HC Deb 11 June 1890 vol 345 cc607-28

As amended by the Standing Committee, considered.

(3.11.) SIR H. DAVEY (Stockton)

In the absence of my right hon. Friend the Member for Wolverhampton (Mr. H. H. Fowler), I beg to move the first Amendment standing in his name. That Amendment is to leave out from "time," in line 14, page 1, to "shall," in line 15. The result of the Amendment would be to leave out the words "and every person who has authorised or is responsible for the issue of the prospectus or notice." The House will observe that the clause proposes that where a prospectus or notice inviting persons to subscribe shares and so forth is issued, every person who is a director of the company at the time of the issue of the prospectus or notice, and every person named in the prospectus or notice, who has ever agreed to become a director, is liable for any loss occasioned by a misstatement. Further on the clause proposes to extend that liability to every person who has, however indirectly, authorised or made himself responsible for the issue of the prospectus. These words go far beyond the earlier part of the clause, and far beyond what I submit to the House is in accordance with sound principle. It may be that a director who undertakes to issue, or to make himself responsible, for a prospectus inviting subscriptions to shares, or debentures, or debenture stock should be liable for any mis-statement in the prospectus, but to say that every person who authorises the issue of such a prospectus should be liable seems to throw the net too wide. I can conceive many cases in which persons who have authorised the issue of a prospectus may not be in any way legally or morally responsible for the statements contained in it. There are bankers in the City of London who sometimes allow instalments of share moneys—payments on application or allotment—to be made to them on behalf of a company. It may be said they authorise the issue of the pros- pectus, and I think no one will venture to say that either morally or legally they ought to be made responsible for the truth of the statements contained in the prospectus.

Amendment proposed, in page 1, line 14, to leave out from the word "time," to the word "shall," in line 15.—(Sir Horace Davey.)

Question proposed, "That the words proposed to be left out stand part of the Bill."

(3.16.) MR. WARMINGTON (Monmouth, W.)

I hope my hon. Friend will not press this Amendment; indeed, I did not understand, from communication I had with the right hon. Gentleman the Member for Wolverhampton, that this Amendment was not to be proposed. Again, this matter was discussed before the Committee on Trade, and it was considered by that Committee that these words ought to be maintained. There are many cases which come before the Courts in which the person who is really responsible for a prospectus is neither a Director nor an officer of the company at all. Why should not a man be liable for that for which he is responsible? These words were inserted and retained by the Committee to meet the case of persons who, not being Directors or officers of the company, are yet responsible for the issue of a prospectus, and, in consequence, responsible also for the statements therein contained.

MR. BARING (London)

I hope these words will be retained. They were very well discussed by the Committee upstairs, and I do not think the instance of a banker who receives subscriptions or instalments will apply. If, however, a banker issued a prospectus it is desirable that he should be liable.

(3.20.) SIR J.LUBBOCK (London University)

I submit there is a great deal of difference between the words "authorised or" and "being responsible for" Almost every company which is formed in London or elsewhere has shares received by some banker, who, therefore, might be said to have authorised the issue of the prospectus. I think it would be a great injustice that any doubt should be allowed to remain on this point. My hon. and learned Friend has argued that if we confine it to Directors we may allow those who are really responsible to escape altogether. This is not merely a question of Directors. There are medical officers and others whose names cannot appear on a prospectus without authorisation. In this matter we are imposing a great penalty, and, therefore, we ought to be clear in the language we use. If we leave in the words "is responsible for the issue of the prospectus," we should really meet the whole case. There would be no reason then for throwing great responsibilities on persons who clearly ought not to be liable. I would suggest to the hon. and learned Member for Stockton that he should withdraw his Amendment, and move to leave out the words "authorised or."


I think the words had better stand as they are. I received only this morning a prospectus strongly urging me to take shares in a company. The person who issued that prospectus would not be responsible at all if these words were left out. I do not say these are the best words, but the clause can be re-cast elsewhere.

MR. LAWSON (St. Pancras, W.)

As a layman I should not like to express an opinion as to whether the suggestion of the right hon. Baronet the Member for the University of London is objectionable or not. Possibly the words "responsible or" might cover and include authorisation. Clearly, the case the right hon. Baronet quoted is not applicable. He spoke of a medical officer whose name appears on a prospectus. I imagine that a medical officer who is consulted cannot be considered to authorise the issue of the prospectus. But I object altogether to whittling away the purpose of this Bill. The truth is, it does not satisfy public opinion; it does not go far enough in protecting the public in these days where there is a very large promotion of joint stock enterprise.

