APPEAL UPHELD.

Star (Christchurch), Volume LXVI, Issue 20361, 19 July 1934, Page 10

APPEAL UPHELD.

Question of a Director’s Fees. Per Press Association. WELLINGTON, July IS. The judgment of the Court of Appeal in the case of the Putaruru Pine and Pulp Co. v. . M'Culloch was delivered by Mr Justice Reed. The Court held that (ll service by a director raised no implication that the service would be paid for; (2) that possibility of some payment accompanied by words showing that there was a discretion as to whether anything was to be paid or not, was air illusory promise upon which no contract could be based; (3) that a vote by shareholders of a sum of money as remuneration’ for past services did not, in the case of a director, support an inference that there was an implied contract that such services would be reasonably remunerated. The Court held that no enforcable contract had been proved and allowed the appeal, with costs on the middle scale as from a distance.

Claiming that it was not bound to pay a director a fee, even though the shareholders had passed a resolution that it should be paid, the Putaruru Pine and Pulp Corftpany (N.Z.), Ltd., appealed on June 28 from a decision by Mr Justice Herdman in favour of Charles-John MacCulloch, of Auckland, who had sued for £2OO.

Mr Johnstone said appellant was an afforestation company which entered into contracts with members of the public by which it accepted money for the purpose of planting areas with trees. The contracts were known as bonds. The claim was for £2OO director’s fee for the first year of the company, which ended in 1929. The defence was that there was no obligation to pay a director, and, secondly, that the company passed the resolution to pay him under a misrepresentation of anticipated profits shown in the balance-sheet submitted to the meeting of shareholders. The profits depended, first, or* the number of bonds the company sold, and, secondly, on the purchasers of bonds continuing to pay the instalments due on them. By the end of the first year a profit of £SOOO was shown and everything looked “ rosy.” The shareholders thereupon passed a resolution to pay the directors £IOOO for their services. Two years later it was found that there had been a loss of £4OOO on the first year, too optimistic an estimate of the payments to be received for the bonds having been made. Ten per cent was allowed lor default, instead of something like 50 per cent. The mover and seconder of the shareholders’ resolution said in Court that if they had known the position they would not have supported the resolution.

Counsel submitted that a director had. in a large measure, the character of a trustee, and in the absence of some contract by the company to pay remuneration he was not entitled to anv. A director, in the absence of any contract, acted gratuitously, and in the present case there was no enforceable contract. There were authorities over a period of centuries to show that it was not necessary to pay directors. For respondent, it was submitted by Mr Towle that there had been no misrepresentation. The bonds were stated in the balance-sheet to have been sold, but it was known that they had to be paid for over a long period. One .of the witnesses to whom Mr Johnstone had referred had admitted under crossexamination that the following year, when the company had a toss, they voted the directors money. The parties should be treated as having made a contract when the directors were appointed. The contract arose out of the service r>nd the acceptance of that service. There was no need for him to rely on the resolution of the meeting except to fix the amount.