Corporate Affairs Commission v Drysdale

High Court of Australia|1978-07-01|Before: Aickin JJ, Gibbs J, Mason J

The applicant submits that the respondent is a director within the meaning of s. 124, even without reliance on the extended definition contained in s. 5. However, its alternative argument is that s. 124 is to be read in the light of the extended definition and that the respondent falls within the first part of the definition, it being common ground that the second part of that definition has no application to the present case.

The question of construction is one of importance. It warrants the grant of special leave and, accordingly, I shall consider the case on this footing.

So much of the applicant's case as was based on what was said to be the natural and ordinary meaning of "director", as it appears in s. 124 (1), drew heavily on a series of English cases in which persons who were de facto directors or de facto officers were held to be directors or officers of companies within the meaning of various sections of the statutes relating to companies. Of these cases In re Canadian Land Reclaiming & Colonizing Co. (Coventry and Dixon's Case) [27] the most important. There two persons who were appointed directors without possessing the necessary share qualification and who continued thereafter to act as directors were held by Jessel M.R. to be guilty of misfeasance under s. 165 of theCompanies Act, 1862, U.K. in that they participated in the management of the company without authority so to do. The decision was reversed by the Court of Appeal on the ground that to make a person liable for misfeasance it must be shown that he was guilty of misconduct by which the company suffered loss. Section 67 of the Companies Act, 1862 provided that "all appointments of directors shall be deemed to be valid, notwithstanding any defect that may afterwards be discovered in their appointments or qualifications". Article 104 of the company's articles validated the acts of the directors or of a person acting as a director, notwithstanding a defect in appointment. Section 165 empowered the court to make an order where in the course of the winding up of a company "it appears that any past or present director, manager, official or other liquidator, or any officer of such company, has been guilty of any misfeasance "

Jessel M.R. said [28] " the de facto director is a director for the purposes of the section", observing that by virtue of s. 67 and art. 104 a disqualified director "has the power to manage the company, and by his acts to bind the company". The Master of the Rolls went on to say: "In what capacity except as officer of some kind? Whether, therefore, they can be properly described as directors or not (and I think they can be so properly described) I am satisfied they can be included under the term "officer"." The Court of Appeal appears to have accepted that the appellant was a director. Indeed, Bramwell L.J. [1] indicated that a de facto director fell within s. 165. To the like effect were the comments of Lord Russell of Killowen C.J. in In re The New Par Consols Ltd. [2] , where a person who had ceased to be a director by reason of bankruptcy but continued to act as such was held to be a director for the purposes of s. 7 of the Companies (Winding up) Act, 1890 U.K.. The observations of Lord Coleridge C.J. and Amphlett B. in Edmonds v. Foster [3] point in the same direction.

(1880) 14 Ch. D., at p. 665. 2. (1880) 14 Ch. D., at p. 673. 3. [1898] 1 Q.B. 573, at p. 576. 4. (1875) 45 L.J. M.C. 41, at p. 45.

In two of the three cases to which I have referred the de facto director was one whose appointment was or became defective, in particular because he did not possess or acquire a share qualification. As his appointment was defective his acts and the acts of the directors in which he participated were validated by statutory provisions similar to s. 119 of the Companies Act and art. 89 of Table A. Here, however, there was no defect in the appointment of the respondent; what happened was that his appointment terminated. The stated case does not reveal whether art. 89 of Table A or a similar article formed part of the constitution of the company. But this is of no consequence because both s. 119 and art. 89 apply to defects in appointment. They are not expressed to apply to acts done after a director has ceased to hold office in other circumstances pursuant to the articles. And it is authoritatively established that neither the section nor the article applies when there has been no appointment at all (Morris v. Kanssen [4] ). As Kitto J. said in Grant v. John Grant and Sons Pty. Ltd. [5] :

The proposition which I think is justified by Morris v. Kanssen is that where a person acts as a director, either without being appointed or in pursuance of a purported appointment made by a person or body not authorized to make an appointment, neither the section nor the article operates to validate his actions. 1. [1946] A.C. 459. 2. (1950) 82 C.L.R. 1, at p. 53.

