STANFORD V. GILLIES.

Press, Volume XXXI, Issue 4290, 30 April 1879, Page 1 (Supplement)

STANFORD V. GILLIES.

The following is the judgment delivered last week by their Honors Justices Johnston and Williams, in this interesting case : — The facts of this case are shortly as follows : —There existed in the beginning of the year 1877, at Dunedin, a Joint Stock Company incorporated with limited liability under the Joint Stock Companies Act, 1860, under tbe name of the "Otago Daily Times and Witness" Oompany. The business of tho company was the publication of a daily newspaper called the "Otago Daily Times," and a weekly newspaper called the "Otago Witneßß." The capital of tbe company was divided into 300 shares. Mr Stanford, the plaintiff, was a shareholder to the extent of forty-four shares, and Mr Murison, who was managing director and editor, held forty-seven shares. The plaintiff was an intimate fiiend of Mr Murison and a large contributor to both papers, and, according to his own statement, he was earning by his contributions at the beginning of 1877 rather over £500 a year. The plaintiff, however, had no permanent employment; he merely from time to furnished articles, which the editor could re j act or not as he pleased. The only semblance of any agreement alleged by the plaintiff was tbat there was an understanding with Mr Murison that the plaintiff should supply articles for the weekly paper, and that he should have expected three months' notice to determine this understanding. About March, 1877, certain parties represented by Mr Driver entered into negotiations with tho directors of the company to purchase the company's property, and an offer of a sum amounting to £65 per share was made. This the directors refused, but intimated that they would recommend the acceptance of a sum equivalent to £75 a ahare, and on the 6th of June Mr Driver made an offer of £75 a share to the directors. Tbis sum waa considerably in excess of the market price of the shares then or at any previous time. Mr Stanford waa aware of tbeae negotiations taking place, and being apprehensive of losing his income as a contributor if the papers changed hands, he consulted with Mr Murison aa to what was to be done. Mr Stanford's statement, in his own words, is as follows: —" We agreed," he says, "to ask Mr Eliott to represent our claims to compensation to the purchaser, and endeavored to arrange that we should be compensated. Mr Stanford and Mr Murison some time apparently in the month of May, after the directors had resolved to recommend the shareholders to accept £75 a share, and before Mr Driver had made the offer of the 6th of June, employed Mr Eliott for the purpose, and he forthwith commenced negotiations with Mr Driver. Mr Driver, if he wished to complete the purohase at all, was compelled to come to terms with Messrs Stanford and Murison. No sale could have been effected without their concurrence, since asth<y together held more than one-fourth of the capital, they oould by themselves have prevented any special resolution authorising a sale being carried. Sucb large shareholders, moreover, would certainly be able to influence very considerably the votes of the others. Accordingly, the upßbot of these negotiations was that either shortly before or shortly after Mr Driver made the offer of £75 to the directors he arranged to give in addition £1100 to Mr Stanford, and £1175 to Mr Murison, and to engage Mr Murison as editor under the new proprietory during a term of five years. The effect of this arrangement was to remove Mr Stanford's objection to a sale, and from thenceforward he took an active part in forwarding the sale. At the interview at whioh the terms were finally settled, Mr Driver asked Mr Stanford to keep the matter secret. Mr Stanford states that he informed some of hia intimate friends that he was endeavoring to obtain compensation, but it does not appear that they were aware of the particulars of the transaction. In any case no communication was made to the directors as a body, or to the shareholders of tho company, as to what had taken place. On the 21st of June there was an extraordinary general meeting of the shareholders, at which a resolution seconded by Mr Stanford was carried, to the effeot that a meeting should be held to consider a special resolution to sell at £75 a share. On the 2nd of July the meeting was accordingly held, and on the motion of Mr Stanford a special resolution authorising a .sale at £75 a share was carried by tho requisite majority. The voting, however, on- this occasion appears to have been very close. The resolution was confirmed on the motion of Mr Stanford at a subsequent meeting,on the 3rd of August, at whioh it was also resolved, on the motion of Mr Murison and Mr Stanford respectively, that the company should be wound up and liquidators appointed. In the month of August the sale was completed and'the purchase money distributed among the shareholders. Mr Stanford then reoeivedfrom.Mr Driver's solicitor the extra £1100' he stipulated for. In the month of December some of the shareholders became aware of the