Rill New - 2pping v ANZ Mtartovina y Remny de watt v R

ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES.

H. ©. or A. Fraud - Damages - Measure of damage - Inducement to take wp shares in company -

1940, Real value - Ascertainment - Subsequent events - Evidence - Admissibility - Com- Ww pany's books and balance-sheet. SypNEy, bois 'The measure of damage in a case in which a person is induced by fraud to peste take up shares in a company is the difference between the amount he paid for the shares and the real value of the shares at the time of allotment, and not Starke, Dixon at any subsequent period, although subsequent events may throw light on 'Williams JJ. the value at the time of allotment.

The admissibility, in an action for deceit, of a company's books and balance- sheet for the purpose of proving the result of its financial operations and, in particular, the value of shares in the capital of the company discussed.

Decision of the Supreme Court of New South Wales (Full Court): Potts v. Miller, (1940) 40 S.R. (N.S.W.) 351; 57 W.N. (N.S.W.) 135, affirmed.

In an action brought in the Supreme Court of New South Wales, Robert Gilroy Potts claimed from Hyman Miller on two counts the sum of five thousand pounds.

The first count alleged that the defendant by fraudulent representa- tions induced the plaintiff to underwrite and subscribe for 4,000 shares of £1 each and 2,000 shares of 1s. each in the capital of the company then about to be incorporated and known as Australian and New Zealand Theatres Ltd., whereby the plaintiff lost what he paid for the shares, they being of no value. The second count

agreeing to underwrite and subscribe for the 4,000 shares ¢ defendant would pay to him all calls made in respect of the res in excess of the sum of 7s. 6d. per share, and breach of this ment. e fraudulent representations alleged to have been made by the ndant were (a) " that one Ray Vaughan and one Claude Carter, h of whom was well and favourably known to the plaintiff, had to underwrite and subscribe for 4,000 shares of £1 each in ypital of the" company then about to be incorporated, and "that the defendant and another person had themselves jointly itten and subscribed for 9,000 shares of £1 each in the capital said company." \ copy of a draft prospectus prepared in February 1938 by the moters of Australian and New Zealand Theatres Ltd., a company registered on Ist June 1938, was put in evidence. The main objects of the company were declared to be to take over and operate as a joing concern the theatrical and concert portion of the business don in Australia and New Zealand by J. C. Williamson Ltd. lease from that company certain theatres in Australia and Zealand, its concert business, wardrobes, properties, scenery effects, together with certain intangible rights. For all these igs the new company was to pay by way of rent or hire the sum per week, that is, at the rate of £51,168 per annum. The ed annual earnings of the new company were stated to be 101,500, and the estimated annual expenses to be £79,100, leaving timated annual surplus of £22,400. The nominal capital of Fie company was fixed at £105,000, divided into 100,000 A of £1 each bearing a preference dividend of ten per cent, 100,000 B shares of Is. each which ranked for dividend after shares. It was stated in the prospectus that 50,000 of the hares had already been' subscribed for in cash and that the er of the capital would be issued, the subscribers of the A being entitled to take up one B share for every two A shares

ntiff executed an underwriting agreement by which he under- 000 A shares on the basis of the draft prospectus dated 8th ry 1938, subject to the condition that at least 75,000 A shares

erwritten before 30th April 1938 and that any allotment to him was made before that date. On 28th April 1938 all writers executed an agreement extending their respective

ed an agreement by the defendant that in consideration of the H- © oF A.

underwriting agreements by substituting 30th May for 30th April.

The plaintiff paid 2s. 6d. per share on application, and on 6th June 1938 4,000 A shares were allotted to him. On 24th June 1938 he paid 2s. 6d. per share due upon allotment and a first call of 2s, 6d. per share.

By five further calls, the last on 28th February 1939, the remainder of the amount payable on the A shares was called up. On 20th February 1939 the company sued the plaintiff for calls unpaid, On 3rd March 1939 the plaintiff filed a statement of claim in the equitable jurisdiction of the Supreme Court seeking to be relieved of the shares on the ground of misrepresentation, and on 20th March 1939 he filed equitable pleas in the action at law. In his statement of claim and in his pleas he set up the second of the two representations in a somewhat different form. He alleged that it had been repre- sented that the defendant, that is, Miller, had applied for the allot- ment to him of 4,500 shares.

The company appeared to have carried on operations until about 12th May 1939, when, having failed to pay rent or hire, it suffered J.C. Williamson Ltd. again to take over the theatrical and concert portion of its business. What happened thereafter did not appear.

The plaintiff stated in evidence that in March 1938, when, at the defendant's invitation, he was considering the question of under- writing some of the shares, one of the proposed directors told him in relation to the theatrical business that " anything is a gamble." The director said that he remarked to the plaintiff: " This is a theatrical venture, and they are all speculative and highly so. Money can be made very rapidly but it can be lost equally rapidly and more so. It is a good thing if the company makes money but there is every possibility of the company losing money."

Shortly after he obtained them the plaintiff sold 500 of his shares at £1 per share.

The defendant gave evidence that about November 1938 the plaintiff asked him to try and dispose of his shares and said that he would take 10s. per share. A few days afterwards he told the plain- tiff that he had a buyer at 10s., but the plaintiff said that he had changed his mind and wanted 15s. per share. The plaintiff, however, denied in his evidence that the defendant told him that he could sell the shares at 10s. per share.

The trial judge rejected as inadmissible evidence by the chairman of directors and the auditor of the company, and also the company's books and balance-sheet, tendered by the plaintiff on the question

C.L.R.J OF AUSTRALIA. 'of the value of the shares and also as to the history and conduct #- C. or 4.

'of the company's business. 'The jury returned a verdict for the plaintiff on the first count and 'awarded damages in the sum of £1,312 10s. A verdict was returned for the defendant on the second count. _ Onan appeal by the defendant the Full Court of the Supreme Court held that the plaintiff had failed to establish that he had suffered any directly resulting from the fraud alleged by him, and had , therefore, to prove the existence of one essential ingredient | the tort of deceit. The verdict and judgment for the plaintiff n the first count was set aside, and a verdict and judgment for the it was entered in the action. A cross-appeal by the plaintiff, 1 the ground that evidence was improperly rejected and therefore at a new trial restricted to damages should be granted, was sed : Potts v. Miller (1). From that decision the plaintiff appealed to the High Court. Further facts appear in the judgments hereunder.

Windeyer K.C. (with him Myers), for the appellant. The non- of the company so soon after its formation is prima-facie that the value of the shares was less than as represented, and, therefore, that the appellant suffered damage. The onus is

the respondent to show that the non-success of the company was due to an intervening cause. Thit prima-facie evidence of

ne sufficient to support the verdict of the jury. The question

there has been damage is an independent one; it is not

ited by the question whether the misrepresentation is or

as to value. The value of shares as at the time they were bscribed may be proved by subsequent events (Fawcett v. Johnson (2). The capital was insufficient to meet the commitments and tions. The purchase price of the shares which, owing to the presentation, the appellant agreed to and therefore was bound

, was more than the value he received (Fawcett v. Johnson }; Lamb v. Johnson (3)). He is entitled to the difference as (Twyeross v. Grant (4); Peek vy. Derry (5); Broome v. (6) ; Shepheard v. Broome (7) ; Macleay v. Tait (8) ; McConnel . Wright (9)). The minutes of proceedings at meetings of the of the company, and also other records of the company,

1 )) 40 S.R. (N.S.W.) 351; 57 (5) (1887) 37 Ch. D. 541, at pp. 577, ol LN. NSW a 578, 591-598, patsy el (1914) 15 S.R. (N.S.W.) 51. (6) (1903) 1 Ch. 586, at pp. 606, 622. (8) (1914) 15 SR. (NIS.W.) 65. (7) (1904) A.C, 342, at p. 347.