But this does not dispose of the question, for In re The New Par Consols Ltd. [6] shows that a director who holds over after his appointment has terminated may be held to be a director, though he is de facto only. As Lindley L.J. said in In re Western Counties Steam Bakeries & Milling Co. [7] , "to be an officer there must be an office". He went on to say, "an office imports a recognised position with rights and duties annexed to it" and came close to acknowledging, if he did not actually acknowledge, that a person may fill an office de jure or de facto.

[1898] 1 Q.B. 573. 2. [1897] 1 Ch. 617, at p. 627.

The words of s. 124 (1) assume that the person in question occupies an office ("his office") and that there are functions ("duties") attaching to that office which he is discharging. I say "occupies" rather than "holds" because the first part of the definition of "director" makes it clear that a director is a person who occupies rather than holds an office. Even if the function of that part of the definition is not to include a de facto director and is only to include a director of a foreign corporation described by a different name, it proceeds on the footing that one who occupies the position of director is a director. To say that a person occupies a position or office is to say something more than that he holds the position or office. The first statement denotes one who acts in the position, with or without lawful authority; the second denotes one who is the lawful holder of the office.

This view of the meaning of "director" in s. 124 (1) finds support in s. 119. That section describes the person whose appointment as a director is defective as a "director" and validates his acts notwithstanding that he does not lawfully hold that office. The section has many ancestors the first of which was s. 67 of the Companies Act, 1862 U.K..

The case of the de facto director who holds over after his appointment as a director has terminated, accords with the assumptions which s. 124 (1) makes. He continues to occupy the office of director, albeit now without lawful authority, and discharges the duties attaching to that office. It is not incongruous that, although he is a de facto director, he is commanded to "act honestly and use reasonable diligence" in the discharge of those duties. There is no inconsistency in acknowledging that he should not attempt to discharge the duties of an office to which he has no title and in going on to say, as the sub-section does, that if he does set about discharging those duties he shall do so in the manner described by the sub-section.

Accordingly, in my view s. 124 (1) applies to the respondent without recourse to the first part of the definition of "director". That part of the definition speaks of a person "occupying the position of director of a corporation by whatever name called". It is possible that it supplies an alternative ground for reaching the same result.

The history of the first part of the extended definition indicates that it was designed to include, as Harris v. S. [8] suggests, those persons who are directors, though they are described by a different name. As the later sub-sections show (sub-ss. (2), (3), (4) and (6)), s. 124 applies to the directors of corporations. Consequently it applies to the directors of foreign corporations who may be described otherwise than as directors. The first part of the statutory definition was part of the definition of director in s. 380 of the Companies Act, 1929 U.K.. Before that it was to be found in the statutory definition of director in s. 274 (6) of the Companies (Consolidation) Act, 1908 U.K. for the purposes of Pt IX of the Act dealing with companies established outside the United Kingdom. This history reinforces the view that the words now under consideration were intended to extend to persons who are directors, though differently described.

In the instant case the Court of Criminal Appeal applied an interpretation of s. 124 (1) and the first part of the definition of "director" enunciated by the three members of the Full Court of the Supreme Court of South Australia in Harris v. S. Street C.J., who delivered the principal judgment in the Court of Criminal Appeal, stated that he proposed to follow what was said in Harris v. S., not because he was convinced that the interpretation there expressed was correct, but because it was desirable that there should be uniformity in decisions on the Companies Act and that he was not satisfied that the decision was wrong. In Harris v. S., Bray C.J. and Wells and Sangster JJ. held that in the absence of statutory expansion the word "director" in s. 124 imports a person appointed or elected to that office pursuant to the articles of association and that the first limb of the statutory definition comprehends those who are directors appointed or elected pursuant to the constitution of the corporation but are not called directors. Evidently their Honours' attention was not drawn to the cases on de facto directors and de facto officers and for this reason I do not regard the interpretation which they placed on s. 124 (1) as compelling.

