Peninsular and Oriental Steam Navigation Co v Johnson

[1938] HCA 16

60 CLR 189

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 with his duty to the company.

Transvaal Lands Co. v. New Belgium (Transvaal) Land and Development Co., (1914) 2 Ch. 488, considered.

In an action brought by a shareholder of the colliery company against the company, a director and another company, which acted as managing agent of the colliery company and of which the director was also managing director, the plaintiff shareholder alleged that the second company had been illegitimately afforded the use of offices and other facilities and advantages. After action brought, the director and the managing company offered a sum of money to the colliery company in full satisfaction of the liability put in suit by the shareholder, and the board of directors accepted the same, In respect of another liability based on breach of duty the same course was followed. The parties had not put in issue the question whether the shareholder had any

Held that the bringing of the action did not suspend the authority of the board of directors, and, as it did not appear that they had acted mala fide or otherwise than in the interests of the colliery company, the settlement extinguished the liability in each case.

Under the selling-agency agreement the selling agent was entitled to a remuneration of 2s. 6d. a ton upon the sale of bunker coal and coal for export

Held that coal sold to certain Western Australian harbour authorities and used for fuelling dredges and tugs fell outside the description.

The company acting as managing agents of the colliery company bought some mining machinery, and some of it was resold to the colliery company.

60 CLR 191

The machinery was not bought on behalf of the colliery company but was bought as a speculation with a view to selling it piecemeal. Rescission and restitutio in integrum being no longer possible, it was claimed that the managing agent was liable to account for the profit.

Held that, as there were no circumstances making the managing agent a trustee of the machinery for the colliery company on its purchase by the former, the colliery company was not entitled to an account of profits.

Re Cape Breton Co., (1884) 26 Ch. D. 221; (1885) 29 Ch. D. 795, Burland V. Earle (1902) A.C. 83, and Cook v. Deeks, (1916) 1 A.C. 554, followed.

Held, further, that the common managing director of the two companies was not liable in damages, it not being shown that the colliery company made

The company acting as managing agent for the colliery company was the representative in Perth of an insurance company whose branch it managed under a power of attorney, being remunerated by a percentage calculated on premium income. Insurances were effected with this insurance company at its Perth office on behalf of the colliery company.

Held that the managing agent was not accountable to the colliery company in respect of the percentage upon such insurances, on the ground that the board of the latter company sanctioned and authorized the insurances well knowing of the position of the managing agent.

Because in respect of the matters appearing above and other matters acts of misconduct were committed by or on behalf of the selling agents and man- aging agents of the colliery company, it was claimed that the remuneration otherwise payable under the managing- and selling-agency agreements of 3d.

Held that there was no forfeiture of the remuneration, which was payable under a continuous contract of employment by reference to the regular pro- duction and sale of coal and was not like an entire remuneration payable for a single service.

Application of the rule that a dishonest agent is not entitled to remuneration Principles upon which an order for accounts should be made against an agent considered.

Decision of the Supreme Court of Western Australia (Northmore C.J.) varied.

APPEAL from the Supreme Court of Western Australia.

Amalgamated Collieries of W.A. Ltd. (hereinafter referred to as Amalgamated Collieries) carried on coal-mining at Collie, Western Australia, and had its head office in Perth. Walter Johnson was a director and had the management of Johnson &Lynn Ltd.

60 CLR 192

He was a director also of Amalgamated Collieries as well as the managing director thereof. Johnson &Lynn Ltd. was a shareholder also of Amalgamated Collieries. On 24th January 1920 an agree- ment was made between Amalgamated Collieries and Walter Johnson and Robert John Lynn (both of whom were directors of the said company) under which Johnson and Lynn were appointed managers of Amalgamated Collieries for a period of ten years from 16th January 1920 at a remuneration or commission of 3d. per ton on all coal sold and delivered by Amalgamated Collieries, with com- plete control and general management of the business, subject to directions given from time to time by the board. Johnson and Lynn acted as managers until the death of Lynn on 12th September 1928. Johnson then acted under the terms of the agreement as sole manager of the business until 16th September 1929, when Johnson &Lynn Ltd. was substituted for Johnson in the manager's agreement and acquired all the rights and undertook all the obligations thereunder. By an agreement of 18th March 1920 two companies, namely, W. Johnson &Co. Ltd. and R. J. Lynn Ltd., were appointed sole agents of Amalgamated Collieries for the sale of coal and briquettes for bunkering or export from Western Australia for a specified term. In January 1921 the company of Johnson &Lynn Ltd., which was an amalgamation of the previous companies, took over the rights and duties of these two companies with the consent of Amalgamated Collieries.

The Peninsular and Oriental Steam Navigation Co., which was a shareholder of Amalgamated Collieries, commenced an action in the Supreme Court of Western Australia against Walter Johnson, John- son &Lynn Ltd. and Amalgamated Collieries to obtain the enforce- ment of rights said to exist in Amalgamated Collieries against Walter Johnson and Johnson &Lynn Ltd. The writ in the action was issued by the plaintiff on behalf of itself and all the shareholders of Amalgamated Collieries, with the exception of Walter Johnson and Johnson &Lynn Ltd., as representing that class and as a proper party to protect the interests of Amalgamated Collieries. The statement of claim contained no allegation of want of bona fides in the board of directors (as at the commencement of the action) of Amal- gamated Coilieries or that they would not protect the interests of

60 CLR 193

60 C.L.R.]

OF AUSTRALIA. the company against Walter Johnson and Johnson &Lynn Ltd.; on the other hand, no point was made in the defence of the want of such an allegation. It was claimed that the defendants Walter PENINSULAR Johnson and Johnson &Lynn Ltd. had acted fraudulently and in breach of their duty, that they wrongly paid away moneys belong- ing to Amalgamated Collieries and wrongly received commission from people dealing with Amalgamated Collieries, had wrongly sold their own property to Amalgamated Collieries at a large profit without disclosing that it was the property of Johnson or Johnson &Lynn Ltd., and had charged large amounts of money for various matters when there was no justification, and they were charged with general misconduct in management and in the course of the agency. At the trial an amendment was made and a claim was added for a general account of all commissions and other moneys received by the defendants Walter Johnson and Johnson &Lynn Ltd. under the agreements mentioned or otherwise. The defendants other than Amalgamated Collieries, by their defence, resisted all claims and justified the various payments which they had made or refunded to Amalgamated Collieries, and in a further defence relied upon payments to and the acceptance by Amalgamated Collieries of various sums of money in satisfaction of certain claims made and the sufficiency of the moneys paid to discharge the liability in respect of other claims. Northmore C.J. disregarded the settle- ments made with Amalgamated Collieries and found fraud in relation to one particular matter but not in relation to others. Certain particular accounts were ordered, but the claim for a general account was rejected.

From this decision the plaintiffs appealed to the High Court. Johnson and Johnson &Lynn Ltd. cross-appealed.

Amalgamated Collieries was represented by counsel at the trial, but did not appear on the hearing of the appeal.

