Macauliffe vs Wilson

Richard Couch, JJ. 1. The appellant in this case became a shareholder in the Himalaya Bank in 1886, several years before the transactions which are the subject of this appeal. The respondent had become a director of the bank in 1885, and continued to be one until it stopped payment on July 8, 1891, and went into liquidation. On May 16, 1893, the appellant brought a suit against the respondent, alleging in his plaint that the respondent strongly advised him to buy shares in the bank as a good investment, and said the bank had a large reserve fund, was on a thoroughly sound footing, and that the directors had declared and paid the usual dividend of 10 per cent.; that the respondent had been for years a director of the bank, and for years, certainly since 1887, had issued or permitted the issue of false half-yearly reports, and had issued false balance-sheets that alleged the existence of a reserve fund of Rs. 70,000 in 1885, and that every half-year the sum of Rs. 5000 had been added to the reserve fund, whereas no reserve fund ever existed; that the balance-sheets purported to show that each half-year a profit of about 19 per cent, on the capital had been made, whereas no profit had been made; that in July, 1890, the respondent issued a balance-sheet, and subsequently issued a directors'' report, both of which he knew to be false; that on August 28, 1890, the appellant, on the faith of the false statements of the respondent, made both as a director and as a private individual, was induced to purchase 100 shares, for which he paid Rs. 11,000 on September 10, 1890; that on October 31, 1800, the false report and balance-sheet for the half-year ending June 30, 1890, was laid before the shareholders, and the ad interim dividend of 10 per cent, declared and paid on August 1, 1890, was on that day confirmed, the respondent using the appellant''s proxy for that purpose; that, about the end of November, 1890, by reason of the false representations made by the respondent, the appellant was induced to purchase forty-seven more shares, for which he paid Rs. 5170 on or about November 27, 1890. The respondent pleaded that he did not induce the appellant to make the purchases, and did not make any false statement or misrepresentation. The suit was heard by the Subordinate Judge of Dehra-Dun, who, on July 31, 1893, made a decree in favour of the appellant. On appeal to the High Court for the North Western Provinces this decree was reversed and the suit was dismissed. Although the Courts differed in the result, they were agreed as to some of the facts in the case, and as their Lordships will treat concurrent findings of fact as binding upon the parties, it is unnecessary to consider the evidence which is only applicable to them. Both Courts have found that the balance-sheets issued since 1887 were false. But they agree that the respondent is not responsible for them. The High Court says there is not sufficient evidence to show that the balance-sheets issued previous to that of 1890 were false to his knowledge. The Subordinate Judge found expressly that he was not responsible for those balance-sheets. They were prepared by Moss, the manager of the bank, who was absent in Australia when that for the half-year ending on June 30, 1890, was prepared. It was indeed admitted by Mr. Mayne, who appeared for the appellant, that previous to April, 1890, the directors were acting upon representations made to them by Moss. The important part of the case is the issuing the balance-sheet and report for the last half-year, and declaring and paying the dividend on August 1. Both Courts have found that the verbal representations alleged to have been made by the respondent were not proved. The evidence of the appellant of these representations has not been believed by either of the Courts. The case of the appellant must, therefore, rest upon what was done after April, 1890. 2. It appears in the minutes of a meeting of the directors of the bank on July 10, 1890, of which the respondent was chairman, that the directors had gone through the accounts of the bank, and that the state of its affairs had become known to them. In the minutes of a meeting on the 16th of the same month, the respondent being the chairman, it is stated that "the half-yearly balance-sheet ending June 30, 1890, having been duly approved of, it was decided to declare the usual ad interim dividend of 10 per cent, per annum, and that the usual notice be inserted in the newspapers." And both Courts have found that the respondent knew that balance-sheet to be false. 3. With regard to the 100 shares bought on September 10, 1890, the material question is whether the appellant in buying them was acting upon a representation contained in the balance-sheet ending on June 30, 1890, or made by the declaration of the ad interim dividend, and was thereby induced to buy those shares: Barry v. Crosskey 2 J. & H. 23; Peek v. Gurney. L.R. 6 H.L. 412. The appellant was examined as a witness in support of his case, and, in considering the value of his evidence, it should be observed that, as regards the verbal representations said to have been made by the respondent, neither of the Courts below has believed his evidence. He said: "On 10th September I bought 100 shares at Rs. 110 each. I produce the scrip. I subsequently bought more scrip in the end of November-47 shares at the same price from the defendant. The scrip is in the possession of the Mussoorie Bank. In purchasing these I was influenced by the considerations mentioned before, by the half-yearly report for the half-year ending 30th June, 1890, Exhibit