') 2 C.P.D. 469, at pp. 483, (8) (1906) A.C. 24, at p. 31. 189, 503, 504, (9) (1903) 1 Ch. 546, at pp. 549, 551-553. VOL, LXIV. 19

should have been admitted in evidence (Clarke v. Imperial Gas Lightand Coke Co. (1) } - See also sec. 100 of the Companies Act 1936 (N.S.W)), Although these records, simpliciter, would not have established the truth of the matters there recorded, an inference could have been drawn therefrom that month by month a loss was being ineurred on each production. That inference would have a bearing on the value of the shares. The chairman of directors should have been permitted to give general evidence of the nature of the company's business.

Smyth (Shand with him), for the respondent. There is not any evidence which establishes, or from which inferences can be drawn, that damage was suffered by the appellant. There was not any basis on which the jury could assess the quantum of damage. Evidence of subsequent events is entirely irrelevant unless it is linked up with some inherent defect in the shares and the assets of - the company at the time of the allotment (Shepheard v. Broome (2); Lamb v. Johnson (3) ). The measure of damage in an action of deceit was dealt with in Holmes v. Jones (4). In Peek v. Derry (5), Twycross v. Grant (6) and the other cases cited on behalf of the appellant there was some evidence of a loss to the particular plain- tiff, or there was some evidence that there was an inherent defect, and, also, all the companies concerned had already gone into liquida- tion. That is not the position in this case. The minutes and other - records of the company would not be of any assistance in the matter of determining the value of the shares at the date of allotment. Nominal damages cannot be awarded in proceedings where damage is the gist of the action, as in an action for deceit (Salmond on Torts, 9th ed. (1936), p. 124; Halsbury's Laws of England, 2nd ed., vol. 23, p. 60; vol. 10, p. 90). A new trial should not be granted where, as here, the appellant has failed to prove his case by omitting to supply precise and definite evidence. The books of the company are, in respect of private matters, admissible only against and not in favour of the company. 4 fortiori the books are not admissible in an action between third parties (Phipson on Evidence, Tth ed. (1930), p. 362). The chairman of directors was rightly prevented from giving as evidence information obtained by him from the company's records. The allegation of fraud or misrepresentation was not proved.

(1) (1832) 4 B. & Ad. 315, at pp. 320, (3) (1914) 15 S.R. (N.S.W.), at pp.

321, 326 (110 E.R. 473, at pp. 76, 77. 475-478). (4) (1907) 4 CLR. 1692, particularly (2) (1904) A.C., at pp. 347, 348. at p. 1717.

(5) (1887) 37 Ch. D. 541. (6) (1877) 2 C.P.D. 469,"

ion on the part of the respondent. A distinction is drawn between m and the necessary proof of damage (Halsbury's Laws of 2nd ed., vol. 5, p. 210, note r). Upon damage being proved y must do its best in assessing the quantum: See Chaplin licks (1); Howe v. Teefy (2); Carr v. Baker (3).

J. An action of deceit was brought in the Supreme Court of New South Wales by the appellant against the respondent. he appellant alleged that the respondent had made the following and fraudulent representations : - That one Vaughan and one ter, each of whom was well and favourably known to the appel- had agreed to underwrite and subscribe for 4,000 shares of £1 the capital of a company then about to be incorporated and as Australian and New Zealand Theatres Ltd., and that the ondent and another person had themselves jointly underwritten | subscribed for 9,000 shares of £1 each in the capital of the com- with the view to inducing the appellant to take shares in the , which, relying upon the representations, he had done to At the trial of the action, a verdict for £1,312 10s. was for the appellant. Upon motion on the part of the respondent, n motion by way of cross-appeal on the part of the appellant, e Court set aside the verdict and directed that a verdict it be entered for the respondent and from this decision is now brought by the appellant to this court.

1 an action for deceit, proof of real damage is essential; it is question of nominal damages ; the foundation or gist of the m is real damage, though it is quite true that if the real damage wed be small the verdict will also be small. In the case now re us, the Supreme Court held that no real damage had been But the respondent, whilst relying upon the decision of eme Court, also submitted that the representations relied

resentation SMe cat Castes dad greed to dese EE 4000 shares of £1 each. The proof was that the

u (3) (1936) 36 S.R, (N.S.W.) 301; 53 27 SR. Vie S.W.) 301; 44 W.N. (N.S.W.) 110. (NS.W,) 102,

1 indeyer K.C., in reply. The evidence established misrepresenta- 4. ©. oF A-

appellant proposed to the respondent that he should take over 4,000 shares which Vaughan and Carter had arranged to take it the company and which had been reserved for them, but the matter was urgent and had to be completed on the following morning nd Vaughan and Carter were out of town and could not comp time. The representation alleged is that Vaughan and Carter had agreed to underwrite and subscribe for 4,000 shares, whereas proof is that the respondent was to take up the shares reserve them and that they were not to subscribe or underwrite the any shares.

The other representation was that the respondent and anothe had jointly underwritten or subscribed for shares ; that is, they agreed that if shares about to be offered for subscription were 1 taken up by others or by the public the underwriters thems would take them up. At all events, the appellant so unde the representation : -

"T" (the appellant) "asked him" (the respondent) "'W interest have you got in it?' and he said, ' My friend and m are underwriting 9,000 shares.' . . . Q. And you say he "A friend and myself are taking 9,000 shares between us.' Th is what you understood to be the position? A. Quite right. ¢ You understood, when he said ' underwriting,' what he was d with or telling you was in effect that he was under an obliga' underwrite certain shares where if he had not sold out he have to take them? A. He also intimated to me he was the shares. Q. Did he? A. Yes, he told me he was going and he wanted me to do the same, sell my A shares, which he

was under the underwriting agreement? A. I did. Q. You thought he was taking 18,000 shares? A. No, I never. Q. number of shares dealt with was 9,000? A. 4,500 each. Q. they say 9,000? A. Yes. Q. 'He told me that he and a fri were underwriting 9,000 shares'? A. That is correct. Q. understood from that as far as your taking shares was concerned that he would be obliged to take them assuming he did not get: of them, he and his friend? A. Yes. Q. In fact, the whole ¢ versation, as you have said, dealt with the question of underwriti A. And taking shares at the same time. Q. That would im taking shares? A. Quite right. I said 'What are you goi do?' and he said, 'I will sell those within a fortnight, I will s your A shares for you.' Q. I do not want you to tell me how, when I say the whole conversation was about underwriting, i in connection with an underwriting agreement under which

sand if they were not sold to the public he would have to take m? A. No, that is incorrect. Q. You understood then that taking certain shares and underwriting others? A. No, I understand that he was taking the shares, he was under- Q. He was first of all going to underwrite? A. Yes. then take the same shares? A. Quite right, in the same on as I did, that was the procedure I had to go through. Q. He friend were underwriting 9,000 shares and Miller " (the respon- at) "was to take, I suppose, half? A. That is right."