I would grant special leave to appeal, allow the appeal and answer in the affirmative the question asked in the case stated.

The question on this appeal is whether s. 124 of the Companies Act, 1961 N.S.W., as amended, applies to de facto directors. The New South Wales Court of Criminal Appeal (Street C.J., Begg J. and Knoblanche A.J.) on a case stated by Judge Cameron-Smith under s. 5B of the Criminal Appeal Act 1912 N.S.W., as amended, answered that it does not [10] . Section 124 states:

(1) A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.

(2) An officer of a corporation shall not make improper use of information acquired by virtue of his position as such an officer to gain directly or indirectly an advantage for himself or for any other person or to cause detriment to the corporation.

"Director" includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act.

A series of cases on sufficiently similar statutory provisions treats "director" as including a de facto director (see Gibson v. Barton [11] ; In re Canadian Land Reclaiming & Colonizing Co. (Coventry and Dixon's Case) [12] ; In re The New Par Consols Ltd. [13] ; Edmonds v. Foster [14] ; In re Western Counties Steam Bakeries & Milling Co. [15] ). Consistently with this, s. 119 provides:

The acts of a director or manager or secretary shall be valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification. 1. (1875) L.R. 10 Q.B. 329. 2. (1880) 14 Ch. D. 660. 3. [1898] 1 Q.B. 573. 4. (1875) 45 L.J. M.C. 41. 5. [1897] 1 Ch. 617.

A director may occupy an office, although wrongfully (see Dixon, De Facto Officers, Res Judicatae, Vol. 1 (1938), p. 285). Mr. Justice Dixon also dealt (at p. 288) with an office-holder who, after the end of his period of office, holds over (see In re Aldridge [17] ). The respondent, Mr. Drysdale who was charged with breaches of s. 124, occupied the position of director (although wrongfully) by continuing on after his term of office had expired. Even without a provision such as s. 119, on the principle referred to in the article, his acts would still be valid (although Morris v. Kanssen [18] suggests otherwise). Whether that is correct or not, if a person is a de facto director, that is, acts as a director without lawful authority, he comes under the obligations imposed by s. 124.

(1893) 15 N.Z.L.R. 361. 2. [1946] A.C. 459.

Special leave should be granted, the appeal allowed, and the question answered "Yes".

This is an application by the Crown for Special Leave to appeal from a decision of the Court of Criminal Appeal of the Supreme Court of New South Wales. That Court had before it a stated case from the District Court which submitted to the Court of Criminal Appeal a question of law, namely, whether at the relevant time the present respondent Drysdale was a director within the meaning of s. 124 of the Companies Act, 1961 N.S.W., as amended ("the Act"). The Court of Criminal Appeal answered that question in the negative [19] .

The respondent had been charged in a Court of Petty Sessions with two breaches of s. 124 of the Act. So far as material s. 124 provides as follows: "A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office". The respondent was convicted in the Court of Petty Sessions on two charges, failing to act honestly in one case, and failing to use reasonable diligence in the other, in the discharge of the duties of his office as director. He appealed against that conviction to the District Court, which found that, if he were a director within the meaning of s. 124, he had committed both offences, but stated a case for the Court of Criminal Appeal, the question being whether, on the stated facts, the respondent at the relevant time was a director within the meaning of s. 124 of the Act.

The facts appearing in the special case may be summarized as follows. The company referred to in the charges was incorporated on 2nd September 1970 and the respondent was its secretary between 6th December 1971 and 21st September 1973. On 30th August 1971 one of the then directors of the company resigned and the respondent was properly appointed to fill the casual vacancy so created. It appears from the judgment of Street C.J. that the articles of association of the company contained an article equivalent to article 68 of Table A which provides that the directors may appoint any person to fill a casual vacancy, but that such person shall hold office only until the next annual general meeting and shall then be eligible for re-election. On 30th December 1971 a general meeting of the company was held, but the respondent was not nominated or proposed as a director, nor appointed as a director at that meeting. Between 30th August 1971 and 21st September 1973 he acted, and represented himself, as a director of the company. He attended meetings of its board of directors, voted on resolutions of the board and participated in the management of the company between those dates as if at all relevant times he were a director duly appointed and holding office under the provisions of the articles of association.

