: v ora eines

: v ora eines - [1906] HCA 1 - HCA 1906 case summary — Zoe

[55]

sec. 52, which provides that: - "A resolution passed by a company under this Part of this Act shall be deemed to be special, when- ever a resolution has been passed by a majority of not less than three-fourths of such members of the company for the time being entitled according to the regulations of the company to vote as may be present in person or by proxy (in cases where by the regulations of the company proxies are allowed) at any general meeting of which notice specifying the intention to propose such resolution has been duly given, and such resolution has been confirmed by a majority of such members for the time being entitled according to the regulations of the company to vote as may be present in person or by proxy at a subsequent general meeting." The extraordinary resolution does not require con- firmation. Sec. 52 goes on to provide : - " At any such meeting, unless a poll is demanded by at least five members, a declaration of the chairman that the resolution has been carried shall be deemed conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the same." There is no doubt that in the present case a meeting was held in fact, nor is there any doubt that the chair- man at that meeting declared that the extraordinary resolution had been carried. But it is alleged by the respondent that there was no quorum present at that meeting, and that therefore all the proceedings were invalid. I express no opinion on the ques- tion whether a quorum is necessary, under sec. 52, for the passing of a special resolution. It was decided by Bacon V.C. a great many years ago that it is necessary, and arguments were addressed to us to show that sec. 52 of itself makes a quorum necessary, irrespective of the regulations of the com- pany. I will assume that it is necessary, in order to establish a valid winding up, to prove that a quorum was present at the meet- ing at which the resolution was passed. The respondent alleges that that fact was not proved. The onus was on the plaintiffs to establish the fact, and it is said they have not established it. The regulations of this company, by article 52, provide that - *"Ten or more members present personally or by proxy or attorney holding in the aggregate not less than ten thousand shares constitute a

[57]

than the declaration of a dividend shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business." The fact to be proved, then, was that when the meeting proceeded to business ten or more members were present personally, or by proxy or attorney, holding in the aggregate not less than ten thousand shares. Now, that was a fact that had to be ascertained before the meeting proceeded to business. Sec. 67 of the Companies Act 1890 contains a rule as to the proof of proceedings of meet- ings of companies and of directors. It provides that : " Every com- pany under this Part of this Act shall cause minutes of all reso- lutions and proceedings of general meetings of the company and of the directors or managers of the company (in cases where there are directors or managers) to be duly entered in books to be from time to time provided for the purpose. And any such minute as aforesaid, if signed by any person purporting to be the chairman of the meeting at which such resolutions were passed or proceed- ings had or by the chairman of the next succeeding meeting, shall be received as evidence in all legal proceedings; and until the contrary is proved every general meeting or meeting of directors or managers in respect of the proceedings of which minutes have been so made shall be deemed to have been duly held and con- vened, and all resolutions passed thereat and proceedings had to have been duly passed and had." It is said that no advantage can be taken of that section in the present case. No minute of this meeting was written in the company's ordinary books, but a rough draft of a minute or record of the meeting was drawn up on a sheet of paper. I will assume for the present that sec. 67 cannot be called in aid for any purpose. It was not contended that that concludes the case against the company. It was con- ceded by the respondent, and very properly, that sec. 67 is an enabling section, and that if the proceedings of the company can be proved otherwise, by any admissible evidence, that is sufficient. Assuming all these points against the plaintiffs, I will consider how they endeavour to prove their case. They offered two dis- tinct lines of proof ; first, direct evidence that there was in fact a quorum present. They called for that purpose Mr. Pirani, who

[59]

