Wheal Ellen Gold Mining Company v Read

The High Court of Australia heard an action brought by the Wheal Ellen Gold Mining Company, No Liability, against James Stroud Read. The company sought to recover secret profits allegedly made by the defendant as a promoter of the company in connection with the sale of a gold mine to the company. The claim for damages for false representation and rescission of the contract had been abandoned, leaving only the claim for undisclosed profits.

The legal issues before the court were whether the defendant qualified as a promoter of the company and, if so, the extent of the company's entitlement to recover the profits made by the defendant that had not been disclosed to the company's directors or shareholders. The court was required to determine the net gain made by the defendant from the transaction as a whole, considering all amounts paid and received, including the value of shares issued to him.

Higgins J. found that the defendant was indeed a promoter of the company, having taken an active part in its formation and procurement of members. The court reasoned that a promoter owes a fiduciary duty to the company and must disclose any profits made. The defendant was held liable to account for his net gain from the transaction. This included the value of shares issued to him that became worthless, but excluded money paid and shares transferred by him to others for services rendered in the company's formation. The court ordered the defendant to pay the company £750, representing his net profit, with interest, and also awarded costs to the company, with a partial exception for costs related to the abandoned claims.