Broome v. Shepheard and Another [1904] UKHL 476 (17 May 1904)

Broome v. Shepheard and Another [1904] UKHL 476 (17 May 1904)

Directors are strictly liable under the Directors' Liability Act 1890 and Companies Act 1867, section 38, for omission of material contracts in a prospectus, even if acting in good faith and on legal advice, as the statute deems such omission fraudulent and imposes liability for damages to shareholders who subscribed on the faith of the prospectus.

Citation
[1904] UKHL 476
Parties
Plaintiff/respondent: Joseph Broome; Defendants/appellants: Shepheard and Another
Jurisdiction
United Kingdom
Judgment Date
17 May 1904
Procedural Posture
Appeal (civil) / Final Appellate Decision (house of Lords)
Outcome
Appeal dismissed; judgment for plaintiff/respondent affirmed.
Legal Topics
Directors' Liability, Prospectus Misstatement, Material Omission, Statutory Fraud, Damages for Misrepresentation
Company Law Securities Law Directors' Liability Prospectus Misstatement Material Omission Statutory Fraud Damages for Misrepresentation

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Parties

Joseph Broome

Plaintiff/respondent

Shepheard and Another

Defendants/appellants

Procedural Posture

Appeal (civil) / Final Appellate Decision (house of Lords)

Legal Issues

  1. 1 Whether directors are liable for omission of material contracts in a prospectus under the Directors' Liability Act 1890 and Companies Act 1867, section 38, even if acting in good faith and on legal advice.
  2. 2 Whether the omission renders the prospectus 'fraudulent' by statute, regardless of actual fraud.

Ratio Decidendi

Directors are strictly liable under the Directors' Liability Act 1890 and Companies Act 1867, section 38, for omission of material contracts in a prospectus, even if acting in good faith and on legal advice, as the statute deems such omission fraudulent and imposes liability for damages to shareholders who subscribed on the faith of the prospectus.

Court Disposition

Appeal dismissed; judgment for plaintiff/respondent affirmed.

Orders

  • Inquiry as to damages sustained by the plaintiff to proceed.
  • Defendants to pay costs.