N.Z.L. AND M.A. COMPANY.

Otago Witness, Issue 2104, 21 June 1894, Page 5

N.Z.L. AND M.A. COMPANY.

Press Association— By Telegraph— Copyright. London, June 15. Mr Justice Williams has directed Mr Stewart, the official receiver, to institute civil proceedings against the old directors of the Loan and Mercantile Agency Company to recover the amount of the dividends paid oat of capital.

(From Our Own Correspondents.)

Wellington, Juno 16.

It is stated that the call of the New Zealand Loan and Mercantile Agency Company has drained £150,000 from Auckland. Auckland, June 13.

ThegeneralmanagerfortheNewZealandLoan and Mercantile Agency Company is in receipt of a cablegram from London intimating that the applications already received from shareholders for shares in the new company represent a total new capital available exceeding £600,000. The business of the company will be resumed on Monday, 18th inst.

THE EXAMINATION OF THE DIRECTORS.

(By Oub Special Reporter.) Thursday, April 12.

Before the examination proceeded the official receiver asked that Mr Russell should be allowed to see the evidence given by Mr Ho 1 iams at the private^examinatioia, to which the judge acceded after some hesitation, remarking that if he had been in Mr Russell's position he should have wished to make his statement without reference to anyone else's.

The official receiver also reported that the ■draft of the -'Schroder prospectus could not be found. Possibly it was burnt in a fire that had taken place at the printers'. Mr Reid.'Q.C, wished to correct a statement •given by Sir James Fergusson in his evidence. What was imeant was that Mr Russell said that ■Sir Jatfi&B should have shares in the Waikato If Sir James's cousin in Auckland advised him

to take them. ' ' Sir Edward Stafford then took the seat at the witnesses' table : Till 1888 did not know of any doubt as to the wording of prospectus, and did not see the counsel's opinion till quite lately. Remember the harping upon the words •• upon" and "by." Not being a lawyer did not pay much attention to it. Can't even find counsel to agree about it at the present moment. The attitude taken up by Sir Edward Stafford of acting on the aggressive from the very first had the immediate effect of making the judge treat hinvwith some suspicion and severity, and "scenes" were of frequent occurrence all through the day. To this first remark of Sir Edward Stafford the judge promptly retorted that he hoped (with stress on the hoped) that some lawyers didn't appreciate the difference between the '• upon" and " by," Witness proceeding said he strongly objected to any charge being given to secure the Schroder ■debentures. Was assured that all debenture-

holders would be put on same footing by the 'trust deed.

The Judge : Assurance ? Who by ? Sir Edward Stafford: Can't say. It was in the air. I did hear the whole trust deed read, but I don't pretend to have the knowledge of a lawyer. This beiDg a fair specimen of Sir Edward's Btyle of answering, it is not surprising that he had a long and disagreeable day in the witness box. Witness continuing : Didn't know debentureholders thought they were secure. As to Elder's report, there were most exciting discussions at the board ; Larkworthy's letter to the board just before that gentleman's resignation was a historical romance, and witness made some very strong observations on it. . The witness having answered some question

on the mode of dealing with Australian - accounts, the judge remarked that he heard witness's statements t with envy as models of commercial euphemism. A long examination followed, by the judge about " profit and loss account " and unearned interest, and Sir Edward was rebuked for his manner of answering, the judge remarking that the witness did not assist him to get the ipformation wanted,. The witness (continuing) said the directors had to accept the totals sent Home from the colonial board ; the permanent officials had the duty of making the balance, sheets; auditors' letter should have been brought before the board— could not swear It wasn't. The Judge : I can't understand your frame of mind as to this. This is a matter of a serious character.- . Sir Edward : I began by saying it wasn t.

The Judge : And you ended by saying you couldn't swear. You were in a fiduciary position.

After some examination as so the preparation of balance sheets and showing the £390,000 transaction with the Land Company, another remark was made thus :

The Judge : What do you think are the functions of directors when considering a balance sheet ? Are they to say, "Mr Manager, are the figures correct ? " " Yes, gentlemen." " Then, Mr Manager, you can issue the balance sheet." This was a very large investment in land.

