, 1870, to May, 1871, the cargoes since that date not being completed. I should also draw your attention to the price, being much below present rates, the last cargoes having been sold at £5 per ton on 70%. If the whole had been sold at this price, at which probably future sales can be made, there would have been £12,065 14s. 1d. more to add to the £23,081. 0s. 10d. - Yours faithfully, William Pickford. - Please return documents when done with."

A great deal was said about the prospectus based on these letters being fraudulent. If this had been made out it would not have formed a substantive ground for relief to the company, but it would, I think, have been very material evidence that the board of directors who adopted and issued the fraudulent prospectus were

under the undue influence of those who framed it. But I think the cross-examination of Pickford quite failed in making out anything like fraud. It is possible (though I think not proved) that a closer examination of Chatteris' books would have shewn that Mr. Pickford was in error in thinking that the profit shewn was the result of ten months working and not of twelve, which obviously makes a great difference; and I think if Mr. Westallhad been acting for a purchaser he would probably have tested this more closely than he did. But more than this I think was not proved.

How, then, stands the case as to the five persons named as the first directors? M. de Lhuys was requested by Erlanger to act as a director, and be assented. It is not pretended that he made, or was expected to make, any independent inquiry on behalf of the company. He was asked to be a director because, from his position, he would be influential in promoting the sale of phosphate on the continent; and he assented, trusting entirely to Baron Erlanger.I see no harm in this on either side, but it afforded no protection to the company.

Mr. Eastwick had applied to Erlanger personally to be allowed to join the company, but had gone to Canada, leaving it to some friend in his absence to make farther inquiries. On his return he was not satisfied with the inquiries which had been made. In the 75th paragraph of Erlanger's answer it is said, "During my absence from London the said Edward Backhouse Eastwick applied to my firm for a temporary loan of the shares necessary for his share qualification, on the ground that he had not determined whether or not he should continue to be a director of the company; and he afterwards restored such shares to my firm upon his ceasing to be a director as herein mentioned." "The said Edward BackhouseEastwick was abroad at the date of the incorporation of the Plaintiff company. I do not know and cannot state as to my belief, or otherwise, whether or not he did not return to this country till late in the year 1871, or whether he did or not take his seat at the board for the first time on the 29th of December, 1871, or on what day he did so take his seat, or whether he did or not resign it on the 8th day of April, 1872, or on what day he did so resign it. I believe, however, that he did take his seat and did afterwards

resign it." I think this is quite enough to shew that there could be no protection afforded to the company by any independent inquiry on the part of Eastwick.

As to Admiral Macdonald, I do not suppose he would have lent himself to anything he thought wrong, but he evidently came into the company with a foregone conclusion that everything his friend Erlanger had done was right. I do not say that this was not a bon‰ fide belief on his part, but he came in under such circumstances that he could not he expected to make any independent inquiry; and if he had made one, it would have required very great moral courage in him under such circumstances to say that anything done by Erlanger, was wrong. Under such a bias he could afford no protection to the company.

Evans was the agent of the syndicate. The company could not therefore, have any protection unless from Sir Thomas Dakin.He was, or had recently been, Lord Mayor. He was quite disinterested, and he embarked his own money in the company; and he certainly ought before lending his name as a director to have made some inquiry, especially as it is impossible to suppose he was not aware that those getting up the company were the vendors of the lease. The evidence as regards him is in such a state as to give me much embarrassment.

The shorthand writer's report of the meeting of the company on the 29th of August, 1872, has been put in and is printed, and it appears that Sir Thomas Dakin there made a speech containing important statements. This, however, is not evidence of more than that Sir Thomas Dakin made such statements. He filed an answer in the Vice-Chancellor's Court which was read as against him, but was not evidence against the now Appellants, and I do not know its contents. It is a probable conjecture that he repeated upon oath what he had previously stated verbally, and as no appeal has been brought against him, it is fair to assume in his favour that his explanation was satisfactory. Still this is not evidence against the syndicate.

The bill of complaint (paragraph 43) notices the statement of Sir Thomas Dakin, but only for the purpose of charging that, notwithstanding his assertion to the contrary, he did know that Evans had contracted to buy at £55,000. And, as far as I can

see, the only evidence on which the Plaintiffs can now rely is the Appellant's answer.