On 17th September 1973 the appellant wrote to the managing director of the company resigning as a director and as secretary of the company, such resignation being expressed to be effective on and from Friday, 21st September 1973.

The District Court judge found expressly that the respondent did not hold office as a director of the company in accordance with its articles of association at the time of the alleged offences, namely, between 8th April 1972 and 22nd September 1973.

It is clear that, under the articles of association of the company and the terms of the Act the respondent was not a director of the company under its articles after 30th December 1971.

The Court of Criminal Appeal followed a decision of the Full Court of the Supreme Court of South Australia in Harris v. S. [20] which dealt with the question whether a "manager" under a scheme of arrangement approved by the Supreme Court fell within the second limb of the definition of director in s. 5 of the South Australian Companies Act. In the course of the judgments in the Full Court of South Australia views were expressed as to the effect of the definition of "director". In his judgment Street C.J. referred to the generally uniform nature of the Companies Acts of the various States and said, in my respectful opinion correctly, that there is much to be said for the Courts striving to preserve uniformity. He then said [21] :

I accordingly approach the present case with a firm predisposition in favour of accepting and applying the decision of the South Australian Full Court - a predisposition to which I would give effect unless I were affirmatively satisfied that it be wrong and that it should not be followed in this State. 1. (1976) 2 A.C.L.R. 51. 2. (1978) 3 A.C.L.R., at p. 683.

In this Court, however, we must approach the question de novo and, as it happens, we were referred to certain relevant cases which had not been drawn to the attention of the Full Court in South Australia or to the Court of Criminal Appeal in New South Wales.

Before this Court some argument was addressed to the definition of director as contained in s. 5 of the Act. This definition is in the same terms in the Companies Act of each State, though it takes a slightly different form in the Australian Capital Territory Ordinance. The definition is as follows:

We are not here concerned with the second limb of that definition. It was argued for the Crown that a person who acted de facto as a director fell within that provision, in that he was "occupying the position" and that the explanation given in the Supreme Court of South Australia for the words "by whatever name called" was misconceived. In that Court the view was taken that the words "by whatever name called" were the governing words so far as the first phrase of the definition was concerned and that, because of the use of the word "corporation" (an expression defined as including foreign companies and a variety of other bodies corporate) the words "by whatever name called" were directed at least primarily to foreign companies where different words such as "governor", "controller" etc. may be used. That Court held that the words did not bring into the meaning of "director" a person who was not in law a director, but who purported to be a director in that he acted as, and carried out the functions of, a person properly so appointed.

In the end I do not think that the definition is of any great significance in the present case, although I do not think it can be said that the problem of foreign companies was in the mind of the draftsman of that definition when it was originally introduced. I think, however, that the better view is that it is directed simply to the question of the name by which a person was known, who in fact occupied a position to which were attached the powers and obligations which the Act attaches to a "director".

The history of the definition is somewhat curious and perhaps worth noting. Its origin appears to be in the Companies Clauses Consolidation Act, 1845 U.K., s. 3 of which contains the following provision:

"Directors", - the expression "the directors" shall mean the directors of the company, and shall include all persons having the direction of the undertaking whether under the name of directors, managers, committee of management, or under any other name. In the Joint Stock Companies Acts, 1856 and 1857 U.K. and in the Companies Act, 1862 U.K. there was no definition of the word "director", but, by the Companies Act, 1900 U.K. s. 30, a definition was introduced which has survived in subsequent consolidations without change. It was as follows: "The expression "director" includes any person occupying the position of director by whatever name called."