transaction between Mr Stanford and Mr Driver, and were dissatisfied with it. Mr Stanford, in January, 1878, paid the £1100 over to the defendants—the liquidators of tbe company—who now retain it, and Mr Stanford brings this action to recover it back. The defendants say that the money was banded over unconditionally, and that even if it had net been so handed over, yet they would be entitled to retain it as against the plaintiff. We will assume then for the purpose of argument that the plaintiff when he banded over the money not only asserted bis right to receive it and keep it in the first instance, but also retained the right of recovering it back from the defendants. What then would the rights of the parties have been if no payment by the plaintiff to the defendants had been made ? The position of the plaintiff is clear. He had no interest apart from his shares of wbieh he could dispose. As was put at the argument, he was in the same case as a. tradesman who bad been in the habjt of supplying goods to the company. His contributions when wanted were taken, and when taken were paid for, but there wo* no obligation to take them, and if the oompany declined to continue to take them, he had no claimfor compensation; neither could it be said that the amount of his receipts as a contributor had any relation to tbe number of his shares, or even that they had any but a very remote connection with the fact of his being a shareholder. So long as Mr Murison : continued editor, and was allowed to employ and pay contributors on his Sole authority, it is tolerably clear that Mr Stanford would hare been certain of employment), even if he had not been a shareholder at all. The circumstance tbat Mr Stanford

' traß a [ ar ge shareholder would of course havo made his position as a contributor more certain, as he would have been able to use Ha votes and influence for the purpose of keepina Mr Murison in power, but it is in this way only that any relation existed between the two positions of shareholder and contributor held by tbe plaintiff. This, of course, gave Mr Stanford no claim in the event of a ohang of ownership of the property against the company, or against any one else. All that cau be said is, that a sale of the property would not have been to Mr Stanford's interest unless he received something over and above what the other shareholders received. He, accordingly, stipulated with the intending purohaser to receive, and did receive £1100 additional. He had, as has been pointed out, nothing to sell beyond his shares, and these he did not sell, and he had no claim of any kind against anybody. What was then the consideration for which the £1100 was given ? It is ridicnleus to suppose it was given by Mr Driver as a gratuity, ss it would have been if it had been given to satisfy a claim for compensation whioh had no existence. Clearly it was given as an inducement, or more plainly as a bribe to Mr Stanford to give bis vote and to use his influence to get Mr Driver's offer acoepted. Is, then, such a transaction legitimate, and would Mr Stanford, as a shareholder, bo held a trustee for the oompany in respect of the money ha reoeived. There is no doubt that shareholders in a joint stock company aro in a very different position from ordinary partners. A shareholder in a joint stock company may dis* Eose of his shares to whom and at what price c pleases. He may vote in respect of his shares in accordance with his private interests, although such interests may be directly antagonistic to tho welfare or even to the very existence of the company. (East Point, &0., Co. t. Merryweather, 2 Hem. and Miller, 254.) Nay, further, in order to carry out his objects, he may inoreaae his voting power by transferring his shares to the nominees o! a hostile company in whioh he happens to be interested. (Be Stranton Iron and Steel Company L.8., 16 Eg.,559 ; Pender v Lusbington, L.R., 6ch ; division 70.) Still, though shareholders are not bound by the ties of partnership, yet they seem to occupy the position of co-owners in respect of tho property of the company, and although each may dispose of his shares as he pleases, yet while he remains a shareholder, if ho receives individually any profit in rospeot of the company's property, he would be bound to account for it to the company. Owners of ships are co-owners, and not partners ; an agreement by some of the co-owners to vote for a particular person as captain in consideration of a sum of money is void as against publio policy (Card v Hope, 2 B. and C. 661), but the other co-owners havo no right to an account of any sum so paid, as it does not form part of tho profits of the ship. (Moffat v Farquharson, 2, Bro. CO., 338). Ships are not supposed to earn money by the receipt of fees for the appointment of captains. If, however, some co-owners received a bonus from a charterer in consideration of their promising him a charter at a certain rate, would not the other co-owners be ontitled to an account of the sum so received as forming part of the real consideration paid for the charter? In a case where two persons joined in