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At the same time was sent a circular notice that an extraordinary meeting would be held on the 6th of November, to pass a resolution for the voluntary winding up of the company, in order that the amalgamation might be carried into effect.

Determining to avail himself of the 3rd resolution, and to have his shares cancelled, Mr. Wright signed the receipt, and sent it to the secretary, with his share certificates, receiving in return a cheque dated the 2nd of November, 1865, for 251., the amount which he had paid on allotment; and the register of shareholders was altered by setting opposite to the shares entered in the name of Mr. Wright, "Money returned, and allotment cancelled."

On the 6th of November, 1865, a resolution was passed to wind up the company voluntarily, which resolution was confirmed on the 22nd of the same month, and in June, 1866, an order was made for continuing the voluntary winding up under the supervision of the Court. From the 6th of November, 1865, no notice was sent to Mr. Wright of any of the proceedings of the company, until the 1st of November, 1867, when a summons was taken out by the liquidators for settling him on the list of contributories in respect of 10 shares. This summons was opposed by Mr. Wright, but Vice Chancellor Stuart, on the 13th of February, 1868, made an order including him in the list. Mr. Wright appealed from this order, and the Lords Justices, on the 13th of March, 1868, as reported 37 Law J. Rep. (N.S.) Chanc. 529, removed his name from the list, on the ground that the directors had under the articles of association a power to accept a surrender of shares, and that the so-called cancellation might be supported as tantamount to a surrender.

The liquidators then placed Mr.Wright's name on the B. list of contributories, as a past member, and Mr. Wright now ap

plied to have his name removed therefrom.

Mr. Jessel, Mr. Karslake, and Mr. Everitt, for Mr. Wright, in support of the summons, referred to

Re London and Mediterranean Bank
(limited), ex parte Wright, 37 Law
J. Rep. (N.S.) Chanc. 529;
Oakes v. Turquand, 36 Law J. Rep.
(N.S.) Chanc. 949; s. c. Law Rep.
2 H. L. 325;

Re Reese River Silver Mining Company,
ex parte Smith, 36 Law J. Rep.
(N.S.) Chanc. 618; s. c. Law Rep.
2 Chanc. 604; on appeal, 39 Law
J. Rep. (N.S.) Chanc. 849; s. c.
Law Rep. 4 H. L. Ca. 64 ;

Ex parte Stevenson, 16 W. R. 95;
Pawle's Case, 38 Law J. Rep. (N.S.)
Chanc. 412; s. c. Law Rep. 4
Chanc. 497;

Ross v. Estates Investment Company, 37 Law J. Rep. (N.S.) Chanc. 873; s. c. Law Rep. 3 Chanc. 682. Mr. Hardy and Mr. Higgins, for the liquidators, cited

Companies Act, 1862, ss. 53, 131;
Re Bank of Hindustan, China, and
Japan; ex parte Martin, 2 Hem.
& M. 669;

Kent v. Freehold Land Company, 37
Law J. Rep. (N.S.) Chanc. 653;
s. c. Law Rep. 3 Chanc. 493;
Bridger's and Neill's Cases, 38 Law
J. Rep. (N.S.) Chanc. 201; s. c.
Law Rep. 4 Chanc. 266;
Creyke's Case, 39 Law J. Rep. (N.S.)

Chanc. 124; s. c. Law Rep. 5
Chanc. 63;

Lawrence's Case, 36 Law J. Rep. (N.S.)
Chanc. 490; s. c. Law Rep. 2
Chanc. 412;

Western Bank of Scotland v. Addie,
Law Rep. 1 H. L. Ca. 145.
Mr. Jessel in reply.