It should be observed that there was then no specific provision with respect to "private companies", an expression first defined in the Companies Act, 1908 U.K. and then included in the Companies (Consolidation) Act, 1908 U.K.. However the expression was in common use as referring to companies which did not issue shares to the public.

In the third edition of Palmer's Company Law (1901) which was the first edition published after the passing of the Companies Act, 1900, the learned author said at p. 130:

A company cannot act in its own person, for it has no person. Per Lord Cairns, Ferguson v. Wilson [22] . Accordingly it must act by agents, and usually these persons, by whom it acts, by whom the business of the company is carried on or superintended, are directors. The Act, however, as we have seen, leaves the members entirely free to determine how and by whom the business shall be managed, and accordingly, in some cases, the regulations provide that instead of directors there shall be a "council" or a "managing committee," or that the business shall be carried on by "managers." In other cases, especially in private companies, it is not uncommon to provide that the business shall be managed by "governing directors" or by "permanent directors," or by a sole "governing director." In all these matters the regulations can be framed as may seem expedient, but whatever the title chosen for the governing body, and whatever the scope of their duties, the rules which apply to directors apply also to members of a council or committee, who, in substance, stand in the position of directors. See also the definition of director in s. 30 of the Companies Act, 1900. 1. (1866) L.R. 2 Ch. App. 77, at p. 89.

It should be noted that the term "private company" was at that time already in common use as appears from Ch. XXXVI of that edition of Palmer which is entitled "Private Companies". Some special provisions as to companies which did not invite subscriptions from the public were introduced in 1900, although the term was not defined until the Companies Act, 1909 U.K..

It may be observed that it would in 1845 have been reasonable to contemplate that private Acts incorporating companies for railway, canal and like purposes may use various terms to describe the governing body, as like Acts prior to 1845 had done, names such as board of governors, committee of management and the like, just as founders of private (proprietary) companies, as well as founders of incorporated sporting clubs, may wish to use their own descriptions of those to whom the management is entrusted.

There does not appear to be any decided case in the United Kingdom or in Australia in which the meaning of the definition has been considered, save in the South Australian case to which I have referred.

Some reference was made in argument to s. 119 of the Act which provides that:

The acts of a director or manager or secretary shall be valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification. and to an article in Table A which is to the same effect. It is, however, clear that that section is concerned with the validity of the acts done, rather than the status of the person concerned. Moreover, its operation is confined to cases where there has been a purported appointment in which some defect is later discovered, as appears from the decision of the House of Lords in Morris v. Kanssen [23] , where Lord Simonds said: The point may be summed up by saying that the section and the article, being designed as machinery to avoid questions being raised as to the validity of transactions where there has been a slip in the appointment of a director, cannot be utilized for the purpose of ignoring or overriding the substantive provisions relating to such appointment. The case of a director who continued to act as a director after his term of office had expired, and there had been no re-election, was expressly dealt with in a case cited by Lord Simonds, namely, Tyne Mutual Steamship Insurance Association v. Brown [24] , where Lord Russell of Killowen C.J. said of the relevant article: What does this provide? It provides for the cure of defects in the appointment or qualifications of directors. But this is not a defect. Here there has been no appointment at all. 1. [1946] A.C. 459, at p. 472. 2. (1896) 74 L.T. 283, at p. 285.

Accordingly that section provides no basis for regarding the respondent as if he had been a director, or for his acts to be treated as if they were acts of a director. The argument that it shows that the word "director" as used in the Act includes a de facto director cannot be sustained.

The decision in Morris v. Kanssen [25] shows the conceptions with which Sir Owen Dixon dealt in his article on De Facto Officers in Res Judicatae, Vol. 1 (1938), p. 285 have at best a limited operation in respect of companies incorporated under the Companies Acts, and that so far as the effectiveness of acts done by de facto directors is concerned it is governed by s. 119. It is clear that the acts of the de facto directors in Morris v. Kanssen would have been effective if the principles discussed in that article had been applicable to them.