purchasing land subject to encumbrances, and the encumbrances were to be paid off out of tho purchase money, and one of them received an abatement of interest from an encumbrancer, the one who received it was compelled to bring it into account. [Carter v Home, 1 Eg., Oa. Abrg., 7.] It is abundantly clear that although no such general fiduciary relation exists between co-owners as exists between partners, still that no ono 00-owner or shareholder will be allowed to appropriate to himself individually what really belongs to the whole body. Now Mr Driver hero paid the 351100 in effect as part of the purohase money of the property. He was willing to give that snm in addition to the £75 a share, and he gave it to Mr Stanford to buy not his shares but his vote. But for the elaborate argument on the subject, we should not have thought it arguable that a secret agreement by an intending purchaser with one of several shareholders or 00-owners to pay him a sum of money to do his best to carry out a sale at a certain price was founded on anything but an illegal consideration. If suoh an agreement is founded on an illegal consideration, then, as money paid under suoh an agreement is really paid in order to obtain the property in question emd not for the purchase of anything the individual shareholder could sell, it must be treated as part of the purchase money, and accounted for by the person who receives it. The circumstance that here a good many persons thought £75 a sufficient price does not really affeot the queßtion. The price of anything is what it will bring, and it brought £1100 more than £7f» per share. Moreover, a number of shareholders were olearly not content to take £7I» a share, as at the principal meeting there was a considerable minority who voted against ths resolution. Mr Haggitt contended that the transaction could have been carried out in another way. It is certainly true that Mr Stanford might hare sold out his shares to Mr Driver at £100 a share, bave retained his own name on the register, and becoming thus a trustee for Mr Driver have voted according to Mr Driver's directions. Had this course been pursued, Mr Stanford's position, so far as the sale was concerned, would have been unimpeachable. In suoh a case, if Mr Driver had used his votes in order to coerce a minority into selling to him at an undervalue the Court, on the principle of Menier r Hooper's Telegraph Works, L.8., 9 Oh., 350, would have certainly interfered. There is all the difference in the world between bribing a shareholder on the one hand and buying his shares and making use of the position so acquired on the other. If A and B own a horse, and O wanting to buy it for £50 tells A that if he can get it for that amount he will give him £10 besides, and the transaction is carried out, it is in fraud of B, and A must account for the £10; but if 0 chooses first to buy A's share for £35, there is nothing to provent him from afterwards buying Be share at any sum at which he can induce B to part with it. Mr Stanford, however, not only voted for a sale at £75, but moved and seconded resolutions for the purpose of carrying out such sale. He, therefore, is placed in the position not of silently assenting to a sale, bnt of actively recommendiag his fellow-shareholders to sell at a certain price, he knowing all the time that the intending purohaser was willing to give £1100 additional, and that that £1100 was going into his own pocket. Nor does the case rest here. Hitherto the question has-been diso__sed altogether apart from tbe connection of Mr Stanford with Mr Murison. Mr Murison, however, was ft director, and so far as he is concerned there can be no doubt that he would bo accountable to the company for the money he received. Now it ia impossible to separate the action of Mr Stanford from that of Mr Morison. They both employ the same agent for the same purpose, to perpetrate what, in tha contemplation of a Court of Equity at least, ia admittedly a fraud upon the company so far aa regards Mr Murison. Each clearly is working in the interests of the other, and it is in effect a single transaction. The case is tbis: Two ot tho largest shareholders in it oompany, one of them being a director, collude together to prevent a sale of the comEany's assets unless a sum of money ia paid y the purchaser to eacbjof them in addition to what he pays to the company. They make a secret bargain with tho purchaser to cany oat their design, and each of them receives a large sum of money in pursuance of it. Can it be doubted that they are altogether in pari delieto, and that each most be considered as a trustee for the company in respect of tha moaey he haa received. As we are of opinion for the foregoing reasons that the defendant, are entitled to succeed, it becomes unnecessary to enquire into tbe circumstances under which the money was handed over by the plaintiff to the liquidators. The rule will be made absolute, with costs. The Attorney-General—Wdl your Honors grant leave to appeal if. the appeal is mado at the sext sitting of tbe Court. His Honor-Ir Justice John-ton—Yea, oat that ground.