McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835 (4 March 1906)

McLean Bros. & Rigg Ltd. Plaintiffs, Appellants; and James Grice and Another Defendants, Respondents.

This is an action brought by the appellants, a joint stock company alleged to be in the course of voluntary liquidation, against the respondent, James Grice, and one William McLean, since deceased, as executors of the will of one Silas Harding, who died in 1894, to recover a call of £2 10s. per share on 3,000 shares in the plaintiff company, of which Silas Harding was the registered owner. The defendant Grice denied the validity of the winding up, and consequently the validity of the call, and he also set up a defence to the effect that the estate of Silas Harding had been relieved from liability on the shares by virtue of an arrangement between the company, Harding's executors, and one Brett, who was administrator of the estate of the residuary legatee under Harding's will.

With respect to the winding up, the plaintiffs' case is rested upon an alleged extraordinary resolution. An extraordinary resolution is dealt with in secs. 114 and 115 of the Companies Act 1890. Sec. 114 provides that:—"A company ... may be wound up voluntarily ... (3) When the company has passed an extraordinary resolution to the effect that it has been proved to its satisfaction that the company cannot by reason of its liabilities continue its business, and that it is advisable to wind up the same." Sec. 115 provides:—"For the purposes of this Part of this Act any resolution shall be deemed to be extraordinary which is passed in such a manner as would if it had been confirmed by a subsequent meeting have constituted a special resolution as hereinbefore defined." The reference there is to sec. 52, which provides that:—"A resolution passed by a company under this Part of this Act shall be deemed to be special, whenever 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 confirmation. 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 chairman 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 question 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 company. I will assume that it is necessary, in order to establish a valid winding up, to prove that a quorum was present at the meeting 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 quorum." And article 51 provides that:—"No business other 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 meetings of companies and of directors. It provides that: "Every company under this Part of this Act shall cause minutes of all resolutions 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 proceedings 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 convened, 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 conceded 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 distinct lines of proof; first, direct evidence that there was in fact a quorum present. They called for that purpose Mr. Pirani, who was then the solicitor of the company. He went to the meeting 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 employes of the company present at the meeting. I know definitely that there were more than 10 shareholders present. Wootten and Sewell were not included. 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 member 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 resolutions in favour. I made a list of shareholders because I was an 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 contradict him. The first motion was carried. I do not think I 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. I am 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 informed me that all minutes and data in relation to that meeting had been lost, and asked me could I assist him in getting information as to shareholders present." So that at the time it did not occur to him there was any doubt. He went there with a personal 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 therefore 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 probabilities? The meeting was called at the instance of the company 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 that there was a quorum before he proceeded to the business of 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 evidence 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 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 communicate 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 aggregate 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 communicate 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. Sec. 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 recorded 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 primâ facie evidence that all that took place at that meeting was done lawfully.

The presumption against fraud may also be called in aid. Here was a duty to be performed, on failure to do which the company was liable to a penalty. If the chairman sent a document purporting to be a copy of such a resolution, and it was untrue that such a resolution had been passed, it was a fraud upon the law, whether it could be punished by criminal proceedings or not. It has been held by the Court of King's Bench in England that the registered copy of the resolution is sufficient evidence of the due passing of the resolution. I should be prepared so to hold without hesitation in the absence of any authority. In Boaler v. Southern Discount Co.[2], which was a case of a criminal charge under the Companies Act 1862, the defendants stated that they were in voluntary liquidation, and put in a certified copy of a special resolution to wind up registered with the Registrar of joint stock companies. It was contended that the special resolution could only be proved by production of the minute book signed by the chairman. The magistrate had overruled the objection, and the Court of Queen's Bench held that the magistrate was right. I am of opinion, therefore, that the certified copy of the printed copy sent to the Registrar-General was sufficient primâ facie evidence of a valid resolution.