(3.25.) MR. MOLLOY (King's Co., Birr)

Suppose the Directors of a company called a meeting of shareholders and asked for authority to issue Debenture Stock, and the shareholders gave authority, being ignorant of the real facts which alone were in the possession of the Directors, would the shareholders be responsible for any mis-statement? If so, that would be exceedingly hard. I do not think anybody wishes to make each individual shareholder, who is not responsible in one case out of a thousand, responsible for the action of the Directors.


Perhaps the House will allow mo to withdraw the Amendment, and move, as suggested by the right hon. Baronet the Member for the University of London, to leave out the words "authorised or."


I am bound to say I think the words "authorised or" are important, and ought to be retained. The words cover the main number of cases. They cover the cases where persons who are dealing with the prospectus of a company have given authority. I certainly do not think they include the cases of bankers to a company or medical officers. If a banker is a promoter, and has authorised the issue of the prospectus, I think the right hon. Baronet will admit he ought to be open to some liability. I suggest that the words had better stand. As to the point raised by the hon. and learned Gentleman the Member for King's County (Mr. Molloy), it will be seen that by a later clause the shareholders will have a defence.

Amendment, by leave, withdrawn.

Amendment proposed, in page 1, line 14, to leave out the words "has authorised or."—(Sir Horace Davey.)

Question proposed, "That the words proposed to be left out stand part of the Bill."

(3.30.) MR. R.T.REID (Dumfries,&C)

It appears to me that the words my hon. and learned Friend proposes to omit are the most valuable words in the clause. I fail to understand why any person should not answer for the words of a prospectus he has issued. The purpose of the Bill is to prevent constant swindles being perpetrated upon the public by promoters issuing documents upon which their names do not appear, and as regards which it is not easy to say who is and who is not in law responsible. If a man does it thoughtlessly, then the blame should attach to him for his want of care. I should like to see erected that standard on the subject which is contemplated in the Bill, that whosoever thinks proper to be a party to the issue of a prospectus should be made answerable for the statements in this prospectus. He may refrain from taking part in the issue, or he must take ordinary pains to see that what is contained in the statement is true.

(3.31.) MR. BRODIEHOARE (Hampstead)

It seems to me that the effect of the words might be to inflict great hardship upon bankers. Promoters bring out a prospectus and the banker authorises the use of his name, but he does not, and cannot, know anything of the truth of statements contained in the prospectus; he simply relying upon the respectability of a customer authorises the use of his name as banker; but with all deference to high legal authority, I think these words being left in the Bill might be interpreted as making the banker distinctly liable for statements in the prospectus of which he could know nothing.

(3.32.) SIR J. GOLDSMID (St. Paneras, S.)

These words were carefully considered in the Grand Committee, and I think it is obvious if you read the clause that each person is responsible for what he says or does on his own authority. The particular persons who authorise the issue of the prospectus are responsible, but the banker does not authorise it. All that the banker does is to undertake to perform the banking business for the company, and he is only responsible for allowing his name to appear on the prospectus as banker. I cannot see how any man can be injured in his banking capacity; he can only be affected if, in a directorial capacity, he authorises an improper prospectus. I stated upstairs, and I now repeat, we do not wish in any way to prevent legitimate employment of capital through the means of Joint Stock Companies; what we want is to prevent the illegitimate operations which do so much harm to legitimate enterprise. For this reason I support the retention of the words.

(3.33.) SIR R. N. BOWLER (London)

The name of the banker on the prospectus is merely an intimation that the account is kept at that bank, and all that the banker has to do is to satisfy himself that those who open the account are respectable people. There is much in the remarks of the lion, and learned Member for Dumfries with which I agree; but my fear is, that the effect of the Bill will be such that respectable men will be so alarmed at the possibilities that they will cease to lend their assistance as Directors, and the direction will be left in the hands of the unscrupulous.


