Gould v Mount Oxide Mines Ltd

Gould v Mount Oxide Mines Ltd - [1916] HCA 81 - HCA 1916 case summary — Zoe

[11]

By an agreement dated 22nd January 1912 (elsewhere described as of the 19th) made between one Ernest Henry (who was lessor of the Mount Oxide mine from the Crown), who is called the "vendor," and the Hermann Company, called the "purchaser," the vendor placed the mine under offer to the purchaser for six months for the sum of £60,000, plus the value of unused tools and stores. The option was afterwards exercised. In the meantime, by an agreement dated 7th February 1912 made between the Hermann Company, called the "vendor," of the one part, and Mr. C. A. Jaques, solicitor, on behalf of a company, of the other part, reciting that the vendor had agreed with Jaques that the latter should proceed with the formation of a company to be known as "Mount Oxide Options Ltd." having for its object, inter alia, the acquisition of the vendor's option, the nominal capital of which company was to be £10,000, divided into 1,000 shares of £10 each, and that the Memorandum and Articles of the proposed company had been prepared, by which it was provided that the proposed company should on incorporation adopt the option agreement of 19th (or 22nd) January, the vendor agreed to assign to the company when incorporated all its rights under that agreement in consideration of a payment of £6,000, of which £2,000 was to be paid in cash, and represented cash payments made by the Hermann Company, and the balance of £4,000 by the allotment to the vendor or his nominees of 400 fully paid shares. Four hundred shares were to be offered to the public, and the remaining 200 shares were to be held in reserve. If the company should be satisfied with the results of its investigation of the mine it was to be at liberty to promote the formation of a larger company to take over the property, but the promotion was to be placed in the hands of the Hermann Company, which was to receive a commission of 2½ per cent. on shares subscribed by the public on such flotation, and was also to receive a further sum of £40,000 in cash. The proposed new company was, in addition, to pay the balance of the purchase money due to the original vendor, Henry, and take over all the obligations of the Options Company, which included the payment of £40,000 to the Hermann Company in cash. At this time, as already stated, the Hermann Company had an actual or controlling interest in the Options Company to the extent of one-half the issued shares.

[18]

Of the 40,000 shares offered in Australia, 20,000 appear to have been subscribed for by the public, but the Hermann Company appear to have been compelled to assume the liability in respect of some of them. The other 20,000 were, some months afterwards, allotted to the Hermann Company. When, therefore, the Company began operations their total working capital in hand seems to have been very small, and there is nothing to suggest that any of their ore was sold or saleable. The working capital might, no doubt, have been supplemented by calls paid upon the 50,000 shares allotted in London, but, as will directly appear, 40,000 of these shares were allotted to the Hermann Company, apparently in satisfaction of the £40,000 cash due to it under that company's agreement with the Options Company. No money could be looked for from this source. The sum of £10,000 was, however, due from London shareholders, and the directors hoped to receive it soon. They were not able to meet the payments due to Henry, on 22nd September and 22nd October, and had been obliged to obtain on onerous terms an extension of time for payment. In October 1912 the directors authorized an expenditure of £15,000 upon the mine within the following six months. They seemed to have been still very hopeful, but it is plain that the Company was then in serious, if not hopeless, difficulties. It was indeed recognized that their only hope was in a sale of the undertaking. At this time the Hermann Company was the owner of more than half the issued shares in the Company, namely, 40,000 of the London shares underwritten by it, and accepted in discharge of the £40,000 payable in cash by the Options Company, 30,000, being half of the 60,000 allotted to the Options Company, and 20,000 issued to it for its underwriting commission, in all 90,000 shares. It had also apparently been obliged to assume the liability upon some other shares, which the allottees in Sydney had refused to take up. This number may have been reduced to some extent by sales to other persons. Its interest in preserving the life of the Company and in financing its affairs was, therefore, very large, and, indeed, preponderating. The Company was believed to have at grass on the mine about 3,000 tons of copper ore of a grade which would make its nominal value about £38,000, but with the existing means of transport it had no present convertible value. Its prospective value, however, in the hands of a Company strong enough to make provision for smelting the ore on the mine, although altogether conjectural, might well be taken into consideration as an asset.