appeared from the evidence that the respondent and six other ns had underwritten shares not subscribed for or underwritten er persons, firms or companies, but not exceeding 9,000 shares. stipulated, however, that the liability of the respondent and er persons to subscribe should be divided by the number of erwriters (seven in fact) and that each subscription or under- g from any other person, firm or company should be applied o-rata relief of all the seven underwriters.

representation alleged, however, is that the respondent and person had themselves jointly underwritten and subscribed ,000 shares of £1 each. But that statement, if made, which

and the other underwriter under the agreement, which d, did not exceed one-seventh of 9,000 shares. In my

ether the statement, if made, was or was not false and and whether it did or did not materially influence the to take shares in the company. The charge to the jury, orded in the transcript, did not bring home to the jury the facts for their consideration in connection with this representa- and, taken in conjunction with the finding on the repre- on as to Vaughan and Carter and the verdict, vitiates that

that would be immaterial if the Supreme Court be right in that the appellant had failed to establish an essential of the appellant's cause of action, namely, that he had damage from the fraud alleged by him. The measure of e in cases in which a person is induced by fraud to take up 'is the difference between the amount he subscribed or paid 'the shares and the real value - not the market value - of the

on allotment. "Although the value of the shares is not to vertained at the subsequent period so as to take into account benefit of the plaintiff events subsequent which depreciated

lier" (the respondent) "was stating that he would underwrite H- ©. or A

their value, yet those events, if they show that the company was. originally, with the capital which it had got, a company which was. worthless, may . . . be taken into account as evidence of what. was the value of the shares immediately after they were allotted to the plaintiff": See Peek v. Derry (1). ' Australian and New Zealand Theatres Ltd. was incorporated on Ist June 1938 under the Companies Act 1936 of New South Wales. Its main object was to take over and operate as a going concerm the theatrical and concert portion of the business carried on in Australia and New Zealand by J. C. Williamson Ltd. An agreement had been made with J. C. Williamson Ltd. which was adopted, I gather, by the company, for the leases of certain theatres ; and for acquiring other assets, properties, and effects of J. C. William- son Ltd. incidental to the business taken over by the company. - The share capital of the company was £105,000 divided into 100,000 shares of £1 each and 100,000 shares of 1s. each. About 75,000 of | the £1 shares were issued and about 69,500 of the Is. shares, The capital in respect of the £1 shares was payable 2s. 6d. per share on - application, 2s. 6d. per share on allotment, and the balance in calls as required not exceeding 2s. 6d. per share at intervals not less than one month. The capital in respect of the 1s. shares was payable 6d. per share on application and 6d. per share on allotment. All _ the capital subscribed was called up by 28th February 1939. It was not proved, I think, how much of the subscribed capital was . paid up: the appellant paid 10s. per share in respect of the £1 shares and 6d. per share in respect of 2,000 1s. shares, and on 2nd June 1939 a judgment for the balance was obtained against him by the company. The subscribed capital of the company could not therefore have much exceeded £75,000. The appellant sold 500 of his £1 shares for 20s. each shortly after allotment and refused to sell the balance of those shares at 10s. per share. The company has never paid any dividends. It paid rent under the leases, which it had acquired, up to 29th May 1939, when it ceased to make the payments reserved under the leases and the lessors entered and took over the theatres and other properties incidental thereto. The company has not, I gather, been wound up, but it is uncertain on the evidence whether it still carries on business. But the sudden failure of the company is not, I think, hard to understand if the statements made in its prospectus and shown to the appellant were true. It was doomed, I should think, from its incorporation. Apart from its capital, the only assets belonging to it were the leases

were acquired on onerous terms: namely, a rental of £984 eek or £51,000 per annum. And its administrative expenses es and other expenditure were estimated at £19,500 per m and contingencies and taxes at another £8,600 per annum, ng £79,100 per annum. Against this, the only revenue that as not wholly speculative and uncertain was from sublettings of es, estimated at £40,000 per annum. The other estimated ne depended upon successful theatrical and concert seasons and " Rents shows," which were dependent upon successful seasons. company's venture was, therefore, as a barrister-at-law, who chairman of the directors of the company, warned the , "speculative and highly so." "Money," he also told im, "can be made very rapidly, but it can be lost equally rapidly more so. . . It is a good thing if the company makes but, as I told you, there is every possibility of the company gmoney." The barrister was a true prophet, and a wise one, he appellant had deigned to consider his advice, instead of relying, said, upon the representations of the respondent. 'The company was unsuccessful in its business operations, and its was not sufficient long to withstand the serious drain upon its resources. But what happened was what any reasonable man contemplate and a jury was entitled, in my judgment, to the facts related into its consideration as a matter of business, n considering the real value of the shares taken by the appellant yn the day of the allotment. Would any reasonable person say iat the real value of shares on the day of allotment of such a venture twenty shillings in the pound or the sum the appellant agreed for them? In my opinion, that value was a matter of sound judgment and experience and the jury was in as good a n to exercise that judgment as anyone else. It is difficult, I to understand the basis upon which the jury awarded 2 10s. damages, which is equal to 7s. 6d. per share upon 3,500 hares. It is possible that the figure was taken from the second nt of the declaration, but that only makes the verdict more incom-

» of the shares was also rejected. The chairman of the of the company, a barrister-at-law with a certain amount 8s experience, was called to prove the assets of the company,

d properties acquired from J. C. Williamson Ltd. But these H- ©. or 4

H.C. or A. of the allotment of the appellant's shares. According to the tran.

script, the learned trial judge said that if it was based upon am the witness knew he would reject it and if on opinion then on the ground of lack of qualification. But who was better qualified than - the chairman of directors of the company, who knew its position and had been concerned in its operations from the commencement, - to give evidence of the value of the company's shares on that day? In my opinion, that evidence should have been received. Doo purporting to be the minutes, the profit and loss account, and balance- sheet of the company were also tendered but rejected. Minutes are evidence of the acts of a company, but the fact that they were the minutes of Australian and New Zealand Theatres Ltd. does not | seem to have been proved, and the profit and loss account and the balance-sheet also were not formally proved. The latter were rejected, it was said at the Bar, because the appellant was not ina position to produce and verify the original material upon which the books were founded. The books might have been proved, I should think, by the evidence of some officer whose duty it was to keep or supervise the keeping of the books, that they had been kept in the ordinary and regular course of business and that the transactions of the business were truly recorded therein. On the other hand, it - was said that the books were rejected because the books did not prove themselves and the appellant tendered no evidence of their accuracy. If so, the books were rightly rejected. It is for a party tendering evidence to make clear to the trial judge the purpose for which the evidence is tendered and how it becomes relevant and admissible: See National Mutual Life Association of Australasia Ltd. v. Godrich (1). In the present case, the appellant failed in that duty and cannot now complain of the rejection of the minutes and books of account. '

A verdict and judgment for the defendant should not be entered. But I agree that the verdict of the jury in favour of the plaintiff for £1,312 10s. should be set aside. It was based upon two repre- sentations, one of which was not proved and the direction to the jwy upon the other was insufficient and did not bring home to the jury the critical facts for their consideration. Further, the charge upon damages was very general and did not bring before the jury the relevance of the estimates in the prospectus.