There is also a presumption which arises from the ordinary course of business. In regard to that, I will read two passages from Starkie on Evidence, 10th ed., at p. 741. First:—"A presumption may be defined to be an inference as to the existence of one fact, from the existence of some other fact, founded upon a previous experience of their connection. To constitute such a presumption, it is necessary that there be a previous experience of the connection between the known and inferred facts, of such a nature, that as soon as the existence of the one is established, admitted or assumed, the inference as to the existence of the other immediately arises, independently of any reasoning upon the subject." And again, at the conclusion of the chapter, at p. 762:—"It would, however, be a vain endeavour to attempt to specify the numerous presumptions with which the knowledge of a jury, conversant in the common affairs and course of dealing in society, necessarily supplies them; it is obvious that such presumptions are co-extensive with the common experience and observation of mankind." Another statement of some authority on the same point is found in the judgment of Mr. Justice Brewer in Knox County v. Ninth National Bank[3]:—"It is a rule of very general application, that where an act is done which can be done legally only after the performance of some prior act, proof of the later carries with it a presumption of the due performance of the prior act." A very well-known illustration of that rule is that acting as owner of property is primâ facie evidence of ownership. Now, what is the ordinary course of affairs in human nature when a meeting is held, and it is necessary that there should be a certain number of persons present? The first thing, whether in a legislative body or otherwise, is to ascertain the presence of a quorum of competent members, or, as it is sometimes called, to verify their powers, which is done before they proceed to business. Primâ facie, then, in the ordinary course of business, when persons with specifically prescribed powers meet together, the first thing they would naturally do would be to verify their powers, and then proceed to act, and the fact of acting is primâ facie evidence that they had authority to act, just as a person who attempts to deal with property is regarded primâ facie as the owner.

There is high authority for saying that this presumption is applicable to the proceedings of corporations. In the case of the Bank of United States v. Dandridge[4], already cited, it was said:—"The same presumptions are, we think, applicable to corporations. Persons acting publicly as officers of the corporation are to be presumed rightfully in office; acts done by the corporation, which presuppose the existence of other acts to make them legally operative, are presumptive proofs of the latter... If officers of the corporation openly exercise a power which presupposes a delegated authority for the purpose, and other corporate acts show that the corporation must have contemplated the legal existence of such authority, the acts of such officers will be deemed rightful, and the delegated authority will be presumed... In short, we think, that the acts of artificial persons afford the same presumptions as the acts of natural persons. Each affords presumptions, from acts done, of what must have preceded them, as matters of right, or matters of duty." This passage was quoted by the same Court in Knox County v. Ninth National Bank[5]. Therefore, on these three different lines of presumptive evidence, there was primâ facie evidence that a quorum was present. How has it been rebutted? By evidence to show that there were not ten members present in person. That fact is wholly irrelevant. The question is whether there were ten members present in person, or by proxy or attorney, and holding ten thousand shares. In my opinion, effect ought to be given to the presumption, apart altogether from the great preponderance of probability in the direct evidence.