[20]

In the latter end of the year 1912 a Mr. Mercer was in Australia for the purpose of inspecting mining properties in the interest of a group of London speculators or investors called the Properties Selection and Trust Ltd. Amongst other properties he inspected the Mount Oxide mine. The result of his inspection and of other negotiations between Mercer, Hermann, and one or more of the appellants, was that an agreement, dated 23rd December 1912, was entered into between the plaintiff Company (called "the vendor company") of the first part, the Hermann Company of the second part, and the Properties Selection and Trust Ltd. and one Edmund Davis of the third part, which may be briefly described as an option agreement by which the plaintiff Company offered their undertaking to the parties of the third part on certain terms specified. As the plaintiff Company's case, as now sought to be made, is based almost wholly upon this agreement, it is necessary to consider it in some detail. It provided as follows: the parties of the third part agreed to despatch an engineer to the mine to inspect it, and if his report should be satisfactory to advance to the Hermann Company, with the vendor company's consent, by way of loan the sum of £20,000. The Hermann Company was, before the advance was made, to give as security a blank transfer of 40,000 shares on the London Register (to which I have just now referred as taken by them in satisfaction of £40,000 in cash due to them) to be held by the parties of the third part until repayment of the advance with interest. As further security for the advance it was stipulated that not less than 3,000 tons of copper ore assaying not less than 17 per cent. of metallic copper to the ton of ore should remain on the mine. Immediately on the making of the advance the parties of the third part were to have the right to proceed with the flotation of a new company with a capital of £475,000 to take over the vendor company's undertaking. The purchase money was to be £200,000, to be satisfied in whole or part by the allotment of fully paid shares. The proposed new company, which was to have a cash working capital of £150,000, was to be formed, and have the stipulated capital placed to its credit within six months, and in default the vendor company might terminate the agreement by notice in writing, but such determination was not to prejudice or affect the rights of the parties of the third part to repayment of the £20,000 to be advanced to the Hermann Company or their rights to "the securities for its repayment," that is, the transfer in blank by the Hermann Company of 40,000 fully paid shares and the promise of the plaintiff Company to retain 3,000 tons of ore on the mine.

[27]

After setting out the agreement of 23rd December in the manner I have stated, the statement of claim proceeded to allege more acts of omission on the part of the appellants in the same bald manner as before. It also alleged (par. 43) that the £20,000 advanced to the Hermann Company was not applied wholly or in part for the plaintiff Company's benefit, nor was half of it expended for the Company's benefit in such a manner that with it and the money already in the Company's hands work at the mine continued without intermission with the object of developing the property and increasing the available ore. Par. 44 alleged that £10,000 of the £20,000 was applied by the Hermann Company in payment of calls upon shares which that Company had underwritten. After other similar allegations of inaction on the part of the directors, without any allegation of consequent damage, the statement of claim set out an agreement dated 21st August 1913, by which the plaintiff Company agreed to sell to the Fanti Company the plaintiff Company's undertaking on terms to which I will afterwards refer in detail, and which was in fact carried out, although, strangely enough, that fact is only mentioned incidentally in par. 57 of the statement of claim, which sets out resolutions for winding up the plaintiff Company. It did not contain any allegations suggesting the invalidity or impropriety of the agreement, but merely alleged it as a fact. Mr. Knox had to admit that any complaint founded upon the making of that agreement could only be supported on the doctrine of res ipsa loquitur. After alleging the proceeding for winding up the plaintiff Company, the statement of claim in par. 62 charged that the appellants were guilty of breaches of duty as directors of the Company and grossly negligent in relation to the Company's affairs "in the following amongst other respects." It then enumerated 25 separate instances of acts of omission on the part of the appellants. One of them (r) was that they consented to the insertion in the agreement of 23rd December of the provision for payment of the £20,000 to the Hermann Company and neglected to see to its application. Another (v), with which I will deal separately, was that they improperly issued certificates for shares. It wound up by an allegation (the futility of which I have already pointed out) that the appellants were puppets of Hermann and the Hermann Company, and acted under their direction, without exercising any independent judgment or discretion, and delegated to them the exercise of their powers and duties as directors. After an allegation against the appellant Allen separately, which they failed to establish, they finally alleged that the plaintiff Company had lost at least £25,000 by reason of the appellants' breaches of duty and gross negligence.