The statements in regard to bankers not being responsible are satisfactory enough, but the Courts are in no way guided by what takes place in discussions in this House. As a matter of fact, bankers do authorise the issue of a prospectus on which their names appear; but the banker does not bring out the company, and he cannot be responsible for the statements in the prospectus. Yet I cannot help thinking that, taking the words in the common acceptation, anyone who has consented to act as banker might be said to have authorised and may be held responsible for the prospectus. I should like to ask my legal friends what is the distinction in meaning between the words "authorised or" and "responsible for"? We are all agreed that liability-should rest where the responsibility is, and surely that covers the whole case. Whom do we touch by the use of the word "authorise"? We do not want to make the banker responsible for the prospectus when he simply acts for the company in the ordinary way of business. But I cannot help fearing that the Courts might interpret the Act as meaning the banker, because it might be asked why a distinction should be made between a "person who has authorised" and a "person responsible" for the prospectus? I cannot help thinking that to carry out the object in view it would be wiser and safer to omit the words.

(3.36.) MR. TOMLINSON (Preston)

I really think the apprehension of bankers is unfounded. I cannot understand how the name of a banker appearing on the prospectus can make him responsible for the statements in the prospectus. Nor can I see how any Court can say the shareholders are liable for the consequences of an issue of stock, it is the duty of Directors to issue the prospectus, and to that duty attaches the responsibility for the statements they publish.

(3.37.) MR. LEA (Londonderry, S.)

I am not a lawyer; but it seems to me that the banker is not free from risk, although he only authorises the use of his name on the prospectus. But it is not an uncommon thing for bankers to assist the circulation of a prospectus, and so a banker might be held liable for the issue to a customer.

(3.38.) MR. MOLLOY

The hon. and learned Gentleman the Attorney General has spoken of the liability of shareholders, but whatever we may think on the subject has not the slightest importance in a Court of Law. If you look to Chancery decisions under another Act you will find that responsibility does attach to shareholders; and I apprehend that if a meeting of shareholders is called for the specific purpose of authorising the issue of a notice for the increase of stock, they are the authority for the issue. The Attorney General says the following clauses cover the point, but I have gone through the subsections and do not find where this is done. I do not want to press the matter, but I should be glad to know where it is that the action of shareholders is protected. It is easy to say that it is a legal opinion, but we have distinguished legal authorities taking opposite views. It is clear it is not the intention of the promoters of the Bill that shareholders shall be liable for the penalties, but it is also equally clear that if shareholders are called together for a specific purpose, and give authority to the Directors or somebody on their behalf, a secretary or accountant—then, in the terms of the Bill, they give authority for the issue of the notice. We are all agreed that is not the intention of the Bill, but why cannot some words be introduced to remove all doubt? I have very little faith in the uniformity of decisions of the Courts; they seem to me to differ as much as anything in this world can. To avoid these conflicting decisions I would suggest that some words might be added to clear up all doubts and prevent that which it is not intended by the promoters of this Bill should happen.

(3.40.) SIR H. DAVEY

If there be any distinction between the words "giving authority for the issue of a prospectus" and "being responsible for the issue," then I have no hesitation in expressing my opinion that the man who has given authority for the issue should not be liable to action. If the words "person authorised" add nothing to the intention, then they should not be inserted. I have listened with respect, as I always do, to everything that comes from the Attorney General and my hon. and learned Friend (Mr. Reid), but I cannot bring myself to agree in their opinion altogether. I am not prepared to say that a banker who has authorised the use of his name in some such manner as this—"such and such a bank is authorised to receive subscriptions for so many shares in such and such a company"—would not be held to have authorised the issue of the prospectus within the meaning of the clause. There may be danger of this, and I cannot conceive that it is the meaning or intention of the House that a banker in that position should be liable to an action for damages. Again, I do not think that any sufficient answer has been given to my hon. Friend below the Gangway, when he pointed out that shareholders authorise the action of Directors in issuing stock, and these shareholders might—I do not wish to go further — be held liable for damages under the clause. I can find nothing in the subsequent subsections which would relieve shareholders from that liability. It is clear that the words may hereafter have a meaning attached to them which is not the meaning and intention of the House, and I feel it my duty to go to a Division on the Amendment.


I think the words are most important, and that the words "has authorised" are better than "is responsible for." Really in these matters we are bound to give the Courts the credit of the exercise of common-sense. It is clear that the banker who places his name on a prospectus does so as indicating that he, in his ordinary way of business, receives money on account of the company. He does not issue the prospectus, nor do the persons to whom the prospectus is sent accept the statements therein as the statements of the banker.