Keenan K.C., F. Villeneuve Smith K.C., E. Leake and J. J. Daly, for the appellant. Northmore C.J. was in error in limiting the account ordered to be taken in respect of the Lindsay Blee trans- actions to the years following 1921. The resolution of 19th November 1920 which purported to give a further 1s. per ton as

60 CLR 194

commission was ultra vires as being tantamount to a gift by the directors to Johnson and Lynn, themselves directors, who were bound by the terms of their agreement. They had, for valuable considera- tion, indemnified the company against the very expense intended to be covered by the resolution (In re George Newman &Co. 1 ). Further, the 1s. per ton commission had been taken and fraudulently taken prior to the date of the resolution, which by its terms had only a prospective operation. On the evidence the trial judge was wrong in refusing to find fraud against Johnson in respect of the charge of 2s. 6d. per ton for land sales of coal. This was clandestinely carried out by means of journal entries in breach of the managers agreement; in the absence of explanation it amounted to fraud, on the principle res ipsa in se dolum habet (Best on Evidence, 10th ed. (1906), p. 359). But, in addition, all the badges of fraud were present secrecy of the appropriations, breach of express duty defined by the managers' agreement, and suppression from the board of directors of the payments. On the true construction of the sales agreement. the commission of 2s. 6d. per ton was confined to coal and briquettes for bunkering overseas vessels, and for export from Western Australia. Within Western Australia the sales of coal were rewarded by the 3d. per ton commission provided for by the managers' agreement. The agency agreement was legislating for special services dehors the services rendered in Western Australia, i.e., for services in respect of overseas vessels and export coal. Further, the course of dealing from 1920 to 1928 shows that this was the construction put upon it by all parties until Johnson, surreptitiously and without disclosure to the board and without its consent, suddenly and retrospectively altered the rate of commission. It follows that the words in the agreement have been explained and interpreted by the course of dealing of the parties (Bourne v. Gatliff 2; Burland v. Earle 3 ). With respect to the insurance commissions, the learned judge was misled by the circumstances that the defendants, besides being the agents of Amalgamated Collieries were also the attorneys and prin- cipal representatives of the London Assurance Corporation. But this fact, SO far from destroying, heightens the duty of full disclosure. In

1(1895) 1 Ch. 674. 2(1844) 11 Cl. &Fin. 45 ; 8 E.R. 1019. 3(1902) A.C. 83. 60 CLR 195

the court below reliance was placed on G. W. Insurance Co. v. Cunliffe 1, but that case is clearly distinguishable, for there the agent was not a director of the plaintiff company and the court found that there had been disclosure or that it had been dispensed with by the principal with full knowledge of all the circumstances. Here the defendant Johnson was the managing director, receiving payment for his services, and his accepting the position of attorney for the London Assurance Corporation deliberately placed his interest in con- flict with his duty. This matter is concluded against him by Benson V. Heathorn 2; and see Seton on Decrees, Judgments and Orders, 6th ed. (1901), vol. II., p. 1377; Kerr on Fraud, 5th ed. (1920), p. 182. The fact that Johnson &Lynn Ltd., and not Walter Johnson, received the commission makes no difference (Transvaal Lands Co. Ltd. v. New Belgium (Transvaal) Land and Development Co. 3 ). At the date of the purchase of the Ravenscroft machinery John - son was both the managing director of the vendor, Johnson &Lynn Ltd., and of the purchaser, Amalgamated Collieries. He thus occupied the inconsistent position of buyer and seller and is answerable to the Amalgamated Collieries for any profit resulting to the vendor company of which he was the proprietor, at least as to a moiety of its shares. The vendor company is also answer- able to Amalgamated Collieries on the ground of having received the profit with notice (derived through its managing director, Johnson) of Johnson's fraud. Art. 65 affords no escape to Johnson, since it does not apply to cover transactions with a company or firm in which the director is interested (Transvaal Lands Co.'s Case (3) ). Further, there was not only no disclosure, but evi- dence of a wilful suppression of the whole transaction amounting to fraud (Imperial Mercantile Credit Association v. Coleman 4; Dunne V. English 5 ). On any of the three aspects from which the facts may be examined, both Johnson and Johnson &Lynn Ltd. are liable to account:--(1) On the footing that defendant Johnson being the agent for purchase of Amalgamated Collieries could not make a profit out of the execution of his agency without

1(1874) 9 Ch. App. 525. 2(1842) 1 Y. &C.C.C. 326 ; 62 E.R. 3(1914) 2 Ch. 488. 4(1873) L.R. 6 H.L. 189. 5(1874) L.R. 18 Eq. 524. 60 CLR 196

full disclosure (Aberdeen Railway Co. v. Blaikie 1; Costa Rica Railway Co. v. Forwood 2; Parker v. McKenna 3; Hay's Case 4; Furs Ltd. v. Tomkies 5 ). On this view art. 65 is irrelevant (Boston Deep Sea Fishing Co. v. Ansell 6 ). (2) On the footing that Johnson occupied the incompatible positions of buyer and seller whilst being a fiduciary of both companies (King Viall and Benson v. Howell 7; Armstrong v. Jackson 8 ). (3) On the footing that Johnson, whilst being the fiduciary of Amalgamated Collieries to buy machinery, bought Ravenscroft machinery from Dunstan for Johnson &Lynn Ltd., which for present purposes is himself. The relief claimed is against both Johnson and John- son &Lynn Ltd. as the recipient of the illegal profit taken with notice of the fraud (Imperial Mercantile Credit Association v. Coleman 9 Cook v. Deeks 10 ). The Chief Justice held on the facts that Johnson "purchased the material for Johnson &Lynn Ltd. as a speculation on the inventory supplied by Dunstan." Assuming this to be so, it makes no difference, for Johnson, having authority to buy for Amalgamated Collieries merchandise of that class, is conclusively held to have bought it for Amalgamated Collieries (In re Cape Breton Co. 11; Cavendish Bentinck v. Fenn 12 ). The Chief Justice relied on Burland v. Earle 13. But that case clearly distinguishable since the acquisition by the director in that case was entirely outside and independent of the course of his agency. Here the whole transaction was buried in the mind of Johnson acting as director of the vendor company and of the purchaser company (Jacobus Marler Estates Ltd. v. Marler 14; Lydney and Wigpool Iron Ore Co. v. Bird 15; Panama and South Pacific Railway Co. V. India Rubber, Gutta Percha and Telegraph Co. 16; Cook V. Deeks 17 ). The appellants, having established fraud as found by the trial judge, are entitled to a general account the fraud has been coextensive with the whole of the operations of the company

1(1854) 1 Macq. 461. 2(1901) 1 Ch. 746, at p. 761. 3(1874) 10 Ch. App. 96. 4(1875) 10 Ch. App. 593. 5(1936) 54 C.L.R. 583. 6(1888) 39 Ch. D. 339, at p. 355. 7(1910) 27 T.L.R. 114. 8(1917) 2 K.B. 822. 9(1873) L.R. 6 H.L., at pp. 203, 208. 10(1916) 1 A.C., at pp. 561, 565. 11(1885) 29 Ch. D. 795. 12(1877) 12 App. Cas. 652. 13(1902) A.C. 83. 14(1913) 85 L.J. P.C. 167, n. 15(1886) 33 Ch. D. 85. 16(1875) 10 Ch. App. 515. 17(1916) 1 A.C., at pp. 561-565. 60 CLR 197

60 C.L.R.]

OF AUSTRALIA. from its incorporation down to the issue of the writ (Allfrey V. Allfrey 1; Oldaker v. Lavender 2; Williamson v. Barbour 3 Gething v. Keighley 4 Clarke v. Tipping 5 ). The right to such an account is not defeated by the protection given by par. 7 of the managers' agreement (Holgate v. Shutt 6 ). In this account the defendant Johnson cannot claim credit for com- mission earned, since " it is only an honest agent who is entitled to any commission" (Salomons v. Pender 7; Andrews v. Ramsay &Co. 8 Hippisley v. Knee Bros. 9 ).

