Trace Your Case


Erlanger v. New Sombrero Phosphate Co., (1878) 3 App Cas 1218


  • Was Erlanger liable to Phosphate due to not disclosing his conflict of interest?


  • It concerned rescission for misrepresentation and how the impossibility of counter restitution may be a bar to rescission. It is also an important illustration of how promoters of a company stand in a fiduciary relationship with subscribers.


  • Erlanger was a French banker who bought the lease for the Anguilian island of “Sombrero”, phosphate mining for £55,000.
  • Erlanger then established New Erlanger Phosphate Co (Phosphate), before selling Sombrero’s lease to Phosphate for £110,000 through a nominee.
  • One of Phosphate’s directors was the Lord Mayor of London, who was independent of Erlanger’s initial group of founders. Two other directors were abroad, and the other directors were puppet directors of Erlanger.
  • Due Erlanger’s strong control over Phosphate, the company was essentially an extension of Erlanger. Phosphate ratified the sale of the lease.
  • Many people invested in Phosphate due to Erlanger’s skills at promotion. Eventually, the investors realised that Erlanger had sold the lease to Phosphate for double the price he had bought it for, and Phosphate sued Erlanger for recession due to non-disclosure and an account of profits.


  • Erlanger was a promoter for Phosphate. The House of Lords unanimously held that the relationship between a promoter and a newly formed company attracts a fiduciary relationship.
  • The majority (Lord Cairns LC dissenting) also held that the contract can be rescinded.
  • A promoter owes duties of good faith and honesty to the company.
  • Erlanger should have declared any conflicting interests to the company promoted and cannot make any “secret profits”.
  • A promoter who breaches any duty to the company by failing to disclose to the company conflicting interests would be liable. The company is able to seek remedies such as rescission of contract and recovery of profits.
  • A constructive trust can also be formed for the profits gained by the promoter in breach of his or her duties.