COURT OF APPEAL

Otago Daily Times, Issue 21640, 10 May 1932, Page 2

COURT OF APPEAL

RESCISSION OF CONTRACT (Per United Press Association.) WELLINGTON, May 9. The Appeal Court gave judgment in three appeals in the General Mortgage Corporation v. Gibbs, Harley, and Duke. As the result of the judgment of the Court of Appeal in the three appeals, which were heard together on March 17 and 18 last, the judgment of Mr Justice MacGregor, the trial judge, delivered last year in favour of Gibbs, Harley, and Duke, the then plaintiffs, was upheld, and the company’s appeal was dismissed. The Chief Justice (Mr Justice Myers),, whose judgment was ■in favour of the appeal being allowed, held that, as regard Gibbs and Harley, the period of delay between their acquiring knowledge of the falsity of the representations made to them by the company’s agents and the dates when they respectively commenced legal proceedings was too long, and that they were disentitled from avoiding their contracts, particularly having regard to the fact that the rights of third parties had intervened—namely, the rights of a very large number of persons who subscribed for preference shares in the company. Furthermore, in his opinion, respondents (Gibb and others), quite apart from the question of delay, were stopped from setting up a case for rescission, which, if successful, would give them rights in priority to the intervening rights of preference shareholders, to the creation of which intervening rights they were active parties. His Honor said that if people allowed their names to be used as decoys to induce others to take up shares, as respondents did by allowing themselves to be made members of the local Advisory Board, and were so careless as not to see that their own position was truly represented, they could not complain of this result. On this aspect of the case there could be no differentiation between Duke and the other two respondents.

Mr Justice Herdman, who agreed with the Chief Justice that the appeal should be allowed, held that there had been , a delay on the part of respondents which disentitled them to rescind; and, in addition, circumstances had arisen which would render it unjust to innocent third parties to grant rescission. On the other hand, Mr Justice Blair, who was supported by a similar judgment by Mr Justice Kennedy, held that the appeal should be dismissed. He said he was unable to find any waiver on the part of Gibbs. A waiver could only arise after knowledge of falsity of representation reaching the objecting shareholder, and there was in the case before the court no evidence on Gibbs's part of knowledge in relation to the two grounds of misrepresentation relied on. Gibbs’s case, if a waiver had been established, was stronger against him on the facts thau the other two, so that it followed that if a waiver could not be established in that case it could not be in the other two. His Honor also held that the fact that the three respondents had allowed themselves to be made members of the local Advisory Board, which may have induced innocent people to subscribe for shares in the company, did not disentitle them to rescind.

As the court was equally divided, the judgment of the Supreme Court stands. No order was made as to costs.

The Court of Appeal heard three appeals from Nelson. In each case the General Mortgage Corporation, Ltd., was the appellant, and the respondents were: Sidney Alfred, Gibbs, of Nelson, medical practitioner: Harold Leon Harley, of Nelson, solicitor; and Charles Robert Duke, of Nelson, architect. The appeals were heard together. Gibbs, Harley, and Duke each filed in the Supreme Court at Nelson last year writs against the appellant, claiming that they had each applied for and had been allotted 1000 £ 1 shares in the appellant company, relying on the representations of one, Mackessack, whom they alleged to be an agent of the company. The representations were false, and were known to Mackessack to be so. They applied to the company to have their names removed from the share register and the moneys paid by them on application or allotment repaid to them. They also claimed rescission of the contract to, take shares, rectification of the share register, and a refund of the moneys paid. Various grounds of defence were pleaded by the company, but by the time the cases came up for trial at Wellington before Mr Justice MacGregor in September last two affirmative defences only remained open to the company: That the present respondents, in view of the fact that they had been appointed members of the company’s Local Advisory _ Board in Nelson, at no time had any right of rescission, and that if that right ever existed it had been lost in each case by failure to repudiate within reasonable time. His Honor ruled against the company on both defences, and gave judgment in each case for respondents in the relief claimed. , Appeals were brought from those decisions.