Goldsmith v Colonial Finance, Mortgage, Investment and Guarantee Corporation Limited - [1909] HCA 18

8 CLR 241

GOLDSMITH

THE COLONIAL FINANCE, MORTGAGE,

INVESTMENT AND GUARANTEE

RESPONDENTS.

CORPORATION LIMITED

ON APPEAL FROM THE SUPREME COURT OF Company-Action for calls-Forfeiture of shares-Liability of shareholder for

prior calls-Continuance of liability by articles of association - Power of com- pany to release shareholder-Composition deed.

A shareholder in a limited company made a composition deed with his creditors, and the company executed the deed. By it the creditors released and discharged the debtor from all debts, actions, claims and demands what- soever which they then had or thereafter might have against him for and in respect of any debt, transaction, matter or thing up to the date of the deed. Subsequently calls were made by the company, and finally the directors forfeited the shares for non-payment of calls. One of the articles of associa- tion provided that a shareholder notwithstanding forfeiture of his shares should be liable for calls made and not paid at the date of forfeiture in the empowered by the articles to exercise all such powers as might be exercised by the company " subject to the regulations," and in particular to discontinue, compromise or abandon any action, &., between the company and other persons whether shareholders or not; to compound, accede to or execute any deed of composition or conveyance or assignment for the benefit of creditors, and to give time for or abandon any debts which they might deem bad.

In an action by the liquidator of the company against the shareholder for calls due at the date of forfeiture :

8 CLR 242

Held, that, whatever might have been the position if there had been no special provision in the articles as to the effect of forfeiture, the liability to pay calls due at the date of forfeiture was expressly continued by the articles, and was not covered by the terms of the composition deed. If the deed was intended to discharge the shareholder from that liability, it was beyond the power of the directors.

Ooregum Gold Mining Co. of India v. Roper, (1892) A.C., 125, applied. Per Grifith C.J. and Barton J.-The effect of the articles dealing with forfeiture was not to create a new liability dependent only upon the articles, but to continue the original statutory liability to pay the full amount due upon the shares. It was, therefore, no more in the power of the directors to discharge the shareholder from the liability so continued than from the liability which existed before forfeiture. Even if the liability after for- feiture were new and could be released by the directors, it came into existence by virtue of matter arising after the date of the deed and consequently was not covered by the deed.

Semble, per Griffith C.J. and Barton J., that without express provision in the articles the liability for calls accrued before forfeiture would continue after forfeiture. The dictum of Lord Cairns L.J. in Stocken's Case, L.R. 3 Ch., 412, apparently to the contrary, should be read as applying only…

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.

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Details

AGLC: Goldsmith v Colonial Finance, Mortgage, Investment and Guarantee Corporation Limited [1909] HCA 18
Case: [1909] HCA 18
Decision Date: 23 April 1909

CaseChat Overview and Summary

The case of *Goldsmith v. Colonial Finance, Mortgage, Investment and Guarantee Corporation Limited* involved an appeal from a decision of the Supreme Court of New South Wales. The dispute concerned the liability of a former shareholder, Mr. Goldsmith, to pay calls made by the company on his shares after he had entered into a composition deed with his creditors, and after his shares were subsequently forfeited by the company. The company, through its liquidator, sought to recover these calls.

The central legal issues before the High Court were: firstly, whether the composition deed, which released Mr. Goldsmith from all debts, actions, claims, and demands up to its date, discharged his liability for calls made by the company after the deed was executed; and secondly, whether the forfeiture of his shares by the company extinguished any remaining liability for those prior calls, notwithstanding specific provisions in the company's articles of association. The court also considered the power of the company's directors to compromise or abandon debts and the effect of forfeiture on a shareholder's ongoing obligations.

The High Court, affirming the decision of the Supreme Court, held that the liability to pay calls made before forfeiture was expressly continued by the company's articles of association. This continued liability was not covered by the terms of the composition deed, as the calls were made after the deed's execution. Furthermore, the court reasoned that if the deed was intended to discharge this specific liability, it would have been beyond the power of the directors to agree to such a release, as it would contravene the principle that a limited company cannot relieve a shareholder from the obligation to pay the full amount due on their shares. The majority of the court also indicated that, even without express provision in the articles, the liability for calls accrued before forfeiture would likely continue after forfeiture, and that any dictum to the contrary in *Stocken's Case* should be read in light of the specific article considered in that case.

Consequently, the High Court dismissed the appeal and affirmed the judgment of the Supreme Court, ordering that judgment be entered for the company's liquidator. The court found that Mr. Goldsmith remained liable for the calls made prior to the forfeiture of his shares, as this liability was preserved by the articles of association and was not discharged by the composition deed or the forfeiture itself.

Orders