Downing K.C. and E. F. Downing, for the respondents Walter Johnson and Johnson &Lynn Ltd. The directors' resolution of the 19th November 1920 authorizes the payment of the extra 1s. per ton in connection with Lindsay Blee &Co.'s commission to 31st December 1921, and the defendant Johnson &Lynn Ltd. accounted for all the commission paid since that date. Clause 62 of the articles of association of Amalgamated Collieries gives the directors full authority to authorize the extra payment (Costa Rica Railway Co. V. Forwood 10; Transvaal Lands Co. v. New Belgium (Transvaal) Land and Development Co. 11 ). In any event there can be no question in this action as to the payment of the extra commission prior to the 12th January 1921, because the defendant Johnson &Lynn Ltd. did not come into existence until that date. The findings of Northmore C.J. absolutely negative any allegation of fraud, and there is no evidence to suggest that Johnson personally caused payments to be made (Imperial Mercantile Credit Co. v. Coleman 12 ). With regard to the claim relating to the commission charged on coal supplied to the tug boats, dredges, &., of the harbour authorities, the evidence of the appellant's own witness, Walker, shows that the commission charged was made in respect of coal supplied to the Fremantle Harbour Trust right from the inception. The conversation between the witness, Walker, and the defendant, Johnson, far from suggesting fraudulent intent on Johnson's part showed that he was merely

1(1849) 1 Mac. &G. 87 41 E.R. 1195. 2(1833) 6 Sim. 239 ; 58 E.R. 583. 3(1877) 9 Ch. D. 529. 4(1878) 9 Ch. D. 547. 5(1846) 9 Beav. 284 50 E.R 352. 6(1884) 27 Ch. D. 111. 7(1865) 3 H. &C. 639; 159 E.R. 682. 8(1903) 2 K.B. 635. 9(1905) 1 K.B. 1. 10(1900) 1 Ch. 756 ; (1901) 1 Ch. 11(1914) 2 Ch. 488. 12(1873) L.R. 6 H.L. 189. 60 CLR 198

contending that the coal supplied to the Geraldton and Bunbury Harbour authorities for use in their boats was exactly on the same footing and that therefore Johnson &Lynn Ltd. should have received the stipulated commission. The term "bunker coal" does not connote coal used in ocean-going ships. Any receptacle on a vessel whether ocean-going or used for towing or dredging is called a "bunker." Johnson &Lynn Ltd. was therefore entitled to retain the com- mission paid to it under this heading; the judgment of Northmore C.J. was wrong on this point, and the cross-appeal should succeed. There is, however, no justification for disturbing his finding that there was no fraud nor any evidence of fraud in making the charge. As to the commissions paid by the Texas Oil Co. Ltd. and Lloyds Ltd., Johnson &Lynn Ltd. does not now dispute its liability to account, and before the hearing of the action it refunded the amounts with interest. The appellants contend, however, that the commission which the defendants received under the managers' agreement at the rate of 3d. per ton for all coal sold should also be refunded. As this commis- sion has been paid over a period of seventeen years, the refund claimed amounts to an enormous sum. Andrews v. Ramsay 1 is not an authority in support of the appellant's proposition. The receipt of these commissions is collateral to the agency work done by Johnson &Lynn Ltd. in the sale of coal. It is, therefore, entitled to retain these commissions (Salomons v. Pender 2 Hippisley v. Knee Bros. 3 Nitedals Taendstikfabrik v. Bruster 4; MacNamara V. Martin 5 ). Northmore C.J. was wrong in ordering an account in respect of the moneys which, after the action had been commenced, Amalgamated Collieries accepted from the other defendants in full settlement of claims. No reply was delivered to the amended defence, which set up the plea of acceptance in full settlement. The appellants as shareholders cannot recover more than the company itself could have recovered (Burland v. Earle 6 Clarkson v. Davies 7 ). The respondents' cross-appeal on this point should succeed. The remuneration received from the London Assurance Corporation is on an entirely different basis, and the

1(1903) 3 K.B. 635. 2(1865) 3 H. &C. 639; 159 E.R. 3(1905) 1 K.B. 1. 4(1906) 2 Ch. 671. 5(1908) 7 C.L.R. 699, 6(1902) A.C. 83, at p. 93. 7(1923) A.C. 100, at p. 111 60 CLR 199

judgment of the Chief Justice refusing an account should not be disturbed. As to the sale of the machinery by Johnson &Lynn Ltd. to the company, which was purchased at Ravensthorpe, the judgment of Northmore C.J. is right, and should not be interfered with. It is not claimed that the sale should be rescinded nor is it alleged that the price obtained was not fair and reasonable. It is sought to make Johnson &Lynn Ltd. account for the profit. The effect of this would be to force on them a contract to sell at another price (Jacobus Marler Estates Ltd. v. Marler 1 ). The distinction between the two classes of case is explained in Cook v. Deeks 2. The principle laid down in Burland v. Earle 3 is approved in Furs Ltd. v. Tomkies 4. Northmore C.J. was right in refusing to order a general account. Such an account was not claimed until the state- ment of claim was amended at the commencement of the trial. Johnson and Johnson &Lynn Ltd. are not accounting parties. There is no evidence of the receipt by them of any moneys on behalf of Amalgamated Collieries. The claim put forward is that they have received commissions to which they are not entitled. In the cases of Williamson v. Barbour 5 and Gething v. Keighley 6, the object of the suits was to open settled accounts, and in each case it was shown that the agent was an accounting party, that is, an agent spending or collecting money on behalf of his principal, and there- fore the agent alone was in the position of having to justify the disposal of the money. Certain transactions are picked out as being of a nature which disentitled the defendants to receive or retain commission. Accounts in those matters were properly asked for, but it is quite another thing to open up or attempt to open up another series of transactions to which the commissions objected are in no way relevant (Allfrey v. Allfrey 7 ).

F. Villeneuve Smith K.C., in reply. [He referred to Panama and South Pacific Railway Co. v. Indian Rubber, Gutta Percha and Telegraph Co. 8; Bourne v. Gatliff 9; Burland v. Earle 10.]

