Tuesday, 5 June 2012

Edinburgh United Breweries' litigation

Remember how Edinburgh United Breweries was formed? A Mr. Dunn bought the four breweries and then sold them on to the new limited company. It seemed an odd arrangement to me. It turned out not everyone was happy with the transaction.

Having looked at a few flotations and their aftermath, I've learned that what was in the prospectus wasn't always true. Often they included some items of improved truth. In particular, the profits of the company. That was the case here.

The Edinburgh United Breweries Company and William Henry Dunn, 27 Bishopsgate Street, London, here sue James Alexander Molleson, C.A. Edinburgh, trustee under a trust deed by David Nicolson, brewer and wine merchant, residing at Parsons Green, Edinburgh, for reduction of a minute so agreement dated in November, 1889, between Dunn and the defender, which proceeded on the narrative that Nicolson was the proprietor of the Palace Brewery in Edinburgh, and of maltings and bottle stores, that Dunn should become the purchaser of them with the whole plant connected with them at the price of £20,500, and that he should take over the stock at a valuation. Reduction is also asked of a disposition conveying a ground in London Road to the United Brewery Company for £28,500, of which £8000 was contributed by Dunn and £20,500 by Molleson. Persuers also seek to be restored in possession of the Properties, and they sue for payment of £20,500 or alternatively for £10,568 2ls 1d. Pursuers state that it was represented by Mr Molleson that the profits in the brewery and wine business for the two years ending 31st December, 1888, amounted to £3700 in each year. The company was formed With a view to the purchase of four breweies in Edinburgh, including the one in question, Mr Dunn's intention being to transfer his interests to the company. Before the transaction was completed Mr Dunn employed accountants to ascertain the profits, and it was stated that the balance-sheet for 1888 showed a profit £2181 10s. It is averred that the figures in the balance-sheet were fraudulently falsified, and that the balance-sheet was concocted so as to show the balance of profit for the year to be greater than it really was. Another balance-sheet was discovered by them a bringing out a profit of £930 17s. Persuers aver that Mr Molleson personally knew of the fraudulent alterations, but they state that he has benefited by them to the extent of the enhanced price. The defence is that the Pursuer Dunn was the mere nominee of a company called the City of London Contract Corporation, that before the agreement the accounts were examined - first, by a firm of accountants in London, and a subsequently by another firm in Edinburgh, upon whose report the pursuers paid the price. It is also stated that the sale did not proceed upon the Profits, but upon the valuations of the subjects sold. It is maintained that the contract was completed by Dunn with the full knowledge that the profits did not amount to the sum stated. The record in the case was closed to-day. "
Glasgow Herald - Monday 02 November 1891, page 4.

It's all rather odd. Mr. Molleson, the accountant who sold the brewery, was unaware that the books had been cooked. And Edinburgh United Breweries hadn't even been a party to the agreement, yet were still suing Mr. Molleson.

Wondering why it took two years before they sued? Because it was only when the clerk who committed the fraud confessed after more than a year thaat anyone realised the books weren't right.

This case was to run and run. Edinburgh United Breweries just wouldn't let it go. No doubt much to the delight of their lawyers.

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