for the express purpose of advising as to any matters that might arise, and to ascertain whether there was a quorum present or not. He said: - "I was at the meeting on 10th September. There were about 20 people there. Mr. Sewell" (who was the then secretary of the company) "took down the names of those present, and I went through the register with Sewell, and checked the number of shares by each person. Each person when he came in signed an attendance book. I knew what the articles required, as I was familiar with them. Many more shares were represented than were necessary to constitute a quorum. I said that a quorum was present, and then it was proposed and seconded that Dr. Embling take the chair, and he did so." Later, he said in cross-examination : - "I do not recollect if any proxies were produced. The only persons I personally knew at the meeting were Dr. Embling, Pratt, Wootten, and Sewell. Wootten was one of the auditors. There were 18 to 20 persons present. I did not count them. I went through the register of shares to see how many shares they held. Wootten had no shares, nor had Sewell. There were employés of the company present at the meeting. I know definitely that there were more than 10 shareholders present. Wootten and Sewell were not in- cluded. I went to the meeting to see if all was regular, and I saw it was so." In answer to that, the respondent called a witness to prove that there were not ten members present in person. And perhaps he proved it. I will assume that he did. His memory did not exactly enable him to prove it to demonstration, but I will assume that he did, although his memory was inaccurate in various particulars. This gentleman, Mr. Wootten, was a candidate for the office of liquidator, and for that purpose he had sent out circulars inviting proxies, so that he might be able to support his own candidature, and he obtained, according to his own recollection, proxies from the holders of five thousand shares. It appears he thought he was entitled to vote. Probably legally he was not, because he was not strictly a mem- ber of the company, although he was an executor of a deceased member, but he thinks he voted as representing five thousand shares. He said : - " I believe I held up my hands on both reso-

[61]

aspirant for liquidatorship. I was fairly well familiar with the articles of the company. I made my list in order to see what would be necessary to get a majority for liquidatorship. I sent out circulars for proxies. . . . I represented by proxy about 5,000 shares. . . . I knew what was necessary to form a quorum under the articles. I think Dr. Embling took the chair as a matter of course. I was present when he took the chair. I did not hear Pirani say a quorum was present. I will not contra- dict him. The first motion was carried. I do not think J had any thought about the quorum. I never gave it a thought. It did not occur to me that there was not the necessary quorum. Tam fairly familiar with winding up meetings. I knew that the banks were opposed to me, so I gave up any idea of being liquidator. It first occurred to me that the meeting was irregular two months ago at an interview I had with Riley, when he in- formed me that all minutes and data in relation to that meeting had been lost, and asked me could I assist him in getting infor- mation as to shareholders present." So that at the time it did not occur to him there was any doubt. He went there with a per- sonal object; he knew what the regulations of the company were, and it never occurred to him there was anything irregular ; but two years afterwards a list of the members is given to him, and he cannot remember seeing some of them there, and there- fore he comes to the conclusion there were not ten members present personally. In answer to that Mr. Pirani was called again, and said : - * I am quite certain that the required number of shares was represented, either by proxy or in person, from what Sewell told me." That "from what' Sewell told me" evidently means that Sewell went through the register with him to see whether the persons present represented the number of shares necessary to form a quorum. What are the prob- abilities ? The meeting was called at the instance of the com- pany or its directors. The first essential was that a quorum should be present. It is at least probable that some precautions would be taken to secure a quorum. A solicitor was employed to attend and ascertain, there and then, whether there was a quorum present. It was the duty of the chairman to ascertain

[63]

the meeting ; in fact, it was the duty of all the members to see that the provisions of the articles were complied with. It did not occur to anyone present to doubt the presence of a quorum. Then they went on with the business. As against that, there is the evidence of a gentleman who was present, and thinks there were not ten members present in person who held 10,000 shares. Mr. Pirani, in the first instance, thought there were. But the fact to be proved is, not whether there were ten members present in person, but whether there were ten members present in person, or by proxy or attorney, holding, in either case, 10,000 shares. As a question of probability, upon that evidence, I should say that the probabilities are overwhelming that there was a quorum present. The probabilities arising from subsequent transactions all confirm that conclusion, as will appear from a reference to the other line of evidence which was adduced for the plaintiffs. This was all presumptive evidence, and was of three different kinds - two, at any rate, and perhaps three. First, the presumptive evi- dence afforded by records of transactions which are required by law to be kept. The law in this case is partly common law and partly statute law. The resolutions of a corporation must be recorded in writing, because they are the agreement of several persons. They are an agreement between the members of a company, or of a sufficiently numerous committee of them, which binds the company. It follows that a resolution when made, being in the nature of an agreement, may be proved in the same way as any other agreement. The best evidence of an agreement is the production of a signed memorandum of it. So I take it that in the case of a meeting - I am dealing now with common law, apart from the Statute - the best evidence of an agreement come to by a body of persons assembled together would be a record of it signed by them or by their authorized agent, and I apprehend, in a case of this sort, the chairman of the meeting is the authorized agent of all of them, just as an auctioneer is the authorized agent of the bidder to sign the contract on his behalf. In support of that view I read the following passage from the judgment of Chief Justice Marshall in Bank of United