B, dated 31st October, 1890." In cross-examination, being questioned as to a letter of his to the respondent of September 17, 1891, in which he said, "You signed the directors'' report for the half-year ending 30th June, 1890, declaring a dividend at the rate of 10 per cent, per annum, and stating that the net profits were Rs. 19� per cent, and a fraction. By this report the public were deceived as to the state of the banks, and I myself was led to buy 147 more shares from you." And asked why he was led by the balance-sheet of June 30, 1890, to purchase 147 shares, he answered, "The No. 147 was a mistake for 47, and the mistake of writing 147 was a clerical error.... The balance-sheet of 30th June, 1890, did not influence me in buying the shares." In the printed record before their Lordships there is between the words "the," and "shares" the words (paper torn). It is not necessary to quote the whole of his evidence on this matter, In their Lordships'' opinion the effect of it is that he was not induced to purchase the 100 shares by the balance-sheet of June 30, 1890, or the declaration of the ad interim dividend. 4. As to the forty-seven shares the case is different. The evidence relating to that purchase is mainly documentary. It appears in the appellant''s deposition that before September 8, 1890, there had been a negotiation for the purchase of the 100 shares, and on that day the appellant wrote to the respondent: "I have sold those 100 shares to Wright & Co., and they pay transfer charges, and I have also sold 200 other shares to our friend at Sialkot, so if Moss "(the manager of the bank)" will lend me Rs. 10,000 we can do a large business," On October 3 he wrote another letter to the respondent in which, after speaking about the payment for the 100 shares, he said, "I suppose Mr. Moss has returned by this. Have you asked him at what rate he can lend me money-say Rs. 5000? If he lend it at 8 per cent. I will buy 46 more shares in the Himalaya Bank from you at the same price." On November 20 he wrote to the respondent, "I do not understand that I only receive dividends on the 47 shares from the 1st of January, 1891. It is only two months since I bought the 100 shares from you without any such understanding, and as the dividends for the current half-year will not be paid till March or April I cannot consent to any such condition of the purchase of the 47 shares as you now propose, nor should I have gone to so much trouble in raising a loan for their purchase if you had said that was what you meant. I explained to you that I could only buy Himalaya shares on favourable terms. The bank has now a very bad name, as evidenced by the large extra security required by the Mussorie Bank and by other indications also." 5. He does not notice the half-yearly balance-sheet, which he said in his deposition he received in October, or the ad interim dividend, as having induced him to buy the shares. And on November 27 he wrote, "You state that I am to draw dividends for the current half-year, so the matter is settled between us." 6. A more important letter is one which the appellant wrote to the respondent on March 11, 1891. It is as follows:

Dear Wilson,-What are the strange rumours which I hear again respecting the Himalaya Bank? I heard things against it last year, but they were denied by you and the other directors, and so I myself was led not to believe them. At the same time you sold me a large number of shares at less than the market price. Capital has, I am told, a very damaging paragraph against the Himalaya Bank, in which it is stated that its paper is being hawked about in the streets of Calcutta. I do not know what all this means. Of course I knew very well last year that the bank had become exceedingly unpopular, and had lost numerous constituents under Mr. Greenway''s management, but I was hoping that it would come round after Mr. Moss'' return. Banks generally go to grief and indeed can only go to grief either by speculation or by large bad debts. Now I do not think that there is anybody robbing the Himalaya Bank, and its operations being necessarily on a small scale I have not heard nor can I conceive that it has had any serious losses, and I do not understand the rumours I hear except in so far as that the bank''s business is not good at present. I would request the favour of your enlightening me and giving me your advice as to whether I ought to sell out, and if so at what rate? You were quite right in selling, and I cannot blame you if the worst comes to the worst; but I think you ought to give me your candid advice now that matters appear to have become serious. 7. This letter is not consistent with the appellant having been induced to buy either the 100 or the forty-seven shares by the half-yearly balance-sheet of June, 1890, or the publication of the ad interim dividend. Their Lordships think that if he had been so induced there would have been some allusion in it to them. 8. It has been seen that his evidence about the verbal representation was not believed by the Courts below, and their Lordships cannot consider his evidence where he says that in purchasing the forty-seven shares he was influenced by the half-yearly report dated October, 31, 1890, as sufficient proof of it, or infer it from his knowledge of the reports. In their opinion he has failed to prove that in buying the shares he acted upon or was induced by any false representation for which the respondent is liable, and they will humbly advise Her Majesty to affirm the decree of the High Court and dismiss the appeal. The costs of it will be paid by the appellant.