In Schmidt v. Garden Gully Co. it was held by Molesworth J. [28] and affirmed by the Full Court [29] that, in the absence from the Mining Companies Acts and from the articles of association of the company of a provision corresponding with s. 119 of the Act, acts done by de facto directors, such as making calls and forfeiting shares, were ineffective. This view was upheld by the Privy Council in Garden Gully United Quartz Mining Co. v. McLister [30] without any discussion of the general question of the possibility of collateral attack on acts done by de facto officers. It may be that those principles are confined to holders of common law offices or persons exercising statutory powers, such, for example, as vestrymen under the poor law legislation. Thus it was held in Scadding v. Lorant [31] that a rate struck by vestrymen not validly appointed as such was nonetheless valid. Moreover, Sir Owen Dixon's article demonstrates that he was concerned with the validity of acts done and not with the question whether, in a statute, a reference to the holder of an office includes therein a de facto holder as well as a de jure holder.

(1873) 4 A.J.R. 66. 2. (1873) 4 A.J.R. 137. 3. (1875) 1 App. Cas. 39. 4. (1851) 3 H.L.C. 418 [10 E.R. 164].

The first of the cases to which counsel for the Commission referred us was Gibson v. Barton [32] . That case concerned s. 26 of the Companies Act 1862 which provided in substance that every company should each year make up, within a specified time after its annual general meeting, a list of members of the company and forward a copy to the Registrar of Joint Stock Companies. By s. 27 it was provided that, if any company made default in complying with those provisions, "every director and manager of the company who shall knowingly and wilfully authorize or permit such default" should incur a penalty. The appellant was the secretary of the company, the articles of association of which did not provide for the appointment of a manager and which had not appointed a manager. At a meeting of the directors in 1872 the appellant reported that he had called a general meeting of the shareholders. In 1874 he had in a letter to the directors stated that unless certain contracts were carried out he should feel it his duty to summon a general meeting of the shareholders. No general meeting was held in 1873 and no list of shareholders had been forwarded to the registrar and the appellant had taken no steps to cause a meeting to be held in that year. He was convicted on an information charging him as manager with authorizing a default in forwarding a copy of the list of shareholders to the registrar in 1873. It was held by Blackburn and Lush JJ. (Quain J. dissenting) that the conviction should be upheld on the ground that there was evidence on which it could be found that the appellant was manager de facto and therefore a manager within s. 26, and that, as he took no steps to call a meeting in 1873, he thereby made it impossible to forward to the registrar a list of members. It was also held that there was evidence that he had knowingly and wilfully authorized a default. Blackburn J. said [33] :

We have to say who is to be considered a manager. A manager would be, in ordinary talk, a person who has the management of the whole affairs of the company; not an agent who is to do a particular thing, or a servant who is to obey orders, but a person who is intrusted with power to transact the whole of the affairs of the company. He further said [34] : But if the articles of agreement contained a clause, that the business of the company should be managed by the directors, and the board of directors should have power to appoint a salaried general manager, not one of their body, who should manage the whole affairs of the company, subject to the directors having a control, then that person being expressly authorized to act, would be a manager. I cannot doubt that if under such a clause a person were named as manager, he would be a manager within the meaning of s. 27. He would come within the words "every director and manager of the company." In the present case the appellant is not a manager appointed in that way. The evidence comes to no more than this, that he was permitted by the board of directors to manage the company generally, just as if he had been legally appointed by them to act as manager. I think there is evidence that the appellant took upon himself to act, and did act just as if he was such manager. The question, therefore, is, whether a person who is thus a manager de son tort, - a manager in his own wrong, - whether he can protect himself from the liability cast upon a manager under section 27, by saying, "I am not manager de jure". I think he cannot. He further said [35] : So, if a director were to set up in answer to a penalty under s. 27, that he was not a director, that he was illegally elected, the answer would be "You have acted as director, and were a director in your own wrong". He concluded that there was evidence to justify the finding that the appellant was de facto manager. The judgment of Lush J. is to the same effect. Quain J. in his dissent took the view that the Companies Act, 1862 contemplated that managers might be appointed to manage the business of a company and that the word "manager" meant a person properly so appointed under the Companies Act, 1862 or the articles of association, which however in this instance provided that "the business of the company shall be managed by the directors". 1. (1875) L.R. 10 Q.B. 329. 2. (1875) L.R. 10 Q.B., at p. 336. 3. (1875) L.R. 10 Q.B., at p. 337-338. 4. (1875) L.R. 10 Q.B., at p. 338.