The plaintiff company, then, is in course of voluntary winding up. It appears that Harding was at his death registered as the holder of these shares, on which there was a liability of £2 10s. per share, and that there was a call duly made in respect of them. There is, then, no escape from paying the call unless it can be established that it had already been paid, or that it had been released or discharged by something equivalent to payment or release, or that there was some agreement in existence before the winding up binding on the company to transfer the shares from Harding's executors to somebody else. The defendant Grice counterclaims, alleging such an agreement, and has made Brett, the administrator of Harding's residuary legatee, defendant to the counterclaim. I will read from the reasons of Mr. Justice Hood a short statement of the facts showing the relationship between the parties prior to the alleged agreement:—"Harding died in June 1894, and at the time of his death he was the holder of 3,000 shares in the company. By his will he appointed Grice and McLean executors and his wife executrix, and the latter was residuary legatee. Mrs. Harding died in January 1897, intestate, and letters of administration of her estate were issued to F. P. Brett on the 4th March 1898, though granted some time before. Brett was and is a member of the firm of Blake and Riggall, who acted as solicitors for the executors of Harding, and also for Mrs. Harding's estate. At all times material all payments for calls upon Harding's shares in the company would come from the estate of Mrs. Harding, and in 1897 the company was indebted to that estate to the extent of somewhere about £30,000 or £40,000. At that time, and for a considerable period 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 company, or else it must have been afterwards ratified by the company. I will proceed briefly to refer to the evidence to see whether there is anything to support either position. Substantially 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 concealed 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. Negotiations then took place with a view of what may be called a tripartite agreement, that is to say, the suggestion was that Brett, as administrator of Mrs. Harding, should receive from the 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 beneficially interested, in respect of these shares; and that in consideration 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 be 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 1st 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 company'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. Braham as embodied in the agreement; they cannot do more." Finally, on 30th October, a draft which had been drawn up and signed by Brett, was sent to the company for approval, but it was not approved, and the negotiations went off. In January, Brett wrote:—"My directions are not to wait any longer for McLean's settlement, and if you do not advise me by Monday afternoon that you are ready, I will assume that the proposals are abandoned." The next step we know of is that in March 1898, a memorandum was drawn up by Braham, stating a list of the liquid securities that the company was willing to give Brett as a consideration for the release which it was so anxious to get.

I will refer now to the evidence given by Brett as to this supposed agreement, bearing in mind that what is to be proved is that the agreement, which he alleges was made, is an agreement made with the company or by its authorized agent, or ratified by the company. Speaking of these negotiations, Brett says:—"I said the practical thing is that there is a liability of some £7,000 on the shares, and any arrangement I make must be conditional on that liability being released in some way. Both McLean and Braham said that could and would be arranged, but it would have to be done very cautiously, as the bank had a watchdog on the board, but that Braham and McLean would take an opportunity of seeing that the liability on the shares was got rid of. This is the result of the discussions over the whole period up to November 1897." After that some time elapsed. He goes on then to describe what took place later. He says:—"Between 14th and 28th January 1898, I saw Braham, and he told me that the agreement could not be carried out in its then form. I pressed him for the duplicate agreement, but he said it could not be carried out in that form, and that I would have to leave him and McLean to arrange about the shares and the liability on them, and he would give some cash and security, and would arrange with me about the form of the release. He gave me this (Ex. No. 79), a memo. of what he would give me. The original is in Braham's writing. I said I would take this, as it was the best I could get, but of course the liability on the shares was to be removed before I gave any release. He agreed to this. He said I would have to depend upon McLean and himself as to the liability on the shares being removed, as McLean badly wanted some release to show the bank, and he would hand over the cash 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.e., Victorian 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 substantially performed on Brett's part, there would have been primâ facie evidence, I think, that the company, with knowledge of the document, adopted and accepted the proposal contained in it. That is a 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 request. 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 cross-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 executors of Harding to a man of straw had been actually executed, and had been sent to Messrs. Braham and Pirani, the company's solicitors, not to the company. That transfer afterwards 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 transfers 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 company, 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 afterwards 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. Harding'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 company, and I thought he had one or two dummies on the board. Braham told me that he and McLean could persuade the company to most things, but I cannot say if he said they could persuade them as to this transfer. I told Braham that he would have to work the transfer through."

