frectee dust v ASWLRSr9

frectee dust v ASWLRSr9 - [1935] HCA 71 - HCA 1935 case summary — Zoe

[13]

An action brought by Lustre Hosiery Ltd. in the Supreme Court of New South Wales, to recover the sum of £8,500, was upon an agreement by which the defendant, Henry Herbert York, in consideration of the plaintiff company exonerating a del credere agent, Henry H. York & Co. Ltd., from certain obligations, agreed to pay the plaintiff the amount due to it in respect of the sale of its goods which would otherwise have been due by the agent, after deducting certain commissions. The plaintiff sought to estab- lish its claim by what it submitted were admissions made by the defendant. It did not have any other evidence. The defendant asserted that the del credere risk, when he took it over, was stated by the plaintiff company or its officers to be £3,500, and that there was an offset of a corresponding credit for commissions against this sum. Early in 1932 the plaintiff company resolved that a statement be prepared and checked by its auditors, covering all amounts chargeable to the defendant under the selling agreement, that the amounts so ascertained be transferred to the debit of the defendant, and that commissions due be credited against his account. The with the sales ledgers, and they certified, to the best of their auditors reported that they had compared certain attached lists knowledge, that the total of the same, namely, £10,313 19s. 1d., represented the amount owing by the agent in terms of the agreement, but excluding a certain specified account. The auditors had no personal knowledge of the transactions, and apparently checked a list or statement made up by the plaintiff company with that company's sales ledgers. The defendant was chairman of the plaintiff company and had a controlling interest in the agent company, but he did not keep the books of the plaintiff company. The auditors' report and certificate were considered by the directors of the plaintiff company at a meeting held on 2nd March 1932 at which the defendant was present. During the course of a lengthy discussion the defendant stated that he had entered into the agree- ment referred to above upon the faith of the correctness of the statement made by the plaintiff's secretary and believing that the total of the bad debts for which he would be responsible was approximately £3,500 and that the del credere responsibility would be set off and

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that species of evidence is not admitted; and although it is well known that declarations made by a party in possession of an est are admissible against his own interest, yet no case that we are aware of has established that a declaration by a party in possessi of what he heard another person say (and in this case he does not even go so far as to say he believed what was told him), is admissib] : to cut down or defeat his estate" (1). In reference to this pai of the opinion of the Judges, Lord Brougham said : - " The lea Judges hold that the declaration of a party so in possession would be competent and admissible in evidence against him or his privies, claiming through and under him in that title; yet, that a declaration or statement of a person so circumstanced would not be admissible in evidence if it were only a statement of something which he had heard from some other person, and not of his own opinion of his title. That is the distinction taken by the learned Judges, and it is, no doubt, a very natural distinction, as to the weight rather than the admissibility of the evidence. If it is only a declaration or a statement of what some other person said, a stranger to the title and a stranger to the cause, it might perhaps admit of a doubt ; whether everything that is said against a man's title, by himself, might not be admissible in evidence, reserving, indeed, a question as to the weight of the evidence, for the consideration of those by - whom it shall have to be weighed. I take for granted that the - learned Judges have applied their minds, and that they have discussed the question in that view " (2). Lord Campbell thereupon said that he heartily concurred in the opinion of the learned Judges upon this question, " because it seems to me, that although you may admit evidence of what a person in possession has said as to matters _ within his own knowledge, to cut down the title he has, it would lead to mischievous consequences if you could give in evidence against him and those who claim under him, that which he is said to have heard another person say; because that may be utterly false" (3). To this Lord Brougham replied : - " The way in which it occurred to me was, that a person stating what he knows or thinks _ to be against his title, is evidence against him and against those

