Brownfield v Earle [1914] HCA 11

17 C.L.R.J OF AUSTRALIA. 613

rescind it as soon as he learns the facts, or else he forfeits all H.C. or A.

claim to relief." oe In In re Scottish Petrolewm Co. (1) three propositions were laid yr. down in the leading judgment of the Court of Appeal, with Seevtce Co-

OPERATIVE reference to cases of cancellation of share contracts. The second Soctery is relevant. It refers to what it terms "the well recognized rule Bryru. in equity that a person who has been induced to enter into a contract by the fraudulent conduct of those with whom he has contracted, is entitled to rescind such contract provided he does so within a reasonable time after his discovery of the fraud. In such cases the contract is voidable, not void." The third rule restricts that power to the extent of requiring it to be exercised before winding up, when interests of third parties intervene. In such case the Court withholds its assistance. If a contract be such that at common law it is rescindable by the act of the party, that is, by mere repudiation, the doctrine does not apply, because repudiation itself works avoidance, but in the case of a contract to take shares that is not sufficient. This is pointed out in the same case by Fry LJ. (2), in an important passage :— "Tn the case of ordinary contracts if they are voidable an express repudiation avoids them. . . . This is not the case of an ordinary contract, but of a contract to take shares, which stands on a different footing. As regards such contracts the legislature has interposed, and has provided that they shall be made known in a particular way to shareholders and creditors ; notice of them is given to the world. Now the general principle is that no contract can be rescinded so as to affect rights acquired bond fide by third parties under it. It is true that the creditors and the other shareholders have not acquired direct interests under the contract, but they have acquired an indirect interest. The share- holders have got a co-contributory, the creditors have got another person liable to contribute to the assets of the concern." This is in line with the observations of Lord Romilly in Kisch's Cuse (3), referred to by Mr. Mitchell.