"THE GOLDEN BAR."

Sun (Christchurch), Volume I, Issue 180, 4 September 1914, Page 11

"THE GOLDEN BAR."

MINING SHARES CASE. CLAIM FOE £IOOO. SUPREME COURT PROCEEDINGS. A big civil action, which has caused ia lot of interest in local business circles, •was commenced before his Honour Mr Justice Denniston and a special jury in the Supreme Court this morning. The plaintiff was Robert Bingley Holdsworth, of Christchurch, farmer; and the defendants, all of Christchurch, were Raymond Hepworth, sharebroker, Charles Gilford Moore, miner, and Charles Gibbs Beckett, journalist. Sir John Findlay, K.C., with him Mr A. F. Wright, appeared for the plaintiff; Mr S. G. Raymond, K.C., with Ixim Mr J. J. Dougall, for the defendant HepworthMr ; O. T. J. Alpers, for 4he ; defendant Moore; Mr Geo. Harper, for the defendant Beckett. STATEMENT OF CLAIM. The plaintiff, in his statement of claim, alleged that prior to December, 19il, the defendants agreed to act together as a syndicate for the acquisition of mining rights. Hepworth, in the same month, on their Behalf, acquired from D. McConnell and D. Beddjie the following mining privileges: — (a) Prospecting license No. 3233, Naseby. (b) License for water race No. 2540, Nstscby. ' (c) License for dam No. ' 2598, Naseby. '(d) License, for special site No. 2599, saseby. The following sums were paid: —£200 for (a), £7O for (b), (c), and (d), and as a further consideration for the whole Df the mining privileges, 2500 shares of £1 each fully paid in the capital of a company to the incorporated, with a capital-not exceeding £21,000: The de-feml-nt Moore,, on behalf of the defendants, acquired a license for special claim No. 3362, Naseby, for which he paid £25 ,10/-. On December 2, 1911, nil agreement was entered into between Hepworth and John Henry. Upham (as trustee for and on behalf of a company then intended to be formed), by which Hepworth agreed to sell to the company the mining privileges acquired by the defendants for £17,250, to be paid by the allotment of 17,250 shares, credited ■. as fully paid up. •On the same day Moore entered into a similar agreement with Upham, selling to the company the mining privilege acquired by him for £3750, to be paid by the 'allotment of 3750 £1 shares in the company, credited as fully paid up. On Decem- / t>er 4 Hepworth and Moore registered the company as "The Golden Bar Company, Limited,'' with a nominal capital of £21,000 in 21,000 shares of £1 each, Hepworth subscribing 17,250 shares, and Moore 3750 shares. Hepivorth was thie secretary of the company. Immediately after incorporation pf the company Hepworth arid Moore, on behalf of the company, adopt6d the agreements arid allotted the shares. On or about' April 6, 1912, Moore, with a view to inducing the plaintiff to purchase shares in the company, represented that he, Hepworth, and Beckett, held 4000 shares each rin the company; that they intended to hold these shares; that the others were to be sold for the development of the mine; and that if they did not prove sufficient to put the mine into a thorough working and paying condition the directors would over more of their shares to be sold on account of the company to provide more capital. Some time between April 6 and 17, Hepworth represented to the plaintiff that there were only 2000 shares available for sale; that he liad entered into an agreement with the other directors to find certain money for the development of the mine; and that the ' directors had agreed not to jfell any of their own shares until the ihine waS put into working order. The plaintiff submitted that the representations mentioned were intended to lead liim to believe that the whole of the moneys which he might pay for shares would be payable to the company, and would be available for the development

