Jubilee Cotton Mills (Receiver of) v Lewis
| Jurisdiction | England & Wales |
| Judge | Viscount Finlay,Lord Dunedin,Lord Sumner |
| Judgment Date | 09 May 1924 |
| Judgment citation (vLex) | [1924] UKHL J0509-1 |
| Date | 09 May 1924 |
| Court | House of Lords |
[1924] UKHL J0509-1
House of Lords
Earl of Birkenhead.
Viscount Finlay.
Lord Dunedin.
Lord Sumner.
Lord Carson.
After hearing Counsel, as well on Monday the 4th, as Tuesday the 5th, Thursday the 7th and Friday the 8th, days of February last, upon the Petition and Appeal of the Official Receiver and Liquidator of Jubilee Cotton Mills, Limited, of 33, Carey Street, in the County of London, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 28th of July 1922, might be reviewed before His Majesty the King in his Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioner might have such other relief in the premises as to His Majesty the King in his Court of Parliament might seem meet; as also upon the printed Case of Tom Lewis, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 28th day of July 1922, complained of in the said Appeal, be, and the same is hereby, Reversed: And it is further Ordered, That the sum for which the Respondent is liable should be ascertained by taking the portion paid in shares of other companies not at their nominal value but at their real value, and that the Order of the Honourable Mr. Justice Astbury, of the 28th day of November 1921, be Varied accordingly, and that subject to such Variation, the said Order of the Honourable Mr. Justice Astbury be, and the same is hereby, Restored: And it is also further Ordered, That the Respondent do pay, or cause to be paid, to the said Appellant the Costs incurred by him in the Courts below, and also the Costs incurred by him in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division (Companies Winding Up) of the High Court of Justice to do therein as shall be just and consistent with this Judgment.
My Lords,
In this case application was made by the liquidator of the Jubilee Cotton Mills, Limited, on a misfeasance summons against the Respondent Lewis to render him accountable to the company for the amount of certain concealed profits alleged to be made by him as a promoter of the company. The summons was heard by Astbury, J., who made an order against Lewis, but this order was reversed by a majority in the Court of Appeal. On the present Appeal the liquidator asks that an order should be made in the terms of the dissenting judgment of the Master of the Rolls.
The hearing of the summons before Astbury, J. extended over 12 days and the evidence is very voluminous. It relates to the formation of the company to acquire and take over as a going concern and carry on the business of cotton spinners then carried on at Todmorden under the style of the Jubilee Cotton Mills. The evidence was summarised by Warrington, L.J. in a statement made by him in the course of his judgment in the Court of Appeal, and this statement was accepted by the Master of the Rolls as correctly giving the result of the evidence as to promotion. It is as follows:—
"The scheme to which early in 1918 Lewis became a party was that a company should be formed with a capital of £150,000, divided into shares of £1 each with a power to create and issue debentures to be exercised in the first instance by the creation and issue of debentures for £30,000. That this company should purchase the freehold of the mills and the other property referred to for £180,000 to be satisfied by the issue of debentures for £30,000 and the allotment of fully paid shares for £150,000. That Lewis should provide £30,000 in two instalments of £15,000 in cash as security for which he should receive the debentures for £30,000. That he should also receive 95,000 fully paid up shares of £1 each, of which 20,000 were to go to Demery, leaving 75,000 at his own disposal. The remaining 55,000 shares were to go to the owner of the mill, and other property. It was further arranged that Demery was to carry out the details of the promotion and formation of the company, acting therein as the agent of Lewis."
To this statement must be added the fact that Lewis sold his 75,000 shares, mainly to Hooley, and the price was paid to Lewis partly in cash and partly in shares in other companies. Demery was also a respondent on the misfeasance summons, but the present Appeal is concerned only with Lewis.
The first question to be determined is whether Lewis was a promoter of the company. If he was he stood in a fiduciary position towards the company and would be liable to account to it for any secret profit made by him in connection with the purchase.
Astbury, J., after a prolonged hearing, came to the conclusion that he was a promoter, and his conclusion on this point has the concurrence of Lord Sterndale, M.R., and of Warrington, L.J., but not of Lord Blanesburgh. In my opinion the decision of Astbury, J. on this point was right. He had the great advantage of hearing and seeing the witnesses; and the objections which were urged in argument in your Lordships' House to this conclusion, concurred in as it was by the majority of the Court of Appeal, appear to me to fail. It is, indeed, beyond doubt that the leading part in the promotion of this company was taken by Hooley, and the allegation of Lewis that he was himself defrauded by Hooley may be accepted. But the fact remains that Lewis took part in the promotion. The part he played was, no doubt, subordinate to that played by Hooley, but he acted on his own account not as a servant or professional man. It appears to me impossible to frame any definition of the term "promoter" which would not include one who took the part which Lewis did in bringing this company into existence. Astbury, J. sets out the facts in detail and the fact, if it be one, that Lewis was himself one of Hooley's victims can afford no answer.
An attempt was made to exonerate Lewis from liability as a promoter on the claim that the company which he intended to promote was to have been a company of a different type from that which in fact came into being. It was said that he contemplated that the company should be one in which he himself, Fletcher the vendor, and Demery should be the only shareholders. But he was content to leave the matter to Demery and he never limited his authority in the manner suggested. He acquiesced in the shape which the company ultimately took. If the company proved not to be what he had authorised he should have withdrawn from the enterprise. On the contrary, he stopped on as promoter of the company although it may not have been in the form which he had originally contemplated.
Cases have been referred to in which a person who had acquired a property was not held to be a promoter of a company afterwards formed to acquire it from him, but such authorities are irrelevant on the facts of the present case as to Lewis's share in the promotion of this company.
Lewis as a promoter is therefore liable to the company for the amount of any secret profit made by him on the sale by him of the 75,000 shares which he took.
It was, however, suggested that the profit was not secret. Astbury, J. says (p. 577, letter G) that the signatory members were not proved to have had any knowledge of the interest of Lewis and others in the shares issued as fully paid up. It was, however, suggested before him (p. 597) and before this House that it should be inferred that the signatories were "nominees of Hooley and Demery with knowledge of the true facts, express or to be inferred, and that therefore there was sufficient disclosure to all the shareholders" (p. 597, E). Astbury, J. refused to draw any such inference, and upon this point I will only observe that the contention would appear to be in substance that all the signatories were accomplices and, if so, it is not easy to see how their knowledge would help the case of the Respondent. Knowledge on the part of accomplices cannot be put on the same level as knowledge by independent persons acting in the interests of the company as a whole. I think that the profit made by Lewis must be treated as secret profit and therefore the property of the company in the winding up.
There remains for consideration the question what for the purposes of the present application should be the measure of the liability of the Respondent.
It was urged that the issue of these shares was void and that the shares were therefore worthless. This was put on two grounds. The first ground was that there was no prospectus and therefore that no shares could be issued until a statement in lieu of prospectus had been filed under section 82 (1) of the Companies Act of 1908.
I do not think that it is necessary in the present case to determine what is the effect of the issue of shares in contravention of the first subsection of section 82. I entirely agree with the observations of Lord Sterndale on this point (Appendix, pp. 617, 618). Lewis got from the company the power of disposing of these shares. As between the company and himself any profit which he made by disposing of them would belong to the company. His power of disposing of these shares was acquired by way of a secret profit and for any price which was obtained for them he would be accountable to the company. Whatever flaw there might be in the shares, that could not justify him as against the company in keeping for himself what he had realised by disposing of them. As between...
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