THE LOAN AND MERCANTILE COMPANY.

Press, Volume LI, Issue 8781, 30 April 1894, Page 5

THE LOAN AND MERCANTILE COMPANY.

(FROM OCR srECIAL CORRESPONDENT.) LONDON, March 24. Suddenly the New Zealand Loan and Mercantile Company has once more sprung into a front place in the public attention. ludeed I might say justly that it is exciting more attention in London now than it ever did, even in tho days of sharp conflict between tho terminable and consolidated debenture-holders. For the new interest is a personal one, and in some degree political.

On the 19th February a further reporb was made to the Court by the Official Receiver. This further report covers seventeen pages of foolscap paper, contains statements which unless eventually explained away are at least unsatisfactory. It is to be noticed that the Official Receiver abstained from expressing his opinion as to whether any fraud has been committed by anyone, but the unavoidable inference from the statements in this further report certainly is that unless explained away upon examination of the Directors there must have been fraudulent transactions in two matters, viz., iv tho issue of prospectuses inviting applications for secured debentures, which in reality were unsecured ; ulso in certain curious and intricate transactions between the Loan Company and the- Land Company, chiefly affecting Mr Thomas Russell's shares in the Land Company. This ftutlier report ends thus :—" The Official Receiver is of opinion that further enquiry is desirable. . . . , and he makes application for an order directing the public examination of tho parties whose names appear in the attached schedule."

The oi;der for the public examination was made about a fortnight ago, as a matter of course, by Mr Justice Vaughau Williams sitting in Chambers as the Judge in Bankruptcy and winding up of companies. In l,he ordinary course a nolico would at once have been put in the Gazette calling upon the Directors (by uame) to present themselves for public examination, but at this point it seems to have occurred to some of them that this further report displayed animus against them, aud that tho Official Receiver was actuated by a desire to brand thoir characters with a stigma of fraud —at.'] least, so their counsel protested in Court, J and with what seems to many people questionable policy they took proceedings to get the order for public examination rescinded. When it became known that personages in the highest possible official position had not! only been ordered to hn publicly examined in the winding-up of a Company, but were actually going to try and get the order rescinded, the case instantly came to the front as a remarkable affair, and a crowded Court at the hearing of the Directors' application was a certainty.

At noon on Thursday last, 15th March, the struggle began. To show how desperate it was, it is enough to record that it lasted till late on the following afternoon, Sir Henry James obstinately lighting for the Directors almost the whole time. There were no witnesses to take up time in examination and cross-examination—absolutely nothing but keen legal argument from first to last. The Juds;e was Mr Justice Vaughan Williams, sitting in Court as an additional Judge of the Chancery Division. This Judge is looked upon by the legal profession as a decidedly strong Judge, able to hold his own against any counsel that chooses to defy or attack him ; at the same time he is the very personification of dignity and courtrsy, both in appearance and speech ; a case of hereditary talent and tendency clearly, for his father before him was a very distinguished old Judge, Sir E.I ward Vaughan Williams, one of the Justices of the Court of Common Pleas, an aucient court of law now merged in the Supreme Court of Judicature. Sir Henry James is looked upon as an exceedingly sound lawyer and a subtle and determined advocate, who will stand his ground from hour to hour without any sign of fatigue or of giving in. His standing at the bar can be estimated by calling to mind that he refused the Lord Chancellorship eight years ago. He was Attorney-General under Gladstone's Government in ! 73, but declined the offer of the Chancellorship, on the ground of disagreement with Mr Gladstone on the Home Rule question —and accordingly joined the ranks of the Unionists, and now sits as a private member in the House of Commons for the constituency of Bury (Lancashire).

In the present case, Sir Henry James appeared for all the Directors named by tho Official Receiver, excepting Messrs Larkworthy and Thomas Russell. The other counsel were Mr Finlay, Q.C., and Mr Howard Wright for the Official Receiver, and Mr Reginald Bray for a debentureholder. The Court was full during both days of the argument, and there could he no dullness, even in a Chancery Court, with a legal duel going on between such skilled lawyers. A considerable number of members of the Bar were present, and thoroughly enjoyed the contest, which over aud over again seemed on the verge of affording a scene. " Relations were strained" repeatedly between the Judge and Sir Henry James; in fact so much so, that after one soaiewkat -ttniisaaUy cta.ri.og; infcerpretation of the J*xclse**» previous remarks, the Judge, -with, chilling and emphatic J." ! <i; »*| n : ! dignity, addresse! Sir iLenry James oy name, and declined to " converse" any further with him, and roguested him to conline himself to tne argament of points of law onlySir Henry Jame3 moved to aiscnarge ike order wade by the Court for the public exanimation of the Directors of tho New Zealand Loan and Mercantile Company, on the ground that the order was made under section 8 of the Companies Winding-up Act which prima facie implied a suspicion of fraud ; which, in fact, was suggested by the report of the Official Receiver, whereon the order was based, but no facts were stated by the Receiver from which fraud could necessarily be inferred. Sir Henry said tho Directors had no desire to avoid publicity or to escape examination, and were quite willing to be examined under section 115 of the Companies Act, but they did object to an examination which suggested fraud.

The application was opposed and a sturdy battle of counsel ensued, in which Mr Justice Vaughan Williams was manifestly from the first strongly against Sir Henry James in the matter, but at the close of the argument, winch in reality was far more between Sir Henry and the Judge than between the respective counsel, Mr Justice Williams said he would take time to consider his decision on account of the great importance of the case.

On Monday last judgment was delivered, and it went as everyone expected, dead against the Directors. It was, in fact, an exceedingly trenchant and remarkable judicial utterance. "" Its gist was that the Official Receiver's report did suggest " two distinct frauds," and that as the report, in the Judge's opinion, clearly made out a prima facie case of fraud in these respects "an immediate public inquiry" ought to be held.