[32]

The observations of the learned Lords who decided the case of Wilde v. Gibson[2] are to the same effect. In Archbold v. Commissioners of Charitable Bequests for Ireland[3], which was a bill against a trustee for alleged breaches of trust, the Lord Chancellor (Lord Cottenham) said: - "Now two points arose, which it was necessary we should consider before we came to the last point, which we have heard argued by Mr. Bethell in reply. The first question was with regard to the personal charges against the appellant. Having very minutely examined each of the charges during the time that the respondents' counsel were heard; and calling upon them with respect to one charge after another, to show how each was proved, and by what evidence it was established, every one of them in succession appeared to be totally unfounded. There did not appear to be anything in the evidence to support the charges made in the bill. Attempts were made, by matters said to be in evidence, but not upon the record, which, if properly stated and properly proved, might have been grounds of objection to the conduct of the trustee; but the House are of opinion that they cannot enter into the consideration of any matter not charged; and consequently that part of the case we have rejected from our consideration. I only mention it now for the purpose of removing any impression which may have been made by the arguments at the bar, that, because this is a charity case, it is competent for the plaintiffs to introduce unfounded charges against an individual connected with the charity, and yet to sustain the bill, although those improper charges appear to be necessarily thrown out of consideration. There is no such rule; it would be very unjust if there were. The relaxation of strictness, allowed in cases of charities, has no reference to the state of the pleadings as affecting the conduct of individuals. We therefore confined the plaintiffs to what was alleged, looking to the evidence we had in support of those allegations; and that part of the case, in the opinion of the House, entirely fails."

[34]

