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tdlawyer
tdlawyer, Lawyer
Category: Law
Satisfied Customers: 1096
Experience:  11 years experience of general practice.
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I purchase shares in a public company by way of a prospectus,

Customer Question

I purchase shares in a public company by way of a prospectus, and pay the subscription price.

I subsequently discover that the company has never created these shares, although some dividends have been paid.

Does this constitute a breach of contract law, and am I entitled to demand my subscription monies back, (maybe less dividends received) ?
Submitted: 3 years ago.
Category: Law
Expert:  tdlawyer replied 3 years ago.

tdlawyer :

Hi, thanks for your question.

tdlawyer :

My name isXXXXX can assist with this.

tdlawyer :

Has the company tried to sell you shares which do not exist?

Customer:

Yes

Customer:

They didn't just try; they did sell me the shares.

tdlawyer :

And the shares didn't exist?

Customer:

No, the shares never existed.

tdlawyer :

Okay, then you can't be sold something that never existed. There are cases on this type of thing: McRae -v- Commonwealth Disposals Commission. Basically, there is likely to be what lawyers call a complete failure of consideration, i.e. the underlying thing you intended to buy and which the company intended to sell never existed.

tdlawyer :

As such, you would be entitled to your money back.

Customer:

OK, as usual the actual situation is a bit more complex:-

tdlawyer :

Okay.

Customer:

It is a Guernsey company, and the directors attempted to create the shares by way of a special resolution. However, they neglected to file this Special Resolution with the Guernsey Registry. According to Guernsey Companies law, if a special resolution is not filed within 21 days, then it becomes void ab initio. Hence the shares were never created!

tdlawyer :

If it's void ab initio, then it's as though it never happened, and my comments remain valid.

tdlawyer :

I'm no expert on Guernsey law though, but I'll take your word for the effects of their failure to file the resolution.

Customer:

The company could plead that the failure to file was due to a clerical error .... maybe by the Guernsey Registry thenselves. However, I have discovered that the company failed to file a total of 3 special resolutions over a 3 year period, so that makes it had to plead. To paraphrase Oscar Wilde's Lady Bracknell "To misplace one special resolution may be regarded as a clerical error, but to misplace 3 is sheer negligence"

tdlawyer :

Motive is irrelevant (normally) in contract law. The point is, the thing you tried to buy doesn't exist. it doesn't matter why that's the case.

Customer:

What would be my remedy in the normal course of events?

tdlawyer :

You're remedy would be to obtain a refund of money paid to them.

tdlawyer :

For the shares that dont exist.

Customer:

Sounds good. There must be many hundreds of other subscribers, because more than 500,000,000 pounds were invested. So maybe a group action using DBAs?

tdlawyer :

That's entirely possible, yes. What type of company is this out of interest?

Customer:

Property investment company!!!

tdlawyer :

Ah, okay. There are a few of this type around it seems at the moment.

Customer:

They also did some very fishy property deals. Like selling one of their portfolio properties for £3,800,00 to XYZ Ltd, who then resold it 4 working days later for £4,200,000.

tdlawyer :

Hmmm... that does sound interesting. Is this in the press yet?

Customer:

No. I believe that the problem with bring a fraud claim is that the courts demand a very high level of proof. So I am hoping to get them on the clerical negligence. Rather like Al Capone ... the FBI couldn't pin the murders on him, but got him because he failed to file his tax return!

tdlawyer :

Lol :) To be honest though, it's a misconception. The standard of proof is the same in civil proceedings for fraud as for anything else. It's the balance of probabilities. It's no higher. however, the Court's dont like to assume fraud, but it's wrong to say that a higher level of proof is required, it isn't. A lot of solicitors often get this wrong.

Customer:

Tks. Any suggestions for a London based firm of solicitors who would consider taking on a DBA claim. The fund manager is owned by a very big bank, so it cannot be any magic circle member ... they must be conflict free.

tdlawyer :

How about a firm like Eversheds or Wragge & Co?

Customer:

Wragges were my lawyers some years ago ... I knew the managing partner since uni days. He said they would not be interested .... maybe conflicts. I'll look into Eversheds. Tks for the info, and goodnight.

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