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In order to apply these principles to the present case some examination of the facts is necessary. The defendant was the managing director of the plaintiff company, which he had founded some years ago. It conducted a manufacturing business and until the depression its success had been marked. The defendant also brought into existence another company which he called " Henry H. York & Co. Limited," and this company he completely controlled. It acted as sole agent for the plaintiff company in the distribution of the goods which the latter manufactured and it undertook a del credere responsibility. In July 1931 an agreement between the two companies was in force. It contained provisions requiring the agent to transmit orders to the principal and entitling the agent to 6} per cent commission upon the net invoiced prices of goods ordered through the agent and approved by the principal when paid by the purchasers or by the agent in pursuance of his del credere responsibility. It also defined that responsibility. It required the agent to pay the amount owing in respect of goods supplied in execution of any such orders if it remained unpaid after thirty days. If the principal sold goods on its own behalf, the agent undertook no responsibility but was entitled to 5 per cent commission. In practice the two companies did not carry on exactly according to the terms of the agreement. The period of thirty days was ignored and the agent was debited at intervals with the debts which the principal wrote off as bad. In the plaintiff company's balance-sheet for the half-year ended 30th June 1930 the item " Sundry debtors " stood at £62,122 6s. 6d., but the auditors reported that no provision had been made for losses on doubtful accounts because the respon- sibility for bad debts rested upon Henry H. York & Co. Ltd. The plaintiff's directors, however, called for a list of the accounts showing their currency. Nothing seems to have been done, as a result of the consideration of this list, before the auditors' report upon the

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next half-year's trading, which was submitted at the end of March 1931. The item "Sundry debtors" at 31st December 1930 stood at £82,023 19s. 5d. and the auditors reported that of this a substantial sum appeared to be very doubtful. During the next three or four months, the relations between the two companies underwent a good 'deal of discussion. Figures were submitted to the board and to the defendant showing the liability of Henry H. York & Co. Ltd. On 16th June 1931 the estimated debit for bad debts was put down as £3,000. Later the net liability as at 30th June 1931 of Henry H. York & Co. Ltd. to the plaintiff, after debiting bad debts and 'other items, and crediting commission, was brought out at £3,162 17s. 6d. Later still, the balance was ascertained by means 'of the books of the plaintiff company to be £3,333 10s. 10d. With this figure before them, the board of directors of the plaintiff company 'made a new arrangement with the defendant on behalf of Henry H. 'York & Co. Ltd. The agreement between the two companies was cancelled as from 31st July 1931. The selling organization of Henry 'H. York & Co. Ltd. was taken over by the plaintiff company. The del credere responsibility of Henry H. York & Co. Ltd. upon all orders already obtained, whether fulfilled or unfilled, at that date continued. Correspondingly it remained entitled to commission upon those orders. This arrangement was made on 3rd August 1931. On 3rd September 1931 the defendant brought before the board a report by the secretary of a discovery that a particular account of some magnitude contained in the sales ledger was unreliable and needed large adjustments. He reported also that the plaintiff company's accountant had resigned. The board requested the auditors to make a report. Before their report was submitted, the defendant made a new proposal to the plaintiff company. It appears that he was advised by those responsible for the preparation of his income tax returns that it would save tax if the benefit of the arrangement recently made with Henry H. York -& Co. Ltd. were obtained by him directly and not through the intervention of that company. Accordingly, on 8th October 1931 an agreement was made by way of novation between the defendant and the two companies. The terms of the agreement weré as follows : - '' 1. That the commission on the forward orders in hand

