Peninsular and Oriental Steam Navigation Co v Johnson - [1938] HCA 16

PENINSULAR

AND ORIENTAL STEAM

NAVIGATION COMPANY

JOHNSON AND OTHERS

RESPONDENTS. DEFENDANTS,

ON APPEAL FROM THE SUPREME COURT OF Company-Appointment of agents-Remuneration-Amalgamation of agents and,

formation of company to take over rights and obligations of agency-Directors of both companies-Fraud-General account.

A company carrying on the business of coal-mining appointed two other companies joint agents for the sale of its coal for bunkering and export at a remuneration of 2s. 6d. a ton sold and upon terms that the joint agents would bear all commissions to oversea agents and sub-agents. It was found desir- able to allow particular selling agents in London a commission of 1s. a ton, and, notwithstanding the terms of the joint agents' remuneration, the board of directors of the colliery company resolved that the accounts of these agents for sub-commissions paid by them to secure bunkering for the company, not exceeding 1s. a ton, be recognized during a specified twelve months. The colliery company's board of directors included the managing directors of the respective companies which were joint agents. By an article of association of the colliery company it was provided that "no director shall be disqualified by his office from entering into any contract or arrangement with the company either as vendor, purchaser, broker, banker, solicitor, commission agent or otherwise, but no such director shall vote in respect of any such contract or arrangement in which he is so interested as aforesaid, or if he does his vote shall not be counted." 1s. a ton was paid to the selling agents in question out of the funds of the colliery company and was not borne by the joint selling

60 CLR 190

agents or by a company formed by way of amalgamation by the joint selling agents, which during the twelve months covered by the resolution took over the agency.

Held, in an action in which this company and one of the two managing directors were defendants, that for the twelve months covered by the resolution neither of the defendants was liable to repay the 1s. a ton to the colliery com-

By Latham C.J., on the grounds (1) that it did not appear that the allowance of the additional 1s. was a mere gift dishonestly made to the company or companies of the two directors, and (2) that the validity of the resolution of the board had not been attacked by the plaintiff's pleadings, and, in any case, an agreement arising out of such resolution would be voidable, not void, and could not after the lapse of a long time be avoided.

By Dixon and McTiernan JJ., on the grounds (1) that it was not shown that the resolution amounted to the conferring of a voluntary gift upon the selling agents, and (2) that upon the true interpretation of the article of association it extended to and validated contracts to which a director was not personally a party but in which he acted as representative of another party whose interests were in conflict…

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

Case: [1938] HCA 16
Decision Date: 25 March 1938

CaseChat Overview and Summary

The case of *Peninsular and Oriental Steam Navigation Co v Johnson* involved a shareholder of Amalgamated Collieries of W.A. Ltd. (the colliery company) suing on behalf of itself and other shareholders against Walter Johnson and Johnson & Lynn Ltd. The plaintiff alleged that Johnson and Johnson & Lynn Ltd., who had acted as managers and sales agents for the colliery company, had engaged in fraudulent conduct and breached their duties. These alleged breaches included wrongly paying away and retaining company moneys, improperly receiving commissions, selling their own property to the company at a profit without disclosure, and making unjustified charges. The action sought an account of various dealings and payment of sums found due.

The legal issues before the High Court of Australia included whether the defendants were liable to repay certain commissions paid to Lindsay Blee & Co. Ltd., whether the colliery company was entitled to an account of profits from the sale of machinery by Johnson & Lynn Ltd. to the colliery company, and whether the defendants were accountable for insurance commissions received. Further issues concerned the validity of a directors' resolution authorising an additional commission, the defendants' liability for office services and facilities provided to other companies in which they had an interest, and the effect of settlements reached between the defendants and the colliery company after the action commenced. The court also considered whether the defendants should forfeit all remuneration due to alleged misconduct.

The High Court, in varying the decision of the Supreme Court of Western Australia, determined several key points. Regarding the Lindsay Blee commission, the court held that neither defendant was liable to repay the 1s. per ton for the period covered by a directors' resolution, as it was not proven to be a dishonest gift and the resolution's validity had not been adequately challenged in the pleadings or within a reasonable time. The court also found that the bringing of the shareholder action did not suspend the directors' authority, and settlements reached with the colliery company extinguished liabilities, provided the directors acted bona fide in the company's interests, which was presumed in the absence of evidence to the contrary. The court further held that coal sold to certain Western Australian harbour authorities for use in dredges and tugs fell outside the definition of "bunker coal" for which a higher commission was claimed.

In relation to other matters, the court found that the managing agent was not accountable for profits on the resale of mining machinery as it was not purchased on behalf of the colliery company, and rescission was no longer possible. Similarly, the managing agent was not accountable for insurance commissions as the colliery company's board had sanctioned the insurances with full knowledge of the agent's position. Finally, the court held that there was no forfeiture of remuneration, as it was payable under a continuous employment contract and not for a single entire service, and that the defendants were not liable to repay the 3d. per ton commission.

Orders