I will, however, proceed to examine the case which is now founded on the making of this agreement, premising that, in the absence of any allegations of any extraneous facts, it can only be supported on the ground that (1) it is on the face of it a breach of trust, and that (2) loss to the Company must necessarily have followed from it, both of which inferences rest on the position that res ipsa loquitur. It is necessary, therefore, to examine the agreement in detail. I have already said that the Fanti Company had refused to go on with the option granted by the agreement of 23rd December. By the agreement now in statement, which was made by the plaintiff Company (called "the vendor company") of the one part and Fanti Consolidated Mines Ltd. (called "the purchaser company") of the other part, and contained no recitals, it was agreed that the vendor company should sell and the purchaser company should purchase the vendor company's undertaking subject to (a) the sum of £30,000 due by the vendor company and owing in respect of debentures issued by them (to Henry), (b) a sum of £1,700 due by the vendor company to Henry in respect of a lien for unpaid purchase money, and (c) a sum of £20,000 described as "due from the vendor company to the purchaser company in respect of an advance made by the purchaser company" with interest, and (d) a sum of £650 due by the vendor company to Mercer for commission for procuring the advance of £20,000 but otherwise free from incumbrances. I pointed out in the course of the argument that the description of the £20,000 as "a debt due from the vendor company to the purchaser company" may have been falsa demonstratio, but that there is no doubt that what was meant was the £20,000 advanced to the Hermann Company under the agreement of 23rd December. The consideration for the sale was to be (a) £170,000, which should be satisfied by the allotment to the vendor company or its nominees of 170,000 shares in a company proposed to be formed (called "the proposed company"), (b) "the payment and discharge" of all principal and interest payable in respect of the said debentures and in respect of the said lien (to Henry) and the advances made by the purchaser company (this also was not quite accurate as the advance was made by their assignors), and the sum of £650. Within 14 days the purchaser company was to form and register the proposed company, which was to have a nominal capital of £500,000, divided into 500,000 shares of £1 each, of which 80,000 were to be reserved for working capital but with liberty to apply so much as might be necessary to satisfy the debenture debt, the lien debt, the £20,000 advanced, and the £650. When the proposed company was formed the purchaser company was to enter into an agreement for sale of the property for £420,000, to be satisfied by the allotment to the purchaser company or its nominees of 420,000 fully paid shares of the proposed company, of which the purchaser company should be entitled to retain 250,000 for its own use. Clause 5 provided that the purchaser company should procure the proposed company to agree to discharge the debenture debt, the lien debt, and Mercer's debt on specified days, and also on or before the completion of the purchase to pay the £20,000 to the purchaser company, the purchaser company agreeing - i.e. with the vendor company, the plaintiffs - that "in consideration of this agreement all interest in the £20,000 is to cease on its date and" the purchaser company "shall keep the vendor company indemnified in respect of all moneys claims and interest in the claims mentioned." In the event of the proposed company not being incorporated or, if incorporated, not paying two specific sums of £10,000 and £1,750 to Henry within 21 days from 21st August, the purchaser company was itself to pay and indemnify the vendor company against them. Until the completion of the purchase (i.e., by transfer of leases, &c.) the vendor company was, under the direction of the purchaser company and at its expense, to carry on work upon the mine. In the event of the proposed company not being incorporated or 80,000 shares not being subscribed by responsible persons and not obtaining its certificate enabling it to commence business on or before 31st October 1913, the vendor company might rescind the agreement, in which case the purchaser company should have no claim in respect of any moneys paid by them under it (that is, in payment of the £10,000 and the £1,750 to Henry and the cost of working the mine). Before completion of the purchase the purchaser company undertook to procure the proposed company to deliver to the vendor company an undertaking under its common seal to allot to the vendor company or its nominees the 170,000 fully paid up shares and to indemnify the vendor company against the debenture debt, the lien debt, the advance of £20,000 and Mercer's £650.

[37]

First: It is said that the provision contained in the agreement of 23rd December not to reduce the ore at grass below 3,000 tons constituted in effect an incumbrance upon the Company's property to secure the advance of £20,000 made to the Hermann Company, which incumbrance was (1) ultra vires of the plaintiff Company, and (2) unlawful on other grounds, and that this defect followed and attached to the agreement of 21st August which gave practical effect to the agreement of December. It was assumed through a great part of the argument that this provision in effect created an incumbrance by reason of which the plaintiff Company became sureties to the Hermann Company to the extent of the value of the ore. If this is the true view, they would or might in some events have been entitled to have recourse as sureties to the 40,000 shares pledged by the Hermann Company as security for the advance. But was that its true effect? The operative words, which, of course, express a promise of the plaintiff Company to the parties of the third part, are: "As further security for the said advance there shall remain on the mine ... so long as the said advance and interest are unpaid not less than 3,000 tons of ore." These words do not purport to transfer the title to any specific ore, and, indeed, could not under the law of Queensland have that effect. In my opinion, they only operated as what in the case of a contract between natural persons is called a personal covenant, for breach of which the remedy is in damages and possibly by injunction. The object of the promise is manifest from the nature of the transaction, namely, to secure that the company which it was proposed to form to take over the plaintiff Company's undertaking should have a large body of ore to go on with. It was, therefore, in substance, a promise by intending vendors not to diminish during the negotiations for purchase the value of the property proposed to be sold. This point will be seen to be very material when I come to consider the objection made to its validity. If the negotiations for the formation of a new company had fallen through, I think that the promise would have come to an end. It would at any rate have become inoperative, since the parties of the third part, and the Fanti Company as their assignees, could not have sustained any loss from a subsequent breach of it.