1(1913) 85 L.J. P.C. 167, n. 2(1916) 1 A.C. 554, at p. 563. 3(1902) A.C. 83. 4(1936) 54 C.L.R., at p. 599. 70, 71; 8 E.R. 1019, at pp. 5(1877) 9 Ch. D. 529. 1028, 1029. 6(1878) 9 Ch. D. 547. 7(1849) 1 Mac. &G. 87. 8(1875) 10 Ch. App., at p. 526. 9(1844) 11 Cl. &Fin. 45, at pp. 10(1902) A.C., at pp. 100, 101. 60 CLR 200

With regard to the Ravensthorpe machinery.-An agent cannot make a profit out of his position; he cannot be a buyer and a seller. He buys on behalf of his company (Benson v. Heathorn 1. Johnson was a director and sold to the company; the other directors did not know of the contract, and there is no record of how, when or with whom it was made. The Statute of Limitations is available to a constructive trustee (Taylor v. Davies 2; Soar V. Ashwell 3 ).

Cur. adv. vult. The following judgments were delivered :-

LATHAM C.J. This is an appeal from a judgment of the Chief Justice of Western Australia in an action in which the plaintiff sues on behalf of itself and all other shareholders in the defendant com- pany, Amalgamated Collieries of W.A. Ltd., except the defendants Walter Johnson and Johnson &Lynn Ltd. The defendant company, as its name shows, carries on the business of mining and selling coal. The defendants, Walter Johnson and the company, Johnson &Lynn Ltd., have acted in the management of the trading as distinct from the mining business of the company, and also as agents for the selling of the company's coal, under written agreements. Before dealing with the specific matters which arise upon this appeal it is necessary to state more particularly what the relations of the parties

The defendant Walter Johnson has at all material times been a member of the board of directors of the colliery company. The company carried on coal mining at Collie, Western Australia, and had a head office in Perth. On 24th January 1920 what has been called the manager's agreement was made between the colliery company on the one hand and the defendant Walter Johnson and one Robert John Lynn (who was also a director of the colliery com- pany) on the other hand, under which Johnson and Lynn were appointed managers of the company for a period of ten years from 16th January 1920. The agreement provided that they should be

1(1842) 1 Y. &C.C.C. 326 ; 62 E.R. 2(1920) A.C. 636. 3(1893) 2 Q.B. 390, at p. 394. 60 CLR 201

entitled to a remuneration or commission of 3d. per ton on all coal H. sold and delivered by the company. The managers were given complete control of the general management of the business of the company," subject to any directions given from time to time by the board. Johnson and Lynn acted as managers until the death of Lynn on 12th September 1928. Johnson then acted under the terms of the agreement as sole manager of the business until 16th September 1929. On that date the colliery company and a company entitled Johnson &Lynn Ltd. agreed that the latter company should act as sales manager of the colliery company and that Johnson should act as managing director of the colliery company without remuneration. Johnson &Lynn Ltd. was substituted for Johnson in the manager's agreement and acquired all his rights and undertook all his obligations thereunder. Johnson was a director of and a shareholder in Johnson &Lynn Ltd. These arrangements continued up till the time of action brought.

Under another agreement made on 18th March 1920, which has been called the agency agreement, two companies, namely W. Johnson &Co. Ltd. and R. J. Lynn Ltd. were appointed sole agents of the colliery company for the sale of coal and briquettes for bunker- ing or export from Western Australia for a specified term. These two companies are not parties to this litigation. In January 1921 the company of Johnson &Lynn Ltd. took over the rights and duties of the two companies with the consent of the colliery company. Therefore from this date the defendant Johnson &Lynn Ltd. was entitled to the benefits of and bound by the obligations of the agency agreement.

The litigation arises out of various acts done by the defendant Johnson and by the defendant Johnson &Lynn Ltd. in connection with the business of the company. It is claimed that they acted fraudulently and in breach of duty, that they wrongly paid away moneys of the company, wrongly retained moneys of the company, wrongly received commission from people dealing with the company, wrongly sold their own property to the company at a large profit without disclosing that it was their property, and made pecuniary charges against the company for which there was no justification. Accounts of various specific dealings are sought, with payment of

60 CLR 202

A. the sums found due as a result of such accounts. By an amendment

made at the trial, a claim was added for a general account of all

PENINSULAR commissions and other moneys received by the defendants Johnson

and Johnson &Lynn Ltd. under the agreements mentioned or otherwise, and also of all payments made by those defendants and each of them for and on behalf of the colliery company under those agreements or otherwise. The colliery company did not defend the action. The other defendants in their first defence resisted all the claims and justified the challenged payments or receipts. Subse- quently, by leave, the defendants delivered a further defence, and in this defence, as to certain of the claims, they relied upon matters arising after the first defence was delivered, namely, upon the pay- ment to and the acceptance by the colliery company of certain sums of money in satisfaction of certain claims made, and upon the payment to the company of certain sums as sufficient to discharge any liability in respect of other claims.

The learned Chief Justice disregarded the settlements made with the company upon which the defendants relied he found fraud in relation to one particular matter but not in relation to other matters. Certain particular accounts were ordered, but the claim for a general account was rejected. Upon this appeal it has been contended that the defendants, on account of their fraudulent or other misconduct, should forfeit and repay to the company all the remuneration which they have received from the company for those services. This claim was not made in the statement of claim and, though mentioned in argument, was not considered in the court below. In order to deal with the matters arising upon the appeal it is necessary to consider them separately.

60 CLR 203

The evidence on this matter is very sketchy, but it appears that a commission of 1s. a ton was paid to Lindsay Blee &Co. Ltd. out of the moneys of the colliery company in respect of orders obtained by Lindsay Blee &Co. Ltd. in 1920 and all subsequent years. A resolution of the directors passed on 19th December 1920 authorized the payment of this commission to Lindsay Blee &Co. Ltd. " for a period of twelve months to the 21st December 1921." The commis- sion has, however, in fact been paid in respect of the year 1920 and all subsequent years up to the time of action brought. In respect of the period after 1921 the learned Chief Justice ordered an account of moneys paid to Lindsay Blee &Co. Ltd. There is no cross- appeal against this order.

The appellant, however, contends that the account should have covered the year 1920 also. There is no evidence to show when or by whom the payments made in respect of the year 1920 were made. In 1920 the selling agents of the company were W. Johnson &Co. Ltd. and R. J. Lynn Ltd., and these companies are not parties to the litigation and, indeed, have ceased to exist. The present defendants cannot be required to account for payments made by their predecessors. There is no evidence that payments in respect of the year 1920 were made by either Johnson or Johnson &Lynn Ltd. Accordingly there is no proper basis for extending this order of the Chief Justice by ordering any account in respect of that year.

It was next contended for the appellant that there was no authority for the payments after the expiration of the period mentioned in the resolution, that is to say, after the year 1921. The learned judge has accepted this view, and the defendants have in effect accepted it by making a payment to the company after action brought, which payment is relied upon in their second defence as being sufficient in amount. It was not accepted by the colliery company in satis- faction of the claim.