WICKENS, V.C., after stating the facts of the case, and saying that for anything that appeared to the contrary, Mr. Wright, if at any time before November 22, 1865, he had discovered the falsehood of the representations in the prospectus, might have successfully filed a bill to be released from his contract to take shares, and that the Lords Justices, in delivering judgment,

had expressly left open the ground of fraud as one not material to the question then before them, but which might be material on the settlement of the B. List, proceeded as follows:-It seems proper to consider, in the first instance, whether if Mr. Wright had, immediately before the 6th of November 1865, become aware of his rights, and being so had applied to the directors to have the allotment to him cancelled, thereatening to file a bill in case of refusal, they would have had power to do what he asked. Directors in general have no power to cancel shares when duly allotted and registered, and the directors of this particular company, though they had certain powers of cancellation of shares, had no power to cancel the allotment. They might, under certain circumstances, annihilate the shares as from the time of cancellation, but not so as to put them in the position of shares which had never existed. Therefore, if Mr. Wright had applied to them as suggested, their power of granting the application must have been one arising from the general law, and not from anything special in the constitution. of the company. An allotment of shares founded on a contract to take them, which the shareholder has been led into by misrepresentation, is voidable, but not void; that is to say, it remains good until the shareholder elects to avoid it. If the shareholder omits to exercise this right before winding up proceedings are commenced, the contract stands. If the shareholder elects in due time and in proper form to avoid the contract, it is avoided altogether, and the case stands as if it had never been made.

The question then arises whether, if a shareholder, having a case which entitles him to be disharged on bill filed, applies to the directors, and they being satisfied of his title admit, and to the utmost of their power give effect to his claim to be discharged, this is tantamount for the present purpose to a decree obtained adversely against them for the removal of his name from the register, or to the filing of a bill which results in such a decree.

It is, of course, essential in the case supposed that the shareholder's right to discharge might be established indepen

dently altogether of the directors' admission, and should be exercised in such a way as to destroy all future claim on his part to be a shareholder in respect of the shares in question. But if these conditions are fulfilled it is difficult to see on principle why the filing of a bill should make any difference. It cannot be necessary for the directors to maintain a hopeless defence to a well-grounded claim, and the submission to an immediate decree after a bill filed can hardly be more efficacious than a submission to the same relief after the bill is prepared, but before it is filed, or after it is threatened, but before it is prepared, or after the claim is formally made, but before the bill is threatened in terms.

The matter, however, does not rest on principle merely, for Pawle's Case seems to determine that an agreement by the directors to abide by the determination of a suit by one shareholder as governing the case of another, is as effectual for the exoneration of the latter as if he had filed a bill of his own. This seems necessarily to involve that if the suit actually instituted had been determined before the winding up, the directors might have acted on the decision by cancelling the shares ab initio. In this case it seems probable that the directors knew or might have known of Mr. Wright's title to cancellation when they cancelled his shares, though they cancelled them on other grounds. It has been already determined that the cancellation so granted was valid at least as a surrender, and therefore destroyed all future claim on the shareholder's part to any benefit from his shares. It was intended by both parties to put him in the same position as if he had never been on the register, and the election of the shareholder to treat the voidable contract as void was finally made as far as he was concerned, though he did not know his own title, and the acceptance by the directors of his repudiation of the original allotment purported to be made on grounds which did not warrant it. The legal effect of this remains to be considered, and involves in my judgment a question of some difficulty. Of course if the Lords Justices, when the appeal was before them, had

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intimated any opinion on the point, I should willingly consider myself bound by it. But on a fair construction of what they are reported to have said this seems to me not to have been the case. question appears not to be concluded either by their judgments or by any other authority. It cannot, I think, be material in any view of the case whether any one searching the register immediately before the winding up, would have found Mr. Wright's name on it or not. The question really is whether, before the winding up, he had effectually exercised his right to repudiate the allotment as one which he had been fraudulently induced to accept. The true view on principle seems to me to be that taken by Vice Chancellor Stuart, that is to say, to consider the cancellation and the acceptance back of 251., the sum paid on allotment without interest, as founded only on the resolution on which they had in fact proceeded (and the resolution is nothing more than an attempt to give all persons who were actually allotted an option of retirement if they wanted to get out of the concern), but not to have amounted to any admission or implied acknowledgment, or to have involved an assumption that they, or any of them, were otherwise than persons to whom shares had been duly allotted. If Mr. Wright, knowing his case as a person who had been induced to take shares by misrepresentation, had accepted this mode of getting out, it surely could not have been held an effective election to treat the original allotment as fraudulent. accepted it without knowledge and without enquiry, and as no doubt he thought it effectual, he would probably have accepted it if he had possessed a full knowledge of the circumstances, and had had to choose between the acceptance of it and filing a bill. At any rate it lies on him to shew that a concluded election to have his allotment cancelled on the ground of misrepresentation was made before the 22nd of November, and if no such election was in fact made by him, and if his ignorance up to the 22nd of November does not help him (as it clearly does not), no inference arises, and it seems difficult to infer that an act which assumed on the face of it the allotment to

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have been properly made, or at any rate did not assume the contrary, was unwitting election to treat it as improperly made, because he may have thought, and probably did think, that it involved nearly the same result. The true view I think is that there was no election at all which would relieve Mr. Wright from his liability to be placed on the B. list, and that he was properly placed there.

