Ford v Andrews - [1916] HCA 29

ON APPEAL FROM THE SUPREME COURT OF

NEW SOUTH WALES. Local GovernmentAlderman - Ouster - Disqualification - Person engaged or H. C. OF

interested in contract with council-Director of company which has contract with council-Knowledge of director-Possibility of future benefit-Local Government Act 1906 (N.S.W.) (No. 56 of 1906), sec. 70.

Sec. 70 of the Local Government Act 1906 (N.S.W.) provides that a person is disqualified for the office of alderman if " "(j) he is directly or indirectly by himself, or any partner, engaged or interested (other than as a shareholder in an incorporated company, association, or partnership consisting of more than twenty members) in any contract, agreement, or employment with, by, or on behalf of the council," with an exception of certain specified contracts or agreements.

By the articles of a company the directors had power " to give any director or other officer or other person employed by the company a commission on the profits of any particular business transaction or share in the general profits of the company, and such commission or share of profits shall be treated

21 CLR 318

as part of the working expenses of the company." A subordinate officer of the company agreed on behalf of the company to sell to the council of a municipality a quantity of bricks.

Held, by Griffith C.J. and Barton and Gavan Duffy JJ. (Isaacs J. dissenting), that an alderman of a municipality who was also a director of the company, but who did not know of the making of the contract, was not, by reason either of his being a director or of his being a creditor of the company in respect of unpaid director's fees, or of the possibility of his receiving a future benefit under the article above referred to, engaged or interested in the contract within the meaning of sec. 70 of the Local Government Act 1906, and was therefore not disqualified from the office of alderman.

By Griffith C.J. and Barton J.-A director of a company owes a duty towards the company which may give rise to an interest in a contract between that company and the council of a municipality which will under the section disqualify him from the office of alderman of the municipality, but an interest of that nature cannot arise unless the director has knowledge of the facts which in the particular case impose the duty upon him.

By Gavan Duffy J.-A person cannot be engaged or interested in a contract within the meaning of the section unless, otherwise than in his capacity of alderman, he personally or by his partner actively intervenes or, if there is no active intervention, has an existing pecuniary or proprietary interest in the contract which would be recognized, though not necessarily enforced, by

Decision of the Supreme Court of New South Wales (Ferguson J.) reversed.

APPEAL from the Supreme Court of New South Wales.

An order nisi was obtained by Henry Richard Andrews calling upon Ebenezer Ford to…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Ford v Andrews

Details

AGLC: Ford v Andrews [1916] HCA 29
Case: [1916] HCA 29
Decision Date: 5 May 1916

CaseChat Overview and Summary

This case involved an appeal to the High Court of Australia from a decision of the Supreme Court of New South Wales. The appellant, Ebenezer Ford, was an alderman of the Municipality of Enfield and also a director of the Enfield Park Brick Co. Ltd. The respondent, Henry Richard Andrews, sought to oust Mr. Ford from his office of alderman on the grounds that he was disqualified by reason of being interested in a contract between the company and the council for the supply of bricks.

The central legal issue before the High Court was the interpretation of section 70(j) of the Local Government Act 1906 (N.S.W.), which disqualified an alderman if they were "directly or indirectly by himself, or any partner, engaged or interested (other than as a shareholder in an incorporated company, association, or partnership consisting of more than twenty members) in any contract, agreement, or employment with, by, or on behalf of the council." Specifically, the court had to determine whether Mr. Ford's directorship of the company, his potential to receive a commission or share of profits under the company's articles of association, or his status as a creditor of the company for unpaid director's fees, constituted being "engaged or interested" in the contract within the meaning of the Act.

A majority of the High Court, comprising Griffith C.J., Barton J., and Gavan Duffy J., held that Mr. Ford was not disqualified. They reasoned that while a director's fiduciary duty to their company could create an interest in a contract between the company and the council, such an interest would only arise if the director had knowledge of the facts giving rise to that duty. In this case, Mr. Ford was unaware of the contract's existence at the time it was made and entered into. Furthermore, the possibility of receiving a future commission or share of profits under the company's articles of association was considered a mere possibility of future benefit, not an existing pecuniary interest that would disqualify him. Isaacs J., dissenting, argued that the broad purpose of the legislation was to prevent any conflict between duty and interest, and that Mr. Ford's position as a director, coupled with the potential for profit under the company's articles, created a disqualifying interest, regardless of his knowledge of the specific contract.

The High Court allowed the appeal, reversing the decision of the Supreme Court. The majority found that it had not been sufficiently established that Mr. Ford had a disqualifying interest in the contract, particularly given his lack of knowledge of its making and performance.

Orders