Although that case deals only with "managers" which is not an office recognized by the Act as a necessary part of the internal government of a company, as the office of director, it is clear that the majority thought that the reasoning applied to de facto directors.

The second case was Coventry and Dixon's Case (In re Canadian Land Reclaiming & Colonizing Co.) [36] . In that case two directors were appointed and acted as directors for some time notwithstanding that neither of them held the necessary qualifying shares which were a condition precedent to appointment. There was no act of misfeasance done by them within s. 165 of the Companies Act, 1862 (the then equivalent of s. 305 of the Act) for which each would have been liable if he had been a duly qualified director, but the liquidator applied to charge them with misfeasance in acting as directors without qualification and sought to recover from them such amount as the Court might order. Jessel M.R. held that by acting as directors without qualification they had been guilty of misfeasance and were therefore liable under s. 165 and ought to pay to the liquidator the amount which they would have had to pay if they had subscribed for the necessary qualification shares. The decision was overruled in the Court of Appeal on the ground that s. 165 created no new right but merely provided a summary procedure for calling upon directors to account for acts of impropriety, i.e., having been guilty of some misconduct by which the company had suffered a loss. Counsel for the appellants expressly admitted that if they had committed such an impropriety the appellants would have been liable. They said [37] :

We do not dispute that if these gentlemen had wasted the moneys of the company, they would have been liable under this section. If they acted as directors it would not have lain in their mouths to say they were not directors, for the purpose of escaping liability, but no improper acts are alleged against them. 1. (1880) 14 Ch. D. 660. 2. (1880) 14 Ch. D., at p. 668.

It was admitted by the Appellants that these persons, as de facto directors, would be liable for any act of commission or any omission on their part in the same manner and to the same extent as if they had been de jure as well as de facto directors. They were, so to say, directors de son tort and liable in that character, but not otherwise, and you must shew something that they did which resulted in loss to the company, and for which, if they had been duly appointed directors of the company, the company would have been entitled to a remedy against them. and held that there was no such act done by them. It had been previously held in Jenner's Case [39] that directors who had not applied for and taken up their qualifying shares were not contributories in a liquidation and could not be made liable for the shares which they would have held if they had been properly qualified. Baggallay L.J. agreed. That case cannot be regarded as a direct decision concerning the liability under a misfeasance summons of a de facto director, although the members of the Court appeared to agree with the concession made by counsel for the appellants. 1. (1880) 14 Ch. D., at p. 670. 2. (1877) 7 Ch. D. 132.

The third case relied on was In re The New Par Consols Ltd. [40] which dealt with the position arising under the Companies (Winding up) Act, 1890 PU.K.) which provided that a statement showing particulars of the assets, debts etc. of the company and other particulars should be submitted to the liquidator by "the persons who are at the time of the winding-up order the directors and by the person who is at that time the secretary or other chief officer of the company, or by such of the persons being or having been directors or officers of the company or having taken part in the formation of the company at any time within one year before the order for winding up of the company, as the official receiver may require to submit" such particulars. The official receiver had required the appellant to submit such a statement, but he had refused to do so on the ground that he had ceased to be a director more than a year before the date of the winding-up order. The winding-up order had been made on 14th August 1897 and the notice was given to the appellant on 18th August 1897. The appellant had been, by the articles of association, appointed managing director of the company and on 3rd August 1896 he had committed an act of bankruptcy upon which he was adjudicated bankrupt on 9th October 1896. The articles provided that the office of director should be vacated if he became bankrupt. The appellant did in fact act as director in September 1896. It was argued that his bankruptcy related back to 3rd August 1896 and that therefore he had ceased to be a director after that date. The appeal was dismissed and in the course of his judgment Lord Russell of Killowen C.J. said [41] :