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selling agreement, should be transferred to the agent, that is, in effect, paid by the defendant. The list was forthcoming on 11th December 1931. According to it an amount of £12,137 15s. 6d. ought to be debited to the defendant's account. Evidence was given that, at a board meeting when this or a subsequent list was under consideration, the defendant asked the board in the first place to wipe out the liability, claiming that, in view of the services he had given to the company, the liability should be wiped out. This evidence was given by a member of the board of directors. The learned Judge who presided at the trial asked the witness what was probably an inadmissible question, namely, whether, after the report of the auditors, the directors did not all take the view " that there was the liability." The witness answered : " Yes" and his Honor continued : " In his presence that he was liable for the whole amount?" The witness answered : "' Yes, and Mr. York accepted that position." Nothing appears to have been done then until 3rd February 1932, when the board resolved - the defendant being present - that a statement be made up and checked by the auditors covering all amounts chargeable to the defendant under the selling agreement and that such amounts be transferred to his debit and that commission due be credited. Lists were prepared accordingly, and, on 2nd March 1932, the auditors certified that a total of £10,313 19s. represented the amount owing excluding a particular account. On the same day, this certificate was considered by the board. In the course of the discussion, the defendant said that he had agreed to the termination of the old agreement only upon the faith of the secretary's then statement that he would be responsible for about £3,500 less commission. He said that it was now discovered upon the report of the company's auditors that the actual amount of the bad debts was approximately £10,000 with the possible recovery of £3,000, leaving a net figure of about £7,000 to be covered by the del credere risk, whilst the commissions stated by the secretary to be payable had actually been set off against an earlier balance. He asked that the whole position should be reviewed. He requested that the matter should be brought before an arbitrator.

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The action, said the learned Chief Justice of the Supreme Court, was upon "an agreement by which the defendant " - the respondent _ here - " in consideration (inter alia) of the plaintiff company " - the appellant here - exonerating a del credere agent from certain obligations, agreed to pay the plaintiff company the amount due to it in respect of the sale of its goods which would otherwise have been due by the del credere agent, after deducting certain commis- sions." The plaintiff sought to establish its claim by what it submitted were admissions made by the defendant. Other evidence ~ it had none. The only question is whether there was any evidence to go to the jury of any admission upon which it could reasonably © find a verdict for the plaintiff. The Supreme Court resolved this - question in favour of the defendant. The facts of the case have been exhaustively examined by the learned Chief Justice, and it would serve no useful purpose to recapitulate them. The case is _ in a very narrow compass. The defendant asserted that the del credere risk, when he took it over, was stated by the plaintiff or its officers to be £3,500, and that there was an offset of a corresponding credit for commissions against this sum. Early in 1932 the plaintiff company resolved that a statement be made up and checked by the company's auditors, covering all amounts chargeable to the defendant under the selling agreement, and that such account be transferred to the debit of the defendant and that commissions due be credited against such account. The auditors reported that they had compared certain attached lists with the sales ledgers, and they certified, to the best of their knowledge, that the totals of the same, namely £10,313 19s. 1d., represented the amount owing by H. H. York & Co. Ltd. in the terms of the sales agreement but excluding a certain specified account. The auditors had no personal knowledge of the transactions, and apparently checked a list or statement made up by the plaintiff with the sales ledgers of the plaintiff. The defendant, it should be stated, was chairman of the plaintiff company, and

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the books of the plaintiff company. The auditors' report and certificate were considered by the directors of the plaintiff company at a meeting on 2nd March 1932, at which the defendant was present. The discussion at this meeting was much relied on by the plaintiff as evidence of an admission by the defendant of the accuracy of the account made up by the auditors. Minutes of the meeting were pre- pared and signed by the defendant. So far as relevant, they are as follows : - " Re Selling Agreement. - The certificate of Messrs. Flack and Flack dated 2nd March 1932, covering the indebtedness of H. H. York & Co. in terms of the selling agreement was laid before the meeting. A lengthy discussion took place in the matter of the selling agreement. Mr. York intimated that he had agreed to the termination of his service agreement and of the agency agreement upon the faith of the correctness of the statement made by the secretary and believing that the total bad debts of the company for which he would be responsible were approximately £3,500 and that this del credere responsibility would be set off and counterbalanced by commissions to that amount which Mr. York was entitled to receive on past business. Mr. York said that it was now discovered on the report of the company's auditors Messrs. Flack and Flack that the actual amount of the bad debts was approximately £10,000 with the possible recovery of £3,000 leaving a net figure of about £7,000 to be covered by the del credere risk, whilst further the commissions which were stated by the secretary to be payable actually had been set off against the June balance. Mr. York suggested that the whole position should be reviewed as he had certainly relied on the correctness of the figures and entered into a fresh service arrangement believing that on the figures there would be no outstanding liability against him in respect of bad debts. The managing director then outlined his association with the company and the value of his services to the company and discussed the steps which led up to the final cancellation of the selling agree- ment. He stated that the arrangement entered into on February 1st 1929 meant that since that date the company had benefited to the extent of approximately £12,500 and that the profit made by the company for the last two years was proof of the fact that the