Sir Edward Stafford : I do not think it was our duty, my Lord, to show the transaction under any other head ; the process was going on.

The Judge : Your duty was to say under what head it should be placed. lam inviting you to say it was your duty, and that you are sorry you did not do it. Sir Edward Stafford : I still fail to see that the sum was placed under a wrong heading. After another similar breeze or two, the-sub-ject of the suppression of Barker's report by Elder's letter " confidential A" was taken, the witness stating that at the meeting in June 1893, when the affair first became known, witness Bpoke in very strong terms indeed to Mr Paul. -Did not convey any disapproval to Elder because by that time we were so engrossed with the company's very existence from hour to hour. Taken to the subject of the Land Company transactions, witness said there was the greatest anxiety in 1887 with reference to the whole position of the debentures of the Land Company, the Agricultural Company, the Loan Company, and the Bank of New Zealand. They were all so very largely in sympathy that the failure of any one of them would endanger the stability of the rest. In 1891 considered Russell's debt of £73,000 well secured. The Land Company had alwaysbeen the Loan Company under another name. By the Loan Company taking shares in Land Company in exchange for unsaleable land the Loan Company was getting rid of " lock - ups." The Land Company would get more capital and develop the land, and the land would be earning something. Battley was an officer of both companies (upon which the judge remarked that Batfcley was placed in the difficult position of trying to serve two masters). The witness, continuing, said that misconcep-tions-had arisen from taking the same views of certain points at different times. Taking one year with another the Land Company's shares could be put at par. "Not immediately realisable" is not the same thing as locked up." Was not aware that Mr Russell ever got a penny of the money, which was to be spent in improving the Waikato estate. Mr Battley was their own officer, and they asked him to report.

The Judge : But he was an officer of the Land Company, and he rose by serviDg two interests, a position which a man of honour could not take up.

Sir Edward Stafford : Don't recollect.

The Judge : I invite you to read the letter in which Mr Larkworthy warns you in the strongest possible terms.

Sir Edward Stafford : I do now remember.

Witness then went on to explain that the Land Company having already a small nucleus of land the Loan Company considered that they could make it a machine for working" off the Loan Company's unproductive land, just as the Bank of New Zealand had formed their Assets Company. Upon counsel (Mr Bray) asking witness whether the Loan Company was justified in going into land properties of very speculative value, witness, retorted, " I've been asked that question half a dozen times." The Judge : Did you ever ask yourself that questidn? If you had you would have favoured yourself with a more detailed answer. Counsel : Why did the Loan Company remit the liability on Mr Russell's shares ? Witness : Can't remember.

This concluded the examination on behalf of the official receiver, and witness was then reexamined by Mr Reid, Q.C., on behalf of the directors. As this examination was over the same ground, but directed merely to making a few points clearer in favour of witness and the other directors, it is unnecessary to give it fully. Generally speaking the witness took up the position of strongly justifying all that the directors had done, and explained many details satisfactorily. ■ Witness read Larkworthy's report himself. All the London board could do was to remonstrate with the colonial board as to their investments. Barker's report was most improperly held back. Waß never interested himself in the Land Company. Mr Russell had done great services for the Loan Company. After the adjournment for lunch, in reply to the judge, witness admitted that partly what induced the Loan Company to make "the arrangements with the Land Company was that Mr ThOB. Russell was largely" indebted , and unless some such arrangement were made he would fail. The judge, after a tew more questions, intimated that witness might leave the witness's table. Sir Edward Stafford, rising and standing clear of the witness's table close to the judge, addressed his Lordship as follows :—": — " I wish to express regret, m'lord, that it seemed to be suggested, before the adjournment, tha<; I was not fully answering the questions put to me. I trust that your Lordship does not attribute such an intention to me. Any insufficiency in my answer was really from a failure of munory, and not from any desire to withhold information from the court." His Lordship merely bobbed to show apparently that he had heard Sir Edward's remarks, but did not utter a single word, and continued looking straight in front of him with a decidedly severe expression. It was pretty clear that this little bit of dumbshow rather amused some of the audience at Sir Edward Stafford's expense. After the manner in which he had fought both counsel and judge all the way through his examination, and the decidedly bluat way he had answered several of the questions, it seemeg astonishing that he should have been so impolitic as to address the judge at the end at all. It looked very much as if Sir Edward Stafford was fishing for as flattering a compliment from the judge as his Lordship had gratuitously given to Sir James Fergusson. If so, the result was a wellmerited snub. Anyhow, he got it, and a nasty one, too.