The principal contention of the appellant, however, is that the learned judge should have found that the payments were fraudulent. The appellant desires to obtain a finding of fraud in order to justify some form of extended order for an account. As I am of opinion, for reasons which I will subsequently state, that there ought to be an order for an account more general than that ordered by the Chief

60 CLR 204

Justice, it is not necessary for me to deal in detail with the contention that a finding of fraud should have been made against the defendants in respect of this particular matter. It is sufficient to say that it is apparent that substantial sums of money were paid without authority in fact, even if the persons concerned may have believed that the payments were properly made. The defendants pleaded that the payments, though not formally authorized, were known to the directors other than Johnson and Lynn, but neither the defendant Johnson nor any other director was called to prove that this was the case. The circumstances raise a certain amount of suspicion, but the continuance of the payment after 1921 is consistent with the carrying on of an arrangement which had been found to work satisfactorily and to be justified in practice. In the absence of more definite evidence than has been given in this case and in view of the contrary finding of the learned Chief Justice, I do not feel justified in saying that this court should now determine that there was fraud in connection with these particular transactions.

It is, however, contended by the appellant that even in relation to the year 1921 the payments made on account of the Lindsay Blee commission were not authorized, because the resolution authorizing them was invalid. In the first place it is put that the resolution was fraudulent because there was a contract existing under which the agents were bound to pay all commissions to oversea agents, SO that the additional 1s. per ton was, it is said, merely a gift dishonestly made to the agents, who were directors of the company. But, as

I have already said, I am unable to discover any satisfactory evidence of fraud either in the transaction generally or more particularly in relation to the resolution. There may have been reasons which made it wise and desirable to secure the services of Lindsay Blee &Co. Ltd. for the colliery company by making a special payment out of the funds of the company. Further, there is nothing to show that the payment of the Lindsay Blee commission was made to Johnson personally. Johnson &Lynn Ltd., the company, was not a director of the colliery company.

Another ground of attack upon the resolution was based upon the principle that any contract made by a company with another company in which one of the directors of the former company was

60 CLR 205

a shareholder is voidable at the instance of the former company unless it is sanctioned by the articles of association and made in conformity with these articles (Transvaal Lands Co. v. New Belgium (Transvaal) Land and Development Co. 1; Costa Rica Railway Co. Ltd. v. Forwood 2 ). Johnson and Lynn were directors and share- holders of Johnson &Lynn Ltd., and they were directors of the colliery company. They did not vote on the resolution in question. Art. 65 of the articles of association is as follows: " '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." It is contended that this article does not cover the case of a director being a shareholder in a company and that therefore the general principle applies.

The resolution was in the following terms "That Lindsay Blee &Co.'s accounts for sub-commission paid by them to secure bunker- ing business for the company at a price not exceeding one shilling per ton be recognized for a period of twelve months to 31st December 1921.1

I do not propose to examine in detail the various questions raised in relation to this resolution. If it be assumed, in the plaintiff's favour, that it in some way operated to make a contract between the company and either Johnson (a director of the company) or Johnson &Lynn Ltd., such a contract would be voidable at the option of the company. The company, however, allowed the other defendants to act on the faith of the resolution with respect to the period to which it related, and the company cannot now avoid it after many years have passed. But further, the resolution was expressly relied upon by the defendants in their defence, and the plaintiff did not challenge its validity in its reply. In my opinion the plaintiff ought not now, upon appeal, to be allowed to challenge the resolution after the lapse of SO long a period.

(2) Office Services.-This is a claim against the defendant Johnson, not against Johnson &Lynn Ltd.

1(1914) 2 Ch. 488. 2(1900) 1 Ch. 756 ; (1901) 1 Ch. 60 CLR 206

The colliery company had offices in the same building as several other companies in which Johnson and Johnson &Lynn Ltd. were interested as shareholders. The statement of claim alleged that Johnson caused the colliery company to pay for accommodation which the other companies used, to pay municipal rates payable by those companies, and to pay for the electric light and power which they used, as well as for cleaning their premises. It was also alleged C.J. that the colliery company, under the direction of Johnson, provided

stationery (except printed stationery) used by the other companies, and that the clerical work of one of the companies was all done by the staff of the colliery company. It was alleged that these things were done by the direction of Johnson with the purpose and with the motive of advantaging himself in relation to the companies in which he was interested, and in fraud of the colliery company.

The first defence, after alleging that the plaintiff company was largely interested in one of the other companies referred to and had its nominee on the board of that company, alleged that the conces- sions, if any, given to those companies were, in the opinion of the defendants, necessary and conducive to the interests of the colliery company and were at all times known to and approved by the directors of that company. In the second defence, while denying allegations of fraud, the defendants relied upon the acceptance by the colliery company of a sum of £2,458 18s. 8d. in full settlement of the claim. The learned Chief Justice declined to find fraud against the defendant company, expressed a strong view that the plaintiff company knew what was being done and did not object, and, disregarding the settlement made between the defendant John- son and between the company, ordered an account. No evidence was called to support the allegations made in the first defence.

The defendant Johnson has now admitted that it was wrong to use moneys of the colliery company to meet liabilities of other companies and that he did SO use such moneys. It is plain that there was no authority for what was done. No director of the colliery company was called to say that the directors knew and approved of these payments being made. Plainly the procedure was loose and reprehensible. It is necessary, however, to show more than this in order to establish fraud. It frequently happens

60 CLR 207

that the business of companies is controlled by two or three individuals as if the business were their own business, co-directors and share- holders are not consulted or are given only formal information, and persons who are in fact in charge of the business are unconscious of the fact that, however many shares in a company they may own or control, the conditions upon which incorporation is granted to a company prevent them from dealing with the moneys of the company as if they were their own moneys. But such irregularity does not in itself establish fraud. In my opinion this court would not be justified in making a positive finding of fraud upon the evidence before it.

The learned Chief Justice refused to give effect to the settlement made by the company, saying that " it was not competent for the nominal defendant by agreement with the real defendants to defeat the plaintiff's claim." In my opinion this proposition is too broadly stated. The colliery company is not in liquidation, and the powers of the directors to manage the business of the company and to control its affairs are not in any way impaired by the fact that a shareholder, either in his own name or using the name of the company, is suing the company for the purpose of challenging past acts of the directors. Thus, as a matter of law, it was competent for the directors of the colliery company to bind the company by accepting an ascertained sum in discharge of the liability of Johnson for an uncertain amount for breach of duty in wrongly expending the moneys of the company and failing to protect its interests. This act of the directors is, prima facie, as valid as any other act of the directors. If, however, it were shown that the directors had not acted in good faith in the interests of the company, but had acted for the purpose of protecting Johnson or of stifling the litigation or for some other improper reason, their act could be challenged and could be set aside by the court. (See Richard Brady Franks Ltd. v. Price 1.) But the plaintiff has not made a case which makes it possible to apply this principle. No evidence whatever has been given to show that the settlement made after the writ issued was not a bona-fide settlement or even that it was not in fact in the interests of the company. The court cannot assume without any evidence that the directors were acting

1(1937) 58 C.L.R. 112. 60 CLR 208

dishonestly. In view of the fact that this litigation was proceeding at the time when the settlement was made, it is, I think, unlikely that the directors would accept a settlement which could be shown to be disadvantageous to the company. However this may be, the onus is on the plaintiff to show that the particular act of the directors in making the settlement was not done bona fide in the interests of the company, and the plaintiff has not discharged this onus.