[57]

Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. There is abundant authority for this, even if the matter were required to rest on authority only. See, for instance, Nevill v. Fine Art and General Insurance Co.[7]; Browne v. Dunn[8], the relevant passage being quoted fully in Rowe v. Australian United Steam Navigation Co.[9]. There are qualifications, no doubt, and each case must depend for the proper application of the principle upon its own facts. It has been laid down by the Privy Council that "As a rule relief not founded on the pleadings should not be granted." "But in this case" (said their Lordships) "the substantial matters which constitute the title of all the parties are touched, though obscurely, in the issues; they have been fully put in evidence, and they have formed the main subject of discussion and decision in all three Courts. The High Court are right in treating the case as not within the rule": Sri Mahant Govind Rao v. Sita Ram Kesho[10]. Nocton v. Lord Ashburton[11] is a decisive authority that even where fraud is charged and the charge fails, the plaintiff does not necessarily fail. He may still have a sufficient cause of action left. But in the present instance the defendants, whatever course might have been open to them at the hearing, unquestionably adopted that of fighting the claims as presented in argument upon the evidence as if the particular claims made had been specifically alleged, and as if there were no other evidence upon those claims which the defendants desired to adduce. There is no suggestion even now that other evidence would have been available; and it is perfectly obvious that any objection raised could have been instantly met by a formal amendment, and that no further evidence would have been offered. The case has been fully tried out, as far as the parties desired, on the three matters before us, and the only question is whether the judgment appealed from as to the challenged items should be affirmed, modified or reversed on the merits.

[60]

In the month of January 1912 one Ernest Henry was the lessee from the Crown of a mining property in Queensland known as the Mount Oxide mine. By an agreement dated 22nd January 1912 Ernest Henry in consideration of £1,500 paid to him by J. Earle Hermann Ltd. placed the property under offer to that company for six months for the sum of £60,000 cash plus the value of certain stores and plant. The company had the right on payment of a further sum of £500 to a further three months' option. In the event of the option being exercised the sums paid for the option and extension were to be taken as part of the purchase money.

On 7th February 1912 Hermann Ltd. entered into an agreement with a trustee for a company then in course of promotion, to be known as the Mount Oxide Options Ltd. The agreement was subsequently adopted by this company on its incorporation. By this agreement Hermann Ltd., in consideration of 400 fully paid shares of £10 each and £2,000 in cash, was to transfer and assign to the Mount Oxide Options Company the benefit of the option agreement with Henry. Should the Mount Oxide Options Company decide to exercise the option it was to be at liberty to form a larger company to acquire the property subject to two conditions: (1) that Hermann Ltd. was to have the promotion of the flotation of the larger company in consideration of a sum equal to 2½ per cent. on the amount subscribed by the public for shares in the larger company; (2) that on the formation of the larger company Hermann Ltd. was to receive £40,000 in cash and the larger company was to pay Ernest Henry the balance of the money due under the original option agreement.

The Mount Oxide Options Ltd. having been incorporated and having adopted the agreement made with Hermann Ltd., steps were taken by Hermann Ltd. to promote the larger company, which was ultimately formed under the name of the Mount Oxide Mines Ltd., and is the plaintiff in this suit.

Shortly before its incorporation an agreement was entered into between Hermann Ltd. and the Mount Oxide Options Ltd. for the underwriting of the shares in the plaintiff Company. By this agreement, in the events that happened, Hermann Ltd. agreed to underwrite the whole of the 90,000 shares in the plaintiff Company which were to be offered to the public and as a consideration for so doing was to receive 20,000 fully paid up £1 shares in the plaintiff Company.

The plaintiff Company was incorporated with a nominal capital of £200,000 in 200,000 shares of £1 each, of which 40,000 shares were to be offered for public subscription in Australia and 50,000 shares in London; the whole issue was described in the prospectus as having been underwritten in London, Antwerp and Australia. Eighty thousand fully paid up shares were to be allotted to the Mount Oxide Options Ltd. as the vendors, and the remaining 30,000 shares were to be held in reserve.

