The Badak venture began when a company was formed in May 1918 and registered in June of the same year under the no-liability provisions of the Victorian Companies Act 1915. It was formed to acquire a concession of about 100 acres of supposed tin-bearing land in Malay which had been obtained by Orton. There was provided a nominal capital divided into 100 shares of £10 each, 50 of those shares being for the vendors and 50 for the public. Clarke took up 2 shares by purchase and got, as he says, 2 more as a gift from an original syndicator named Williamson. On 13th November 1918 an agreement under seal was entered into between Orton and the Badak Company No Liability whereby, in consideration of 50 shares paid up to £10 each, he agreed to transfer his concession to the company and that until transfer he would use and mine the lands for the company, and that while in the company's employ all concessions to be acquired by him should be held by him for the benefit of the company. In November 1918 the share capital was doubled. Apparently, however, the shares were dead stock on the market for another year, no sale being recorded until the following November. So little were they thought of that Orton himself, who was in Malay, would not pay for some 20 shares that had been allotted him and paid for by Clarke. About October 1919, however, some reports were sent in by the Badak Company, and soon after there appears to have begun the movement that culminated in the successful accumulation of profits referred to. Clarke says in his evidence: - "Things were not looking too good with the Badak, there had been one or two poor reports: they were jumping up and down and I told my sons it would be wise to sell one each. They simply told me to sell them. I cannot remember it. I cannot remember whether I gave instructions to the broker or whether they did. I believe I did, but I would not like to swear to it." There is no doubt he did. He got the accounts, the sale notes and the cheques. The shares realized £148 10s. each in November 1919. In that month the company increased its capital to 600 shares, being 200 more for the public; 200 being held in reserve. This notwithstanding the "poor reports." The movement indicated by the sale mentioned (22nd November) violently proceeded. The market became inflamed. On 9th December another Badak share was sold in the same way for £173 10s. On 15th January 1920 two more sold for £693 each, one for £795, and so on until the comparative decline of the market in April 1920. In that month the concern was floated into a limited liability company of 75,000 shares of £1 each, of which 5,000 realized in June £2,433 4s. 2d. In the meantime another enterprise was set on foot in circumstances that would be scarcely credible were they not authenticated beyond question. Tracing it in broad and essential outlines it is as follows: - In April or May 1919 Scarborough was deputed by Clarke to go to Malay to see some land about which Orton had written and which was situated adjoining the Badak land. Clarke had arranged to pay Scarborough's expenses, which it was thought would reach about £200. According to evidence which Mann J. accepted, the respondent's two sons, A. S. Clarke and L. V. Clarke, agreed to be associated with their father in this expedition. At that time Badak was not shown to be a success. Clarke was still a brewer on a comparatively small scale, his sons were brewery employees and one was £18 odd in his father's debt. But as on another issue this association with Scarborough is made the starting-point for the main legal argument to sustain the whole burden of attributing henceforth to these two sons the right - adverse to the respondent - to the huge sums they received in respect of Bux shares, the sequel, and particularly the immediate sequel, must be narrated. This immediate sequel is important, and no mention whatever is made of it in the oral evidence of the two sons or in the judgment under appeal. The two sons apparently overlooked it, or more probably were unaware of it. But it existed and is quite inconsistent with their case - and the respondent's case - regarding the Bux shares. It appears that the original idea - if it ever really existed - of the father and his two sons forming at joint expense a family syndicate of three to send off Scarborough was abandoned. Certainly a new syndicate was formed for that very purpose. It was not a 16 share syndicate, nor was it then intended to be a 16 share syndicate. The written evidence and the respondent's own oral testimony when applied to the written evidence make this clear beyond cavil. With the aid of Trembath, a broker, Clark by April 1919 formed a syndicate, called the Bux Tin Mining Syndicate consisting of 12 shares. Scarborough was a member. He had arranged with Clarke that he, for Orton and himself, should besides expenses and maintenance have a one-fourth interest in whatever syndicate and in whatever company was formed for the purpose. Accordingly 3 shares were allotted free to him. Nine other shares were held by various persons, Clarke