(3.45.) MR. KELLY

The solicitor's name appears on the prospectus equally with the banker's name, and it is not feared that the solicitor will be liable. If it were otherwise, that body would be soon up in arms, as the solicitors must be in a worse position than the bankers, seeing that unlike the latter, they would have distinct knowledge of the statements in the prospectus, and necessarily so, as in many cases the solicitors actually draft them. The meaning is clear, I think; and I hope the words will not be omitted, for it may be that authority can be proved where responsibility cannot be proved.

(3.46.) MR. HALDANE (Haddington)

The words have a meaning of some kind, or they should not be inserted, and it is the duty of Parliament to supply the common-sense, not to trust to the Courts finding it out. There is a section in the Companies Act of 1867, as to which it has been said over and over again in a tone of pain by the Judges, that they can make neither head or tail of the meaning of the Legislature. It is a disputed question whether a promoter should have to declare his marriage settlement. Lord Bramwell on the last important case declined altogether the task of discovering the common-sense of the section. He declared that if Parliament did not make its meaning clear it was no business of his, and it would lead to confusion to attempt to bring out what the Legislature ought to have said. Owing to the loose drafting, the result is that nobody, not even the Judges, have anything like a clear knowledge of the law. What the meaning and distinction may be between "authorised" and "responsible for," I do not know, and I decline to rely on conjecture, and so I shall give my vote for the Amendment.


Will the Attorney General indicate the words which afford protection to shareholders?

(3.48.) SIR R. WEBSTER

The arguments which have been used have not altered the opinion I have already expressed. The words I referred to are to be found in the subsection which exempts from liability where there is reasonable ground for believing that the statements are true upon such examination as may be reasonably required. It is no part of the duty of shareholders to make themselves responsible for the language the Directors may use.

(3.49.) MR. BIDDULPH (Herefordshire, Ross)

Perhaps there would be a solution of the difficulty in a clause exempting from liability any person who authorises his name to appear as banker.

(3.49.) MR. ISAACSON (Tower Hamlets, Stepney)

High-sounding names upon a prospectus, as well as the statements therein, are held up as inducements to subscribers. It is against this the Bill seeks to guard the public, and I think it is undesirable to contract the security which the Bill now provides by limiting the liability.

(3.50.) MR.BRUNNER

Authorisation by shareholders is often very minute, and it is no uncommon thing for the actual words of a prospectus to be read to, and accepted by, the shareholders, so that they might be held responsible for every detail.

(3.51.) MR. SYDNEY GEDGE (Stockport)

Even where this does not occur, and in the course of a long experience I do not remember such an instance; it seems to me that the directors act as agents and representatives of the shareholders, and they may have no authority except such as is directly conferred by the shareholders. The shareholders, then, may be held to be the authority, and they can only get out of the liability by examining, for the purpose of verification, all the statements of the directors. Apart from this objection, the words are meaningless, or have a meaning one cannot find out.

(3.52.) SIR E. J. REED (Cardiff)

To strike out the words would, it seems to me, take away responsibility from those who derive immediate and large advantage from the floating of a company, and fix it upon the unfortunate directors, who receive nothing but a very small and, more or less, remote advantage. If a banker or a solicitor joins in authorising a prospectus, why should he escape all responsibility, he having been largely remunerated, while the directors may not have been remunerated at all for their work? Nothing is more common than for directors to work on for months without any remuneration, while banker, solicitor, and others receive immediate advantage from what they do. The Amendment would, it seems to me, relieve from responsibility those who receive the largest advantage from the transaction.

(4.0.) The House divided:—Ayes 193; Noes 132.—(Div. List, No. 130.)


The next Amendment raises a matter of considerable importance. I observed when the matter was before the Grand Committee upstairs that a man ought not to be made liable for an inaccurate or misleading statement, as it is indefinite.


Before that question is discussed I have an Amendment to line 17, to which I think there is no objection. I beg to propose it.

Amendment proposed, in Clause 3, page 1, line 17, to insert the words "on the faith of such Prospectus or Notice."—(Sir H. Davey.)

Question proposed, "That those words stand part of the Clause."