The agreement between the Mount Oxide Options Ltd. and the plaintiff Company for the purchase of its rights provided that the plaintiff Company should pay to the vendor company £70,000 cash and £30,000 in cash or debentures, out of which Henry was to be paid, and allot the vendor company 80,000 fully paid up shares. The plaintiff Company was also to pay to Hermann Ltd. the 2½ per cent. brokerage payable by the Options Company under the agreement of 7th February.

On 31st July 1912, about a month after the incorporation of the plaintiff Company, an agreement was signed between Ernest Henry, Hermann Ltd. and the plaintiff Company for the purchase of the property. It recited the original option to Hermann Ltd. and that the plaintiff Company had acquired the rights of Hermann Ltd. and had paid £500 for the extension of the option. The plaintiff Company agreed to purchase the property from Henry for the price provided in the option. The terms of payment, however, were varied. Instead of paying the balance of the purchase money, viz., £58,000 in cash, the Company agreed to pay £5,000 down, £5,000 on 22nd August, £10,000 on 22nd September and £8,000 on 22nd October; the balance, viz., £30,000, was secured by three sets of debentures of £10,000 each payable on 30th July 1913, 1914 and 1915. In the event of any default the whole of the purchase money became immediately payable. The stores which were to be taken at a valuation under the original option were to be paid for by fully paid up shares at their full value.

The result of these transactions so far as Hermann Ltd. was concerned was that it was entitled to £40,000 cash from the Options Company, which sum the Options Company was entitled to receive from the plaintiff Company. Hermann Ltd. was also entitled to £20,000 fully paid up shares in the plaintiff Company out of the 80,000 to be allotted to the Options Company. Hermann Ltd. had agreed with the Options Company to underwrite the 90,000 shares in the plaintiff Company which were to be subscribed for in cash.

The defendants, Sir Albert Gould, F. W. Bacon, G. F. Allen and T. B. Birkbeck, were the first directors of the Company, and at a board meeting held on 17th July 1912 the whole of the issued capital of the Company was allotted, viz., 60,000 fully paid up shares were allotted to the Mount Oxide Options Ltd., 20,000 fully paid up shares to Hermann Ltd., 50,000 contributing shares for the London Register allotted to the Broad Street Trust and Investment Co. Ltd., and the remaining 40,000 were allotted to various contributors in the local Register, inclusive of 1,500 which were allotted to Ernest Henry as payment for stores on the mine. The contributing shares were to be paid for, 5s. on application, 5s. on allotment and the balance of 10s. per share on or before 7th September 1912. On 22nd September a payment of £10,000 became due to Henry. The minutes show that the application, allotment and call money was not coming in very satisfactorily, and in fact on 24th September 1912 there was then due £6,786 17s. 8d. of application and allotment money for which they held postdated cheques amounting to £1,964, and £10,873 of call money due for which they held a postdated cheque for £250. The Company had a bank balance of £4,169, but the instalment of £10,000 due to Henry on 22nd September had not been paid. The above figures are without taking into account the amount due on the London shares.

Some time before 22nd September 1912 the defendant Hermann had arranged with Henry that in consideration of the sum of £500 he should extend the time for payment of the £10,000 due to him on 22nd September and the £8,000 due to him on 22nd October for a period of 16 days each, and a letter of advice to this effect from Hermann to the directors was read at the directors' meeting of 24th September. A further modification was afterwards obtained from Henry in consideration of a payment of £1,000, as appears from the minutes of the 4th October 1912. As a result of these modifications an instalment of £3,000 was paid to Henry on 5th October.

In the meantime the matter of 50,000 contributing shares on the London Register had apparently been engaging the attention of Mr. Hermann's London agent. These shares had originally been allotted to the Broad Street Trust and Investment Co., but at some period apparently prior to 4th October Hermann Ltd. had taken up 40,000 of these shares in satisfaction of the £40,000 due to it under the flotation agreements.

