THE OIL WELLS CASE. T HE great body of Investors will
not derive much comfort from the Oil Wells Case. The jury separated without a verdict, and the general effect left by their inability to agree, by the charge of the Lord Chief Justice, and by the body of evidence adduced is—that Shareholders must take Prospectuses entirely upon trust. They have little or no legal hold upon the Directors who issue or endorse them. Unless they can prove that the Directors not only put forward untrue statements, but put them forward knowing them to be untrue, they have no sub- stantial prospect of a verdict. We do not suppose that Sir A. Cockburn intended to say so much, but the general effect of his charge upon the lay mind—and Juries seldom number lawyers among them—is that no amount-of negligence however crass, unless it can be proved to have been absolutely wilful, can render Directors civilly liable for the effects of mis- representation. It was admitted on all hands that the scheme originally was utterly unsound, that a property consisting of certain oil wells in Canada of very doubtful value was offered to Baron Albert Grant and deemed; then offered to Mr. Mowatt, Chairman of the Credit Foncier, for 125,000 in cash and 175,000 in paper, and- rejected by him; and then offered to a Company to be Called the Canadian Oi Works Corporation for 1480,000, of which £160,000 was to be paid in cash, and was accepted by them. It was proved in evidence that the Directors of this Corporation en- dorsed, though they did not prepare, statements on which money was raised averring that the Wells already yielded an immense income ; that they were carefully warned by Mr. Mowatt ; that some of them, and especially Mr. McCullagh Tor- rens, were aware of this warning, and disregarded it as an inven- tion of an "enemy ;" that an eminent Canadian authority tele- graphed that the scheme was an illusion, that another Canadian told the Solicitor to the Company it was a swindle ; that none of these facts, and especially the prior offer of sale, were explained to the shareholders ; that the Directors sent out Mr. Eastwick, and the son of a Director, Mr. Hay, to report upon the Wells—Mr. Eastwick being openly described by the Judge as a simple "goose," an easily duped man, who took tanks full of oil as proof of flowing wells, and who never saw any books—and allowed Longbottom, one of the vendors, to accompany them ; that on these agents' telegrams they paid £80,000; and that4 although further warned by Mr. Brown (?), formerly the head of the Liberal party in Canada, and even by newspapers, they paid £58,000 more.
One of these warnings, at all events, was addressed to the whole Board, and was of the most solemn character. In Sep- tember, Mr. Mowatt, Chairman of the Credit Foncier, and a well- known man of business, and Sir G. Balfour, one of the best- known of Members of Parliament, addressed to the Directors of the Oil Wells Corporation this remarkable letter:— " I have your letter of the 14th inst. If I could be surprised at any- thing in the Joint-stook Company world, I certainly should be surprised at that letter. You commence it by saying that your Board would not have considered any further observations on my letter to Mr. Torrens necessary after his reply to it, but for my uncalled-for and unjustifiable insinuations as to your acts as Directors. Insinuations, indeed ! I have distinctly declared in my said letter to Mr. Torrens that from the infor- mation which had reached me I believed the statements put forth in your prospectus were exaggerations of so gross a character as to make the Directors personally liable for obtaining money upon them. I should have thought that such plain language would hardly have been described as containing insinuations, whatever else might have been said of it. You then tell me that you believe that I have no sufficient ground for the statements I have made, and that if I had, and my motive were a right one, the honest and straightforward course for me to have taken would have been to have given you unreservedly the in- formation referred to, and not to have attempted to injure a perfectly good business concern by insinuations without any reasonable founda- tion. Why, surely, in writing these words you must have forgotten that that very course which you recommend is precisely that which I adopted. Both my colleague. Sir George Balfour, and I gave immediately and unreservedly all the information that had reached us, first to Mr. Massey and then to Mr. Torrens. It is true we did not actually put into their bands the letters we had from Canada, but both these gen- tlemen expressed their entire concurrence in our reasons for not show- ing and so making public the signatures. Besides, Mr. Torrens con- veyed to my colleague and myself the impression that he not only did not desire to see the letters, but that be did not wish to hear Snore of the information contained in them. It would be, however, idle to say more on this point, for your Board must know as well as I do that even before your monstrous prospectus was issued in- formation of the most positive and unquestionable character was offered to you, showing that your whole scheme was a delusion, and based on the most outrageous misrepresentations, but you declined to receive it. For instance, a gentleman from Canada who describes him- self as a magistrate there, and as holding large property in the immediate vicinity of yours, with which he is consequently thoroughly acquainted, stated in the presence of Sir George Balfour and myself that, being shocked at the great fraud which he considered was about to be perpe- trated on the public, he sought an interview with your Directors for the purpose of remonstrating with them against proceeding with the scheme. He was, however, he stated, unable to procure access to any of the Directors, but saw your Solicitor, Mr. Valiance, and told him plainly that, to use his own words, the whole thing was a frightful swindle; but, he added, when he went on to mention the facts on which he made this charge, your Solicitor gave him dearly to understand that he did not want to hear them. And now, referring to that part of your letter in which you challenge my motive kr these communications, let me ask you in all sincerity what possible motives, other than those we have assigned, can Sir George Balfour, who will put his name to this letter, and I
have in thus urging you to inquire into the facts of the case from inde- pendent authorities before committing yourselves irretrievably to it, to the ruin, as we believe, of a vast number of innocent persons ? What object do you suppose we can have in thus forcing ourselves upon your attention, taking all this trouble, and writing to you these letters ? The one fact of our exposing ourselves, as you seem to think we are doing, to the dangers of a lawsuit by our interposition in the matter ought surely to convince you that we must have what we believe at least to be very strong grounds for an interference which you deem uncalled for. You may not believe us, but we declare to you solemnly and conscien- tiously that we have no other object whatever for interposing in the case other than what we have stated, and the desire to be able to protect our- selves from the reproach to which we should be subjected if, with the information we possessed, we were not able to show that we had done all in our power, short of appeal to the public Press, to prevent the frightful catastrophe into which we believe that you are hurrying."