I am, therefore, of opinion that the settlement of the claim for office services which was made by the directors of the colliery com- pany and which is relied upon in the second defence is an answer to the claim for an account in relation to these matters and that the judgment of the learned Chief Justice should, accordingly, be varied by striking out the order for an account in relation to these matters.

(3) Bunker Coal.-Under the agency agreement Johnson &Lynn Ltd. acted as sole agents "for the sale of bunker coal and coal for export from Western Australia and briquettes for bunkering or export as aforesaid." Among the customers of the colliery company were the Fremantle Harbour Trust and authorities which have been referred to as the Fremantle, Geraldton and Bunbury Harbour Works. These authorities in fact used the coal which they bought from the colliery company either on land or at sea in tugs or dredges. None of it was exported or put into ships travelling from Western Australia. The sales of coal which was in fact used on land have been referred

"land sales." The question which arises under this head is whether Johnson &Lynn Ltd. were entitled under the agency agreement to retain 2s. 6d. per ton commission on all or any of the sales to the various authorities mentioned.

The evidence is that at all times the charge of 2s. 6d. per ton was made on all coal supplied to the Fremantle Harbour Trust and Fremantle Works. Until August 1928 the 2s. 6d. per ton had not been charged in respect of coal supplied to the Geraldton and Bunbury authorities. A witness, Walker, who from 1920 to 1936 was the accountant and secretary to the colliery company, gave evidence on behalf of the plaintiff. In April 1936 he left the employment of the company and became a member of the staff of a company which is associated with the interests supporting the plaintiff in this litigation. He gave evidence that in August 1928 he was

60 CLR 209

directed by Johnson to make a retrospective charge of 2s. 6d. per ton on coal supplied to the Bunbury and Geraldton authorities. This was done, and the result was that Johnson &Lynn Ltd. received PENINSULAR a sum of £2,000. Thereafter 2s. 6d. per ton was charged on all coal supplied to all the authorities until 1933, when it was reduced, for no stated reason, to 6d. per ton on Johnson's instructions. This practice continued until the end of 1935, when, according to Walker's evidence, the charge of commission ceased, at least on the Geraldton and Bunbury sales. There is no evidence that any other directors than Johnson and Lynn knew anything of these proceedings.

The first defence admitted the payment to Johnson &Lynn Ltd. of the moneys in question, but alleged that the coal on which the commission was charged was for use in tugs and other vessels belonging to the several authorities and was bunker coal, and that the defendant Johnson &Lynn Ltd. was therefore entitled to make the charge under the agency agreement. Later, however, this contention was abandoned, and it was admitted that some of the sales upon which commission had been charged were land sales. After discussion and negotiation a sum of £3,212 17s. 2d. was paid by Johnson &Lynn Ltd. to the colliery company, representing a refund of commission charged on land sales together with interest. This sum was accepted by the company in respect of the land sales, and a receipt was given accepting the sum mentioned in satisfaction of the claim for commission on coal sold to all the authorities which was not used in ships' bunkers. Thus, the matter came before the court upon the basis that the claim in respect of land sales had been settled, but that it was for the court to determine whether or not the coal used in tugs and dredges was bunker coal within the meaning of the agreement. The learned Chief Justice did not refer in his judgment to the subject of land sales (which were obviously not within the agency agreement) and held that the rest of the coal was not bunker coal within the meaning of the agreement. He therefore held that the charge of commission on the latter coal was not justified and ordered an account as to such commission. The learned Chief Justice refused to make a finding of fraud, because, as he said, the contention that the sales in dispute were sales of bunker coal was at least arguable, and there was no evidence of fraud.

60 CLR 210

I respectfully agree with the view of the Chief Justice that the coal which was used in the tugs and dredges of the harbour authorities was not bunker coal within the meaning of the agency agreement. The parties operated under two agreements-the managers' agree- ment under which a commission of 3d. per ton was payable to the managers on all coal sold, and the agency agreement under which a commission of 2s. 6d. per ton was payable in respect of bunker coal. It is plain that the additional commission was paid to the agents on account of additional work associated with the sale of bunker coal which was not expected to be required in connection with the sale of other coal. Coal purchased by any customer could of course have been used for any purpose to which the customer chose to apply it. It is plain that the agency agreement does not give the agents a right to charge extra commission on all coal which in fact happened to be placed in ships' bunkers or to be exported from Western Aus- tralia. The clause which gives the agents the right to retain the commission provides that the remuneration of the agents shall be " a sum equal to two shillings and six pence per ton for all coal and briquettes supplied by the principal" (that is, the colliery com- pany) "for bunkering or export from Western Australia." Thus, the commission of 2s. 6d. per ton is payable, not when coal is in fact used for bunkering or export, but when it is supplied by the colliery company for that purpose. In fact all the coal supplied to the harbour authorities was supplied free on rail at Collie as in the case of ordinary sales of coal by the company. There is no evidence that it was supplied for the purpose of bunkering or export. Thus, in my opinion, the contention of the plaintiff is right, and there should accordingly be an order for an account of the moneys retained by Johnson &Lynn Ltd. as commission at 2s. 6d. per ton or at any other rate over 3d. per ton on all coal used by the harbour authorities in tugs or dredges.

The question arises whether the account should be limited to those sales or whether, on the other hand, it should include the land sales. The company, as I have already stated, has accepted the settlement in respect of land sales. This, however, is really only a settlement in part payment of moneys due in connection with the sales to the harbour authorities. As I have already said, there should

60 CLR 211

be an inquiry and account as to the sales of coal which in fact was used in tugs and dredges. It might be very inconvenient on taking an account to encumber the proceedings with controversies as to whether a particular consignment of coal was included within the category of land sales, as to which a settlement had already been made, or whether it was a consignment which had been used in tugs or dredges. As the amount accepted by the company was accepted only on account of the liability to repay commissions taken on the sale to all the authorities, it is, in my opinion, proper that a full account should be taken of all those sales without reference to the part settlement made.

(4) Scholarship.-Lynn presented a scholarship to the Roman Catholic Archbishop of Perth. The endowment of the scholarship consisted of shares which belonged to Johnson &Lynn Ltd. and which were dishonestly taken by Lynn and used for the purpose of endowing the scholarship. When these facts became known to Johnson after Lynn's death, Johnson simply reimbursed the funds of Johnson &Lynn Ltd. by drawing a cheque for £2,000 (the then value of the shares) upon the account of the colliery company and thus replacing from the funds of the colliery company the amount which Lynn had, in the exercise of his benevolent intentions, dis- honestly removed. There can be no possible justification for such dishonest and fraudulent conduct, and the learned Chief Justice SO held. This finding of fraud against Johnson is important in relation to the claim that all accounts between the parties should be opened.

