YACHT MOREWA

Nelson Evening Mail, Volume LXX, 14 September 1936, Page 10

YACHT MOREWA

CIVIL ACTION WON BY McArthur LARGE SUM INVOLVED FURTHER DETAILS

As reported on Saturday, judgment for defendant, J. W. S. McArthur, has been given in the civil action concerning the ownership of the yacht Morewa. Plaintiffs were the Pacific Exploration Co., Ltd., and the Sterling Investments Co. (N.Z.), Ltd., who sought a declaration that McArthur was liable to pay either of them £10,335, or the value of the yacht at the time it was acquired by him. Alternately the claim was for payment to the Sterling Company of the sum. of £8931 9s, being the amount owed it by the Pacific Company for advances on the construction of the yacht to 28th February, 1934, and to the Pacific Company of the sum of £1403 15s 4d, being the amount expended by that company on the yacht subsequent to 28th February, 1934. “In this case,” said Mr Justice Johnston in his reserved judgment, which was delivered on Friday, “I have felt that so far as regards the particular transaction involved, namely, the disposal of the yacht, Morewa, I cannot deny to the companies their legal status, and that the control of the companies by defendant is not in itself sufficient to entitle me to impute fraud without better proof than has been offered in this action. Without fraud I think it clear the weight of evidence is against interpretations placed on the transactions by plaintiffs, and | judgment must be for defendant.” | His Honour, in his judgment, said that before examining the transactions relating to the yacht he thought it convenient first to dispose of the question raised as to the control and direction of the plaintiff companies and the Investment Executive Trust Company. It could, he thought, having regard to the recitals to the Companies (Special Liquidations) Act, 1934-5, and the inclusion of the three companies mentioned in the schedule of companies to be woundup, be rightly inferred that these companies were in the opinion of the Legislature under the control of defendant, who, at all material times for the purpose of this action, was managing director of the I.E.T. Company, attorney of the Pacific Company, and from 23rd December, 1931, to sth December, 1932, attorney for Sterling when he relinquished that position to his associate in the Sterling and other companies, C. G. Alcorn. “ONE-MAN COMPANIES”

“Apart, however, from any inference that may be drawn from this Act,” said his Honour, “I think the only reasonable inference to be drawn from the evidence in this case is that defendant had as complete control of the Pacific company and the Sterling company as if they were in form what are called ‘one-man companies,’ with defendant holding l all the shares but those distributed to the necessary number of nominees to comply with the requirements of the Companies Act and enable the company to be registered.”

His Honour said that the circumstances and the evidence of defendant in relation to his transactions with Alcorn, the Pacific company, and the Sterling company, established in his mind beyond reasonable doubt that defendant was in influence and authority the Sterling company, as well as the Pacific company, and that the directors, officers, and servants were subject to the direction and under the control of defendant.

There was nothing illegal in one individual controlling the management and destiny of more than one company, and the fact that defendant, who was managing director of the I.E.T. company, improperly applied its moneys to the advantage of the Sterling company, which in turn handed on large sums of money so received to the Pacific company, was not relevant in an inquiry into independent transactions between defendant and the Sterling company or the Pacific company, save to the extent that information of such dealings might affect defendant’s credit as a witness.

“I can see no reason why, if defendant wished to purchase this yacht, he had any object in deceiving or defrauding the companies he controlled,” continued his Honour. If they were mere aliases he would only be deceiving and defrauding himself, and prima facie it appears on the construction of the entries in the books of Pacific and the balance sheets of both companies, that the sale relied on by defendant saved both the Pacific and the Sterling company the considerable loss in all probability they were both bound to suffer if, to liquidate the Pacific company’s debt to Sterling company, the yacht had been put on the open market. “It is clear from the evidence of the accountants that by taking over the whole of the indebtedness of Pacific to the Sterling company the Pacific company was properly credited and defendant debited with the whole of the moneys spent on the construction and equipment of the boat, leaving the

Pacific company reimbursed for all expenditure on the yacht. As, in my opinion, the only interpretation to be put upon the Alcorn receipt is that given by the accounts, Mr Glen and Mr Johnston, I find it impossible to hold that plaintiffs have proved either a sale by Pacific company to Sterling company and a delivery to defendant to hold upon trust for Sterling, or failure to pay the stipulated consideration in the event of it being held that an agreement for sale was made by the Pacific company to defendant.

CREDIBILITY AS A WITNESS “I have not forgotten in the consideration I have given to this case that I should entertain the gravest doubt about the truth of any statement made by defendant when it is to his advantage that that statement should be made. His creditibility as a witness is gravely shaken by his conviction for issuing false prospectuses. Counsel for plaintiffs made the most of inconsistent statements made at various times by defendant as to how he acquired ownership of the boat. I have examined these different versions carefully and I have come to the opinion that there was a sale and the terms of it substantially were those given by defendant in his criminal trial when, according to the evidence given by plaintiff’s accountant in this case, he said, ‘that there was approximately £IO,OOO due by the Pacific company to Sterling company in respect to advances v/hich had been spent on the yacht and that he arranged to take over the yacht and to assume liability to Sterling for the amount advanced and spent on the ship.’ “Although one must inevitably reach conclusions with the greatest hesitation in transactions between companies when the person in control of them is not of good credit, facts that would ordinarily create suspicion are not present here. “Plaintiff companies gain rather than lose by the transaction attacked, and so long as the Alcorn receipt is unimpeached, no evidence that creditors of the plaintiff companies could be defrauded has been brought forward.

“In answer to a question as to who had suffered loss by these transactions counsel for the plaintiffs suggested that the public who subscribed the money to the I.E.T. company were the losers. That was not shown by evidence and neither the I.E.T. company nor its creditors are parties to this action. In this action the I.E.T. company appeared only by name as a company from which the Sterling company borrowed money. “Nothing that I can do in this action can assist or in any way affect the members of the public who subscribed to the I.E.T. company to recover their losses. It may be that the

manipulation of companies allowed by the Companies Act opens the way to fraud, and control as was exercised here provides a good target for attack.”

Judgment was entered for defendant with costs, witnesses’ expenses and disbursements.

On the application of Mr Watson a stay of execution was granted provided notice of appeal was filed within 28 days. Costs are to be paid into court within seven days, and to be paid to defendant if the appeal is not lodged within 28 days. Leave was given, defendant to move to set aside the order on seven days’ notice.