GRAY v. THE EQUITABLE COMPANY.

Evening Star, Issue 7497, 16 April 1888, Page 4

GRAY v. THE EQUITABLE COMPANY.

The following is a condensed report of the evidence and legal argument in this case heard by Mr Justice Williams on Saturday Mr Travers briefly stated the case on behalf of the plaintiff, and said that ho would call only one witness —the plaintiff himself. Kobert Gray said that he had resided m Nelson for thirty odd years. Some years ago he received a prospectus (produced) of a fire and life association, and made application for shares, getting the form through the agent at Nelson. He received a receipt for the deposit, also a receipt for the allotment call, dated Ist December. He had since learned that the company were carrying on fire business outside of New Zealand. He learned this from a Sydney telegram in a Nelson paper of August Ist, 18117. The list of insurances in connection with a fire In Sydney mentioned the ¥quitable as one of the insuring companies. When witness received the prospectus referred to, he read it and noticed that it was underlined that the fire business was to be carried on strictly in New Zealand. It was this statement that influenced Lira to take shares. He taw the articles of association last August. That was the first time he had ever seen or read the memorandum and articles of association. In taking shares he entirely confided in the benafides of the statement in the prospectus that the fire business was to be strictly confined to New Zealand, and did not approve of the alterat on. He ha. received no notice from the company that business was to be done outside of New Zealand. Cross-examined by Sir R. Stout: The shareholders in Nelson met and discussed this matter, but witness was acting on his own responsibility. He supposed it had been arranged that he was to be the plaintiff in this action because he had the most papers prospectuses, receipts, etc. Witness was aware that the National carried on fire business out of New Zealand. He believed that it was a mistake for that company to carry on business in this colony and other countries, and thought that the Equitable should have taken advantage of the experience of the National. There had been a call made some time before the Nelson shareholders met. At that meeting the sharelu Iders protested against the directors doubling the capital of the company, and pointed out that the directors were going against the original prospectus in carrying on business outside of this colony, and a petition to the directors was signed by witness and others present at the meeting. To His Honor : He knew that it was the intention of the directors to carry on marine business outside New Zealand. He had heard rumors that the company were carrying on fire business outside the colony, but was not sure about it until he saw the paper referred to, and did not believe it, because he thought the company would have had a special meeting to have done it, and he could not believe they would have done it without a special meeting. This closed the plaintiff’s case. Sir R. Stout submitted that there was no case for the plaintiff, but said that he would call witnesses to prove one or two additional facts to strengthen the position of the defendant company. The following witnesses were then called : Frederick Laidlaw Voller deposed that he had been in the employ of the Equitable Insurance Association for five years. The fire business was first commenced outside New Zealand in March, 1884. For the first three years that business was profitable. The last year’s fire business had not been profitable—that was 1887. The Association had agents appointed to take fire risks in the other colonies ; and they had taken a great many fire risks. They were carrying on fire business in Melbourne, Sydney, Brisbane, Adelaide, Fremantle, and in the colony of Fiji. If this business was suddenly stopped, with all the risks running, it would be a very great injury to the Association. Meetings of shareholders had been held annually, and at none of these had it been proposed to limit the fire business to New Zealand,' and the matter had not been discussed, though in March, 1886. Mr Speight (now deceased) had made an inquiry relative to the business in Victoria. That year a dividend of 8 per cent, was paid. There were large risks outstanding in Australia, and also in New Zealand. ... To Mr Travers: Witness was accountant to the company, but was not a shareholder. Marine risks were taken outside of New Zealand by agents outside. To Sir R. Stout: We are not doing and never have done marine business at Fiji. W, J. Bardsley deposed that he was a shareholder in the Equitable Association. Before taking shares he called at Mr Bathgate’s office, and saw what he believed were the articles of association. That was before the allotment. He made the application in October, 1882, and they were allotted six or eight weeks afterwards. To Mr Travers: Witness must have read the document, though he had no distinct recollec tion of having done so. Probably he only read the most important parts of it. He had no recollection of having been influenced or impressed by anything connected with the fire policies. Sir R. Stout proposed to call Mr Bathgate to prove that the articles of association were lying at the office of the solicitors for inspection prior to allotment. Mr Travers would not dispute that the articles of association, in manuscript, were lying at the solicitor’s office for inspection in the months of October and November, prior to allotment,