By way of a contrast nothing could have been stronger than the manner and temper of the next witness, Sir George Russell (no connection with any other establishment of the same name). Tbig, witness was a good-tempered elderly gentleman, with white hair, white whiskers, no moustache, bat a little white tuft under his lower lip ; altogether like a respectable old family solicitor of the better sort. Bowing respectfully^ to the judge, Sir George took his seat, leaning back easily so as to face between counsel and judge. It was quite laughable to see how completely this witness's good-nature and easiness disarmed both couasel and judge in the first five minutes of his examination. There was a sense of relief in the- court, and everything went swimmingly. After the doggedness,' cantankerousness, and pernickefctiness of certain previous witnesses, tedious and aggravating beyond endurance, it was quite a pleasure to see and hear such an agreeable old gentleman as this. Witness started off by explaining how it was he joined the board

in 1889. Sir James Fergusson had aske^ him to, and Sir James was the oldest and closest friend he had in the world, and he had the most unlimited confidence in his honour and chivalry. Sir Edward Stafford had held out longest against the hypothecation of uncalled capital. Told the solicitors to write an adequate reply to inquiring debenture-holders ; never, never had heard of the substance of some of the letters till now. Says in the strongest language of which he is capable that was so. Had he known it he would have been in favour of giving them further information by circular. Was most vehemently anxious to get rid of danger of terminable debentures. Saw breakers ahead. Wanted to leave the board, but thought it wrong to join it one day and leave it the next, and bo he stuck to the ship. Had come here to say the truth. Had not refreshed his memory, as he wished to come with an unbiassed mind. Thought Larkworthy a useful watch-dog. Rigid investigations ordered in the colonies to prevent repetition of irregularities. Thought the truth lay half way between Larkworthy and Elder's views. Some entries had escaped his attention. Never saw auditors' letter. Was greatly impressed with Battley's judgment and integrity, but was unacquainted with the fact that he had any connection with the Land Company, or else witness would not have swallowed him whole as he had done ; believed the whole scheme emanated from the brain of Battley ; thought transfers of land to a company would be advantageous to the Loan Company 1 •/

This ended the examination on behalf of the official receiver and by the judge. Mr Reid had no questions to ask, and the Judge turning to Sir George Russell and smiling affably, thanked him very pleasantly for the manner in which he had given his evidence. Sir George, standing, bowed to his Lordship, and said a few words in conclusion of this happy meeting. Sir George said a notion seemed to have been entertained in some quarters that he had been reluctant to be examined, whereas, on the contrary, he had always been most anxious to come forward and give all the information in his possession. His Lordship again bowed and smiled, and Sir George left the witness's table and rejoined the other directors in the "well."

Friday, April 13.

The examination of directors was conbinued after his Lordship had delivered judgment with regard to the scheme of reconstruction. That occupied the court till 1.15, and then Sir John Gorst was called — another elderly and greybearded gentleman, bald, but well coloured, and powerful looking, and good tempered. Though not quite so genial a witness as Sir George RusEell, he was not troublesome and gave evidence well. His evidence was as follows : — Security was given to the Schroder issue because they were obliged to accept Schroder's teruos. Thought old debentureholders knew their position. Thought they were idiots not to come in and convert. Did not see Paul's answers. Didn't know of counsel's opinion till after the liquidation. Didn't know the Land Company's shares were in balance sheet under "Wool." Extremely wrong to put item there. Takes great blame to himself that it was not noticed and put under such a heading as " Shares." Did not know of the auditor's letter. The whole of the mortgaged property was not unproductive. Never heard of discussion as to keeping anything back from annual report. Did not wish to evade responsibility for balance sheet of 1893. Here the judge commented that the board had been badly served by someone. In June, 1893, when " Confidential A " was opened, no one had heard of it before. We were much surprised, and there was strong language. It was highly improper of Elder to stop the report by telegram to Paul. As to Waikato land transactions, witness was on the committee of three who had no shares in it, and all that was done was done by the committee and Battley. The discussions were with Battley alone. Witness himself originated the scheme. Suppose he was aware that Russell was being relieved of liability. Considered the Land Company solvent then and now. After some few questions the examination of this witness ended, and the judge thanked him for the explanations he had given, and the court adjourned to the following Thursday.