The summons must, therefore, be dismissed, but as the case is one of difficulty and of considerable hardship on Mr. Wright, there will be no order as to

costs.

Mr. Wright appealed from this decision. Mr. Jessel, Mr. Karslake, and Mr. Everitt argued the case on behalf of the appellant.

Mr. Hardy and Mr. Higgins appeared for the respondents.

In addition to the cases referred to in the Court below, the following were cited and commented upon

Higgs' case, 2 Hem. & M. 657;

Small v. Attwood, 6 Cl. & F. 444 ;
Vining's case, 40 Law J. Rep. (N.S.)

Chanc. 3, 79; s. c. Law Rep. 6
Chanc. 96;

Dixon's case, 39 Law J. Rep. (N.S.)
Chanc. 134; s. c. Law Rep. 5
Chanc. 79.

There

THE LORD CHANCELLOR (without calling for a reply) :-The facts of this case are beyond dispute, and there is no contest at all about them. It is proposed that the company shall be a company with 100,000 shares, and it is represented that 80,000 shares have been taken and subscribed for. It is not necessary to go beyond that representation. It turns out, as far as that fact is concerned, that the representation was entirely untrue. were means taken to secure a subscription for 80,000, some certainly of a very singular character, but those means failing, the 80,000 shares were never in fact subscribed for, and when the parties went to the Stock Exchange to obtain a settling. day, the settling day was refused; and I think I must take it upon the evidence that it was refused because the committee of the Stock Exchange were not satisfied with regard to the allotment of shares.

They had good reason not to be, because there were some very singular and strange transactions not creditable to any of the parties by whom they were adopted.

In that state of circumstances Mr. Wright was clearly entitled, as soon as ever he ascertained this, to take proceed ings for avoiding the contract altogether, for according to Oakes v. Turquand (ubi supra) it was a voidable contract. It is plain from Mr. Wright's evidence that it was a material representation with regard to the object which he had in view. He says he believed the statement to be true that the 80,000 shares had been subscribed for, and if he had not so believed he would have repudiated the shares. His object was to have a settling day on the Stock Exchange, by which he should be at liberty to deal with the shares. The contract was a voidable contract, and could have been avoided by Mr. Wright had he taken the proper proceedings for so doing.

That being so, Mr. Wright is informed in May, the month in which he took the shares, that there had been a first refusal as to the settling day, because in the letter of the 6th of October he states that after two refusals he thinks the only course open to the directors of the company was to return the deposits and let the shares go. The circumstance that he knew the settling day was refused was calculated to excite suspicion, but I cannot say that as the representation was so distinct and positive as to the shares being subscribed for, it was such as to fix him with notice of the real state of the case. The first proceeding which Mr. Wright does take is, by writing the letter of the 6th of October, 1865. I quite agree that that letter does not reject the contract ab initio, but I think it does say that, in common fairness, he requires that the thing should be now put an end to, and that, whatever the consequences, the money should be returned. Some stress might be laid upon the words, "return the money." There might have been expenses incurred which would not authorise the return of the whole of the money, unless you suppose that the whole contract was at an end. I really read that letter as being no more than this: that he knows there is something wrong about

to

there being no settling day, two applications having been made and not having succeeded, and he says to the directors that he thinks, as honest men, after what has taken place, the proper course for them to take is to return the money the subscribers. Then the next thing he hears of is this: A general meeting of the company takes place, and that meeting, whether authorised so to do or not, passes a resolution, which I read only as a part of the communication made to Mr. Wright, and not as being either valid or otherwise, and that resolution is communicated to Mr. Wright in the letter of the 20th of October.