[64]

States v. Dandridge (1): - *Can such a being speak, or act otherwise than in writing? Being destitute of the natural organs of man, being distinct from all its members, can it com- municate its resolutions, or declare its will, without the aid of some adequate substitute for those organs? If the answer to this question must be in the negative, what is that substitute ? I can imagine no other than writing. The will to be announced is the aggregate will. The voice which utters it must be the aggre- gate voice. Human organs belong only to individuals. The words they utter are the words of individuals. These individuals must speak collectively to speak corporately, and must use a collective voice. They have no such voice, and must communi- cate this collective will in some other mode. That other mode, as it seems to me, must be by writing." This view seems to have been assumed in framing the Companies Act 1890, for sec. 54 provides that: - * When any special resolution is passed by any company under this Part of this Act, a copy thereof shall be printed and forwarded to the Registrar-General and be recorded by him." The section contains no express provision as to what effect is to be given to that copy. In the case of an extraordinary resolution, it seems to be assumed by the text writers that that also must be forwarded to the Registrar-General, although an extraordinary resolution is passed by one meeting instead of two. See. 118 provides that : - " Notice of any special resolution or extraordinary resolution passed for winding up a company voluntarily shall be given by advertisement in the Government Gazette." I apprehend, therefore, that it was the duty of the chairman of the meeting to send a copy of the resolution to the Registrar-General. It was proved that the resolution was re- corded in writing, and signed by the chairman, and that a copy was sent to the Registrar-General and recorded by him, and that a copy was published in the Government Gazette. This, in my opinion, is primé facie evidence that all that took place at that meeting was done lawfully.

[77]

anterior, the company was also indebted to the National and Commercial Banks to a very large amount, which was secured upon the company's assets, including its uncalled capital, and Mrs. Harding had also given guarantees to these banks on behalf of the company. In 1897, the managing director of the company was William McLean, while Braham acted as its solicitor. Braham died in August 1903, and McLean in February 1905." Now, such an agreement as that which is set up must have been made by the company, and it must have been made either by the directors themselves, or some other authorized agent of the com- pany, or else it must have been afterwards ratified by the com- pany. I will proceed briefly to refer to the evidence to see whether there is anything to support either position. Substan- tially the only evidence on the subject is that of Brett himself. I arrive, on his own evidence, at the conclusion that he has proved that no such agreement as I have described was ever made by or on behalf of the company. The company is said to have been indebted to Mrs. Harding to the extent of about £30,000 or £40,000, but in some way this fact had been con- cealed from the company. McLean was one of Harding's executors, and he was the managing director of the company, and was aware of the debt. The evidence on that point is supplied by Brett in his answer to an interrogatory delivered to him in an action which was brought against the company to recover this very debt. In referring to conversations between him and Mr, Braham, the company's solicitor, and McLean, he says : - * The substance of the conversations was that as the debt was due to me, and had been concealed by Mr. McLean in the balance-sheets and from the bankers of the company, and as the assets of the company were all mortgaged to these banks, I could get nothing more than McLean chose to give me." At this time the banks, under agreements made with the company, had a right, in effect, to nominate two out of four directors, and one of their nominees had a casting vote. So that the banks had the practical control of the transactions of the company. Negotia- tions then took place with a view of what may be called a tripartite agreement, that is to say, the suggestion was that