In my opinion the appellant should have a new trial, if he so desires, but perhaps it is not improper to add that he seems to have a rather shadowy case. i

company registered on Ist June 1938, prepared a draft pros- s in the preceding February of that year. The main objects company were declared to be to take over and operate as a concern the theatrical and concert portion of the business on in Australia and New Zealand by J. C. Williamson Ltd.

ert business, wardrobes, properties, scenery and effects, ther with certain intangible rights. For all these things the ew company was to pay a rent or hire of £984 a week, or £51,000 ear. 'The prospectus estimated that the new company's adminis- expenses would amount to £19,500 a year, and allowed a sum },000 for contingencies and £5,600 for income tax. Its total diture, according to this forecast, would amount to £79,100. five headings the prospectus estimated the annual revenue £101,500, The nominal capital of the company was fixed at 5,000, divided into 100,000 A shares of £1 each bearing a prefer- dividend of 10 per cent, and 100,000 B shares of Is. each, ranked for dividend after the A shares. The draft prospectus d that 50,000 of the B shares had already been subscribed for h, and that the remainder of the capital would be issued, the cribers of the A shares being entitled to take up one B for every A shares allotted. Underwriting agreements for various quan- of shares were entered into by different persons, and by 24th 1938 66,000 A shares had been thus underwritten. Most of le agreements contained a condition that the underwriter was not ound to subscribe for his quota unless 75,000 A shares had been lerwritten before 30th April 1938. On 24th March 1938, a further agreement was executed by which the signatories derwrote so many of the A shares to be offered as were not sub- ribed for or underwritten between that date and the date the ipany went to allotment, but not exceeding 9,000 of the A in all. It was provided that each subscription or under- g received in the meantime should operate in relief of the n undertaken by the signatories and that the liability of Signatory should be limited to a proportion of the number for all were liable obtained by dividing that number by the of persons who should sign the agreement. In the event, persons signed thé agreement. When they did so is not y proved, but the evidence as it stands supports an inference all had signed on 24th March. The defendant's signature rs on the document second in order. On 25th and 26th March the defendant proposed that the plaintiff should underwrite

Dixon J. The promoters of Australian and New Zealand Theatres 1: ©: oF 4.

4,000 A shares, and on 26th March 1938 the plaintiff executed an underwriting agreement by which he underwrote 4,000 A shares on the. basis of the draft prospectus dated 8th February 1938, subject to the condition that at least 75,000 A shares were underwritten before 30th April 1938 and that any allotment made to him was before that date.

In the present action the plaintiff complains that he was induced to underwrite and subscribe for 4,000 A shares by two fraudulent misrepresentations on the part of the defendant. It appears that among his acquaintances the plaintiff numbered two, by name Ray Vaughan and Claude Carter, whom he described as well and favourably known to him. The first misrepresentation alleged against the defendant is that he stated that these gentlemen had agreed to underwrite and subscribe for 4,000 shares in the capital of the company then about to be incorporated. The second misrepresentation alleged is that the defendant stated that he himself and another person unnamed had themselves jointly underwritten and subscribed for 9,000 A shares. The jury found that each of these representations was made and that each was false and fraudu- lent. The jury further found that the representations were made with intent to induce the plaintiff to act upon them and that he was in fact induced to act upon them and suffered damage amounting to £1,312 10s., a figure representing, as it would seem, 7s. 6d. a share on 3,500 shares. The plaintiff transferred 500 of his 4,000 shares. at par and retained only 3,500.

The questions for consideration are whether these findings can be supported and, if not, whether there should be judgment for the defendant or a new trial. It is necessary, however, before dealing with these questions, to state briefly the course of events so far as they appear from the evidence. Before 30th April 1938 it was found necessary to extend the time for allotment. In the meantime, however, namely on 12th April, a further 5,000 shares were under- written. With the plaintiff's 4,000 shares this brought the total - underwritten to the required number of 75,000, thus entirely relieving the defendant and the six other signatories of the agreement of 24th March from the obligation they had undertaken. On 28th April 1938 all the underwriters, including the defendant and the plaintiff, executed an agreement extending their respective underwriting agreements by substituting 30th May for'30th April. The plaintiff says that he was deceived into executing this document by the defendant's representing that he also was interested in the company. The plaintiff paid 2s. 6d. a share on application and on 6th June 1938 4,000 A shares were allotted to him, A further 2s. 6d, became

due upon allotment, and a first call of 2s. 6d. was also made. He 1. Cor A

paid these sums on 24th June 1938. By five further calls, the last 'on 28th February 1939, the remainder of the amount payable on the A shares was called up. On 20th February 1939 the company sued the plaintiff for calls unpaid. On 3rd March 1939 the plaintiff filed a statement of claim in equity seeking to be relieved of the shares on the ground of misrepresentation and on 20th March 1939 he filed equitable pleas in the action at law. In his statement of 'claim and in his pleas, he set up the second of the two representations jn a somewhat different form. He alleged that it had been repre- 'sented that the now defendant had applied for the allotment to him 'of 4,500 shares. The company appears to have carried on opera- 'tions until about 12th May 1939 when, having failed to pay the 'rent or hire, it suffered J. C. Williamson Ltd. again to take over the theatrical and concert portion of its business. What happened after that does not appear. 'The first question arising is whether the evidence adduced by the ope supports so much of the declaration as alleges a representa- that Vaughan and Carter had agreed to underwrite and subscribe

• for 4,000 shares, What the evidence imputes to the defendant is a
• statement that 4,000 shares had been held in reserve for Vaughan and Carter, who had arranged to take them but who had gone out of town, and an invitation to the plaintiff to take them instead. Tn cross-examination the plaintiff gave the following answers : - "Q. He did not say they were going to underwrite any shares ? A. No, he did not. Q. You never understood that they were going to underwrite any shares? A. No, I did not." Upon this evidence Ido not think that it was open to the jury to find that the first ho representation was proved. As declared upon, its essence is ; t Vaughan and Carter had bound themselves to take 4,000 shares. 'would understand this to mean that the plaintiff had been induced _ to follow their example. But the proof is the contrary. It is that ~ the defendant was to take the 4,000 shares because Vaughan and
• Carter had failed to underwrite them. 'The second question arising relates to the allegation that the defendant was guilty of fraud in representing that he and another person had themselves jointly underwritten and subscribed for 9,000 shares, In his evidence in chief the plaintiff said no more on this 'subject than that on 25th March he asked the defendant what interest he had in the company. To which the defendant replied 'in these words: "My friend and myself are underwriting 9,000 shares." The plaintiff added, in cross-examination, that he did not ask who the friend was, but the defendant also intimated to him

that he was taking the shares, and the plaintiff understood that the defendant and his friend were underwriting shares as he was doi and were each taking half of 9,000. In an action of deceit the inten- tion of the defendant and not the understanding of the plaintiff is the important question. The existence of an underwriting agree- ment for 9,000 shares on the part of the defendant and others no doubt formed the foundation for whatever the plaintiff did say, but a question arose whether the defendant deliberately misstated the obligation he had undertaken in order to influence the plaintiff's judgment and, if so, whether so much of the defendant's statement as exceeded the truth formed an operative inducement to the plain- tif. It appears to me that the circumstances were such as to place a heavy burden on the plaintiff in satisfying the jury upon these questions. To begin with the plaintiff had in both earlier proceedings alleged a different form of representation. Then it was necessary to be sure that before 25th March more than one other signature besides the defendant's had been placed upon the document of 24th March ; and next that the defendant understood and, as he spoke, had in mind the true effect of the proportionate limitation of the responsibility of the signatories. Further, as the statement was made in answer to a question, some doubt might well exist whether it was intended as an inducement. Last, the plaintifi's reliance on so much of the statement as conflicts with the facts is open to serious question. For, in the course of the case, strong evidence was given that the plaintiff was induced to subscribe for his shares by much more cogent considerations than a belief that the defendant had undertaken a responsibility for 4,500 as opposed to 1,285 shares in the company. It is true that, if the representation be treated as continuing or as repeated, it became untrue on 12th April when the remaining 5,000 shares were underwritten. But if the fraud were based upon this view, further findings of fact would have been necessary. Upon all the foregoing matters, the proofs offered lacked precision and no very exact investigation was made. The charge to the jury did not call their pointed. attention to the difficulties in the way of a finding for the plaintiff. The actual finding of inducement combined both representations together as a basis for the plaintiff's action. In my opinion the verdict upon this alleged misrepresenta- tion cannot be allowed to stand.