The state of things, therefore, was this: Mr. Wright was informed by the directors, for the letter comes from the secretary on behalf of the directors, that the directors had resolved to give him the option of having his allotment cancelled, and having his money paid back without interest upon the money being returned. Then what was his position? He had complained that the settling day had been refused; the directors knew that the refusal of the settling day was the point which he was strongly pressing, and they knew that that was brought about in consequence of the shares not having been subscribed for to the amount of 80,000, which they represented had been done. They were perfectly conscious of the objection which was raised by Mr. Wright, which arose from their fraud in issuing the prospectus, or in other words from there not being those 80,000 shares subscribed for, which they said had been done. There might have been other objections, but the directors being conscious of that, and Mr. Wright, a shareholder, complaining of the settlement not being granted, they answer him by telling him, "You shall have your money returned and your shares cancelled, only we will not allow interest if you choose to adopt that course." Upon that Mr. Wright says he accepts those terms. He takes back the money, gives the receipt, and returns the shares, and he is told that the allotment of his shares is to be cancelled, and in the books they are entered as cancelled, the entry which I must take prima facie to have been made

at the time at which it purports to have been made, bearing date the 2nd of November. It is said that the allotment is not to be regarded as cancelled ab initio, because of the interest not being paid; but I do not think that is so, because it is a mere matter of bargain. The directors say, "If you take any course hostilely against us, you may have to bear the costs of that, and the question you have to consider is whether you will agree to the terms on which we are willing to accede to your demands." He agrees to that, and he says, "If I am relieved from this allotment altogether I am satisfied to give up the interest, in consideration of getting rid of the concern at once." It is quite true that without a case of fraud against the directors he would not be entitled to a cancellation of the shares, but still that is what he bargains for if he can get it. Here I have the satisfaction, so far, of proceeding on the same ground as the Vice Chancellor. The Vice Chancellor says it was intended by both parties to put the shareholder in the same position as if he had never been on the register, and in that I entirely agree. The question is whether it could properly be done, and in this respect the case is singular. I take Mr. Wright not to have known of the full right which he had to have this done, but to have made a demand on the directors in honour and fair dealing to return him his money, he not knowing how much higher he could put his case; and they being perfectly conscious of the fraud they had committed in the representation which they made, at once gave him all that relief which, had he been informed of the facts, he could have demanded as a matter of right. Suppose, shortly before the winding up, he had discovered this higher right, would it be necessary for him to file his bill and put it in force, because the cancellation would not amount to a sufficient renunciation of the proceedings? The case of Ex parte Martin does not appear to me to have much bearing on the question. I apprehend the Vice Chancellor takes the correct view of the case, which is this: that Mr. Wright entirely on his part put an end to this contract, which was voidable only, and not void. It was undoubtedly

put an end to. The only argument which it appeared to my mind could be brought forward to bear against Mr. Wright, the appellant, was this: that if, as the Vice Chancellor seems to think, he had not cancelled this matter by a complete and full election, this result would remain— that had the thing turned out otherwise than it did; if the concern had by an amalgamation with the Bombay Company become a profitable enterprise, he would have had a right to say, "You had no power to annul the contract, unless I asserted my right to annul it on the ground of fraud, and therefore, as I did not assert that right on the ground of fraud, but only asserted it as a matter of honour, and took it from you on that ground--now, although on that lower ground I put my case and abandoned the contract, as far as I was concerned, by authorising you to enter in a book a notice that it was annulled as an allotment, and annulled ab initio by the return of the deposit, nevertheless I now claim to be a shareholder." Of course, if he could say that, the Court could not say the thing was put an end to.

The short point to which the difference between the Vice Chancellor and myself is reduced-and I have some hesitation in differing from him--is this: His Honour says, "At any rate, it is on him to shew that a concluded election to have his allotment cancelled on the ground of misrepresentation, was made before the 22nd of November." But I apprehend the real question is, Had he conclusively exercised his election to have the contract annulled? I think he had fully and completely exercised his election.

Then was this a contract which could be annulled? Was it a contract which was voidable, if not void? I think it was. The mind of all parties was that the contract should be annulled, and in that the Vice Chancellor agrees with me. The directors acted with full knowledge of the circumstances. They were ready and glad enough to annul this contract which they had improperly entered into, and which they knew must be annulled with costs in any proceedings against them. They agree with this gen. tleman to declare the contract annulled on their part, and he on his part accepts

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