This closed the case for defendants. Mr Travers formally moved for judgment for plaintiff on the following grounds:—(l) That the act of the company was ultra vires. (2) That if the memorandum of association did not in terms prohibit it, or inferentially permitted it, nevertheless the intending operations of the company at the date of its formation were restricted, and the steps required by law to authorise the company to extend its operations had not been taken—consequently what had been done was ultra vires on that ground. Also, and in the alternative to these two grounds, even if the Court should be of opinion that it was within the power of the company to do what had been done, there had been such a breach of contract between the company and the plaintiff as entitled him to have his name taken oft the list of shareholders. Sir R. Stout said that as to whether the act was or was not ultra vires of the company, to decide that they should not look to the prospectus but only to the memorandum of association and articles of association. In the memorandum of association there was no limit as to where the business was to be carried on. There was a limit, but it was a limit only as to loans that the securities must be in Now Zealand ; that there was no power to lend on the security of property in other colonies. This limit as to securities, but not as to business, was itself the key to the interpretation of the memorandum of association. The claim did not ask for an injunction to stop the marine business outside of New Zealand, or the life business. It was not contended that the plaintiff did not understand that both marine and life business were to bo conducted outside New Zealand, but that fact would not help in the interpretation of a document. He (Sir Robert) submitted that the words of the first paragraph of the second division of the memorandum of association “ to carry on all or auy department of the business of insurance against fire,” could not be limited to any country if there was no limit in the memorandum. Before the Court could interfere in a case of this sort, it must appear that the act was ultra vires of the company (Riche v. Ashbury Railway Carriage Company, L.B. 7, H, of Ls., 053). It was the memorandum of association that bound the company (in re South Durham Brewery Company). The learned counsel submitted that if the Court came to the conclusion that the memorandum did not disallow the act complained of, but did not expressly sanction it, but that the shareholders could sanction it under the memorandum of association if they so desired, then he submitted that the Court would not interfere by injunction. As to the other point, ft yas contended that there was no case In the books jpf a man being allowed to take his name off the sharp register of a company after he had received a dividend, or after delay, on the ground that the articles or memorandum of association did not agree with the prospectus. The points mentioned were then argued in detail, and numerous authorities were cited. It was submitted that the plaintiff was entirely barred by his waiting five years before taking any steps, and that independently of that by bis letter of May, because by his letter he did not repudiate the shares, but only advised the directors to think whether it would not bo wise to take the benefit of the experience of the National apd South British companies. The true reason fop tbfs litigation appeared in the letter, and was that a call was being made. If the plaintiff wished to object he should have repudiated his contract ip May. and should have commenced his action than; he should not have lain by till October and allowed the businejss to go on, and the company to enter into contrite which had not yet expired, and which might ents,U loss to the company. On this and other grounds t!;s learned counsel asked for judgment. Mr Bathgate said that v/Ltfi reference to the first point—as to the new business being ultra v ires of the-power of the company,' )ie ymuld calf Bis Honor’s attention to the 92nd section of tire .Articles of association, and would point put that’these articles were open for inspection at any time. As to the injunction, it had been shown that the directors tftd suggested that the shareholders shquld take means £o bring up the matter in dispute at a meeting of the company. Even presuming that .there was no doubt as to the right'qf fhe company to transact this business,'the Court wouty not interfered it would vorlf serious inconvenience if the C,onrt did so

interfere. Farther, it had been shown that to stop this business now would be to inflict loss on the company, which had established agencies in other colonies. Mr Travers proposed to deal first with the last point raised by counsel on the other side, and he was at once prepared to admit that the cases cited were so strong that it would be difficult for him to adduce authorities that would at all shake them. But he thought it right to draw attention to this: That all the cases cited were relating to actions in England, where there was, generally speaking, greater strictness and order in conducting business transactions. In this case plaintiff had acted in perfectly good faith, and took the shares on the strength of the allegations contained in the prospectus. Ho (Mr Travers) submitted that the plaintiff must be held to have had reasonable grounds for supposing that the memorandum of association would not go beyond that which was formulated as the business the company intended to carry on. Ho cited a case to show that the articles of association were only binding so far as they were compatible with the terms of the prospectus, and it had been emphasised by the promoters of the company, and formed the main ground of inducing the plaintiff and probably many others to become shareholders, that the fire operations of the company should be confined to New Zealand. The plaintiff could not be held to be bound by the rumois that had reached him; but when he saw in the telegraphic intelligence direct confirmation of these rumors, he might be said to have acquired his knowledge as to what the company were doing in this respect. It was true that between that time and the time when proceedings were actually taken two months elapsed, but there were letters addressed by his solicitor within a month after he became acquainted with the fact. The strongest cases cited on the other side were in support of the proposition that even much less delay than had occurred in this cose constituted laches on the part of the shareholders. Nevertheless, the circumstances of the company, the mode in which these corporations were formed, and the class of persons of whom they were composed, were different from those that obtained in New Zealand ; and the plaintiff had a right to assume that those who had asked him to become a shareholder in the company on a basis promulgated by themselves would frame the memorandum of association strictly in accordance with the prospectus; and that laches could be imputed to the plaintiff, however long the term might be, if the Court were of opinion that, looking at the language of the memorandum of association, the plaintiff could not have contemplated any departure from the terms of the original contract. On the first point, ns to the extension of the business, he could only repeat that, looking at the fact that it was an association established for the purpose of carrying on a fire business in New Zealand—a life business and marine business being of a peculiar nature, and necessarily dealing with risks extending beyond the colony—he would ask whether privui facie every com pany which was established for fire and life business under the Companies Act would not bo for the purpose of carrying on that business within New Zealand only? The primary object*, unless otherwise expressed, of every company thus formed was to transact its business in New Zealand, and not to gs outside and implicate shareholders—not to an extent dependent upon the directors, but upon the action of agents, over whom the directors could exercise insufficient control — with whom they could communicate only at limited intervals, and who might plunge the company into transactions over which the directors had no control. The business of the company was to be managed according to the articles of association, and not by persons who might bo appointed in another place. The directors had no right whatsoever to part witli any portion of the control over the general operations of the company; and therefore, if they delegated to other people the right of plunging the company into unlimited risks in all branches of its business, they were doing that which was outside the original intention under which the company was formed. _ If that were so, then he submitted that his client was entitled to an injunction and to the relief sought for.

Mr Chapman argued that there was no reason why a company formed in New Zealand for the purposes of fire insurance should have authority to extend its business to other colonies; and serious complications might arise by taking the business into other States, where there might be a trouble in enforcing the provisions of the company owing to the want of a proper tribunal. If there was power to take the business into Victoria, the power might be used to take it into such States. If it was to be assumed that the matter lay upon the hare interpretation of the memorandum of association, then the Court must come to the conclusion, there being nothing to indicate that the business might be conducted abroad, that it must be taken to be restricted to New Zealand. His Honor gave judgment as reported in our