H a Stephenson and Son Limited (In Liquidation) v Gillanders Arbuthnot and Company

The High Court of Australia heard an appeal from the Supreme Court of Western Australia concerning a proof of debt lodged against H. A. Stephenson & Son Limited (In Liquidation). The dispute arose when the company, a produce merchant, entered into speculative contracts for the purchase of jute goods, specifically cornsacks, with Gillanders, Arbuthnot & Company. The company defaulted on these contracts, leading the vendors to resell the goods at a loss and subsequently lodge a proof of debt for the balance against the company in liquidation. The liquidator rejected this proof, asserting the transactions were ultra vires the company's powers.

The central legal issue before the High Court was the construction of the company's memorandum of association to determine whether the speculative purchase of jute goods fell within its authorised objects and powers. Specifically, the court had to consider the scope of the company's primary business as a produce merchant, the extensive list of other businesses it was empowered to carry on, and a broad general power to "carry on any other businesses whether manufacturing or otherwise as the Company may deem expedient." The court was required to ascertain if this general power, or any other provision within the memorandum, authorised the company to engage in speculative trading in jute goods, which was not its core business.

A majority of the High Court, comprising Starke, Dixon, and Evatt JJ., held that the transactions were within the company's powers and allowed the proof of debt. Their reasoning focused on the interpretation of clause (j) of the memorandum, which granted the company power to "carry on any other businesses whether manufacturing or otherwise as the Company may deem expedient." While acknowledging that this clause should not be interpreted as authorising any business whatsoever without limit, the majority found that the purchase and sale of cornsacks could be considered a business allied to or connected with the company's other authorised objects, particularly its business as a grain merchant. They reasoned that a creditor is entitled to rely on the memorandum of association, and the magnitude of the purchases, while indicative of speculation, did not necessarily render the transaction ultra vires if it could be brought within the broad scope of the company's permitted activities as defined by its memorandum. Rich and McTiernan JJ. dissented, viewing the speculative jute dealings as outside the scope of the company's authorised businesses and not sufficiently ancillary to its core operations.

The High Court, by a majority decision, affirmed the decision of the Supreme Court of Western Australia. Consequently, the appeal by the liquidator was dismissed, and the claim of Gillanders, Arbuthnot & Company in respect of the transactions in cornsacks was admitted to proof in the liquidation of H. A. Stephenson & Son Limited.