of the mine. The representations were false and fraudulent, and induced the plaintiff to purchase from Hepworth 1000 shares in the company for £IOOO, which amount plaintiff paid to Hepw'orth, who transferred the shares to "him. * The sum of £4OO, part of the consideration, was paid on April 17, 1912, and was paid by Hepworth to the company, but the balance of £6OO (which ■was paid in two sums, one of £IOO on June* 1 and one of £SOO on November 30) was divided between Hepworth, Moore, and Beckett, Hepworth receiving £l5O, Moore £3OO, and Beckett £l5O. The shares were at the time of the sale and purchase, "worthless. The plaintiff asked for judgment for £IOOO. [RAYMOND HEPWORTH'S DEFENCE The defendant, Hepworth, in his statement of defence, denied that he entered into a with the other defendants for the acquisition of mining rights, the promotion of a company, or the sale of shares. In or about the month of February, 1911, he acquired the mining privileges mentioned for the sum of £270 and 2500 shares of £1 each fully paid ia the capital of a company to be incorporated with a capital not exceeding £21,000. He denied representing to the plaintiff that there were 2000 shares available for sale. He admitted that the plaintiff purchased 1000 shares, and that the money was paid, the company receiving £4OO, Moore £3OO, Hepworth £l5O, and Bee-* kett £l5O, but he denied that the sale •was made in pursuance of the agreement alleged by the plaintiff. He denied that the plaintiff was led to believe that the whole of the money paid t>y him would be payable to the company, or would be available for the development of the mine. He denied also that the shares were worthless at the time of the sale, and that the plaintiff had offered at. any time tof're-trans-fer them. MOORE'S DEFENCE. The defendant, Charles Gilford Moore, made a similar denial of the existence of the syndicate or partnership agreement alleged by the plaintiff. He admitted the acquisition of the mining privilege for £25 10/-, but denied that it was done in pursuance of the agreement. He also denied making representations to the plaintiff in pursuance of the agreement, or that the defendants each held 4000 shares in the company. He denied that the shares were worthless at the time of sale, and if they were worthless now it was entirely owing to the actions, allegations, and representations of the plaintiff and others acting in concert with him. "AN AMAZING IMPOSITION." In opening the case for the plaintiff Sir John Findlay stated that plaintiff was a retired farmer. Of the defendants Hepworth was a shareholder, Moore a

miner, and Beckett a journalist. Some time prior to December, 1911, continued counsel, these gentlemen resolved to form a partnership, it was alleged, to acquire certain mining rights from two men who were working a little claim near Naseby. Having acquired these rights, they proceeded to find a gentleman who would act as trustee for a priA r ate company. Having found him, they went on to form a private company. They entered into an agreement to sell to the trustee the mining rights they had acquired. The trustee acquired them, a company was formed, and an agreement was adopted that established between the parties the relationship of vendor and purchaser. Then they proceeded to obtain shares and sell them to the public. He (Sir John) thought that he would be able to show the jury that this was the most amazing and impudent imposition that had ever been attempted in this or any other city in New Zealand in connection with sharebroking. The two men from whom the claim was bought were McConnell and Peddie. Hepworth bought the property rights, and watef rights, dam and special site licenses,' for which he paid £270 in 'cash, and an offer of shares in the company. Moore obtained a license for a special claim, which cost him £25 10/-». So the total amount of cash paid by Hepworth and Moore for their rights was £297 10/-. True, they were to give 1250 paid-up shares in the new company to each of the two men —McConnell and Peddie. But the best idea of what the shares were worth was afforded by the fact that, after the shares were available, Peddie, who knew thd mine, and had been working in it for some time, preferred to take £l5O in cash instead of his 1250 shares, or rather less than 2/6 a share. And that was at a time when the company was in its bloom and was not nipped by exposure to some slight public investigation. Counsel went on to discuss the law by which two men who may be engaged in a hazardous enterprise could form a private company with no claim against them beyond, a shares liability. The new concern became a corporation, with neither a body to be kicked nor a soul to be damned. This method of creating a new company, and creating it for a purpose that- would be shown, was not a new thing. The private .company engaged in this case started operations with two shareholders —Hepworth and Moore —and. two directors —the same men. Hepworth was. secretary, at a remuneration of £156 per annum, and Moore was evidently something else, as the balance sheet showed some remuneration for Moore. .