Thursday, April 19.

The Judge intimated that he proposed to make a very short statement of the facts after taking Mr Bristin's and Mr Russell's evidence. He would then adjourn for four days, and then the former witnesses could come forward and add anything they might wish to state and Mr Reid might address the court. Sir Edward Stafford having qualified an apparently unimportant point ot his evidenoe, Mr Bristow was called. His examination was brief and his answers admirably clear and prompt. A sort of John Bull appearanca about him seemed to have the effect of allaying any possible suspicion of underhand dealings in his case. Witness \>egan by saying that he believed the old debenture-holders knew what security " they hadn't." If the Australian banks had not failed the Loan Company would have been in a good position now. The Land Company's shares were not bought with sovereigns but with dead horses, and the idea was that the Land Company should revivify them. Had not the least idea ot concealment, but it was not judicious to disclose a portion of an operation. Disagreed with his Lordship that the balance sheet was deliberately drawn in such a way as to conceal anything. The Judge: A doctor sometimes thinks a patient shouldn't quite know what was in the prescription. — (Laughter.) Witness went on to say that they relied on the permanent staff and auditors to draw up balance sheets. The matter of the suspense account and unearned interest should have been brought before the board. In some respects possibly the interests of the Loan Company in its transactions with the Land Company were not well looked after. After a few unimportant questions the witness left the table.

Mr Thomas Russell was then called. Had been director of the company since its beginning, except for short period when he had borrowed £20,000 from it, and he did nob join the board again till that was repaid. Had nothing to do with preparation of case for counsel's opinion upon alteration of debenture prospectus ; saw Mr Hollams who altered the draft ; did not know where the draft was ; the whole of counsel's opinion was read to the board ; did not think " on " and " by" of any importance. The material alteration was at the end of it, and related to the freehold and other securities upon which the capital was advanced. The form used was as approved by Mr Hollams. Surprised to hear now that any debentureholders thought they were secured ; never wished to make a false impression ; never sept out any circular without first submitting it to solicitors. Knew of Mr Paul's replies to inquiries by holders, and witness defended Paul's position. Took no part in preparing form of balance sheet. Was absent in 1892 and 1893 — during three balance sheets. lie £390,000 Land Company shares shown under " Woo)," heard of auditors' inquiries ; the matter being incomplete it might be right, but

witness never could understand why the transaction was not shown under a heading of "Shares." The Judge remarked he was glad to hear witness say so. Did not think the auditors' inquiry » matter of importance. Protested against words being wrongly put into his mouth by counsel. Witness throughout took up a strong position of defending the various transactions upon which he was questioned, and in some instances with apparent success.

Witness (continuing): Interest not earned might justifiably be carried to profit and loss under some circumstances. The transactions with the English and Australian Pastoral Company were legitimate and wise. By transferring properties to that company^ and taking payment in shares the Loan Company was only putting from one pocket into another. Did not respect Barker's report. He had no experience. On arrival in Melbourne found Elder had stopped the opening of Barker's report, and thought he was justified, as witness was coming ont to investigate, which he did.

Friday, April 20. Examination continued : —

Had no private letters from Elder as to the company's affairs, or communication with him privately on such matters. Counsel for official receiver, after further examination, abandoned witness's dealing with Barker's report, in which the judge concurred, as the reports spoke for themselves, and witness had not been guided by them only. In answer to the judge, witness admitted he had been sent out in 1392 as plenipotentiary for the Loan Company, and everything practically put in t.is hands, but as to dealings with the Land Company he acted subject to confirmation by the London Board. He considered reserves would cover losses. Did not pay much attention to Larkworfchy's report ; he was a man of uneven mind, alternately very sanguine and very depressed, and at that time depressed by his own losses in New Zealand, which had ruined him at the time. Larkworthy was going out to New Zealand for private purposes, and Mundella pressed that he should report. Dods's valuation was valueless, only being based on information received from Larkworthy, and the latter's figures were only estimates. Witness did not- abridge the prospectus drawn by Sir Thomas<Paine ; had nothing to do with it. Larkwofthy's statement that he had was absolutely untrue.