There is a cross-appeal in relation to this matter. The defendants contend that the learned Chief Justice should have given effect to a settlement arrived at between the defendants and the company under which a sum of £2,000 together with £805 4s. 1d. for interest at five per cent was repaid to the company. This amount was accepted in satisfaction of the liability of the defendants. His Honour ordered that the amount should be repaid with six per cent interest instead of with five per cent interest. In my opinion the judgment of the Chief Justice cannot be supported on this matter. I have already stated my view that the litigation did not interfere with the exercise of their powers by the directors and that, in order to set aside a settlement made by them, it would be necessary to establish that

60 CLR 212

the transaction was ultra vires (which is plainly not the case) or that the directors had not arrived at their decision honestly in what they regarded as the interests of the company. I am accord- ingly of opinion that the settlement pleaded is an answer to the claim of the plaintiff with respect to this part of the case and that the judgment of the Supreme Court should be varied by striking out the order for an account in relation to this sum of £2,000 and interest.

(5) Ravensthorpe Machinery &.-A claim is made for the profit arising out of this transaction. Johnson &Lynn Ltd. bought certain machinery &. at Ravensthorpe and resold part of it to the colliery company at what is admitted (in the defence) to be a substan- tial profit and (in the correspondence) to be a profit of 100 per centum. The plaintiff claims an account of these profits and payment thereof and also claims damages in general terms.

In December 1929 Johnson &Lynn Ltd. purchased some machinery &. from one Dunstan (a director of the colliery company) who was acting as receiver for a certain partnership which was being wound up. Later Johnson &Lynn Ltd. sold to the colliery company part of the material which they had purchased. The whole transaction was conducted by Johnson, who was a director of both Johnson &Lynn Ltd. and of the colliery company. Johnson at the time was managing director of the colliery company. Johnson &Lynn Ltd. was the manager of the company under the managers' agreement and had full powers of purchasing goods for the company as well as of selling the company's products. Neither Johnson nor Dunstan disclosed the transaction to the board of directors, and a fortiori the interest of Johnson and Johnson &Lynn Ltd. in the transaction was never disclosed. The payments representing the purchase price were placed before the directors only under a general heading, "Stores." The transaction can only be regarded as most repre- hensible in character. The question which arises, however, is whether any remedy, and, if so, what remedy, is available to the company in respect of this transaction.

In my opinion it is clear that, if restitutio in integrum were possible, the transaction could be avoided in the interests of the company, but such restitution is admittedly not possible, and therefore this remedy, which would involve the return of the machinery &. to

60 CLR 213

Johnson &Lynn Ltd. and the repayment by them of the purchase money received from the colliery company, is not available.

It is urged that the learned Chief Justice should have ordered an PENINSULAR account of the profits made by Johnson &Lynn Ltd. In order to support such a contention it would be sufficient to show that Johnson &Lynn Ltd. bought the machinery on behalf of the colliery company and purported to resell it to the company. Johnson &Lynn Ltd. carried on the business of merchants dealing in goods of various kinds, including such machinery &. as was the subject matter of this transaction. There is no evidence to show that the machinery was bought on behalf of the colliery company. The evidence, on the other hand, shows that the machinery was bought as a specula- tion, with the intention of selling it at a profit to any willing pur- chasers. It was resold to various purchasers, including among others the colliery company. Thus, the case cannot be treated as if the machinery &. was really the property in equity of the colliery company ab initio as in Jacobus Marler Estates Ltd. v. Marler 1.

What I have said covers also the claim based on the principle that an agent for the purchase of property cannot sell his own property to his principal without disclosing his interest. In such a case there may be rescission and an account of profits, but where rescission is impossible no account of profits is given because (it is said) the result would be really to make a new contract between the parties (In re Cape Breton Co. 2; Burland v. Earle 3 ). Therefore the only remedy available is a remedy in damages for breach of duty by Johnson as general manager and by Johnson &Lynn Ltd. as managers under the managers' agreement. But in order to support such a claim it is necessary to show that the colliery company actually suffered damage. If the company got value for its money, then no damage has been suffered. There is no evidence at all with respect to this matter, and therefore the claim for damages cannot be supported. The learned Chief Justice dismissed this claim with costs, and, as the matter must be dealt with upon a strictly legal basis, I consider that his judgment was right.

1(1913) 114 L.T. 640, n. 2(1884) 26 Ch. D. 221 ; (1885) 29 Ch. D. 795. 3(1902) A.C. 83. 60 CLR 214

(6) Commission on Oil, Pipes, &.-Johnson &Lynn Ltd. received commissions from the Texas Co. (Australia) Ltd. and from Stewart &Lloyd Ltd. on oil, pipes, and other articles sold by them to the colliery company. The plaintiff claims the amount of these commis- sions as secret commissions wrongfully obtained by Johnson &Lynn Ltd. In the first defence it was alleged that the company paid the usual price for these articles. Such an allegation is quite irrelevant. An agent cannot justify the taking of a secret commission by showing that his principal would not have been able to obtain more favourable terms if he had not taken the commission. It was also alleged in the first defence that the directors knew that the commissions were being received. The learned Chief Justice in his judgment says that there was no secrecy about the matter. This was SO as between the vendors and Johnson &Lynn Ltd., as correspondence between them shows. There is, however, no evidence to show that any disinterested directors of the colliery company knew anything about the receipt of these commissions by Johnson &Lynn Ltd.

In the second defence the defendants retreated from the position taken up in the first defence, and relied upon a payment made to the colliery company on account of the liability, which was no longer denied. This payment was not accepted in satisfaction of the claim. The Chief Justice ordered that an account of the commissions be taken, the account being ordered against both Johnson and Johnson &Lynn Ltd. It would appear, SO far as the evidence now goes, that the moneys received were actually received by Johnson &Lynn Ltd. and not by Johnson, but this is a matter which can be deter- mined more satisfactorily upon the taking of the account. In my view the decision of the learned Chief Justice was right and should be affirmed.

The learned Chief Justice, however, found that there was nothing fraudulent in the transaction. I find myself unable to agree in this view SO far as Johnson and Johnson &Lynn Ltd. are concerned. As

I have already stated, there is no evidence-or, at least no evidence that I have been able to discover-to show that any disinterested director was ever aware that these commissions were being taken. In my opinion the taking of the commissions without disclosure to the board of the colliery company was a dishonest act. The rule is

60 CLR 215

well expressed by Scrutton L.J. in Rhodes v. Macalister 1: "An agent must not take remuneration from the other side without both disclosure to and consent of his principal." In the same case Atkin L.J. refers to the high standard of conduct on the part of agents which is required by the court. He states It is a standard of conduct which I am afraid sometimes conflicts with the standard of conduct adopted for themselves by commercial men-not by honour- able men in commerce, but by a great many men engaged in mercantile transactions. I entirely agree with what has been said as to the importance of repeating and letting it be known as widely as possible what the standard of conduct expected from an agent is at

2. Thus, in my opinion, it ought to have been held that Johnson and Johnson &Lynn Ltd. were guilty of fraud in taking these commissions.

