CLAIM FOR £190,000

New Zealand Times, Volume XLVII, Issue 10850, 16 March 1921, Page 5

CLAIM FOR £190,000

- FROM COMPANY DIRECTORS

ALLEGATION OF BREACHES OF TRUST.

PROSPECTUS CRITICISED. PER PRESS ASSOCIATION. AUCKLAND, March 15. The action in which oertain shareholders of the Dominion Portland Cement Company have called upon certain directors of the company to show cause why they should not contribute £190,000 in cbnsequence of alleged misfeasance and alleged breaches of trust while acting as directors, was continued before Mr Justice Sim at tho Supreme Court. The plaintiffs are Sir George Clifford, Dr Edward G. Levingo, William Milne Hamilton, solicitor, Christchurch. James Stevenson, sheepfarmor, Flaxton, and George Thompson, slieepfariner, Spreydon, contributors and shareholders, represented by Mr C. P. Skerrett, K.C., of Wellington, and Mr A F. Wright, of Christchurch. The defendants and their counsel are as follow:—Mr A. H. Johnstone, of Auckland, for tho defendant, Vernon Herbert Reed, Mr R. McVeagh, of Auckland, for George Winstone the younger, and Mr M. Myers, of Wellington, and Mr J. C. Morison, of Wellington, for Heathcote B. Williams. Mr C. P. Skerrett, Iv.C., on behalf of tho plaintiffs, concluded his address this morning. Counsel dealt with the affairs of the company at length and criticised the actions of the directors.

COUNSEL FOR THE DEFENCE. Mr M. Myers, by arrangement with other defending counsel, addressed, the court first on behalf of his client, Heathcote B Williams. One significant fact, he said, that had probably come under Hit> Honour’s notice was that the plaintiffs did not include amongst their number a single commercial man. though there were many men and business men in the share list, which contained hundreds of names. It had been left to two sheepfarmers, a medical practitioner, a solicitor, and a baronet, who, he believed, was also a sheepfarmer, to commence these proceedings. Why was there nob a commercial man among them ? The reason was not far to seek. Any commercial man of standing and of any experience knew and appreciated the difficulty with which these unfortunate directors had to contend during the greater part of the company’s history. He referred to the period beginning with the outbreak of war, and said a commercial man with experience of the last few years would know that directors were not to blame for what happened, and that they were unfortunate victims of circumstances. That was shown by a report on the position made by a committee of shareholders—business men—appointed in March, 1917. It was' well known that many companies had failed to achieve success, and had lost all their capital without any blame being attachable to the directors. Plaintiffs could not succeed unless, and -until, they were able to show that the loss of which they complained was due to the acts of misfeasance which they alleged. Counsel proceeded to reply to the ease in detail, and the hearing was further adjourned.

THE PLAINTIFF’S CASE

‘‘VITAL CONSIDERATIONS.” Mr C. P. SKERRETTS OPENING ADDRESS. (Bv Telegraph—Special to Times.”) AUCKLAND, March 14. In opening,the case for the plaintiffs in the Dominion Portland Cement Company case, Mr Skerrett read extracts from the prospectus dealing with the capital of the company and referred to the paragraph in it which stated mat if advantage were taken of an offer by the Whangarei Borough Council, the company would have the right to receive hydro-electric power from the "Wairua Falls, at a price of £9 per h.p. per annum. Accordingly, in the construction of the cement works it was calculated no capital would be required for the purpose of obtaining power. There were two vital considerations, said counsel. First, that subscriptions were invited qpon the distinct and positive assertion that capital would not be required for producing power. Secondly, on the statement that the cost of the works would be somewhere in the region of £68,000, taking the only reference in the prospectus. Dealing with the arrangement with the Whangarei Borough Council, Mr Skerrett pointed out that the agreement depended upon the council carrying a ratepayers’ poll sanctioning a loan, for the construction of the works. It was admitted by the defendant Reed, that at an early date it was known that the loan would not be carried, and, what was more important, Mr Parry, the Government expert, had not supported the company reports as to tho cost of the work. Therefore the scheme fell through. ALTERING THE SCHEME. Now came, a animal matter, continued counsel. Without consulting the shareholders, and before nearly 30,000 shares which had been applied, for, had been allotted, the defendants altered the whole scheme of the company. They determined to have their own generating plant, and to supply the Whangarei Borough Council with electricity for power, not at a cost of £45,000, which was the estimated cost, but for about £55,000. They deliberately determined upon this scheme although their works and equipment would swallow up between £BO,OOO and £90,000, their capital then being very little over £IOO,000. Thus, notwithstanding their expert’s advice that they ought to have a capital of £170,000, and that they required about £25,000 working capital, they blindly determined to proceed with the exp??icliture on tho hydro-electric works. The present action was not by individual shareholders for alleged misrepresentation or fraud in the issue of the prospectus or in the allotment of the shares, but it was a matter of the gravest moment to know that these 100.817 shares were applied for upon the supposition that no capital would bo required for the provision of hydroelectric plant. In his affidavit Mr Reed had explained that he had been advised there was no necessity for consulting the shareholders, and his second excuse was that such consultation would have given information to their rivals. Counsel for plaintiff submitted these answers were no answer and no justification. It was known to the directors that the 107.817 share capital was worth only £IOO,OOO, and even that sum was not all available at the time. “A CAI JC ULATED DECEPTION.” In September, 1913, tho first information was given to the shareholders that the directors “were fortunate in securing a license from the Government through the borough council to use the waterfalls at an easy rental for 42 years,” with a right to renewal,

and explaining that the concession would mean a considerable saving in cost of power required for the works, and would put the company in a remarkably favourable position for tho manufacture of Portland cement. Plans and specifications are well advanced and some of the work is already in hand. “That,” said Mr Skerrett, “was calculated—l do not want to use the word camouflage, hut it was a calculated deception, upon the shareholders, nothing short, deliberate and wilful—no estimate of cost, no information of any kind being given to the shareholders.” The scheme for the works at Wairua was useless without the cement works. The expenditure would be wasted, and yet they had taken no steps in regard to the cement works. CART BEFORE THE HORSE. After dealing further with what he termed tho desperate position into which the company had got, Mr Skerrett turned to a report issued in February, 1914, containing a descriptive sketch of the company’s undertakings, counsel pointed out that there was not a word as to the cost of the hydroelectric scheme, and added that it looked as if it were a deliberate attempt to conceal the position from the shareholders. One document informed the shareholders that they would be asked to sanction the issue of 100,000 7 per cent, cumulative preference shares. The gravamen of the charge was whether under the admitted: conditions it wag a reasonable course for the directors to embark upon a course which they knew would involve an expenditure of at least £200,000, when the company had only £IOO,OOO capital, without consulting the shareholders. They had not even succeeded in securing the original share issue of £llO,000, and they had failed to get £55,000 for the generating plant scheme. Where could they, as reasonable men, expect to get the money they sought? Ought they to have gone on without finding where it was to como from ? It was surslv putting the cart before the horso. It was monstrous for business men to have entered upon such a course without knowing where they could put their hands on a sixpence. But they were ashamed to go hack ; they were afraid to meet the shareholders, and they were driven to recklessly go on in the hope that something would turn up. If they had paused to think they would have seen one thing was certain —that they would lose every sixpence. He would show that tho money was actually got on very extraordinary terms.