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business had been maintained on a sound and profitable basis ang that he was of the opinion that this should be taken into consideration Mr. York was of the opinion that the charging of the total am certified to by the auditors as outstanding to York and Compan would be unfair, and he considered that the basis on which th agreement was terminated was in his opinion incorrect and the matter should be submitted to arbitration. Mr. Forsyth and Mr. Hemphill both stated that they were not in a position to a Mr. York's statement and in any case disagreed with his y and Mr. Forsyth stated-that in his opinion had the informati been available it would have made no difference to the decision of himself and Mr. Hemphill. Mr. Forsyth also stated the agreement had been profitable since its inception in 1924 a the fact that certain losing years have been experienced should be taken in conjunction with the fact that profitable years had a been experienced. Mr. York pointed out that whilst the agree had been profitable in the years mentioned by Mr. Forsyth for these years the company also had made very large profits. Against th for the past three years the selling arrangement resulted for York and Company disastrously. Mr. York again informed the board that from the point of view of equity he considered that the matter should be brought before an arbitrator regarding the basis of termination of the agreement, and both Mr. Forsyth and Mr. Hemphill stated that there was nothing to arbitrate about. Mr. Forsyth again gave his opinion as regards the operation of the agreement in the past and - after further discussion the matter was adjourned until the next meeting of the board." On 9th March 1932 a further meeting of the directors of the plaintiff company was held, at which the defendant was again present. The discussion at this meeting was also pressed. Minutes of the meeting were prepared and signed - by the defendant. So far as material they are as follows : - * Re Selling Agreement. - A further discussion took place regarding the

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of the selling agreement was out of the question as in his opinion there was nothing to arbitrate about. Mr. Forsyth then inquired from Mr. York what the definite position was as regards payment of the bad debts as a del credere risk, by York and Co., according to the list of book debts to be debited to York and Co. certified to by the company's auditors. Mr. York stated that it was impossible for him to accept responsibility for this debit. Mr. Forsyth then asked whether any offer could be made and Mr. York stated that he was not willing to make any offer. Mr. Forsyth then stated that in that case he assumed the company would 'have no alternative but to take the necessary action to establish its claim to the amounts in question. Mr. Mcllrath and Mr. Hemphill also stated that they assumed there was no other alternative. After considerable additional discussion in which all the directors took part, in order to finalize the matter it was proposed by Mr. W. G. Forsyth and seconded by Mr. Martin Mcllrath: 1. That the secretary be instructed to write to Mr. H. H. York advising him that the company expect payment of the amount due under the selling agreement and that he be asked if he is prepared to accept the certificate of the company's auditors, Messrs. Flack and Flack, as to the amount due; and 2. That the secretary be instructed to furnish to the board the certificate from the company's auditors, Messrs. Flack and Flack, covering the amount due under the selling agreement with York & Co." The following letter was thereupon written by the plaintiff to the defendant on the same day, 9th March 1932: "At a meeting of the board of directors of Lustre Hosiery Limited, held on 9th March 1932 I was instructed to inform you that Lustre Hosiery Limited expect payment from you of the amount due by Messrs. York and Co. under the selling agreement, and to also ask you if you are prepared to accept the certificate of the company's auditors Messrs. Flack and Flack as to the amount due." And the defendant replied on 14th March 1932 as follows : - " Your letter of the 9th instant to hand. I have already intimated that, relying upon the statement of your com- pany made officially through its secretary to the effect that the

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Judgment (97 paragraphs)

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