(4.14.) MR. LABOUCHERE (Northampton)

I think it is doubtful whether it is desirable to insert these words. Hon. Members must know that there have been cases in which persons have taken shares because some broker or some one else recommended them to do so, and not because of the contents of the prospectus. Why should the directors be made liable in such a case as that? I believe that if the Amendment is carried, a vast number of directors will be able to evade their responsibility through the inability of people to swear that they absolutely took the shares on the faith of the prospectus.

(4.15.) MR. ISAACSON

I remember a case in which a public company was issued with a subscribed capital of £1,000,000. The solicitor told me that only one shareholder had taken the trouble to go to his office to read over the prospectus and ascertain what the merits of the company were, and that gentleman, after reading the prospectus, said he would have nothing more to do with the matter. In a few months the company went into liquidation, and the shareholders lost their money. I think that this Amendment will protect the public. If the House only knew how many millions of money are lost through bogus companies, foisted on the country, owing to the specious statements contained in the prospectuses, it would see the value of this Bill. A company was attempted to be foisted on the public the other day; it was a gold company, but when the matter was carefully looked into, instead of the mine being rich in gold, it was proved that it was the very reverse, and scarcely any gold had ever been taken from it.

(4.18.) SIR R. WEBSTER

I think the words ought to be inserted, otherwise this will be the result—that persons who never have seen the prospectus will, on observing that a man who did subscribe on the faith of the prospectus has successfully brought an action, immediately go into Court, although they did not in the least rely on the prospectus.


Under the Bill no person will be able to recover any damage except that which is attributed to the statements in the prospectus. Question put, and agreed to.


I now move the next Amendment standing in my name. The words I propose to strike out are, in my opinion, too indefinite, and not sufficiently precise.

Amendment proposed, in page 1, line 18, to leave out the words "inaccurate or misleading," and insert the word "false."—(Sir Julian Goldsmid.)

Question proposed, "That the words 'inaccurate or misleading' stand part of the Bill."


I am willing to strike out the word "inaccurate" and substitute for it "untrue." "Misleading," however, covers ground which ought to be retained. There are many cases in which a prospectus is misleading by reason of what it does not say, but of what it does suggest. I think that the suppressio veri is as dangerous as the bare statement of that which is false. If the Amendment is limited, as I suggest, I shall be willing to accept it.


I will then divide the Amendment into two parts.

Amendment, by leave, withdrawn.

Amendment proposed, in page 1, line 18, leave out the word "inaccurate" and substitute the word "untrue."

Agreed to.


I now move to omit the words "or misleading." There are many statements which might be misleading to an unintelligent person, but which to an ordinary mind are by no means misleading. Something is required to qualify the word "misleading." If it is to be retained at all, it should be provided, for instance, that the statement complained of was materially misleading. I think, however, these words may well be omitted. If a statement is misleading in the sense that it is untrue, then that is provided for in the Bill by the word untrue which we have just inserted.

Amendment proposed, in page 1, line 18, to leave out the words "or misleading."—(Sir Julian Goldsmid.)

Question proposed, "That the words 'or misleading' stand part of the Bill."


This matter was very fully discussed in Grand Committee. In my opinion more harm is done by suppressi veri than by suggestio falsi, and I am afraid in these matters we must have regard not merely to the persons of superior intelligence, but also the persons of inferior intelli- gence, who are most likely to be entrapped by a prospectus that does not tell the whole truth. I hope the Committee will retain the word.

(4.25.) MR. E. ROBERTSON

I think that the word "misleading" has one grave defect—namely, that it does not describe a quality in the statement itself at all, but describes something about the man who made it. I shall vote for the exclusion of this dangerous word.

(4.26.) MR. BRADLAUGH (Northampton)

The words appear to me to be absolutely necessary, and I shall vote for their retention. I take it that, in deciding whether a statement was misleading, the question would be, not whether it misled the individual plaintiff but whether it was such as to mislead an average mind. I, therefore, disagree with the hon. Member who last spoke.

