LONG HEARING ENDED

Taranaki Daily News, 27 November 1934, Page 10

LONG HEARING ENDED

THE WHITE ISLAND CASE SULPHUR COMPANY SHARES. MISREPRESENTATION PROVED. -London, Oct. 18. Mr. Justice Crossman delivered a long judgment in the Chancery Division yesterday in a case relating to a company formed to obtain sulphur and guano from White Island, New Zealand. Correspondence in the case totalled 4000 pages, and transcripts of the shorthand notes ran into a million words. The case was heard between May 15 and July 31 of this year, and occupied 36 days. Tire two actions, which were tried together, were by Mr. John Goodenday and Mr. David Kerman against the New Zealand Sulphur Company. Plaintiffs claimed rescission of contracts to subscribe for shares in the company, on the ground that they were induced to enter into the agreements by misrepresentations and non-disclosure of material facts by certain persons on behalf of the defendant company. The latter denied the allegations and pleaded that if they were made it was without the company’s knowledge, authority or consent. The company further pleaded that the plaintiffs were debarred by delay and acquiescence from obtaining the relief they claimed. HISTORY OF THE COMPANY. Mr. Justice Crossman said the company was formed to acquire the interests of a New Zealand company at White Island; which was said to contain large and valuable deposits of sulphur and guano. In the autumn of 1927 Major Archibald Mercer, then a director of the company, approached Mr. Kerman with a view to finance for the company. Mr. Kerman referred him to Mr. Goodenday, and in the end both plaintiffs agreed to take up shares in the company and were elected directors. They advanced £14,531 to the company to enable the agreement for the purchase of the interests of the New Zealand company to be carried out. Mr. Goodenday agreed to take up 45,000 £1 preference shares and a large number of ordinary shares, bn behalf of himself and Mr. Kerman, and the agreement stated that the applications for shares were made on the terms of prospectus proof No. 3. The document, said the judge, contained statements that it was estimated that there were over 2,000,000 tons of valuable sulphur ore, besides 1,000,000 tons of fertiliser, on the island, and that there was the only deposit of highgrade sulphur ore in the British Empire. A copy of this proof was sent to Mr. Oliver Nicholson, chairman of tho board of the New Zealand company, and he replied that the board was astonished at some of the statements made, which were not in accordance with the facts. There was no evidence, Mr. Nicholson had said, of 2,000,000 tons of high-grade sulphur ore, the figures being purely a guess. EXPERT’S INVESTIGATIONS. Following this, Mr. David Gilmour, a well-known mining engineer, was sent by the company to White Island to make investigations, and on November 5, 1930, he sent a cable stating that the island was incapable of producing payable quantities of sulphur. The indications were of diminishing supplies. He added: “You cannot make a mistake in abandoning enterprise and recommending shareholders immediate voluntary liquidation.” The defendant’s case was that the plaintiffs did not rely on the representations in the prospectus proof, and that they lost their right to relief by reason of delay and acquiescence. According to the true construction of the subscription agreement, the truth of the representations in the prospectus was made the basis of the agreement.

The judge had found it necessary to find what was the state of mind of the plaintiffs in regard to the representations and the statements of Mr. Nicholson and Mr. Gilmour, and for that purpose he had had to go through 4000 pages of correspondence more than once. He came to the conclusion that there was no ground for the attack on the trustworthiness of the evidence of Mr. Goodenday. Looking at the matter as a whole, he thought v the explanation of the conduct of the plaintiffs was. that in the early part of 1928 they came completely under the domination of Major Mercer and Mr. G. H. Bower—the latter was now dead—and that the truth of the representations made was so firmly established in their minds that it was never shaken until the receipt of Mr. Gilmour’s cable. It was decided by the judge that the plaintiffs were entitled to the relief they claimed. He made a declaration that Mr. Goodenday was induced to take up 17,693 preference and 87,000 ordinary shares in tire defendant company by misrepresentation. He ordered the agreement to be rescinded, repayment of the sum paid for the shares and rectification of the share register. But Mr. Goodenday must pay the calls on 307 preference shares. In the case of Mr. Kerman, the judge made a similar declaration as to 22,500 preference and 94,844 ordinary shares, rescission, repayment and rectification. The defendant company must pay the costs of the action.