It is clear, therefore, that if the acting in September of 1896 is evidence of his being a director within the meaning of this section within the year, then he comes within the section. It is clear, upon looking at this section, that the object is to get at the persons who have the information which the Court requires for the purposes of the winding-up; and I think that even if he had properly and legally ceased to be a director, but was de facto acting as a director within the prescribed period of a year, he was a director within the meaning of the section, and subject to the obligation to prepare and sign the accounts which are required by that section. His Lordship did not therefore consider whether the relation back of his bankruptcy to 3rd August 1896 had the consequence that he would have retrospectively ceased to have been a director as at the date of the act of bankruptcy. 1. [1898] 1 Q.B. 573. 2. [1898] 1 Q.B., at p. 576.

Other authorities to the same general effect are In re Western Counties Steam Bakeries & Milling Co. [42] ; R. v. Lawson [43] and Western Bank of Scotland v. Baird [44] .

[1897] 1 Ch. 617. 2. [1905] 1 K.B. 541. 3. (1872) 11 Macph. (Ct. of Sess.) 96.

To these authorities there must be added the decision of the Divisional Court (Viscount Caldecote L.C.J., Tucker and Birkett JJ.) in Dean v. Hiesler [45] . There the respondent had been acquitted on a charge under the Defence (General) Regulations on the ground that he had not been duly appointed a director at a properly convened meeting of the board. He had, however, attended at the offices of the company and signed letters and other documents describing himself as a director and the company had lodged a return with the registrar signed by the respondent which included his name as a director. At no time did he hold the necessary qualification shares. Viscount Caldecote L.C.J. said [46] :

It is quite true, of course, that this man usurped or performed some of the duties of a director, and it may be that, to that extent, he was in the position of a director, but I think that what the court here has to determine is whether the man was a director in fact, and has not to consider what is the precise meaning and effect of the definition contained in the Companies Act, 1929, s. 380. Tucker J. said [46] : "That regulation has the force of a penal statute, and, in my view, should be construed strictly." So far as appears from the report the cases concerning de facto directors and other de facto officers to which reference has been made were not brought to the attention of the Court. It is, however, clear from the careful reservations made by the Lord Chief Justice that the Court was dealing with a particular penal regulation and was not seeking to determine or apply the meaning of the word "director" in the Companies Act itself. In those circumstances it appears to me that this case cannot be regarded as detracting from the force of the observations made in Coventry and Dixon's Case [75] and the other cases to which I have referred. 1. [1942] 2 All E.R. 340. 2. [1942] 2 All E.R., at p. 341. 3. [1942] 2 All E.R., at p. 341. 4. (1880) 14 Ch. D. 660.

This line of authorities has stood without adverse criticism through a series of re-enactments and consolidations embodying the same, or substantially the same sections, without any material change directed to counteracting their effect. They have also been cited in successive editions of the standard text books without criticism as authority for the general proposition that de facto directors are subject to the same liabilities and penalties as de jure directors.

In these circumstances I am of opinion that it is now too late to say that the word "director" in these sections and their successors is confined to directors properly so called and duly appointed to such office, whatever view I might have taken in the absence of the authorities. This is, however, not to say that the term "director" wherever it is used in the Act bears this meaning. Whether it should be given this meaning in other sections will depend upon the terms, context and purpose of such sections.

For those reasons I am of opinion that special leave should be granted and the appeal allowed.

High Court of Australia Gibbs, Mason, Murphy and Aickin JJ. Corporate Affairs Commission v Drysdale [1978] HCA 52

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