Scott v Brown
| Jurisdiction | England & Wales |
| Judgment Date | 1892 |
| Date | 1892 |
| Court | Court of Appeal |
Illegality - Stock Exchange - Contract for Purchase of Shares - Agreement to buy Shares at a fictitious Premium - Rigging the Market - Conspiracy - Action to recover Money paid on Purchase.
An agreement between two or more to purchase shares in a company in order to induce persons who might thereafter purchase shares in such company to believe, contrary to the fact, that there wad a bonâ fide market for its shares, and that the shares were at a real premium, is an illegal transaction and may be made the subject of an indictment for conspiracy, and no action can be maintained in respect of such agreement or purchase of shares.
The plaintiff brought an action against the defendants who were stockbrokers, through whom he had purchased shares in a projected company, to obtain rescission of the contract for the purchase of such shares, and to recover back the purchase-money which he had paid in respect of them to the defendants, on the ground that the defendants, while acting ad the plaintiff's brokers, had delivered their own shares to him instead of purchasing them upon the Stock Exchange. At the trial it appeared upon the plaintiff's own case that the money sought to be recovered had been paid by the plaintiff in pursuance of an agreement between him and one of the defendants by which such defendant was with the money to purchase upon the Stock Exchange a number of shares in the projected company at a premium with the sole object of inducing the public to believe that there was a real market for the shared and that they were at a real premium, which, in fact, as the plaintiffs and defendants well knew, they were not:—
Held, that the action was based upon an illegal contract, and could not be maintained.
APPLICATIONS for new trial.
These consolidated actions were tried before Wright, J., and a special jury at the Guildhall, on May 6 and 7, 1892.
At the trial, it appeared that Messrs. Brown, Doering & McNab, the defendants in both actions, were members of the London Stock Exchange, carrying on business in partnership together; and in December, 1890, they were brokers to a company called the Steam Loop Company, Limited. That company had issued a prospectus inviting subscriptions for its share capital, and the defendants had previously to such issue underwritten a part of the share capital of the company and were holders of a considerable number of its shares. Mr. Dugald Scott, the plaintiff in the first action, was a promoter of the company and interested in it, in the expectation that his brother, who was an engineer, would be appointed one of its agents. Messrs. Slaughter & May, the plaintiffs in the second action, were the solicitors of the company, and also the solicitors of Mr. Scott. Mr. Gillespie, whose name is hereinafter mentioned, was one of the principal promoters of the company. The plaintiffs in both actions had instructed the defendants, Messrs. Brown, Doering & McNab, to purchase shares for them respectively in the company, and had duly paid for such shares. The plaintiffs in both actions sought to recover the price paid for such shares from the defendants, on the ground, among others, that instead of purchasing shares for them in the ordinary way, the defendants had transferred to the plaintiffs the defendants' own shares.
The plaintiffs in both actions relied upon a contract contained in certain letters and telegrams passing between the plaintiffs and the defendants between the 6th and 9th of December, 1890. On December 6, 1890, the following telegrams passed:— McNab to Scott. — “Should advise you to get 5000 done by Trust Company Steam Loop.” McNab to Scott. — “Must have positive order from you to buy at least 500 Loop shares in market on Monday, to start market on. Gillespie and Jack doing this on understanding that you do so. This necessary to insure public application and to start market. Reply.” McNab to Scott. — “Unless have telegram agreeing to my former wire as to market in shares, I must withdraw from this business.” McNab to Scott. — “You must agree, otherwise I drop the whole thing, as without it advertisements wasted and no public application; also no market in shares. Waiting reply.” Scott to Slaughter. — “McNab wires me I must give him positive order buy 500 Loop shares in market on Monday start market. Gillespie and Jack doing same condition I do. Wired no. McNab replies must, otherwise he will drop whole business. I reply by writing him to-night. Wire what you advise.” Slaughter to Scott. — “Have agreed with McNab that the 500 Gillespie owed us may be applied market purposes. Think additional support needed. Written you fully to-night.” Scott to Slaughter. — “Am quite agreeable to what you have arranged with McNab.” On the same day McNab wrote to Scott a letter which, so far as is material, was as follows:—
“As I wired you to-day, it is an absolute necessity that somebody sends orders to buy Steam Loop in the market, otherwise who is going to start the market? Slaughter and myself are going 500 shares, Gillespie 500, Burnham 100, Jack 200, and honestly you ought to go at least 500. There is no risk in the matter. We have absolutely 47,000l. underwritten, and whatever the public come in for will help the market. Then, again, unless we can get a quotation into the papers, saying the shares are at a premium, on Monday, we will never get the public on. This we can manage with practically no risk to ourselves if we combine and absolutely buy the shares. If we do not do it, the money spent on advertisements is simply thrown away …. If I am to go on at all I must know that some one is going to back me up in at least starting the market in the shares. If it is not done I must give up the whole business, as otherwise I will be nothing more than a fool in this business. It is a vital point, and, whatever you write me to-night, please understand that it has to be done, and I must have orders on Monday from some one in Manchester to start the market on …. Do give this matter your assent, and wire me early on Monday that you are good for a purchase of at least 500 shares in the market. You must excuse my having written and wired so strongly about this, but it is an absolute necessity that it has to be done. You have only to ask any one about new companies if it is not a necessity. Awaiting your reply on Monday morning.”
On December 7, 1890, Scott wrote in reply to Slaughter:—
“As I wired you last night, I am quite agreeable that the 500l. you, McNab, and I lent Gillespie shall be used to make a market, on condition that...
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