This brought from the judge the rebuke that that was a wanton and uncalled-for imputation on Mr Larkworthy, unless witness suggested the minute books were fictitious. It was obvious that Mr Larkworthy did not continue to perform his former duties when he returned from his inspection.

Examination resumed, Elder said he would give £100,000 for the company's Melbourne business. As to the Waikato, witness had spent a lot of money on it ; over £100,000. The property was not sold, in the sense that counsel meant, to the Loan Company. The agreement was merely a formal document between the two companies. It was worth £300,000, and every farthing of the £256,000 had been spent on improvements or rebuilding. The management was entirely in the hands of the Loan Company. It was valued at £216,000 for local taxation and at £3 an acre for Government taxation. The expenditure on improvements was both before and after the agreement. If the Land Company had gone in 1887 it would have affected the Loan Company. Did not hear anyone say he would be ruined in 1887, but he could not pay £108,000 in calls at that time. Made all payments by help of the Bank of New Zealand. It came to his knowledge by accident that they had arranged with the Loan Company to advance the £40,000 to witness on security to suit the convenience of the Loan Company.

The Land-sCompany was solvent then, though not in a good position. The debenture debt of £30,000 from the Land Company to the Loan Company was payable only out of the laridj and \fras taken by counsel's advice instead of preference shares. In '79 appointed Battley (as an officer of Loan Company) to act as his attorney and realise securities in New Zealand. The witness strongly protested against the suggestion that Battley's report waa really his. All the colonial directors knew beforehand of the nature of Battley's report and scheme, and so did witness, but he did not know what the valuations would be. He was on a eub-oom-mittee with Battley to arrange details, and then asked the board if they approved the scheme.

The Judge remarked that witness was author and arbiter of the whole arrangement, judging by the copy of the sub-committee's report. Being pressed by the judge, witness admitted that he arranged terms with himself, but the board approved of what he proposed, and he B till thought the arrangements advantageous to the Loan Company.

Saturday, April 21.

Mr Thomas Russell's examination was continued :—: —

The trust deed of the Land Company. showed that of the £10 remaining uncalled, £5 might be called up for use in the business of the company, and £5 further only be called up for payment of debentures. The company was not prevented from making a call. - As to the draft articles having been submitted to Sir Thomas Paine, the judge asked counsel : "Do you say that if Sir Thomas Paine had seen Battley's report he would have known what the terms were ? Clever man if he did ! "

Witness (continuing) : Elder had general authority to convert land into company shares, and did so with the English and Australian Pastoral Association. The London Board knew negotiations were going on, but not the terms arrived at. The witness, upon some remark with regard to witness's mode of giving evidence, solemnly assured the judge that he had no wish to withhold information. The Pastoral Company was a failure, and the lands were bought back by the Loan Company and the shares extinguished. The Judge : . Don't know what it is in Australian law, but in English law the extinguishment of agreements by evaporation is not recognised. — (Laughter. ) Witness (continuing) : Witness made the arrangements as to the Land Company's debentures.

The Judge : It takes two people to make an arrangement. Are you sure you didn't act as a joint committee of the Land Company and the Loan Company. — (Laughter.) A judge has been laughed at because he resolved himself into a divisional court ; you resolved yourself into a joint committee of two companies. — (Laughter ) With reference to witness's correspondence with Battley,

The Judge (severely) : Was your correspondence with Battley private ? Witness: Yes.

The Judge : Why haven't you got it here P On the subject of the Land Company's debentures the Judge remarked that witness seemed to think there were two kinds of debentures — one with a promise to pay and co security, and the other a scurity but no promise to pay. Examined by Mr Reid ; From 1865 to 1879 it

was never intended to give any specific security to debenture-holders. The Judge : There is nothing in the prospectus to suggest to the most experienced business man that the debentures gave no security. The spirit hanging over this company from beginning to end seems to have been a constant fear of showing too much.