taking 4. These shares were £30 shares of which £25 was to be paid up at once, leaving £5 at call. Apart from himself, not a single member of Clarke's family was a member. The two sons were adults. If they were to be original members or otherwise "subscribers" no reason has been suggested or can be suggested why they were not named. Clarke sold a half share to a man named Rees for £12 10s., that is, cost price; and apparently this was paid by Rees contributing that sum to the common fund. On 16th April the syndicate of 12 shares was complete and the full sum of £225 was paid up. This sum was placed to the credit of the syndicate in the Commercial Bank on 24th April. On that date began payments out to and for Scarborough, namely, on 24th April £67 10s. for his boat fare, on the 30th a cheque to his wife for £50 and another to himself for £50, and a third for £50 for travelling expenses, and some small sums for cables to Orton. The record of the receipts and disbursements of the Bux Syndicate is a valuable piece of testimony. Now, neither the respondent nor his sons assert they ever had any conversation about this syndicate of 12 shares. But it appears from the respondent's evidence on this occasion that though the original number of shares was fixed at 12, the syndicate was opened again to admit someone in Sydney. Looking at the written record of the syndicate in Trembath's book it is clear that it was on 8th May that the reopening took place. Two new partners were introduced, one of them for one share and the other for two shares. But this made 15 shares so far, and an automatic consequence ensued. Scarborough had to receive another share, and this appears on the record. It was in this way that the 16 share syndicate came into existence. Again no trace of the reopening and reconstitution of the syndicate can be found in the son's evidence or elsewhere than as I have mentioned. If they were on an even footing with their father from the first their silence is incomprehensible. When Scarborough left Australia is not distinctly stated, but it must have been about this time. It will later be seen how impossible it is to fit in with these actual occurrences the fundamental account in the evidence, which has been made the basis of the judgment as to the two sons' Bux interests. I have now to proceed with the narrative as it affects the first issue. Mr. Trembath's book, which seems to have been faithfully kept, contains two records of meetings of the syndicate of 16. On 25th November three days after the Badak share sale referred to - a meeting of the Bux Syndicate took place. The importance of this meeting can hardly be over-estimated. Clarke and Scarborough (inter alios) were present. Scarborough, as it there appears, had been to Malay, with the result recorded. He returned about the middle of October. As to Scarborough's mission the minutes deserve quotation. They run thus: - "Correspondence was received from Mr. G. Shaw, the Inspector of Mines at Kedah on 23rd July 1919, stating that the application for lease had been received, also on 23rd September 1919, which was received 22nd November 1919, by Mr. Scarborough stating that at present they had decided to withhold alienation of mining land, until the progress of operations at Jeneri has made it clear that it is possible to work land in this locality without prejudice to agriculture. Should you care to submit your application at a later date it will be considered in the light of the result at Jeneri. - (Sgd.) C.A. Shaw, Superintendent of Mines, Kedah." Scarborough, it is stated, made some explanation which was received as "highly satisfactory." He also stated he had left a signed application in the hands of an agent to be forwarded when he deemed it necessary, and also had deposited 25 dollars in the Penang Bank for that purpose. We hear nothing more of that application. Clarke's own evidence shows that he regarded Scarborough's application as refused and for a reason that could not easily or quickly be removed. At the same meeting the remaining £5 per share was called up and made payable on 19th December, a date important in another connection. These minutes were confirmed on 23rd January 1920, when the next meeting was held. Before reaching that meeting, it is well to recall that the position of affairs so far disclosed is that the Bux Syndicate has no property - none in esse, none in immediate prospect, none to be hoped for unless official policy should be altered or satisfied by proofs that in the nature of things could not be furnished for a considerable time. "Investment" in any real, that is, honest, sense was impossible. Thus Clarke in his evidence: - "Q. No property was ever acquired for the Bux Syndicate? A. Only later on. Q. Was it in fact acquired later on? A. I understand they had the prospect of a licence, but that was very much later." And then he refers to the refusal of Scarborough's application. The next meeting took place on 23rd January 1920, when the syndicate had no property or anything that could reasonably be called property, beyond £10 1s. 1d. to its credit in the Bank and 25 dollars at Penang. Clarke was present. He moved, and it was resolved, that "A syndicate be formed of £50,000 capital in 2,000 shares of £25. 