All that evidence absolutely negatives any concluded agreement 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 circumstances is stated in the case of Marsh v. Joseph[6]. It was thus put by Lord Russell of Killowen C.J., in delivering the judgment of the Court:—"To constitute a binding adoption of acts à 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 adoption 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 agreement, 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 really suggested as being substantial is that shortly afterwards, when Brett, as administrator of Mrs. Harding's estate, had brought an action against the company for the debt due by it to her, the company pleaded the release given by Brett, and it is contended that this release having been given under the circumstances deposed to, the company by pleading it must be taken to have adopted it, and to have adopted it with all the incidents of the contract under which it came to be given, and that a substantial part of the consideration for the release was the discharge of the liability to the company by Harding's estate in respect of these shares. But there, again, we have the evidence of Brett himself, showing that the company had no such knowledge at the time of the release. In that action he was interrogated as to the consideration for the release. He was directly interrogated—"What was the consideration, the good and valid consideration for the release?" And this is his answer:—"The consideration was the promissory notes and shares specified in the defence;" that is to say, the liquid securities that Braham offered to give him. In the same suit, McLean, the other executor, and the managing director of the company, made an affidavit stating what was the consideration for the release. The parties had then fallen out. It is sufficient to say that the version McLean gave in that action of the consideration for the release exactly corresponded with that given by Brett himself. Now Brett sets up that the consideration then stated on oath was not the consideration, but the consideration included the discharge, which, by some means or other, was to be concealed from the persons who were to give it. Under these circumstances, it is impossible to bring the case within the rule laid down in Marsh v. Joseph[7]. There was neither a bargain made for or in the names of the supposed principals, nor any knowledge on their part. The intention was, according to the parties' own evidence, and that of the agent, to conceal the real transaction from the principals. There is no evidence of any subsequent disclosure, but there is evidence to show, so far as it goes, that there was no disclosure, and under those circumstances it is impossible to set up ratification.

Another way in which the case was put was that the release of the liability on the shares was to be taken as a condition precedent before the release of the debt was to operate; that is to say, that the release was delivered in escrow, a conditional release. Part of the consideration for the release was certainly a present one, consisting of what is called liquid securities, of which Brett, as administrator, got the advantage to a very considerable extent. It is said that was only, after all, part payment of the debt. Possibly that is so. If it is suggested that it operated as a deed in escrow, it is strange that when the deed was pleaded in answer to Brett's action against the plaintiff company he did not say so. If anything could be made out of this elaborate story, it would be that the company, when it discovered the truth, had the right to elect whether it would be bound by the bargain or not. On the other hand, the other party might possibly have had a right to elect; and, if the effect was to avoid the operation of the release, Brett would be entitled to take any objection he could to get rid of the release. When it was pleaded against him, however, he made no such answer as the present defence sets up. In my opinion, therefore, the case set up by the defendant entirely fails, and the plaintiffs' case being established, they were entitled to judgment. I think that the appeal should be allowed, and that judgment should be entered for the plaintiffs for the amount claimed, with interest from the date of the writ.

I am of the same opinion. With reference to the proof of the presence of a quorum, the case of In re Indian Zoedone Co.[8] is relevant. There the chairman of a confirmation meeting disallowed certain votes which had been given against the confirmation of a resolution passed at the first meeting appointing a liquidator, the effect of the disallowance being to confirm the resolution, and he made an entry in the minute-book that the resolution had been confirmed. The Court, in the absence of evidence that the votes were improperly disallowed, declined to question the decision of the chairman. Among the reasons for that judgment, the Earl of Selborne L.C. said[9]:—"Also it may be added, and I think correctly, that inasmuch as the chairman who presides at such meetings, and has to receive the poll and declare its result, has primâ 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 L.J. said[10]:—"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 concur 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 decided, or that there was some legal requisite not observed. I am with the Chief Justice in the opinion that in neither of these matters has the respondent succeeded in establishing his case. Then there was the evidence given, apart from that presumption, by Mr. Pirani, who went there as the company's solicitor, after having examined the law and the articles of association, so as to ascertain the requisites of a duly held meeting. He had made himself familiar with these questions, according to his evidence. He went to the meeting, he saw that there was a book in which persons attending the meeting signed their names. He acted in concert with the accountant in examining the register of shares with reference to the names of the members and the number of shares they held. That having been done, Mr. Pirani satisfied himself that there was a quorum present, and notified that fact to the chairman, who, as he might well do, accepted that notification, and went on with the meeting. It seems to me that this is evidence very strongly in favour of the proposition that the quorum was there, and it is not to the purpose to endeavour to cut that down unless by positive evidence as to both branches of the proposition; that is to say, the element of personal attendance and the element of proxies of shareholders. The respondent's case as to that is entirely inconclusive. I think that, in view of the presumption from the decision of the chairman, which has not been negatived, and also the primâ facie evidence, as to all that was necessary, given by Mr. Pirani, the evidence in rebuttal is entirely inconclusive; and that, even without the certificate signed by the chairman of the meeting, the defence must upon that point fail. As to the certificate of the chairman, although I had some doubt upon that point at first, the authorities which His Honor has mentioned have removed it, and I think that, too, is evidence further strengthening the case of the plaintiffs in that regard.