I think, however, that under such circumstances the burden of proof lies on the fiduciary agents, agents selling to those to whom they owed a duty to prove, if not that sufficient protection had been afforded, at least that they had sufficient reasons for bon‰ fide believing that sufficient protection had been afforded to their purchasers. If they could have proved that Sir Thomas Dakinwas told that the price at which the property had been recently bought was £55,000, and also that the knew that Westall, by whom the prospectus was prepared, from evidence which he had collected, was not a disinterested attorney, but one having a strong bias in favour of the vendors, they should have done so. If such proof had been given, and it had been shewn that Sir Thomas Dakin,well aware that for these reasons he should receive the statements and evidence of value with caution, had satisfied himself that the bargain was a good one at £110,000, the case would have been very different. I doubt whether the opinion of one disinterested person so obtained would have been enough protection, but that it is not necessary to consider if, as I think, it is not proved that even this slight degree of protection was given.

My Lords, I have felt much doubt and difficulty as to the second question, though, on the whole, I think the Plaintiffs have not lost their remedy.

Several points were made and argued, as to which I think it unnecessary to say more than that I think they were satisfactorily disposed of in the judgments below. That on which I have difficulty, and to which I shall confine my remarks, is whether laches and acquiescence is made out to such an extent as to deprive the company of the remedy by rescission which they had if they had come promptly. Some things are to my mind clear. The contract was not void, but only voidable at the election of the company.

In Clough v. The London and North Western Railway Company (1), in the judgment of the Exchequer Chamber, it is said, "We agree that the contract continues valid till the party defrauded has determined his election by avoiding it. In such cases,

(1) Law Rep. 7 Ex. 34, 35.

(i.e., of fraud) the question is, Has the person on whom the fraud was practised, having notice of the fraud, elected not to avoid the contract? Or, Has he elected to avoid it? Or, Has he made no election? We think that so long as he has made no election he retains the right to determine it either way; subject to this, that if, in the interval whilst he is deliberating, an innocent third party has acquired an interest in the property, or if, in consequence of his delay the position even of the wrongdoer is affected, it will preclude him from exercising his right to rescind." It is, I think, clear on principles of general justice, that as a condition to a rescission there must be a restitutio in integrum. The parties must be put in statu quo. See per Lord Cranworth in Addie v. The Western Bank (1). It is a doctrine which has often been acted upon both at law and in equity. But there is a considerable difference in the mode in which it is applied in Courts of Law and Equity, owing, as I think, to the difference of the machinery which the Courts have at command. I speak of these Courts as they were at the time when this suit commenced, without inquiring whether the Judicature Acts make any, or if any, what difference.

It would be obviously unjust that a person who has been in possession of property under the contract which he seeks to repudiate should be allowed to throw that back on the other party's hands without accounting for any benefit he may have derived from the use of the property, or if the property, though not destroyed, has been in the interval deteriorated, without making compensation for that deterioration. But as a Court of Law has no machinery at its command for taking an account of such matters, the defrauded party, if he sought his remedy at law, must in such cases keep the property and sue in an action for deceit, in which the jury, if properly directed, can do complete justice by giving as damages a full indemnity for all that the party has lost: see Clarke v. Dixon (2), and the cases there cited.

But a Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of

(1) Law Rep. 1 H. L., Sc. 165.

(2) E. B. & E. 148.

its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. And a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by. And any change which occurs in the position of the parties or the state of the property after such notice or knowledge should tell much more against the party in mor‰, than a similar change before he was in mor‰ should do.

In Lindsay Petroleum Company v. Hurd (1), it is said: "The doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where, by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy." I have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change, which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and

(1) Law Rep. 5 P. C. 239.

must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry.

The Plaintiffs in this case are an incorporated company; but I think that in considering the question of laches the Court cannot divest itself of the knowledge that the corporation is an aggregate of individuals. The knowledge of one shareholder is not the knowledge of the others; but I think great injustice might sometimes be done if it were held that where it is shewn that all the shareholders who paid reasonable attention to the affairs of the company had notice sufficient to make it laches in them not to act promptly, there could not be laches in the company unless the notice was brought home to the company in its corporate capacity. But at the same time it should be recollected that shareholders who seek to set aside a contract made by the governing body, have practically first to change that governing body, and must have time to do so. Now in the present case every allottee had from the beginning by the prospectus full notice that the vendor, John Marsh Evans, was also one of their directors, which alone might have given them an equity to set aside the contract, though in every other respect it was unimpeachable. If that had been the only ground on which the shareholders were entitled to relief, its seems clear that it would have been impossible to give it even the day after the directors took possession and paid the price. They had, however, much more substantial equities, but they had also notice of more, for the prospectus referring to the contract, which was open to inspection at the office, I think each allottee was fixed with the knowledge, which he would have had if he had read it, that Evans had purchased from Chatteris so recently as the 30th of August, not quite three weeks before he sold to the company. He would have not known at what price it had been purchased, but as that was known to all who had an interest in the company under liquidation, either as creditors or contributors, it could very easily have been ascertained. And, in fact, it was known and stated at the meeting in February. Now though this was not actual knowledge that the other four directors had not made independent inquiry before making the purchase, it was enough, in my opinion, to have put any reasonable shareholder