1,000 shares fully paid up to the vendors and promoters, including any increase of capital. 1,000 shares issued at £5 per share, the sum of £5,000 to be placed to the credit of the Bux Tin Company, and Mr. I. Murchie, legal manager. The allotment of shares as follows: - 350 fully paid up shares to vendors; 650 fully paid up shares to syndicate: 1,000. 1,000 shares to be offered to the syndicate of £5 per share and the remaining two paid shares to be given to Mr. Trembath for services rendered." Then comes this astonishing note: "The property consists of 500 acres immediately adjoining the 100 acres which" (sic) "the Badak Co. which is now being check bored by Mr. Wilson." One naturally asks "what property? and who were the vendors?" The "promoters" we know, and Clarke first. The 350 shares went to him, Orton and Scarborough. We know, also, rather by indirection, that, there being in the syndicate 12 contributing shares, the 650 paid up shares were applicable at the rate of 54 to each share. The same policy was pursued with regard to the 1,000 £5 shares. So that as a fact vendors and promoters as such got 700 paid up shares of which Clarke had one-third - he says by agreement; and the other shares had attached to them 54 paid up and 54 contributing in the new scheme. An indenture, bearing date 21st January 1920 - apparently a slip for the 23rd - was executed between ten of the individual syndicators of the one part (as vendors) and Murchie, as trustee for the new no-liability company to be incorporated. The recital is: "Whereas one of the vendors" (Scarborough) "is the applicant for a tin-mining lease or concession in the valley of the Sungei Jeneri State of Kedah in the Malay Peninsula of approximately 500 acres adjoining the lease or concession held by Thomas West Orton of Badak Mining Syndicate No Liability on the western boundary at the Sungei Hai and such application has been lodged with the Malay Government and whereas the vendors have agreed to complete the said application and to sell and when obtained to grant transfer and assure the said lease or concession to the said trustee as hereinafter mentioned." Then follow the testatum and the other parts of the deed. So far as appears, the official attitude in Malay remained unchanged. No circumstances are suggested warranting the representations conveyed by the recital. No comment could do justice to the moral quality of the mind sanctioning the recital in such circumstances. The company was incorporated on 17th February 1920. The company adopted the agreement on 15th June 1920. But in the meantime all material events had happened and the adoption was practically the adoption of an empty shell. The project was placed on the market before registration of the no-liability company, indeed, numbers were sold from 28th January to 9th February. The market was already in a most excited state with Badak shares and apparently the anticipated registration of the Bux Company No Liability. Speaking of Badak and Bux shares, Clarke says that in January "you could sell thousands of them at £100 a piece at that particular time." The registration on 17th February of the new corporation with the mythical substratum was made under the provisions of the Companies Act 1915. The actual documents of registration are not before us in evidence, but the statute prescribes what is requisite. There must be a statutory declaration before a justice of the peace equivalent to an oath and describing the "property" of the company intended to be mined upon. Some "property" must have been described - what else than as recited? Now Clarke, the prime mover in the transaction, stated in answer to Mann J., that when the company was registered it was "well known that Scarborough was going over to endeavour to get the property that he had previously put in an application for." What does that vague statement mean? Does it mean that the public believed Scarborough had gone over to perfect an assured title or complete a pending application, or does it mean that the public were content to pay fabulous sums well knowing they had as yet no property at all and might never have any? To get the company recognized by the Stock Exchange, however, and so dispose more readily of the shares, Clarke arranged with Murchie to put on the register the names of his wife and four of his younger children for 25 shares each or 125 in all. This is said to be a "pro forma" registration. I do not quite understand that expression in the circumstances. It was either to complete an intended gift more generously than at first intended, or it was an act of deception and fraud. But the main fact is that on 17th February extensive sales of Bux shares began again, at first at £56 a share, rising on the same day to £138 10s. The sales went on and purchases took place, the market being skilfully manipulated with the wonderful pecuniary success that has been related.