As to the other branch of the case, assuming that the consideration for the alleged agreement was to include a release of the call liability upon Harding's shares, I fail to see how any authority is deducible from the course of the manager's employment or from Mr. Braham's position as solicitor, to release the company's right to the calls. The calls on the shares are the very means of raising the authorized capital with which the company is to carry on business; they are the life blood of the company. At this point the company was not in liquidation, but, whether crippled or not, was a going concern. If it was to carry on it would be obliged to make calls. To say that the managing director, even in association with the solicitor of the company, was entitled to make agreements which would deprive the company completely, perhaps, of the power to raise its capital from its members—agreements upon the competency or reasonableness of which the company had no means up to that point of expressing an opinion—is to put forward a startling proposition; and therefore, whether from the articles or from the decided cases, some authority for the proposition should have been put before us. I have not found any authority cited in favour of the view taken by the respondent, and I cannot find by applying such common sense as I have, that it would be anything but disastrous to the due conduct of the operations of any joint stock company to say that, without an authority under its articles of association, or without an authority expressly given beforehand, the managing director would be entitled to barter away the whole means which the company has to raise its capital from the shareholders by making individual agreements for the release of liabilities on their shares. To my mind, the proposition is a strange one. Then there was the question—Was there ratification? It is said that the company has ratified or adopted the agreement, including the release of this call liability, by raising the release as a defence to Mr. Brett's action in 1902. That cannot be so unless the company knew that the discharge of the call liability was part of the consideration for the release. As to that, I think the case of Marsh v. Joseph[11] is conclusive. Now, there was not a scintilla of evidence as to this, but the learned Judge who heard the case has treated the discharge of the call liability as a condition precedent. So far as the appellant company is concerned, that does not alter its case. Before there could be ratification a knowledge of any condition precedent was necessary. If that were not so, a company might be bound by an agreement on its assumed behalf, and made upon a condition disastrous to its very existence, and might be held to have ratified the agreement without a knowledge of the condition on which it was made. That, again, is a proposition to which I think a reasonable mind cannot assent, and there is no authority for it. It stands, then, that there was no express authority for the making of this agreement, including this discharge of call liability. There was no implied authority, and there has been no ratification or adoption. That, I think, is manifest. Then the alleged condition precedent cannot affect the company, and the only release it has knowingly accepted is one given in consideration of the promissory notes and scrip mentioned in the evidence. That being so, on both branches of the evidence, I think the defendant's case utterly fails, and that this appeal must be sustained.

I concur with the reasons of my learned brothers. I think judgment should be entered for the plaintiffs for the full amount of the call, with interest at 5 per cent. from the date of the writ.

[1] [1827] USSC 28; 12 Wheat., 64, at p. 92.

[2] 58 J.P., 164.

[3] [1893] USSC 8; 147 U.S., 91, at p. 97.

[4] [1827] USSC 28; 12 Wheat., 64, at p. 70.

[5] [1893] USSC 8; 147 U.S., 91, at p. 97.

[6] (1897) 1 Ch. 213, at p. 246.

[7] (1897) 1 Ch., 213.

[8] 26 Ch. D., 70.

[9] 26 Ch. D., 70, at p. 77.

[10] 26 Ch. D., 70, at p. 80.

[11] (1897) 1 Ch., 213.

High Court of Australia

McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835 (4 March 1906)

HIGH COURT OF AUSTRALIA