Johnston v Friends Motor Co Ltd

The appellant, Johnston, sought rescission of his contracts to purchase shares in the respondent company, Friends Motor Co. Ltd., and rectification of the company's register. Johnston alleged that his decision to acquire the shares was induced by material misrepresentations made by the company. The case was heard on appeal from the Supreme Court of New South Wales.

The legal issues before the court included whether a secret agreement between the patent owner, Friend, and Gregory, a trustee for the intended company, was admissible evidence to prove a misrepresentation regarding the sole material agreement. The court was also required to determine if such a misrepresentation, assuming it was material and induced Johnston's application for shares, could render the company liable, and whether, on the evidence, Johnston's contract to take shares was in fact induced by the alleged misrepresentation.

The High Court held that the secret agreement of 11th September between Friend and Gregory was admissible to demonstrate the untruth of the representation concerning the agreement of 9th October and to inquire into its materiality. However, the Court found that even if the representation that the 9th October agreement was the only material one was indeed material and induced Johnston to apply for shares, he was not entitled to relief against the company. This was because the representation was not made by the company, nor was the company responsible for it in the circumstances. Furthermore, the Court concluded, based on the evidence, that Johnston's contract to take shares was not induced by the alleged misrepresentation.

The appeal was dismissed, affirming the decision of A. H. Simpson C.J. in Equity.