Elder's Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd

Elder's Trustee and Executor Co Ltd, as executor of the estate of Albert Frederick Marshall, appealed to the High Court of Australia from a decision of the Supreme Court of South Australia. The dispute concerned the validity of an allotment of shares in Commonwealth Homes and Investment Co Ltd to Mr Marshall. Mr Marshall had sought a declaration that the allotment was not binding upon him, rescission of the contract to take the shares, and rectification of the company's register. The grounds for his claim included alleged non-compliance with specific provisions of the Companies Act 1892 (S.A.) concerning share allotments made pursuant to a prospectus.

The legal issues before the High Court were whether the allotment of shares to Mr Marshall was voidable due to the company's failure to comply with statutory requirements regarding the minimum number of shares subscribed and the payment of application and allotment moneys as stipulated in the abridged prospectus. Additionally, the Court had to consider whether Mr Marshall, by his conduct, had lost his right to rescind the contract of membership, particularly in light of the company's impending liquidation at the time the writ was issued.

The Court held that the company's failure to meet the conditions outlined in section 226 of the Companies Act 1892 (S.A.) rendered the allotment of shares voidable at the instance of the applicant. The Court distinguished the present case from *Tennent v. City of Glasgow Bank* by noting that Mr Marshall's actions, such as continuing to act as a shareholder for a period without knowledge of his legal right to rescind, did not amount to an election to affirm the contract. Crucially, the Court found that Mr Marshall had not lost his right to rescind merely because the company was in a hopeless financial position and a winding-up petition was imminent when he issued the writ, especially as he lacked full knowledge of the facts giving rise to his right to rescind until shortly before commencing proceedings.

The appeal was allowed, and the decision of the Supreme Court of South Australia was reversed. The High Court ordered that the allotment of shares to Mr Marshall was not binding upon him, that the contract to take the shares be rescinded, and that the register of members of the defendant company be rectified by removing his name.