Rill New - 2pping v ANZ Mtartovina y Remny de watt v R - [1940] HCA 43 - HCA 1940 case summary

Rill New - 2pping v ANZ Mtartovina y Remny de watt v R - [1940] HCA 43 - HCA 1940 case summary — Zoe

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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

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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-

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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

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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

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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.

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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,

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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.

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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.

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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

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

At a glance

Court

Decision date

Before

Source

Judgment (131 paragraphs)