upon inquiry. And the circumstances attending the nature of the property, which are mentioned by the Lord Chancellor in his opinion, were such as to make it proper for those who intended to get rid of the bargain to act with considerable promptitude. What weighs most with me is that it appears that if the price of phosphate had not fallen below £5 a ton, there would have been a profit of £1 a ton, and the bargain would not have been a bad one; if it had risen the bargain would have been a good one, and would no doubt have been approved. But I see nothing to lead to the conclusion that the shareholders were waiting to see how the market turned out. Prices no doubt began to fall about February, 1872, and continued to fall, but not with a sudden fall. If I thought the shareholders had been waiting to see how the market ruled it might have made a difference in my opinion. If no steps to repudiate a purchase of a lottery ticket were taken till after the ticket came up a blank, so that the purchaser, if it came up a prize, might have kept it, it would surely be inequitable to set aside the contract then. And though not nearly so strong a case, such delay seems to be somewhat of that nature.

I cannot read Mr. Stephenson's cross-examination without coming to the conclusion that the shareholders present at the meeting in February were so possessed with the idea that the bargain was a good one that they would not listen to him; and if they had been competent to do so would have approved the contract. But they could not do so; they were not even a majority. A meeting convened with due notice that this business was to be considered might have probably ratified it, but no other meeting could have done so. So far the company have the benefit of their impersonality. But then comes in the question which weighs with me on the other side; what steps could Mr. Stephenson and those who thought with him, take? for unless they could have done something which they did not do, they can hardly be charged with laches. Before they could take any step to disapprove this contract they must get a majority of the shareholders, at a meeting duly convened with notice, to agree with them, and they must practically get rid of the board who had adopted the contract. They might have taken steps to have a meeting specially convened,

but I think it was not laches to wait till the regular meeting in June. If the shareholders had continued in the temper of those who met in February, they must then have failed. But, before the meeting in June, it was discovered that, greatly owing to the negligence of those who shipped the phosphate (a cause for which the syndicate were not to blame), the early shipments instead of producing a large profit had produced a loss, and the temper of the shareholders was changed; they unanimously appointed a committee of investigation, who without any delay made a report substantially disclosing the whole of what is now the Plaintiff's case. Even in that report it is not proposed to repudiate the contract; the committee expresses the hope that a net profit of £1 per ton may be realized on 10,000 tons per annum (which I may observe would give a fair dividend on £130,000), and recommends that the existing board of directors should be turned out, and the new board should be authorized to take proceedings to recover the difference between the £110,000 paid by the shareholders to the syndicate for the lease, and the £55,000 paid by the syndicate to Chatteris; and this is, I think, of some weight in favour of the Defendants. But I cannot assent to the argument that the resolution to adopt this report was equivalent to a resolution affirming the purchase.

On the other hand, I feel that there is much force in the observation that those who deal inequitably with a company know that it must necessarily be slow in its proceedings, and are not entitled to complain that time elapses; and that it is not desirable that such a rule should be laid down as would practically deprive a company when defrauded of relief. And this is a reason against considering a company as precluded from that relief to which it would otherwise be entitled, on account of delay, unless the delay is excessive. I can find no case in which even a private individual has been precluded by mere delay, except where the delay has been very much greater than in this case. In Prendergrast v. Turton (1) nine years elapsed. In Clegg v. Edmondson(2), nearly as long; and in both cases the Plaintiff had lain by whilst the Defendants were investing money in the mine, until that investment proved to be remunerative. It was clearly not equitable

(1) 1 Y. & C. Ch. C. 98.

(2) 8 D. M. & G. 789.

to leave the Defendants to all the risk of loss, and claim to themselves a profit; and this seems to be what Lord Eldon principally relied on in Norway v. Rowe (1). In the present case that is no ground for imputing to the Plaintiffs what Lord Lyndhurst in Prendergrast v. Turton (2) calls a "conditional acquiescence." As is pointed out in Clarke v. Hart (3), there was in Prendergrast v. Turton (2) very nearly, if not quite a legal defence. Here, taking the time at which the active shareholders were put upon exerting diligence to be February, there was not quite nine months before the filing of the bill; that is not very long for getting the majority of shareholders to make an inquiry, turn out the board, and get proper advice, before instituting a Chancery suit. And having come to the conclusion before, that the company had once had the right to this relief, I think the burthen is on the Defendants to shew that the company have precluded themselves from the relief to which they had a right. I do not think this is made out.