This letter produced no change, and to the lay mind it would appear that if ever men were guilty of gross negligence, these Directors, who acted in this way, were guilty, and Shareholders have hitherto been under the impression that craSsa negligentia constituted a ground of liability. It is not so, however. Several of the Directors, if not all, probably were duped, and all had sufficient evidence in their favour to enable them to assert that they were deceived. They had believed the vendors, whom even Sir John Rose, in a letter to Sir Stafford Northcote, dissuading him from being trustee, con- sidered men of property ; they had a sworn certificate from the British Consul at Buffalo, who, the Lord Chief Justice says, had been heavily paid for it ; they trusted their reporters, who, we may add, seem to have been honest dupes ; and no human being but themselves can tell whether the belief thus raised in their minds was sincere. And if it was sincere, there was no liability. The Lord Chief Justice, while stating that the shareholders might have relief in a Court of Equity, laid it down broadly that "no amount of rashness or folly could warrant a verdict against the Directors, unless they had acted in bad faith." Here are the precise words from the Times' report :— "The plaintiff paid his money on the 22nd of September, and the repre- sentations in the prospectus must be taken as continuing until that time ; and if anything had happened to alter the belief of the Directors, they were bound to undeceive the subscribers before they paid their money. It might be said that the proceedings of the Board were rash and in- considerate; and it would, no doubt, have been wiser to await further details ; not that it would have made any difference, for the reports afterwards made fully bore out the telegrams. But it might be said that if they had waited the return of the deputation they would probably have learnt how unsatisfactory the inspection had been, and would have known far more than could be learnt from tho reports, and they would have heard, for instance, that the books were not produced. It might be so ; and they were certainly not bound to pay over the money on the 1st October, though they were bound then to elect and to abide by the contract ; but no amount of rashness and of folly would warrant a verdict against these gentlemen unless they had acted in bad faith. If the Directors were guilty of any negligence, it might be that in some other proceeding at law or equity they might be liable. But here the only question was whether they had acted fraudulently in taking the plain- tiff's money. And the rashness they might have shown was only material in so far as it might be considered as evidence of want of good faith."
Of course, after that charge it was nearly impossible that a verdict should be found against the defendants, and we only wonder that the jury, after hours of discussion, still continued to disagree, more especially as the Judge told them that the temptation to bad faith was very small, such Directors as had bought their qualifications receiving nothing, and the others only shares enough to qualify. That the defendants had been guilty of gross carelessness they scarcely attempted to deny— though there were great distinctions to be drawn as to the carelessness displayed by each individual—but under the ruling, carelessness must have appeared to the jury immaterial.
It is not for us to argue as to the law with the Lord Chief Justice of England, more especially without a verbatim report of what he said. His ruling, as reported, seems, we know, to many lawyers, to have been unexpectedly broad, but until modified by an Appellate Court, it is, of course, final ; and in what position does it leave the ordinary investor? Absolutely at the mercy of the original Directors of the Company whose shares he buys. They may say what they like, and he has no redress, unless he can bring absolute proof that they were not deceived, that is, unless he can demonstrate that a certain pro- cess went on in their minds which they will say never went on at all. As far as we can see, they might as well attempt to prove the Hamiltonian theory. No doubt a jury has a dis- cretion, and the twelve men who divided on Thursday might have agreed; but jurymen will almost always take differing views of the amount of negligence which is evidence of mala fides, and in the case of Directors who, in the present condition of the public mind, seem to be expected to know nothing, the amount required is almost unattainable. That is hard upon existing shareholders, but it is harder still upon shareholders in future. The direct effect of the result in this case—of the inability of the jury to find a verdict, of the Judge's charge, and of the enormous expenditure incurred in vain—will be to assure speculators that they are less liable for incorrect representations than they thought themselves, that they may safely circulate still wilder statements, that they may with impunity remain ignorant of circumstances which the public believe they have carefully ascertained. That effect must be an injurious one. Apart altogether from fraud, indolence is one of the greatest of temptations. The most honourable man in the country discharges a trust all the better because he knows that if the money disappears he is liable to make it good, and the best of Directors would be all the more cautious if he knew that his fortune would be in- volved in a careless misdesciiption. Hitherto every Director has thought himself so liable, but now the weight of that conviction is nearly, if not entirely, removed. As to the result of the affair on the minds of predatory Directors —and there is such a class—we tremble at the mere pro-
sped. They will feel as if they had received a gift from Heaven, a legal authorisation to turn their gifts of plausibility to the fullest account, a legal exemption from any responsibility for pecuniary untruth. Talk about diamonds in ant-hills ! why shouldn't there be diamonds in ant-hills, if John Nokes, Californian and speculator in mines, telegraphs to say he has found them there, that they are worth a million, and that -he will sell them to British capitalists for elevenpence- halfpenny and a thousand shares ? Where is the tnala ides in believing Nokes ? He may have been in the State prison for larceny, but how is the British Shareholder to prove that the British Director knew that, or knowing it, felt it to be a reason for distrust ? The gold-fields of Sydney were discovered, first of all, according to local tradition, by a thief -who had been convicted, and who was soundly whipped for attempting to palm off such lies. Suppose a British Director had believed him. It is quite clear, if this is the state of the law, the law requires to be amended, or limited liability will become little else than a protection for men who desire to sell useless or non-existent property at enormous prices.
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