(4.27.) SIR H. DAVEY

"Misleading" is a vague word; the full meaning of it the House itself does not grasp. Speaking for myself I am absolutely unable to say what would be the meaning attached to the word by a Court of Law. Is it intended to mean "misleading in fact," or only "calculated to mislead?" It is a subjective word, having reference not to the person who uses certain language, but to the person to whom the language is addressed. This word is not required in order to meet the case of suppressio veri, for it has been decided in more than one case by the House of Lords that statements, though literally true, are in fact untrue, owing to their not conveying the whole truth. I suppose if the Government are in favour of these words they will be retained, but I warn the House that if the House retains this vague word it will be the cause of increased litigation.


I would appeal to the Government to allow this question to be determined on argument and reasoning by the votes of those who are qualified to give a decision by having heard the discussion. In the last Division the Government Whips sent into the "Aye" Lobby Members who had not heard the question argued, and I appeal to the Government not to pursue that course now, but to allow the question to be decided by those who have heard the arguments. I am a strong supporter of the Government, but I do not think it is necessary I should give them support in a matter of this kind.

(4.30.) MR. KIMBER (Wandsworth)

We have a definition of the expression "untruestatement," upon high authority, that it covers mis-statements of fact and omissions of material fact that convey a false impression. Every lawyer in the House knows that all our Courts of Law act on that definition. If the word misleading is added, the Courts, in construing the section, will attach some meaning to it, other than the meaning untrue. The hon. Member for Northampton speaks of the "average mind," but what is the average mind? As represented on the Jury and among the witnesses, it might be partly in one direction and partly in the other. Some witnesses would say they were not misled by a statement, while others would declare they were, and the latter would, however stupid, justify a verdict. The uncertainty of the words would, I am sure, lead to an enormous amount of litigation, and be of detriment to joint stock enterprise, by which so large a part of our mercantile and industrial business is now conducted.


We had this point under discussion in Committee, and the opinion I there expressed was that penalties enforced in Criminal Courts should be only for criminal actions. A man may with a perfectly honest intention put his name to a prospectus, in which a statement appears by which some individuals may be misled. I think the word "misleading," if unqualified, is too wide, but I would not object to directors being made responsible for anything that is intentionally misleading."

(4.32.) SIR R. WEBSTER

In reference to what has been said by my hon. Friend (Mr. Gedge) it will be observed that the House has only confirmed the opinion of the Committee, and in the Division I am not aware that any pressure was used by the Government to bring this about. As to the point before us, I do not think it is necessary to consider whether it is a "subjective" or "objective" case; my own opinion is that it refers to the statement, not to the person. I think the law with regard to directors' responsibility requires strengthening. Nine out of ten misleading statements in prospectuses will, no doubt, be cases of suppressio veri, and while I quite agree with the hon. Member for Stockton as to the decisions of the House of Lords as to the meaning of the word "untrue," that word will not cover all cases of suppyressio veri. The word "untrue" will merely make directors consider whether what is stated is true, without any consideration of whether all that ought to be stated is stated. I do not think that the retention of this word will impose on directors any additional responsibility that they ought not to bear.

(4.34.) MR. LAWSON

The question is, Does the House want to strengthen the law or not? If this word is struck out, and only false statements are touched, there is no reason for amending the law. Our object is to get at the men who, either carelessly or knowingly, allow their names to be put to misleading statements. There area number of gentlemen of rank and title who lend their names to companies, in the City of London, and pocket the fees as directors, without rally attending to the business of the undertakings with which they are connected, and it is desirable to make these guinea-pig directors responsible for statements which appear over their names. I hope the House will not be led away by tenderness for this class of financiers. The public expect protection from transactions that really amount to fraud. I hope the word "misleading" will be retained.

(4.35.) SIR E. J. REED

I would ask the House to consider the question whether, in the attempt to strike at one evil by the use of this word, they will not be inflicting a still greater evil. Suppose promoters sitting round a table, and considering the terms of a prospectus. It is quite possible for them to exhaust every means to ascertain if the statements set out are true, and the clause imposes upon them the obligation of testing the truth of each statement. But how can any man undertake that any particular statement shall not mislead anybody who reads it? In the attempt to defend the community against one evil you are about to inflict a vastly greater evil. I cannot imagine how any joint stock enterprise can proceed if the private fortune of every director is to be at stake in the event of some statement he could never know would be misleading being long years afterwards judged to be misleading. I do not think that is what the House intends. If you can find words to bring punishment home to men who make statements intentionally or recklessly misleading that will be justifiable. We none of us have any sympathy with the man who recklessly puts misleading statements before the public for his own advantage, but with a provision like this I think we may say good-by to legitimate joint stock enterprise.