Witness proceeded to explain as to the placing of the Land Company shares, £390,000, in the balance Bheet under the heading of "Wool, &c," and justified the continuance of that system as in his previous evidence. The prospectus of 1888 was discussed, though Mundella said it was not. Elder's report came too late for declaration of dividend, which was approved 7th and 12th January 1893— the dividend being practically settled in October. If Elder had wired to the London directors to opeu Barker's report they would havo been led to a wrong conclusion.

The Judge : Don't you think you might allow the facts to make themselves clear ?

Witness (continuing ) t Didn't report to the board, because I was on the way Home from New Zealand, and stopped in Melbourne unexpectedly, only because I found' how things stood.

Witness here produced a telegram just received from Elder explaining that he wired re confidential A, because he knew Russell was coming out to investigate, and refers to the board resolution of Ist December 1892. (This was commented upon by the judge, as it was obvious that Elder could not have seen a copy of that resolution before he wired to London stopping ••confidential A," on 13£h December 1892). Witness explained hia meaning of unproductive properties in Australia. He had had a prejudice against Elder, and would not think of accepting Dads's valuations of Australian properties.

The Judge : It is unnecessary to cast a slut upon poor, Mr Dods. (Upon this remark wit" ness volunteered a most touching puff of poor Mr Dods, limiting his praise, however, to poof Mr Dods's experience of New Zealand.) Continuing, witness said the system of inspection had*been altered ; valuations of Australian runs were impossible when there was no market for them.

As to moneys spent on Waikato by witness, the Judge read from Mr Moore's report :— "£89,000 supposed to have been all spent on estate." The Judge questioned Mr Paul, and that gentleman replied from the well of the court that the colonial returns only contained totals, but the New Zealand accounts would show the amount expended on the Piako Swamp. The Judge : That's a cheerful name ! Can you get those swamped returns, Mr Paul ?

Mr Reid, Q.C., here proceeded to read witness's statement of 1891 to the board, which the Judge remarked was too like Mr Larkworthy's, and not in Mr Russell's usual " Mark Tapley" style, and his Lordship then amused the court by reading a passage from the report that ended, so to speak, in tears. Witness, in the course of his examination, said that his liability on shares was released by his sacrificing the £100,000 which he originally had put into the Land Company. The report referred to above was sent Home to Sir John Gorst and other members of the committee, and marked "Confidential." Witness having stated that the Land Company could have carried on for some years longer without assistance from the Loan Company, the Judge drew his attention to the fact that his report said that it was necessary to obtain further capital to work it, the shareholders not having it themselves. The witness said with regard to Battley's report the crux was that witness did not know during the negotiations what valuations Battley would fix.

Mr Reid having finished his examination, Mr Russell proceeded to make a further state* ment deprecating suggestions made againsb him. Sitting facing between the judge and counsel, and gesticulating slightly with both hands, Mr Russell protested that he had made enormous sacrifices and thrown everything he had into the Land Company. It had cost him over £200,000 to carry out the plan, and everything that he had possessed and accumulated for 36 years. He was at one time worth £260,000. In 1891 he could have gone elsewhere and got what he wanted done for him if the Loan Company had not carried out hiß plans. Witness made a somewhat lengthy statement, and ended by speaking flatteringly of the reconstructed company. Pending reconstruction the Land Company had not only kept the business together but had increased the connection, and their customers had rallied round them well. Directly he heard of this inquiry be took the first steamer for England, and travelled night and day to reach London as soon as possible.

The judge then adjourned the court till Thursday.

The Minister for Lands, at the request of Mr Hqgg, M.H.R., has agreed to bring in a bill to enable village settlers to change perpetual leases into leases in perpetuity.

The method of lighting up the interior of the human body, or some part of it, was (says the English Mechanic) shown recently at Baltimore, at the College of Physioians and Surgeons. Professor Friedenwald, by means of a flexible rubber tube, passed a small electric lamp into the stomach of a patient, and the room being darkened, over 200 persons were able to watch the working of the patient's internal organs through the ." transparency " created by the light in the abdominal wall.