The third question arising in the appeal relates to the evidence of damage. According to the findings of the jury, the plaintiff acted upon the supposed representations. What he did was first to enter into an underwriting agreement, next to extend it, and thirdly to

an allotment of shares. In an action for fraudulent misrepre- tion inducing the representee to purchase bank stock and pay ls thereon, Lord Campbell said that the proper mode of measuring damages was to ascertain the difference between the purchase and what would have been a fair price to have paid for the in the circumstances of the company at the time of the e (Davidson y. Tulloch (1) ). The measure of damages in in action of deceit consists in the loss or expenditure incurred by e plaintiff in consequence of the inducement upon which he relied, inished by any corresponding advantage in money or money's obtained by him on the other side. Lord Campbell's state- means that where the corresponding advantage consists in their value should be ascertained as at the time of their ition. It might be thought that the application of this rule depend upon the facts of the particular case ; that the plaintiff ed to the full loss caused by his reliance upon the misrepre- ntation, and that, if, for instance, his reliance continued and he retained the shares and paid calls under the influence of the induce- ment, the value of the shares at the time of their acquisition should 'of little or no importance. But it appears to be treated as an exible rule that wherever the purchase or allotment of shares is consequence of the deceit, the defendant shall receive credit for he fair or real value of the shares estimated as at the time of allot- nt or purchase : Cp. Lamb v. Johnson (2) ; Fawcett v. Johnson (3) ; i v. Blockey (4); Arkwright v. Newbold (5); Peek v. Derry }; Cackett v. Keswick (7) ; McConnel v. Wright (8), per Romer L.J. ; ne v. Speak (9), per Buckley J. (10), and per Collins M.R. (11) ; vy. Hoare (12), per Joyce J. In Clarke v. Urquhart ; Stracey v. art (13), however, Lord Atkin showed some dissatisfaction with rigid application that the rule has received ; he said: "I desire or myself to disclaim any intention in this case to decide what is the measure of damages in an action for deceit of this kind. Both es have accepted the measure of damages laid down in McConnel right (14). I find it difficult to suppose that there is any differ- ce in the measure of damages in an action of deceit depending on the nature of the transaction into which the plaintiff is fraudu- y induced to enter. Whether he buys shares or buys sugar,

(9) (1903) 1 Ch. 586; (1904) A.C. 342. (10) (1903) 1 Ch., at p. 605. (11) (1903) 1 Ch., at p. 623. (12) (1904) 20 T.L.R. 407, at p. 409. )2 Ch. 456, at p. 468. (13) (1930) A.C. 28, at p. 67. (14) (1903) 1 Ch. 546,

whether he subscribes for shares, or agrees to enter into a partnership or in any other way alters his position to his detriment, in principle, the measure of damages should be the same, and whether estimated by a jury or a judge. I should have thought it would be based on the actual damage directly flowing from the fraudulent inducement, The formula in McConnel v. Wright (1) may be correct or it may be expressed in too rigid terms. I reserve the right to consider it if it should ever be in issue in this House." It should be noticed also that in Twycross v. Grant (2) Kelly C.B. said that he did not agree that the right of the plaintiff is limited to the difference between the price paid for the shares, and the value of the shares either at the time of the purchase or at any given time afterwards until he became acquainted with the suppression ; that is, ceased to rely on the representation. Compare also the language of Lopes LJ. in Peek v. Derry (3).

The reason given for the rule is that, if, after the date of purchase, the thing which the plaintiff was induced to buy loses in value owing to accidental or extrinsic causes, that loss is not the reasonable consequence of the inducement. "It is not enough to say that but for the misrepresentation or fraud the purchaser would never have bought, and therefore would not have lost the thing bought. To recover back the whole price, if the thing had any value when bought, he must be in a condition to rescind the bargain and replace it, which here the plaintiff is not, as it is not in his power to make the company take back the shares, or in the power of the company to resume them.

If a man is induced by misrepresentation to buy an article, and while it is still in his possession it becomes destroyed or damaged, he can only recover the difference between the value as represented and the real value at the time he bought. He cannot add to it any further deterioration which has arisen from some other supervening cause " (per Cockburn C.J. in Twycross v. Grant (4) ).

This reasoning makes it necessary to distinguish between the kinds of cause occasioning the deterioration or diminution in value. If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase. If the cause be " indepen- dent," "extrinsic," "supervening" or "accidental," then the additional loss is not the consequence of the inducement. "If a man buys a horse, as a racehorse, on the false representation that it has won some great race, while in reality it is a horse of very inferior

(1) (1903) 1 Ch. 546, (3) (1887) 37 Ch. D., at p. 594. (2) (1877) 2 C.P.D., at p, 514, (4) (1877) 2 O.P.D., at p. 544.

after the buyer has got the animal home it dies of some latent e inherent in its system at the time he bought it, he may claim entire price he gave; the horse was by reason of 'the latent ief worthless when he bought ; but if it catches some disease dies, the buyer cannot claim the entire value of the horse, which is no longer in a condition to restore, but only the difference een the price he gave and the real value at the time he bought " t Cockburn C.J. (1) ). It is almost unnecessary to say that great difficulty must be ' ed in applying this distinction to shares subscribed for in company promoted to carry on a new or speculative enterprise, n, after the lapse of some time, the shares fall in value or become Was it because the enterprise was misconceived or from the beginning or was it owing to misfortunes or diffi- es not reasonably to be expected ? The rigidity of the rule is to some extent alleviated by two qualifi- ions. For, in the first place, in finding the fair or real value of at the time of purchase or allotment, the fact that it is then e to sell the shares at a price that will go far to cover the utlay may be disregarded, if that price is delusive or fictitious, is result of a fraudulent prospectus, manipulation of the market ne other improper practice on the part of the defendant or associated with him: See Twycross v. Grant (2); Broome v. ik (3). second qualification is that the real value of what the plaintiff 'must be ascertained in the light of the events which afterwards pened, because those events may show, for instance, that what es might have sold for was not their true value or that it worthless company (See per Cotton L.J. and Hannen P. in v. Derry (4) ); or looking back from subsequent events to the State of the company it may appear that at the time the res were taken the assets of the company did not correspond in to the money paid: Cf. per Collins M.R. in Broome vy. Speak

he burden lies upon the plaintiff of proving that the shares

red were, at the time when they were allotted or purchased, of 'value than the amount paid or payable for them by the plaintiff. the plaintiff must establish his damage and show that the shares ot which he subscribed were not really worth what he paid for them ns v. Hoare (6), per Joyce J.). You begin therefore with the 877) 2 C.P.D., at pp. 544,545. (4) (1887) 37 Ch. D., at pp. 592, 594,

2CP.D., at (5) (1903) 1 Ch., at p. 623. 1Ch., at p. 606, (6) (1904) 20 T.L.R., at p. 409.

and he pays ten or twenty times as much as the horse is worth, 4: ©. oF A.