(4.38.) MR. GROTRIAN (Hull, East)

There is force in what the hon. Member for Cardiff urges, but we must consider this clause in connection with Sub-sections A and B, and then I think it will be found that the standard is not at all too high, and the measure of responsibility to the directors not too great. Subsections A and B have so watered down, so diluted the responsibility that the Bill, if amended in the direction indicated, would be worth very little indeed. After all, what is the liability attaching to a director in regard to untrue or misleading statements? It is not very onerous, for if hon. Members will refer to the subsections I have mentioned they will see that he escapes liability for a misleading or untrue statement if he can show that he made reasonable examination and inquiry into the statement, and had reasonable ground for believing, and did believe, that the statement was true. If the statement is made on the authority of an expert, he has simply to show that it was a correct copy or extract of the Report of the expert. So, after all, the responsibility and liability of the director is very small, and if the word "misleading" is left out, that will so further dilute the Bill that there will be little strengthening of the law in it. I would urge the House to accept the words as they stand. The question was thoroughly thrashed out in Committee, and the conclusion arrived at was that the word was necessary.


I do not think the word "untrue" would cover all cases of suppressio veri. I would engage to write out a most enticing prospectus, with not a single word of untruth in it, and yet which, by its omissions, would give an utterly false impression of the actual state of facts to the person asked to take shares. For instance, suppose I want persons to take shares in a mine. A prospectus is issued, and a description is given. It is easy to put forward the opinion of an expert that there in an immense quantity of metal in the mine, and I may say nothing more. But it may be the mine is situated in a country where fever prevails to such an extent that you cannot get people to work the mine, or means of transit may be wanting, and cost of carriage immense, or to obtain labour may be impossible, except at un-remunerative rates, or the mine may be full of water, or there may be many other reasons why it cannot pay for the working. But all this would not be covered by the word "untrue," and these suppressio veri will remain untouched unless you retain the word "misleading," and the honest director is fully protected by the proviso.

(4.45.) MR. MURPHY (Dublin, St. Patrick's)

I hope the House will accept the Amendment on the authority of the hon. and learned Member for Stockport, who has indicated the dangers that may arise in continuing the clause by the Courts. I do not understand the Attorney General to defend the words; he only said the word "untrue" required strengthening.

(4.50.) The House divided: —Ayes 268; Noes 106.—(Div. List, No. 131.)

Amendment proposed, after the word "misleading," to insert the words, "by reason of the suppression of material facts."—(Sir Julian Goldsmid.)

Question proposed, "That those words be there inserted."

Amendment, by leave, withdrawn.


I beg to move, in Clause 3, line 19, to leave out "or in any Report or Memorandum incorporated therewith or referred to therein." The House will observe that these words make directors and other persons responsible for issuing in a prospectus not merely what they may say themselves, but anything said by anyone else in a Memorandum to any part of which they have referred. In making people liable for penal consequences it is important that you should confine yourself to that which they have done themselves and not that which has been done by other people. Surely we are straining the matter too far to say that persons issuing a prospectus shall be responsible for the whole of any document which is referred to therein. No doubt the law should be made stringent, but you should be careful, in doing that, not to overshoot the mark, and not to go beyond what you intend. I would ask the lion. Member in charge of the Bill what he thinks he will gain by including these words. No doubt it is desirable that in a prospectus as much information as possible should be conveyed, but if you issue words as vague as these, the statements in prospectuses will be confined within the narrowest limits, lest in referring to a Memorandum or document prepared by someone else, and giving valuable information, they might be made liable for statements not contained in the part referred to.

Amendment proposed, in page 1, line 19, to leave out the words "or in any Report or Memorandum incorporated therewith or referred to therein."—(Sir John Lubbock.)

Question proposed, "That the words proposed to be left out stand part of the Bill."

(5.12.) MR. BRUNNER

I desire to support the right hon. Gentleman the Member for the University of London, because it seems to me clear that if a Report or Memorandum is incorporated in a prospectus it is in the prospectus, and because a Report or Memorandum might even be referred to in terms of condemnation.