Sir John dwelt upon . the extent to which what he termed this ridiculous arrangement was carried on. Hepworth was joint buyer, and a party to the contract with the trustee. Hepworth was also the banker, he used his own trust account for the company's moneys. Later, Hepworth became the debentureholders ' trustee, and then the deben-tures-holder. Hepworth and Moore entered into a contract with J. H. Upham, the trustee who had been mentioned, that the' property which had been acquired for £295 10/- should be sold to the new company for £2l,ooo—a startling pro'fit. As an act of grace, and to show their confidence in the company, they agreed to take the whole 21,000 shares, paid tip, in the company. Thus they had got the property for £295 10/-, had created a private company with a capital of £21,000, and had taken the whole of the shares, paid up. It was true that they had to give 2500 shares to McConnell and Peddie. But the latter wily miner had taken £l5O in place of his shares, and Hepworth and Moore directed that his 1250 shares should be put in the name of Mr Upham, in trust for themselves. When, some months later, the compajiy was hopelessly insolvent, they sold. 200 of the shares to aii unsuspecting farmer, a Mr Pamhaih, for £l4O. "That," commented Sir John, e 'illustrates how money can be made if you go about it the right way —or the wrong way." Continuing, counsel stated that the two defendants Hepworth and Moore seemed to have said to themselves "Let's be the company." They flourished the memorandum of articles to show to the world that the property was worth £21,000. So the farce proceeded. Here was a new company, with two shareholders and a capital of £21,000, but with no uncalled capital, and no shares left in it for issue for financing the company for the development of the mine. There was absolutely no means of financing the company except the £295 10/- worth of property. But to float it, about £l2O in law costs had been spent, and travelling and other expenses had brought up the cost of flotation to considerably more than £295. What asset left ,on which to finance the development of the mine? Unless they thought that some wooden-headed ba,nker —and coun_sel did not know of any—would advance money to them. Sir John put it to the jury that the Golden Bar Company was never intended to be a working company to exploit the mine, but was intended to exploit the pockets of the public. The Golden Bar Company proceeded to unload shares on the public at 20/- per share. Supposing that they had actually issued all their shares, defendants would have got £18,500 in return for their £295, or something like 62 times what it had cost therm But they had actually got Peddie's shares for £l5O and had sold a sixth of them for £240.

Counsel proceeded to deal with the question of misrepresentation. He quoted Lord Halsbury, who, in a similar case, had spoken of a " device or expedient for the purpose of dividing among the promoters money that they were getting frpm the public on a false colour or pretence that they were going to develop the mine." That was precisely what had happened here. Hepworth and Moore knew perfectly well that no one would touch the thing if they let daylight into it. So they re- ,j presented —Sir John thought he would be able to show —that they were developing the mine. To unload shares of that kind upon such a representation ■9' as a piece of brazen imposition. After discussing the pleadings in the case, for the benefit of the jury, and outlining the misrepresentations alleged, Sir John said that for the plaintiff it was not alleged that Beckett made any direct misrepresentation, but that his partners or agents made misrepresentations for their mutual profit and advantage, and that he participated in the profit. Hepworth, Moore, and Beckett had transferred 8225 of their sliares to sixteen different persons, and for a consideration of £6595, nearly all in cash. One man who took 175 shares, paying for them by means of his house, giving his five-roomed cottage in exchange for the shares. Another man gave a new motor-car for his shares. Of the £6595, Hepworth got £IOO7, Moore £8027, and Beckett £785, a total of £4819. What of the difference between that and the £6595 ? The claim had to be kept going somehow, so that the shares cbuld be pushed off 011 the different people. So they spared a little out of the fruits of the sale of shares to keep the thing going for a year or two. Also, to keep it going, Hepworth and Moore put in another £IOOO, but took a debenture, or debentures, over the whole of the company's property. They had the money and the property,

Holds-worth and fifteen others got their shares, and nothing more. Another feature of the transaction was that wh6re the defendants could not get 20/- apiece for shares, they took less, some shares being sold for 10/- each. The proceeds from the mine'itself were shown in the balance-sheet at £351 18/8. The wages paid amounted to £1554 15/9, and there were many other expenses. A more hopelessly insolvent concern could scarcely be imagined. As for Beckett,

he was a newspaper planter, who, Sir John understood, had started five or six papers. He planted newspapers, and left them to grow. Counsel indicated the issues that would need to be decided by the jury. THE PLAINTIFF'S EVIDENCE. Robert B. Holdswo'rth, the plaintiff, said that he was a retired sheep-farmer. In consequence of being asked to take some shares in the Golden Bar Company he went with defendant Moore, to Palmerston South, to visit the mine. Wit-®' ness knew nothing about mining. Mr G. B. Ritchie went with them, and the visit was made at his suggestion. Witness saw the mine, at which there was a dam, some old workings, and a new drive about 20.ft in. There were fouj men working there. There was an old battery, but no engine. There had been several cuts made to show the reef running through the Clay. He returned to Christchurch on April 6. Moore was in the railway carriage with him. In conversation Moore said that the' captial of the company was £21,000, and that Beckett, Hepworth, and himself were in it, each holding 4000 shares. He added that they had entered into an agreement -between themselves not to sell any of their own shares. & The other shares were available for sale to provide capital for the company. Moore said also that if these shares did not prove sufficient, the promoters would hand over more of their own shares to the company to provide capital. Moore spoke highly of Evans, the mine manager, and said that they had practically given him a free hand. He also added that Evans had some shares in the company. Witness did not come to any. arrangement then to buy shares. -On April 18 Moore met him in the Square, and took him to Hepworth's office, and introduced Hepworth as secretary of the company. ' - Sir John:, For what purpose?

