Cook v Deeks
| Jurisdiction | UK Non-devolved |
| Court | Privy Council |
| Judgment Date | 1916 |
| Year | 1916 |
| Date | 1916 |
Company - Directors - Contract - Exclusion of Company - Breach of Duty - Ratification by General Meeting - Voting Power of Directors - Invalidity.
Three directors of a company carrying on the business of railway construction contractors obtained a contract in their own names to the exclusion of the company. The contract was obtained under circumstances which amounted to a breach of trust by the directors and constituted them trustees of its benefits on behalf of the company. By their votes as holders of three-quarters of the issued shares they subsequently passed a resolution at a general meeting of the shareholders declaring that the company had no interest in the contract:—
Held, that the benefit of the contract belonged in equity to the company, and the directors could not validly use their voting power to vest it in themselves.
APPEAL from a judgment of the Supreme Court of Ontario, Appellate Division (March 2, 1915), affirming the judgment of Middleton J. at the trial.
The action was brought in the High Court Division of the Supreme Court of Ontario by the appellant, suing on behalf of himself and all other shareholders in the Toronto Construction Company, Limited, against the respondents G. S. Deeks, G. M. Deeks, T. R. Hinds, and the Dominion Construction Company, Limited, for a declaration that the above respondents were trustees for the Toronto Construction Company, Limited (who were joined as defendants), of the benefit of a contract dated April 1, 1912, made between the individual respondents and the Canadian Pacific Railway Company, and for ancillary relief.
The facts are fully stated in the judgment of their Lordships.
Middleton J. dismissed the action, and this decision was affirmed by the Appellate Division (Hodgins J.A., Falconbridge C.J., Latchford J., and Kelly J.). The proceedings in the latter Court are reported at
1915. Nov. 30; Dec. 1, 6, 7. Nesbitt, K.C., and A. M. Stewart, for the appellant. The respondent directors committed a breach of duty towards the company in entering into the contract of April 1, 1912. They improperly used their position of managers and the reputation of the company to obtain the contract for themselves to the exclusion of the company. The subsequent resolution of the general meeting, carried by the respondents' own voting power, cannot regularize their position. The Appellate Division relied largely upon North-West Transportation Co. v. Beatty.F1 That case is distinguishable, since the benefit of the contract here in equity formed part of the assets of the company. Burland v. EarleF2 is distinguishable upon the same ground.
Sir R. Finlay, K.C., and R. McKay, K.C., for the respondents Both Courts in Canada found that there had been no fraud and preferred the evidence of the individual respondents to that of the appellant. The respondent directors, as a majority of the board, had the right to determine that the company should not enter into further business. The engaging or not engaging in any particular contract was entirely a question of the policy and internal management of the company and within the discretion of the majority of the directors. The Canadian Pacific Railway presumably intended to give the contract to the respondents and not to the company. The resolution of the shareholders was an effectual ratification and cannot be questioned by a minority. It did not deal with any property of the company. [Burland v. EarleF3, Dominion Cotton Mills Co. v. AmyotF4, In re Lands Allotment Co.F5, and Normandy v. Ind, Coope & Co.F6 were referred to.]
Nesbitt, K.C., replied.
1916. Feb. 23. The judgment of their Lordships was delivered by
LORD BUCKMASTER L.C. The appellant in this case is the plaintiff in a suit brought against the respondents, under circumstances to which full reference is necessary; his rights depend entirely upon the fact that he is, and has throughout the whole history of these proceedings been, a shareholder in the Toronto Construction Company, Limited, one of the defendants in the suit. Between himself and the defendants G. S. Deeks, G. M. Deeks, and T. R. Hinds there have been at sundry times various business arrangements and relationships outside their association in the Toronto Construction Company; but, except for the purpose of explaining what may have caused the conduct to which these proceedings are due, it is unnecessary to refer at length to these relationships.
The respondent the Toronto Construction Company was formed some time in 1905; the date of its incorporation is nowhere exactly stated, nor is it material. It appears that at the date of its incorporation all the parties were in business in various parts of the Dominion of Canada and the United States of America as contractors. The two defendants G. S. Deeks and G. M. Deeks were in partnership, and had just completed for the Canadian Pacific Railway Company a subway under the track of the Canadian Pacific Railway at Winnipeg. In 1905 the Canadian Pacific Railway were asking for tenders for the construction of a line from Bolton to Parry Sound known as the Toronto Sudbury line, and the tenders of G. S. Deeks, made, as it would appear, on behalf of the firm of Deeks & Deeks, were accepted by the company. Before tendering arrangements had been made by Messrs. Deeks with a firm of Winters, Parsons & Boomer that they should take an interest in the contract to the extent of one-half if G. S. Deeks were successful in obtaining it. Mr. Winters, however, had assumed certain obligations which rendered him unwilling to accept his full share of responsibility, and the plaintiff and the defendant Hinds were accordingly introduced by him to Mr. Deeks in order to supplement his obligation, with the result that all the parties agreed to share in the contract in the following proportions: G. S. Deeks and G. M. Deeks to take three-eighths, the plaintiff and the defendant Hinds to take three-eighths, and Winters, Parsons...
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