H.C. or A. assumption that shares subscribed for are worth their par value,

ee But if that par value has been obtained or arrived at by reference Poms to estimates of assets or other considerations falsely or erroneously stated in a prospectus, it is legitimate, as an argument upon facts,

to treat the value placed upon the assets as founded upon the falsity Dixon J. or error and to proceed from that starting point in judging of the true value of the shares. "As a rule of convenience, and indeed almost of necessity, the property which would have been acquired by the company, if all the statements in the prospectus had been correct, must 'prima facie be taken to be worth the precise sum paid for the property, neither more nor less. This is the prima-facie presumption " (per Cozens-Hardy L.J. in McConnel v. Wright (1)). But this "rule of convenience or of necessity " can be of no assistance. in such a case as the present where the representation has no relation to the value of the shares or the nature or quality of the assets or business of the company.

A special difficulty must often arise where there is a market value for contributing shares, which is real and not fictitious. In such a case, as capital is called up, the market price of the shares may conse- quentially increase but, at the same time, the disproportion of the market price and the paid-up value may grow even wider. How then is the damage to be estimated of an allottee who has retained his shares under the continuing influence of the original inducement and has paid calls? Indeed even in a case like the present, where the value of the shares at the time of allotment is to be sought, not in a market price, but in some estimate of their intrinsic worth, based upon the nature of the concern, it does not appear to be altogether easy to give effect to the conception of a value as at the date of allotment, when the greater part of the share capital was obtained by calls made at a later date and the plaintifi's actual los) results from the calling up of his liability on his shares.

But as the authorities stand, the plaintiff in a case of the present description must establish that the " fair," "real" or " intrinsic" "value " of the shares he subscribed for was at the date of allotment less than the face value for which he made himself responsible, and the amount recoverable is the excess. If the difficulties of doing s0 are insurmountable, then apparently his action must fail. For here too the burden of proof remains upon the plaintiff. _ It is for him to show how low is the real value of the shares and he cannot sustain an assessment of damage in his favour based upon a greater reduction of value than might positively be inferred by a reasonable man from all the circumstances appearing in the evidence.

the contents of the draft prospectus from which the purpose

ter eleven months it failed to pay the rent or hire and J. C. William- n Ltd. resumed the portion of the business it had leased to the

pany. The present position of the company, the amount of its the causes for its failure to keep up the payments of the , and the terms upon which the business was surrendered to

on Ist or 6th June 1938 the fair value of the shares was less n their face value. We know nothing more about the affairs of he company than may be gathered from an examination of its norandum and articles of association and an uncompleted and crude draft prospectus and from its presumptive failure within . No investigation of the true nature and history of the y was made. So far as appears the venture was of a specula- character, involved the acquisition of no fixed or enduring and depended wholly upon the successful exercise of a right e a going concern so as to produce a margin over the amount to the proprietors. In these circumstances much more n n was needed before any conclusion could be reached as e original value of the shares. To my mind the whole question e was left to conjecture. This absence of proper evidence loss is another reason why the jury's verdict could not be to stand. it, at the trial, an attempt was made on the part of the plaintiff e other evidence upon the issue of damage. Evidence red upon the issue was rejected, wrongly as the plaintiff claims, the question is whether on this ground judgment ought not to entered for the defendant but the plaintiff should have a new

e plaintiff tendered certain folios of the minute book recording e of the board of directors. It was evidence of what etors did, and, if any part of their actions or decisions threw on the value properly attaching to the shares, minutes those proceedings ought to have been admitted. The i vaguely says that the tender was made to show " what n the history of the company in relation to the question of e of the shares." The evidence was rejected and we have as to its actual relevance. The balance-sheet of the parently as at 30th June 1939, was tendered, the auditor g that it stated the position of the company as disclosed by the present case all that the plaintiff succeeded in proving © oF &

its books. Then "the books" of the company were tendered, though they were not produced in court and no evidence was given as to the course of business or of bookkeeping. The judge at the trial rejected both balance-sheet and books, on the ground that the balance-sheet depended on the books and there was no proof that the books were correct. Then some questions were asked of the former chairman of the company. His opinion of the value of the shares was rejected and, so far as appears, he was not qualified to give such an opinion. He was allowed to state that the company had declared no dividends but not what was his knowledge as to the profits or losses that had been made by the company. The questions were not properly framed and no considered method of proving damage seems to have been pursued or presented in argument to the court. The general course of the company's transactions might, in my opinion, have been stated by an officer of the company who knew the facts and perhaps the former chairman was such a person, but that does not distinctly appear. Upon proof of a proper course of bookkeeping, an accountant might have proved from his examination of the books what was the financial result of the year's operation and further might conceivably have shown the sources of loss. In Roberts v. Dowon (1), in order to prove that, at the time when a commission of bankruptcy issued, the liabilities of the debtors largely exceeded their credits, the assignee was called. " He pro- duced no papers, but said he collected his information from having inspected their accounts. Lord Kenyon thought that though he could not state the particulars of the books without producing them, yet he might speak to the general amount, not by saying that one page was so much and another so much, but what from his general observation he perceived to be the general state of their accounts" (1). In Meyer v. Sefton (2) the issue was whether a bankrupt had duly executed a settlement of certain property and whether the property had afterwards remained within his disposition. " Evidence was . . . adduced, to show the value of the property; and - a witness was produced on the part of the plaintiffs, who had examined the accounts and books of the bankrupt, and it was proposed to examine him as to the result, as a means of ascertaining what the value of the property in question was. This was objected to on the part of the defendants.

Holroyd J. was of the opinion that the evidence was admissible ; such evidence had been admitted in a case before Lord Kenyon, after it had been objected to, where the question was as to the solvency of a party at a particular time. From the very nature of

(1) (1791) Pea. 116 [170 E.R. 99}. (2) (1817) 2 Stark, 274 [171 E.R. 644]

ce on such a point must be given by someone who had had the means of inquiry, and who could state the result. With respect to the source from which the knowledge of the witness was drawn, | the present instance, a commission of bankrupt had issued, and he documents from which the result was obtained, had been rendered the bankrupt " (1). In Symonds v. Gas Light and Coke Co. (2) ord Langdale, in referring to accounts of transactions extending some years, made observations of a general character on the tice of admitting them as evidence. He said : - '' Now with d to books and documents of the like character, the law has s been rather more cautious in admitting evidence of that sort is quite suitable to the ordinary transactions of mankind. It is found very often (and there are many cases in the books to that flect), that entries constituting mere hearsay evidence, are the only vidence that can be had on the subject ; and that their exclusion ould either lead to injustice or to the adoption of another mode af transacting business, calculated to cause a most serious interrup- nin the transaction of all ordinary affairs. Cases have, from time time, occurred, where, under special circumstances, accounts of \is sort between master and servant, between tradesmen and shop- and between banker and customer have, from the necessity of ease and for the convenience of mankind, been admitted as in the cause." When such an occasion arises and the are allowed in evidence or their production is not insisted D, an accountant's statement of the result of his examination is e as the evidence of a person of skill (Johnson v. Kershaw }). Little English authority will be found explaining the grounds n which the books of account kept according to an established te in organizeg business are receivable in evidence as proof, not 'the occurrence of some particular fact recorded or indicated by ecific entry or narration, but of the financial progress or result of business operations conducted on a large scale. Common sense has prevailed and such materials are used in practice without objec- ion. But in the United States the theory of the admissibility of the sults of a system of accounting has been discussed. In E. 1. Du Pont Nemours & Co. v. Tomlinson (4) the court treats the practice as an extension of the rule by which declarations in the course of business re admitted where the declarant is no longer available as a witness. e@) Ti bea. 283, at pp. 286, (4) (1924) 296 Federal Reporter 634, r ER 825, at p 827), 'at p. 640; Thayer's Cases on ' Evidence (Maguire), p. 546.