[79]

company, on account or in respect of this large debt of £30,000, some liquid assets; that the company should also release the liability of Harding's estate, in which Brett's intestate was bene- ficially interested, in respect of these shares; and that in con- sideration for all this he would give the company a release of the debt due by the company to Mrs. Harding's estate. At this time the company was almost in extremis. It owed the banks about a million pounds, and all its property, including the uncalled capital, was mortgaged to the banks. If the company had been wound up, the call on the shares would have had to he paid in full, and could not have been set off against any part of the debt due by the company. There is no doubt that an agreement might have been made between the company, the executors of Harding, and Brett as administrator of Mrs. Harding's estate, by which a portion of the debt due by the company to Mrs. Harding could have been applied in payment of the call in respect of the shares. But there is no evidence of any such agreement. Negotiations were continued for some time during the latter part of 1897, On 25th August, Brett, writing to Braham and Pirani, said : - * The beneficiaries in this estate have asked me to provide in. the agreement that the uncalled capital on the shares in McLean Bros. and Rigg Ltd. held by Silas Harding be paid out of the balance of debt, over and above the amount to be repaid, and a receipt given to the trustees of S. Harding's estate for the amount. Please have this done." On the Ist of September, Braham and Pirani wrote in reply, saying: - " As to your letter of the 25th ult., Mr. McLean says it would be acting contrary to the com- pany's agreement with the banks to allow what you ask." A month later he wrote again, when it was clear that he could not obtain consent to any such terms, and said : - " It is obvious that the payment will be illusory if the uncalled capital has to be paid to the company." On 13th October, Braham and Pirani wrote, returning a copy of a draft agreement which had been drawn up : - * It will be no easy matter for the company to comply with the terms agreed on between your Mr. Brett and our Mr. D,

[85]

and securities as quickly as possible." Then he refers to a document, Exhibit 80. " Before Exhibit 80, I had been handed by Braham certain bills and policies and part of shares in his memo., i.¢., Vie- torian Cricket Company shares and shares in Kimberley Pastoral Company, and policies. There was delay in getting the rest, and I wrote Exhibit 80. Braham pressed me to give him some document for McLean to show, and I gave him the document I had drawn up in 1897." That was a document containing, in effect, an offer by Brett to the company to enter into an agreement such as that he desired to make. Why it was sent in 1898, and dated 1897, when no such offer in writing seemed to have been made in 1897, was not explained. If the document had been found after a lapse of time in the possession of the company amongst their papers, with evidence that the agreement offered in it had been substanti- ally performed on Brett's part, there would have been primd facie evidence, I think, that the company, with knowledge of the document, adopted and accepted the proposal contained in it. That isa purpose to which it could obviously have been put under very conceivable circumstances, and no other object is suggested by Brett. The witness went on : - " On 14th March 1898, I met Braham and McLean in Braham's office at Braham's cequest. He handed me the balance of the shares, or nearly all that I was to receive under his memo., and asked me to sign this release. I read it over, and signed it, but said to Braham and McLean, 'I am leaving for West Australia to-morrow, and of course that release is not to be used unless the liability on the shares is removed.' They said, 'Yes, you can understand that, and Braham said something about keeping it in his safe." The learned Judge below attached considerable weight to that passage, but in eross-examination the witness said this: - "I knew when I signed the release on 14th March 1898, that the transfers were not registered." It had occurred to the parties that one way in which the liability on the shares could be got rid of would be by transferring the shares to someone else, and getting that transfer registered, and it appears that in October 1897, while the first negotiations were still going on, and before they finally fell through, a transfer of the shares from the execu- tors of Harding to a man of straw had been actually exe-

[86]

cuted, and had been sent to Messrs. Braham and Pirani, the company's solicitors, not to the company. That transfer after- wards got into the possession of the company, but when or how we do not know, and the transfer was not registered. On 14th March 1898, Brett had signed a release, which was in a singular form, and did not state the consideration, but it was an absolute release of all liabilities of the company to Mrs. Harding's estate. Brett goes on, and says : - 'I knew when I signed the release on 14th March 1898, that the transfers were not registered. Braham and McLean told me that they would register the shares on the first fitting opportunity. I understood that they were endeavouring to escape the vigilance of the banks. I thought they intended not to tell the banks, and let them find out if they could. If I got out of the shares I did not care how they got out of the affair with the bank. Braham was a party to this bargain. I expected Braham and McLean to get the trans- fers through, and I thought they would be successful. If the arrangement "was not carried through I thought that Mrs, Harding's estate would get very little from the company. My idea was that Braham and McLean might elude the bank." That is to say, he was not bargaining with the directors of the com- pany, of whom a majority were the direct representatives of the banks, who were described as "the watchdogs," watching to prevent any transactions of this kind going through, but he thought the gentleman with whom he was negotiating, the managing director of the company, might manage to elude the creditors to whom the unpaid capital had been mortgaged. This is his own account of the transaction. Referring shortly after- wards to the singular document which he had dated 1897, he offered this explanation : - * It was to be shown, either to the bank or to the company ; it would show the banks how my debt could be released if they desired to do reparation to Mrs. Hard- ing's estate." It might, indeed, have been evidence not only of a moral, but a legal duty, if it could be shown that this document was in the possession of the company, and had been acted upon by it. Again, he said in cross-examination : - * Braham told me that if the banks knew of the proposed transfers they would not go through. I knew McLean was managing director of the com-