The two alleged frauds were—" (1) That the Directors or some of them from time to time issued prospectuses inviting applications for debentures, which were misleading and known to be misleading ; (2) that the Directors or some of them, on behalf of the New Zealand Loan Company, entered into a series of transactions with a Company called the New Zealand Land Company, Limited, not bonajidein the interest of the Loan Company, but in some other interest, and to its detriment."

Mr Justice Vaughan Williams held tiat in regard to the first case '' a prima facie case of fraud is made out," and pointed out that Sir Henry James, though repeatedly pressed by him to do so, " wa3 wholly unable to suggest what was the object in issuing the prospectuses and applications he found in the form in which thoy respectively were issued, and of abstaining from the advice given by counsel, if the object was not to deceive those to whom they were issued."

As to the second charge his Lordship sa : .d:—"ln my judgment, it is impossible to avoid the conclusion that, as against Mr Russell at ail events, the facts stated in the report as they stand raise a prima facie presumption of fraud, that be at least on behalf of the Loan Company entered into transactions with the Land Company, not bona fide in the interest of the Loan Company, but in liia own interest. With regard to the other Directors who have been

ordered to be examined, I cannot but Itopo that the result of the public examination may bo entirely to clear them. It may bo that, in the result, Mr Russell will bo able to clear himself. But the great advantages which he personally obtained upon the transactions impugned makes a prima facte case of fraud against him which is not made against the other Directors. The interest of tho other Directors in tho Loan Company largely exceeded their liability for calls in the Land Company. It is in the highest degree improbable, therefore, that they wilfully risked a liability for calls of £12,000 in the Loan Company to avoid even an immediate liability of £5000 in the Land Compauy ; to say nothing of the improbability that distinguished men, bearing the highest pos« sibie character, should be wilfully parties to injuring the interests of the Company of which they were Directors. But it is sufficient to justify my order if a prima faeit case cf fraud is made against one Director. That fact makes it right that all the Direstois and officers of the Company should be examined ; and 1 cannot help thinking that now that discussion in open court must have shown to these distinguished men that, whether or not the report makes out a prima case of fraud, as I think it clearly does, it at all events shows a state of things demanding rigid investigation—they themselves will earnestly desire, conscious of their own innocence, that there shall be an immediate public inquiry. Noblesse oblige." Aud the application was dismissed with costs. An immediate appeal was made and sot down for next day, when it was heard by Lords Justices Lindlcy, Kay, and A. L. Smith. Sir Henry James emphasised bis assertion that the order was resisted not to avoid examination, but because the order wos based on a presumption ot fraud. He asked that his clients should be declared free from anything approaching fraud, and that the order for tho public examination should be discharged.

At first the Court seemed disposed to follow in Mr Justice Vaughan Williams' footsteps, but gradually a change came over the aspect of affairs. Sir Henry- James appeared to mc to veer gradually from his original position into another which materially altered the situation. Lord Justice Liudley asked if the dispute were whether the examination should bo public or private. Thereupon Sir Henry, who just before had asked the Court to " discharge the order for a public examination," said that if a public examination co"ald be conducted without the suspicion of fraud, the more public it was the more his clients would be satisfied.

Upon this, Mr Finlay, tho opposing counsel, at once said that all the Official Receiver wanted was a public examination, and if this were agreed to there was an end of the case. Accordingly this was agroed to aud by consent an amended order was made for public examination, with liberty to the Receiver or any creditor or contributory to put any queation sanctioned by the Court.

What has cruised the case to attract such extraordinary attention in London, however, is not the fortunes of the New Zealand shareholders or others in the colony or at Home, but the eminence of the person? reflected upon by the Official Receiver'a report and 'by Mr Justice Vaugbon Williams' judgment. One of them is no less a person than the Receiver's own official chief, a Minister of the Crown, Mr A. J. Mundella, President of the Board of Trade. Another is Sir George Russell, M.P., a prominent supporter of the Government. Two others are ex-Ministers, and were members of Conservative Administrations, Sir John Gorst and Sir James Fergusson, the latter being also an ex-Governor. Sir Edward Stafford ia an ex-Premier of New Zealand and a G.C.M.G.

Others are men prominent in the London or colonial business world. But it ia the political celebrity of these particular gentlemen that has brought the affairs of the " N.Z. Loan Company" (as it is almost invariably termed in the London papers) into such fresh and disagreeable notoriety. Several of the journals have had severe articles on tho subject. It was very unfortunate that the Directors did not make their position clearer at the outset of these last proceedings, and court a public examination instead of contesting the matter desperately to the laßt point, and only then suggesting that the order for public examination should be varied instead of being discharged altogether. Technically, of course, the original order was discharged, but only by consent on the condition of a new one being issued under a different Aot

Mr Thomas Russell is understood to be on his way to London and is expected here in a few days. There was a rumour afloat that he was to be the general manager of the reconstructed Company, but this is deemed improbable. I hear that he is a candidate for a seat on the new Board. Probably no other man has so intimate and extensive an acquaintance with all the complex ramifica-. tious of the Company's affairs. Mcst of the old Directors, I am told, still hold aloof and object to having two or three of the number picked out for seats on the new Board. Some, indeed, refuse altogether to serve unless the imputations cast upon them by various creditors or shareholders bhall be unreservedly retracted .and apologised for. Possibly the coming examination may clear the way a good deal in this respect if it results in the exoneration of. some or all of the Directors, as everyone must hope that it will. Meanwhile thiß outgoing mail once more leaves the New Zealand Loan and Mercantile Agency Comrmtiy ia the traditional mitTxa-lsion. o£ -Mctrxomeits's coffin.