he case, such an inquiry could not be made in court, and therefore #- ©. oF A-

This is particularly true of records of modern industrial activities in which the facts are complex and the persons concerned so numerous"

the transaction. If it is identified, and its correctness and re; are established, there is no sound reason why it should not be as proof of great value. In the case at bar the regularity is fu proved. The records were made contemporaneously with the fa by persons employed for the purpose by the railroad company the regular course of business, as part of a system habitually empl in order that the railroad might have an accurate account to reference might thereafter be made in the conduct of its affairs The identity and correctness of the record is proved by the super vising agent and clerk who was charged with the duty to cause the record to be made, and to preserve it for future reference and use. It would not be practical or of value to produce the other partici in the transaction. Indeed, the defendants do not contend that men who moved the material should be produced. The admissibil of the record is attacked on the ground that the subordinate who made the final entries in the railroad office, were not called as witnesses or proved to be unavailable. But the clerks them could give no testimony based upon personal recollection. could not testify that they had knowledge of the facts when they made the entries, but could merely say that they correctly transcribed the memoranda reported to them." This passage appears to a] to disclose: sounder grounds than that directly assigned, viz., unavailability of the witnesses. It means in effect that where routine system is established for the very purpose of ascertainin the financial result of business operations consisting in multitudinous individual transactions, then, in spite of the use of living persons as part of the machinery for producing the result, the record is to be ; treated as the consequence of a system, and where, according to H common understanding and practice of business, the financial quences would be ascertained from those records, then, when the issue submitted to a court of law is of that character, the must receive that record as the appropriate evidence. Often wl the profit or loss of a business must be determined by a court, it will happen that one or other of the parties has himself caused the accounts to be kept by his servants or agents and, therefore, wl they say is receivable against him as an admission. But even taxation appeals, cases are not infrequent where the party aaa

om the accounts are to be used is not the person who caused them H.-C. oF A. be kept and does not claim under him. The law is not so futile 10.

to reject the only practicable source of information when an issue - _porgg

In short, the question what is the profit or loss of a o

or what is the financial progress or result of commercial , is meaningless unless some system of accounting is DironJ. and used. But reliance upon American doctrine is

For it goes much further than English practice. It has 'influenced in a great degree by a special development from an

iness, as far, indeed, as allowing the use of specific entries as ve statements of particular facts: See 7 Jac. I. cap. 12; le me 369; Phipson on Bvidence, ch. 18, 6th ed. (1921), p. 9; Radthe v. Taylor (1); Best on Evidence, 12th ed. (1922), 425, r. 503; Wigmore on Evidence (1904), vol. 11., secs. 1537 et seq. rom the foregoing statement it will appear that, subject to the of a proper foundation by proof, the plaintiff might have in evidence whatever part of the results of the company's as ascertained from the books, might have turned out relevant to the value of the shares. Before the Full Court ntiff relied upon the rejection of the balance-sheet and folios minute book; but the learned Chief Justice did not under- the argument on his behalf to go beyond these documents. ave no information which would enable us to judge whether of the rejected evidence would have advanced the plaintiff's 0. We are not in a position to say whether it was even relevant, it is true that irrelevance was not the ground of its rejection. question whether a new trial should be granted is in no incon- rable degree a matter of discretion. In the present case I think tion should be exercised by considering the whole case, the following matters : - (a) the absence of evidence in t of the first misrepresentation alleged ; (6) the weakness of 'idence in support of the second ; (c) the inherent difficulty in g that, in a speculative enterprise of such a very special the true value of the shares as at the time of allotment was 'that fixed by the promoters, whose estimates of revenue and have not been attacked ; (d) the proofs offered and rejected conduct of the trial, and (e) the grounds relied upon in the Court. Taking all these matters into account I think new trial should be refused. 'May opinion the appeal should be dismissed. (1) Thayer's Cases on Evidence, pp 550-561.

Wituams J. The appellant sued the respondent in an action at common law in the Supreme Court of New South Wales. The declaration contained two counts. The jury returned a verdict for the plaintiff on the first count for £1,312 10s. and for the defendant on the second count. The defendant appealed to the Full Court of the Supreme Court of New South Wales, which set aside the verdict on the first count and ordered that a verdict and judgment for the defendant should be entered in the action. The plaintiff has appealed against the rule of the Supreme Court and claims that the verdict for the plaintiff on the first count should be restored. By the first. count the plaintiff alleged that he had been induced to underwrite and subscribe for four thousand shares of one pound each in a com- pany then about to be incorporated and known as Australian and New Zealand Theatres Ltd. by two fraudulent representations made to him by the defendant, viz. : - (a) that Ray Vaughan and Claude Carter, two persons well and favourably known to the plaintiff, had agreed to underwrite and subscribe for 4,000 shares of £1 each in its capital, and (b) that the defendant and another person had themselves jointly underwritten and subscribed for 9,000 shares of £1 each therein.

The Supreme Court based its decision on nie ground that the plain- tiff had failed to give any evidence of damage which could be said to have resulted directly from the false representations complained of.

On this appeal senior counsel for the appellant has submitted that there was evidence of damage and that further evidence of damage which he had tendered had been wrongly rejected, while counsel for the respondent has contended that the rule of the Full Court was: correct not only on the ground already mentioned but also because the evidence did not establish the first representation was made while it did establish that the second representation was substan- tially true.

On 26th March 1938 the appellant signed a contract to underwrite 4,000 shares in the above company which was then about to be registered. Attached to the contract was a draft prospectus. The 4,000 shares were allotted to the appellant on 10th June 1938. The company was formed to carry on the theatrical and concert business then being carried on by J. C. Williamson & Co. Ltd., and for that purpose to lease certain theatres and the necessary equipment from the latter company for terms varying up to twenty-one years. rent payable to J. C. Williamson & Co. Ltd. amounted to £51,000, but the estimated receipts and expenditure showed a revenue of £101,500 and an expenditure, including the rents, of £79,100, leaving a surplus of £22,400. In addition to tendering the prospectus, the

ppe proved that the company, which commenced business i une 1938, failed to pay the rent after 12th May 1939, and that landlord thereupon re-entered into possession of the leased nises. There is no evidence of the subsequent history of the npany, but it is not in liquidation. The appellant attempted to further evidence to show that the company's business had been carried on at an uniformly heavy loss from its commencement. Hesought to tender the minute books of the company, to give general nce to this effect by Mr. Asprey, chairman of directors of the pany, and to prove the state of the company's affairs by tendering eke and calling the company's auditor to prove the balance- which had been compiled therefrom. This evidence was by the learned trial judge. It is unnecessary to discuss the to which this evidence was admissible, because its effect, if \dmitted, would only have been to prove in considerable detail it the appellant did prove generally, viz., that the company's ess referred to in the prospectus had ended in disaster in the ort period of eleven months. If the general evidence of failure was admitted is not evidence of damage, then the details thereof uld be irrelevant.