Witness: So that I could get any further information I wanted about the mine or the company. Continuing, witness said that Hepworth told him that the capital of the company was £21,000; that there were 12,000 fully paid ,up shares, 4000 each in the names of Hepworth, Beckett, and Moore. Hepworth also said that 2000 were available for sale, and that there was no difficulty in selling tliem. He expected the late Mr Duncan Macfarlane to visit the mine, and that he would take all the 2000 shares if lie were satisfied with what he:oaw. Witness asked to be shown a copy of the Articles of Association. Hepworth replied that they were at the solicitor's office, but that they were "ordinary." Hepworth also stated that .he had entered into an arrangement with his codirectors to find certain moneys for the working of the mine, but he did not consider himself .sufficiently financial to carry out this agreement, an<J had got Mr George Mitchell/to. back him. The directors had entered' into an agreement not to sell any of their own shares. Witness asked if lie -took shares whether payment could be made by instalments, and Hepworth said that witness could make any arrangement he.liked, and suggested that witness should give him bills. Witness declined to do this, but said that he would write a letter, which Hepworth could get stamped if he liked. Witness wrote a letter on April 17. He did not know whose shares he was buying. Hepworth had told him that the directors would not sell their' shares until the mine was in working order. ■ Sir John: What did you understand these shares to be?

Witness: I believed they were part of the 9000 available.

Sir John pointed out that in his letter, the witness appeared to be paying only £250, and a receipt had been given by Hepworth for £4OO. The witness replied that he understood from Hepworth that they wanted cash-, and he voluntarily offered to pay an extra £l5O, with the idea that it would push along the work of the mine, as he believed at this time that all this money was to be utilised for the working and development of the mine. Witness added that until the full amount was paid he did not know that the money was not going to the. mine, in October, 1912, Mr Ritchie, in the presence of Moore and Hepworth, told him that Moore, Hepworth, and Beckett had agreed to hand over 1000 shares each back to the company, in order to provide capital. They did not contradict this statement. Hepworth met him in the Square one day, and they went to his office. He told witness that Moore and Beckett were not acting up to their agreement with him, inasmuch as they were trying to sell their own shares instead of the shares belonging, to the company. He stated, also, tfyat he had had a difference with his backer Mitchell. On December 2.7, 1912, Moore came to witness's house, bringing a letter signed by Ritchie (chairman of -directors), guaranteeing Moore's overdraft at the Bank of New Zealand. He stated that he had been obliged to pay the men's wages at the mine with his own cheques, and in consequence had overdrawn his own account. Witness did not agree to sign the letter. Moore said that Hepworth had "not acted up to his agreement, as he was trying to kill the sale of the shares on behalf of the company, as all in regard to the Golden Bar was not what it was represented to be. Sir John: Did he make any further reference'? Witness: He said that Hepworth would have to be got rid of as secretary; Continuing, witness said that towards the end of 1912 he urged on both Moore and Ritchie that they should call a meeting of shareholders. T What did Ritchie say?—He said that they did not seem to care about calling one. Sir John Findlay endeavoured to show, by "secondary" evidence that the plaintiff had endeavoured to secure a meeting, and the evidence was objected to by Mr Raymond. Sir John: It is part of my duty to show that the directors were resisting calling a meeting. Mr Raymond: We don't admit for one instant that there was any resistance on the part of the defendants to calling a meeting. The evidence was not admitted by Jus Honour. The witness continued that on April ■ 2, 1913, he received a notice of a meeting, with a report, but no balance-sheet. He wrote to the chanrman and secretary pointing out the omission,'and received j a reply that it would be presented to the meeting on April 9. Later he saw a copy of the balance-sheet, brought by Moore along with the original copy. Mr Raymond: It is dated April 5. Witness said that he also saw the auditor's report. He consulted his solici-