It is, in the view I take of the case, unnecessary to consider the third question.

I am of opinion that the judgment below should be affirmed with costs.

LORD GORDON:-

My Lords, the facts of the case have been so fully narrated by your Lordships who have preceded me that it is unnecessary that I should do more than very briefly refer to them.

I have no doubt that the syndicate which was formed for the purchase of the interest of the Old Sombrero company in the island in question, and by whom the rights of the Old Sombrerocompany was purchased, acquired the properly for its own behoof, and not in trust for the company which was afterwards formed. The property, when purchased, belonged absolutely to the members of the syndicate, who were entitled to deal with it in any way they thought proper. Having acquired the property, the syndicate resolved to form a company for the working of the produce of the island, and to make over the purchase to that company. They

(1) 19 Ves. 144.

(2) 1 Y. & C. Ch. C. 98.

(3) 6 H. L. C. 633.

became promoters of the company, and prepared the necessary documents for its formation, and issued a prospectus to the public with the view of inducing the public to take up its shares. In doing this the syndicate changed the position it originally held, and put itself in a fiduciary relation to the company which it was engaged in forming. It thus became incumbent on the promoters not only to make a full disclosure of the position they as owners of the property which they proposed to sell to the company held in regard to that property, but also to make arrangements, by the appointment of competent officials, and otherwise, for enabling the company to form an independent judgment as to the propriety of purchasing the property of the promoters, and of the value of that property, and the price to be paid for it. I agree with your Lordships in thinking that the promoters failed in their duty in this respect, and that the company was not put in a position for forming an intelligent and independent judgment as to the contract between the promoters and the company; and that if the contract had been challenged by the company in proper time it might have been set aside.

The only questions of difficulty in the case are whether the contract has been challenged in due time; or whether there has been such laches on the part of the shareholders as to prevent their now demanding the rescission of their contract; and whether the terms on which the Court of Appeal has set aside the contract are fair and equitable. These questions depend very much upon the procedure and practice of the Court of Chancery; and, therefore, I may be excused in finding considerable difficulty in expressing an opinion on them, especially after the doubts which have been stated by the noble and learned Lord on the woolsack. But your Lordships have had the benefit of the judgments of noble and learned Lords familiar and conversant with the rules which prevail in the Court of Chancery. And, after very careful consideration, I am of opinion that the company has not lost its right of challenge.

The first meeting of the company was not held till February, 1872; and at that time it is evident that the shareholders knew very little of the circumstances under which the company was formed, or the directors appointed. No doubt one of the shareholders,

Mr. Stephenson, seems to have had a suspicion that there was something wrong, and he made some inquiries; but I think there was nothing said or resolved at that meeting which could be construed into acquiescence by the company in the adoption of the contract in question. At the meeting in June a committee of investigation was appointed to inquire into the circumstances under which the property of the company was purchased, and power was given to that committee to examine all books, papers, and accounts belonging to the company. That, in my view, was an initiatory step taken by the company towards the challenge of the contract, and certainly shewed that the company was not prepared, without ascertaining the facts, to approve of what had been done by the directors. The report which was prepared by the committee so appointed, brought to light much that was objectionable in the conduct of the promoters of the company and of the directors; and on its being considered by the meeting of the company held on the 29th of August, 1872, new directors were appointed, who were instructed "to take all necessary measures for bringing about an early settlement with the vendors of the property to the company so that litigation may if possible be avoided." Negotiations were thereupon opened with the promoters with a view to a compromise, and these were not concluded till the end of October, 1872. The bill of complaint in the present suit was filed on the 24th of December, and considering the magnitude and difficulty of the case, I think there cannot be said to have been undue delay in the institution of the proceedings in the time which elapsed between the breaking off of the negotiations for a compromise and the filing of the bill.

I consider, therefore, that the fault lay originally with the promoters in not making a full and fair disclosure to the company, and in not putting the company into a position in which to consider properly the propriety of entering into the contract in question; and, in my view, the contract might have been set aside if it had been timeously challenged. In considering the question, I must bear in mind the difficulty referred to by my noble and learned friend who spoke last, which presents itself to the shareholders of an incorporated company in resolving upon proceedings to be taken against the directors and those who have the management

of the company. I am therefore of opinion that the onus lay on the Appellants of shewing that there had been such laches on the part of the company as to deprive it of the right to set aside the contract. I think that the Appellants have failed to shew that there have been such laches on the part of the company. And therefore I am of opinion that the judgment appealed against is right, and should be affirmed.

Solicitors for the Appellants: Bischoff, Bompas, & Bischoff.

Solicitor for the Respondents: John Holmes.