I hope the Grand Committee will be supported in this matter. It was mentioned to the Committee, and not contradicted, that the Reports and Memorandums referred to in the prospectuses are often the most misleading of the documents issued. It should be remembered that a director will only be responsible for statements either false to his own knowledge, or which he could, by the exercise of ordinary care, have discovered to be false.

(5.15.) SIR E. J. REED

I would point out that if a delegate is sent to a distant country to report on a variety of subjects, and if, on his return, the Directors of a company with whom he is not associated are to refer in their prospectus to any part of his Report, they will be hold responsible for any misstatements in the rest of that document. That, surely, is going too far.

(5.16.) MR. E. ROBURTSON

I would remind the hon. Gentleman that he has overlooked the effect of Sub-section B, which makes an important distinction between statements in prospectuses and statements in Reports. For the accuracy of a statement in a prospectus a Director is responsible, but for a statement in a Report he is not responsible. He is responsible for seeing that the Report of Valuation is made by the person whose name it bears, and that there is reasonable ground for believing, not that the statements are true, but that the Report has been made in good faith, and that the person making it was competent to do so.

(5.17.) SIR E. J. REED

There is a large protection in those words, and, under the circumstances, I will not press my argument. I am not like some hon. and learned Members—so expert in dealing with Acts of Parliament as to be able to say a thing in one line and unsay it in another.

(5.18.) SIR J. LUBBOCK

I am aware of the words referred to, but they deal with statements made in the prospectus. My Amendment deals with statements not made in the prospectus, but contained in a document only referred to in it.


I am surprised to hear the right hon. Baronet supporting the Amendment by this argument. It is clear it is bad to circulate statements in a paper circulated with, though not part of that prospectus. The clause must remain as it stands, unless you wish to make it valueless.

(5.19.) MR. MURPHY

Many matters may be referred to in a prospectus which really are not part of the prospectus but yet impart valuable information. You would make a Director liable to penalties if any statement of this kind should be unintentionally misleading.

(5.19.) SIR H. DAVEY

I have never heard of statements that ought to be in the body of a prospectus being put into a Report or Memorandum. Of course, where that takes place such statements should be treated as having been made by the person who issues the prospectus. I again say that the Courts are strong enough to deal with such cases. They would deal with Reports and Memoranda of this kind exactly on the same footing as the body of the prospectus. I think, however, that this argument is misleading, for a Report or other document may be referred to in a prospectus without being incorporated therein, and for that reference a Director would be liable, if there were any inaccuracy in the document. I am told that this proviso would protect the Director, but that only refers to the Valuation Reports of the experts. Documents may be referred to that are neither Reports nor valuations by experts, and in reference to these it is necessary that protection should be given. Sub-section "A" refers to any incorrect or misleading statement of fact not purporting to be made on authority. Is it intended that if a statement is made by somebody else, and merely referred to in the prospectus issued by me, I am to be liable if the statement is untrue?

(5.24.) SIR R. WEBSTER

It is a very common thing to send out with a prospectus papers or Reports which are intended to contain information, but which are not actually part of the prospectus itself. It seems to me that no harm could be done by leaving these words in the clause. Supposing Reports or Memoranda referred to in the prospectus to contain statements of fact, we think that the person held responsible for them ought to make the same inquiry with regard to them as with regard to the prospectus itself.


If the Government will consider the point, I shall be willing to withdraw the Amendment.

Amendment, by leave, withdrawn.

Another Amendment made.

Amendment proposed, in page 1, line 22, to leave out the words "of fact."—{Mr. Edmund Robertson)

Question proposed, "That the words 'of fact' stand part of the Bill."


The Committee considered this point carefully, and came to the conclusion that these words should remain in.


The clause must run on all fours: in the previous part the words are "untrue or misleading statements," without the words "of fact." Therefore, if you insert those words in the latter part, there will be nothing to which the word "such" will refer, and the clause will be hardly grammatical.


I think the clause had better remain as it is.


I beg to move that this Debate be now adjourned. It is impossible to complete the discussion in the time at our disposal.


The lion. Member has spoken already, and therefore cannot make that Motion.


I beg to move the adjournment of the Debate.

(5.30.) MR. SPEAKER

It is adjourned by the clock.

It being half an hour after Five of the clock, the Debate stood adjourned.

Debate to be resumed upon Wednesday next.