tor before* the meeting on the 9th. - Sir. John: When did you learn, for the first time, that the promoters were Selling their shares and that the nioney was not coining to the company's hands? Witness: On April 4. I visited the registrar's office with""fiiy solicitor. • Sir John: With the knowledge that all the shares were fully payi up shares issued to the promoters, what were your shares worth, in your opinion ? Witness: Nothing. Further examined by Sir John Findlay, witness said that there being no capital in the company, he considered that his shares were valueless. Cross-examined by Mr Raymond, witness said that he had not had considerable experience of other classes of speculation. He had bought land, but he had not been largely connected with syndicates for buying land. Witness read a list of his dealings with land. He had had transactions in connection with three syndicates since 1903. He was chairman of directors of the New Zealand Farmers' Insurance Company. He had been a director of that institution since it was started in 1891. He had not visited the Glenorchy mine, at the head of Lake Wakatipu, before he was approached with regard to taking shares in the Golden Bar Company. Before he was approached regarding the Golden Bar Company he had remarked to Mr Ritchie that if he knew of a good scheelite mine he would not mind taking some shares in it. Witness said that 'Ritchie told him that he had shares in the Golden Bar, and that he thought it was a good mine, but before doing anything they should go down and see it. Witness was first introduced to Moore on the train. With Ritchie, Moore, and Evans, witness went over the mine. He made enquiries- of Evans as to the value of some of the ore. There was what he was told was sheelite lying banked up. Moore took some samples, one of which witness got from him. Mr Raymond: Did you first of all suggest putting £SOO in the company? —I believe I did. Did you afterwards tell Moore that you would increase your holding to £IOOO? —I don't recollect that. Did Hepworth, in May, suggest your joining the Board of Directors?— The only occasion on which Hepworth spoke in my presence of my joining the Board of Directors was, I think/ in October. Replying to other questions, plaintiff said that he knew Ritchie was a director, but he could not say when the knowledge came to him. Witness was not qualified to be a director; the holding liecessary for a director was 1500 shares. He did not recollect Hepworth, pointing out to him that only himself (Hepworth); Moore, and Beckett were on the board, tlia-t Ritchie would probably join, and that if plaintiff joined the board they would be able to manage the company better. The only serious suggestion to him that he should join the board was made in the presence of Ritchie, Moore, and Hepworth, in Cathedral Square. Plaintiff's reply to that was that the position of the company would have to be altered considerably before he would think of joining the board. From what he could understand, payment of wages seemed to b$ a I chronic difficul|y,, and he could not understand why 'that should be so. At that time there was a balance of £SOO, not then due, to come from witness. He had never seen the books of .the company. He had never kscertained, at. any time, the amount of money the company had in the bank. He did/not,-,shortly after June 13, tell Ritchie* that he was not going on, as he had been over the books with Hepworth, that he did not think there was enough capital to work the mine, and that he would not go on jtlie directorate then. About the end of November or December, after he had paid his last instalment of £SOO, he began to feel some doubt about the company, but he had come to no conclusion. At that' time he had no idea aiS to the condition under which the company was formed —that was, that practically all the shares were promoters' shares. On December 27, when he was a-pproached by Moore to sign a letter guaranteeing Moore's overdraft at the bank, he refused. He might have signed if Mitchell and Cunningham had also signed. Mr Raymond read a letter written by plaintiff * undertaking to sign if Cunningham and Mitchell Signed. Moore told him that the overdraft represented wages paid to the men. Witness added,that on April 8 there was a meeting at the offices of Messrs Duncan, Cotterill, and Stringer, at which witness,. Ritchie, Cunningham, Mitcham, andyJ. H. Stringer were present. Witness authorised a letter to be sent to Hepworth. Mr Raymond: How did you form your opinion as to the mineral-bearing qualities of the mine? Witness: Mainly on the representations made by Moore. Did you inquire how many shares Evans had?— No.

Did you inquire what had been paid for the company rights?— Not at that time.

. Did you know anything at all about the title? —No. You knew that the company was depending for its working capital on the sale of 9000 shares? —That is what I believe.

Did it occur to ybu that 12,000 was a large holding for the promoters?— Yes, but I was told that they were prepared to hand more of their shares over to the company. Who gave you that answer? —Mr Moore, and Mr Hepworth also stated that. .

Did you think your money ~was being paid to the company?— Yes. To whom did you think Ritchie had paid his money?—To Moore. Ritchie told me I was coming in on a different footing to him, a£d said that he (Ritchie) was financing Moore. Witness inferred that Ritchie was buying Moore's shares, and Ritchie said that he could not take a transfer of Moore's shares, as there was an agreement among the directors not to sell any of their own shares. (Proceeding.)