[89]

All that evidence absolutely negatives any concluded agree- ment with the company, or with anyone purporting to act on behalf of the company with authority, that a portion of the debt due to Brett as the administrator of Mrs. Harding should be set off against the liability for the uncalled capital, so that the shares could be registered as having been fully paid up; and it also shows that the other possible way of doing it, viz. the registration of a transfer of the shares to a man of straw, was a thing that could not be done except by eluding the vigilance of the persons specially appointed by the debenture-holders to prevent such a transaction being carried out. It is quite clear, therefore, there was no agreement up to this time between Brett and Harding's executors and the company which would operate as a discharge or release from the liability on these shares. The executors, therefore, are forced to fall back upon ratification. The law as to ratification in such cireumstances is stated in the ease of Marsh v. Joseph (1). Tt was thus put by Lord Russell of Killowen C.J., in delivering the judgment of the Court : - *To constitute a binding adoption of acts d priori unauthorized these conditions must exist: (1) The acts must have been done for and in the name of the supposed principal, and (2) there must be full knowledge of what those acts were, or such an unqualified adop- tion that the inference may properly be drawn that the principal intended to take upon himself the responsibility for such acts. whatever they were." As to the adoption of this alleged agree- ment, as I pointed out, it does not purport to have been made on behalf of the company. Braham and McLean said they could not make it on behalf of the company ; but they would see that the banks were eluded in some way or other - not that there should be a set-off, but they would see that by some means or other the banks should be prevented from recovering the debt. And what evidence is there of adoption or ratification? The only evidence

[99]

the poll and declare its result, has primd facie authority to decide all emergent questions which necessarily require decision at the time, his decision of those questions will naturally govern, and properly govern the entry of the minute in the books; and, though in no sense conclusive, it throws the burden of proof upon the other side, who may say, contrary to the entry in the minute- book, following the decision of the chairman, that the result of the poll was different from that there recorded." Cotton LJ. said (1) : - "It is said that there were objections taken for proxies for 12,235 shares, but that those objections, though allowed by the chairman, were not good objections. As regards two of the grounds of objection, I will not say anything more than that I coneur with the Lord Chancellor. Whether the objection depends on the form of the document or on the general point of law, the Court can decide, and is bound to decide, when the question comes before it, whether the decision of the chairman was right or wrong; but until the contrary is shown his decision must be held to be right, that is to say, the Court must decide the question between the parties, but not until those who object to his decision satisfy the Court before whom the question comes that his decision was wrong." In the case before us, as the action of the chairman in going on with the meeting involved a decision that there was a quorum present, it being his duty to decide whether the meeting was duly convened and held, the principle of the case cited seems applicable in every respect in favour of the decision of the chairman on that question, and also in favour of the decision that the resolution was carried. The decision that a quorum was present, according to the contention of the respondent, underlies the main question whether there was a resolution duly and properly carried, and therefore whether the company was in liquidation, and that decision comes within what in that case are called "emergent questions," questions of fact which have to be decided then and there, and as to which there is the general presumption, in the absence of fraud, that they were duly and properly decided. It rests, therefore, upon the side impeaching such a decision to overturn it by evidence showing that it was without foundation, that the fact was wrongly (1) 26 Ch, D., 70, at p. 80.

At a glance

Court

Decision date

Source

Judgment (108 paragraphs)

Parties