The authorities, which are collected in the judgments of my ther Dixon and of the learned Chief Justice of the Supreme Court, ow that the measure of damages in an action of deceit is the difference een the amount which the plaintiff paid or became liable to pay for 'shares and their real value on the date of allotment. The appellant eee of 500 of the shares for one pound each shortly after ment so that at the date of the trial he only held 3,500 shares. ¢ amount of the jury's verdict shows that it must have calculated teal value of the shares on the date of allotment to be 12s. 6d. e This calculation would have to stand if there was any evidence to support it. But I agree with the learned Chief Justice of the ; e Court that there was no such evidence.

authorities show that if the assets are correctly stated in the spectus of a company about to be incorporated, their value, in absence of any evidence to the contrary, must be deemed to be ent to the nominal value of the capital about to be issued. Windeyer contended the fact that the company failed so ly was itself prima-facie evidence of damage. He relied par- tly on the following statements in the House of Lords made

• Lindley L.J. in Shepheard v. Broome (1) : - ' It was then con- nded that there was no evidence that the plaintiff who took shares (1) (1904) A.C., at pp. 347, 348.

on the faith of the prospectus had sustained any damage by reason of the untrue statement contained in it. The company failed about a year after it was formed, and the plaintiff has lost the money he paid for his shares. This appears to me to be sufficient prima facie evidence of some damage sustained by the plaintiff by reason of the untrue statements in question. All that has been done by the court as yet has been to decide that the plaintiff has proved enough to entitle him to an inquiry as to the amount of damages which he has sustained by reason of such statements. This is quite in accord-_ ance with the usual practice in actions of this kind when brought in the Chancery Division, and it is extremely convenient. It saves the trouble and expense of going into evidence which will be useless if the plaintiff fails to establish any liability of the defendant to him"; - and in Macleay v. Tait (1) : - '' Proof that he applied for shares on the faith of a prospectus which is to be treated as fraudulent by - sec. 38, and that he obtained them and paid for them and lost his money, is prima-facie evidence, but only prima-facie evidence, of damage by fraud on himself. McConnel v. Wright (2) goes no further than this." These two statements must be read in the light of two considerations : the first that the Court of Chancery does not itself determine the issue of damages but refers it to one of its officers; - and the second that the misstatements or omissions in the cases under review all related to and were capable of affecting the value of the assets as represented in the prospectus. For instance, a statement that a company had acquired a valuable right or property when in

"fact it had not done so, or an omission to state that a company had _

agreed to make some payment for which it was not to receive an adequate consideration. This would in itself provide prima-facie evidence that the value of the shares was less than twenty shillings on the date of allotment. Some intrinsic defect having been proved, the subsequent liquidation would be prima-facie evidence that this defect had materially contributed to the failure of the company and in some cases that the company was worthless from the beginning. It would also establish the amount, if any, the shareholder would receive by way of dividend in respect of the shares he had retained. The position is summed up with precision by James L.J. in Shepheard vy. Broome (3), where he says : - "I think also that, a prima facie cause of action being established, the plaintiff must be afforded an opportunity by an inquiry of showing whether he has sustained any damage. I express no opinion whether the facts established at the hearing do or do not sustain a claim for damages" (4). It

(1) (1906) A.C., at p. 31. (3) (1904) A.C, 342. (2) (1903) 1 Ch, 546. (4) (1904) A.C., at p. 346.

r instance, Collins M.R. says : - " He had paid his money, and he 4d got in return for it a property which did not contain the 200,000 lobe shares, in respect of which a profit of so large an amount is id to have been obtained. Therefore the position is this, and ybody assessing the damages will have to consider it: What is ence between the value of the property as it was represented property without this large asset in it, having regard to the bility, certainty, or uncertainty of that asset ever being in fact ired? We now know, no doubt, that it was acquired after- |; but that is not the material point. The damages have to tained in view of the facts as they were at the time - in view 'the central fact that this asset had not been acquired " (2).

In the present case there is no evidence of any such defect. The wmectness of the statements in the prospectus was not attacked.

appellant alleged that the respondent had represented that and Carter had agreed to subscribe for 4,000 shares and e and a friend had agreed to subscribe for 9,000 shares. The established that the shares that the appellant applied for to his knowledge the 4,000 shares held in reserve for Vaughan | Carter, that these shares were part of the 9,000 shares and the ince of 5,000 shares were allotted to one Chambers. The company re received the total amount of capital, namely £75,000, the appellant had been told was the amount upon which the ny would proceed to allotment. If the respondent had led ellant to believe the company was to receive £13,000 addi- capital which it lost because Vaughan and Carter and the nt and his friend had not agreed to subscribe at all, this | have been some evidence affecting the value of the shares at of allotment, because a lack of sufficient capital is often an tant and even a decisive element in the failure of a company h itself in business. The case was therefore one in which nt was bound to adduce some expert evidence to show value of the shares in the company, taking into account and the business in which it was about to engage, was less y shillings. Such evidence as exists points in the opposite Several persons, admittedly very experienced in the business, had subscribed for substantial numbers of shares ; of capital sought was rapidly obtained ; and the appellant to dispose of 500 of his shares soon after allotment for one

(1) (1908) 1 Ch. 546. (2) (1903) 1 Ch., at pp. 553, 554,

rly stated in the judgments in McConnel v. Wright (1). © or A.

pound each. The appellant failed to adduce any evidence of damage, and, since damages were the gist of the action, he should have been nonsuited on this ground.

In my opinion there was no evidence to establish the first repre- sentation. It was proved that on Friday, 25th March, the respon- dent told the appellant he had reserved 4,000 shares for Vaughan and Carter but they were out of town and would not return until the following Monday, and the shares had to be taken up on the Saturday. The appellant saw Mr. Asprey, as well as the respon- dent, with respect to underwriting these 4,000 shares, and Asprey advised him to consider it until the Monday as the matter could be left open until then, but the appellant insisted upon executing the agreement on the Saturday. At the time of doing so, therefore, he was well aware that Vaughan and Carter had not agreed to under- write or subscribe for the 4,000 shares ; if they had done so the shares. would not have been available for the appellant.

The evidence as to the second representation is in an unsatisfactory state. The appellant only proved it was untrue to the extent that the respondent represented that he and one other person had agreed to underwrite and subscribe for 9,000 shares, whereas the respondent was. in fact only one of seven underwriters and his liability was confined by the agreement to an obligation to subscribe for one-seventh of the shares which the underwriters had eventually to take up. The way the case was put by the appellant's counsel and the learned trial judge to the jury was, however, that the respondent represented to the appellant that he had agreed to become a shareholder in the company, not that he had represented himself to be liable as one of two underwriters whereas he was in fact only one of seven. The substance of the misrepresentation, therefore, was that the respondent had induced the appellant to believe he had agreed to subscribe for shares in the company, and in this respect the representation was true. The appellant on taking up his 4,000 shares reduced the total liability of the appellant and the other six underwriters to subscribe for 5,000 shares but they were still liable for these shares on 26th March. It appears that what has been described as a firm offer to take the 5,000 shares had been received from Chambers and that they were subsequently underwritten by him on 12th April, but on 25th and 26th March the second representation was substantially true in its only material sense, namely, that the respondent was then liable to underwrite and subscribe for shares in the company.

In my opinion the plaintiff ought to have been nonsuited not only on the ground that there was no evidence of damage, but also on

for the appellant, Francis & Francis. rs for the respondent, C. Don Service & Co. uy J.B.