[68]

The negotiations ended in an agreement. The special meeting of the Oxide Company's directors at which this took place was held on 12th August 1913. The minutes say: - "Present - Sir Albert Gould (Chairman), Messrs. Thomas B. Birkbeck, Gerald F. Allen, J. Earle Hermann. There were also in attendance Messrs. Williams and Fawcett." Hermann, though not a director officially, was, as the evidence discloses, the dominant mind of the concern. He acted as director, sometimes as attorney for Allen, sometimes as attorney for Birkbeck, sometimes apparently without troubling about such formalities. But, without multiplying details, he undoubtedly was the real "director" of the Company's affairs, the official directors giving but a very superficial supervision, and apparently trusting to Hermann's ability and business acuteness to bring things out on the right side. The explanation given by the defendant Allen for permitting Hermann to occupy that position is in these words: "He was close to the Company in this way, that he was the man who had sold the options and had underwritten the shares of the Company and was closely allied to it, but I don't know what his position was"; and again the same defendant, after stating that Hermann was "the general military adviser to the Company," said that Hermann "put himself in that position as far as I know." It seems to have been overlooked entirely that in some respects Hermann's interests were opposed to those of the Company. Nothing illustrates the attitude of the directors towards Hermann better than the proceedings at the meeting of 12th August 1913. It was agreed to accept the Fanti Company's offer. The terms included the formation of a new company, and that Henry's debentures should be paid out of its subscribed capital, and that the £20,000 owing by Hermann Ltd. should also be paid out of the subscribed capital, treating that loan as a debt of the Oxide Company itself and not as any liability of Hermann. The terms did not include the assumption by the Oxide Company of liability to pay the balance of Mercer's commission. But it may be noticed that, as appears in a letter of 31st July 1913 from Mr. Robinson, solicitor for the Fanti Company, to the Oxide Company, it was agreed by Mr. Hermann's London attorney that the Oxide Company should pay that sum of £650. That letter demanded repayment of the £20,000 and interest, payment of the £650, and also retention of the ore security on the mine.

[76]

The next question is as to amount. Is it £20,000 and interest and £650, or a less sum? Once accept the position that the plaintiff Company was compelled to accept the 170,000 shares, and that payment of the £20,000 out of the subscribed capital of the proposed company was a fixed condition, because Hermann could not pay, and someone must, then it seems to follow that the loss actually sustained by the plaintiff Company was the lessened value of the interest the plaintiff Company had in the new company, by reason of the new company paying the £20,000 and the £650. It is not just to assume that but for the agreement to pay the Fanti Company out of the funds of the new company, the plaintiff Company would have had £20,000 more for its mine. How and from whom could it have obtained that sum, if Hermann were insolvent, the shares insufficient, and the Fanti Company insisting on payment? Now, the lessened value of the interest of the plaintiff Company in the new company is in the proportion of the number of shares it obtained, and the total number issued - not merely created (see Koffyfontein Mines Ltd. v. Mosely[12]). If the £20,000 had been treated in the agreement as Hermann's debt which the Oxide Company had, practically at his request, to agree to the new company paying, and taking the security, the new company would have been in fact paying not a higher price but a lower price, that is, a price which so far as it relates to the debt was less than £20,000 by the value of the shares. Thus, the Fanti Company would have been equally well off, the new company would have been better off, so would the Oxide Company, and Hermann would have met pro tanto a just liability. The total shares issued at a given moment represent the totality of interests existing in the assets of the Company, and the inherent value of each share is as 1 to the total number contemplated to be issued. Unless the parties can agree as to the total number contemplated to be issued at the time the plaintiffs' shares were to be issued, the matter must go for inquiry.

At a glance

Court

Decision date

Before

Source

Judgment (92 paragraphs)

Gould v Mount Oxide Mines Ltd (in Liq) [1916] HCA 81; (1916) 22 CLR 490 (22 December 1916)

Parties

Cases Cited (1)