(7) London Assurance Corporation.-Johnson &Lynn Ltd. were the representatives and attorneys of the London Assurance Corpora- tion. In this capacity they received a commission which depended upon the amount of business done. The colliery company insured with the corporation, and thus Johnson and Lynn Ltd. received a commission on business done by the colliery company with the corporation. The learned Chief Justice rejected the claim for an account of these commissions on the ground that they were received by Johnson &Lynn Ltd. as agent for the London Assurance Co. Ltd., and not as agent for the colliery company. I do not regard this fact as constituting a sufficient ground for refusing to order an account. If A is dealing with B through A's agent C, that agent cannot, without disclosure to A, take and retain a commission received by him from B in respect of that dealing. It is immaterial that he takes it as agent for B. But, if A knows that the agent is obtaining a commission from B and consents, the position then is different. The evidence shows plainly that the fact that Johnson &Lynn Ltd. were agents for the London Assurance Corporation was notorious, and nobody would have believed that they were acting as such agents without receiving a remuneration. In my opinion the evidence shows that the directors of the colliery company knew quite well that Johnson &Lynn Ltd. were receiving these

1(1923) 29 Com. Cas. 19, at p. 27. 2(1923) 29 Com. Cas., at p. 29. 60 CLR 216

commissions and must be held to have consented to them doing 80 Accordingly I am of opinion that the judgment of the learned Chief Justice in refusing to order an account of these commissions was right.

(8) Remuneration of Agents.-It is contended for the plaintiff that because Johnson and Johnson &Lynn Ltd. were both guilty of fraud in the course of their agency, they are bound to forfeit all the remuneration received from the colliery company in respect of any of their services and to repay it to the company. No claim of this character was specifically made in the pleading of the plaintiff, and it is doubtful whether it is open to the plaintiff to ask, upon appeal, for a specific order relating to it. I prefer however to deal with the matter upon its merits.

There is plain authority for the general proposition that a dishonest agent is not entitled to remuneration (Andrews v. Ramsay &Co. 1; Price v. Metropolitan House Investment and Agency Co. Ltd. 2 ). It is easy to apply this rule where there is a single transac- tion in respect of which the agent is dishonest. But the rule does not involve the consequence that an agent who is guilty of a number of isolated acts of dishonesty in the course of his employment forfeits the whole of his remuneration as agent. In the present case the defendants were in charge of the whole business of the company, and they received remuneration for their services upon a commission basis calculated upon the number of tons of coal sold. The acts of actual dishonesty proved (Lynn scholarship and Texas Co. and Stewart &Lloyd's) did not relate to sales of coal. They were fraudulent breaches of duty for which remedies are avail- able as already stated. But these breaches of duty would not, where there was no fraud in the performance of other duties, "involve the loss of the remuneration which has been fairly earned in the proper discharge of the other duties " (See Hippisley v. Knee Bros. 3 ). It would, further, appear to be unreasonable to deprive the defendants of all remuneration over a period of fifteen years or thereabouts because in some particulars they have been guilty of dishonest conduct, and I do not think that the law requires that

1(1903) 2 K.B. 635. 2(1907) 23 T.L.R. 630. 3(1905) 1 K.B., at p. 9. 60 CLR 217

that should be done.

See per Atkin L.J. in Rhodes v. Macalister 1: " It is dishonest of an agent to take a bribe from the other side, and for that act of dishonesty he is, if he is discovered, liable to be summarily dismissed by his employer, and he is precluded from recovering any remuneration for his conduct as agent in respect of the transaction in which he in fact acted dishonestly, and, if his employment is a general employment, any remuneration for that conduct in respect of which he has committed his breach of trust." " This principle is stated in relation to the taking of bribes, but the principle must be equally applicable in any case of fraudulent misconduct. The application of the principle would result in the agent being deprived of commission in relation to the transaction in which the dishonesty had occurred. Where, however, the com- mission, though measured in relation to separate transactions (each ton of coal sold), is a reward for conducting the whole of a trading business and there is no dishonesty in any of those separate transac- tions, it appears to me that the principle cannot be applied in the same way as if the reward were applicable to separate transactions separately. Thus, I find it difficult to specify any particular remuner- ation of which the agent should be deprived because of what I regard as dishonest conduct in connection with the commissions received from the Texas Co. and Stewart &Lloyd Ltd. Nor is there any transaction to which the dishonesty with respect to the Lynn scholarship can be attributed. Accordingly, I am unable to hold that the agents should be deprived of their commission by reason of fraudulent conduct.

(9) General Account.-The plaintiff, by an amendment allowed at the trial, claimed a general account of all the dealings and transac- tions of Johnson and Johnson &Lynn Ltd. under the managers' agreement and the agency agreement. This claim was rejected by the learned Chief Justice. The appellant contends that all accounts should have been opened and a general account ordered. Before this court it has been urged for the defendants that they are not accounting parties and that in any event the court in its discretion should not order the general account sought.

1(1923) 29 Com. Cas., at p. 29. 60 CLR 218

In considering this matter I limit myself to the period beginning on 12th September 1928, the date of Lynn's death. If the view which I have taken of the Lindsay Blee matter is correct, there is no evidence which establishes any dishonesty or misconduct or impropriety on the part of Johnson or on the part of Johnson &Lynn Ltd. before that date. From that date to 16th September 1929 Johnson was the sole manager of the company's business under the managers' agreement. On that date Johnson &Lynn Ltd. became manager and Johnson became managing director. Johnson &Lynn Ltd. has at all material times been acting as agent under the agency agreement.

A director as such, whether he be a managing director or not, is not an accounting party. Merely in his capacity of director he is not a trustee for the shareholders (Percival v. Wright 1 ). But in the exercise of his powers he is a trustee for the company and is in a fiduciary relation to the company (Imperial Mercantile Credit Association v. Coleman 2 ). If in fact he does have control of property of the company, he is a trustee of that property and must account to the company for it (Flitcroft's Case 3 ). When an account is claimed, each case must be considered in relation to all its circumstances "It would be endless to point out all the several avenues in human affairs, and in this commercial age, which lead to or end in accounts" (Blackstone's Commentaries, Book III., C. 27, p. 437). This statement is even more applicable in the twentieth century than in the eighteenth century. Any person who, as agent or manager or director, has in fact the disposition or control of the moneys or other property of another person is a person who may be ordered to bring in an account. In this case the whole manage- ment of all the trading business of the company was in the hands of Johnson and Johnson &Lynn Ltd. Johnson was not merely a director of Johnson &Lynn Ltd. He was, first, manager, and then managing director, of the colliery company. The evidence shows that it was he who really conducted the business of the colliery company. Clause 4 of the managers' agreement was as follows "The managers shall exercise and carry out all such powers and

1(1902) 2 Ch. 421. 2(1873) L.R. 6 H.L., at p. 204. 3(1882) 21 Ch. D. 519. 60 CLR 219

duties and shall observe all such directions and restrictions as the board of directors may from time to time confer or impose upon them but in default thereof the managers shall control the general management of the business of the company and shall have power to appoint and dismiss all clerks and servants of the company and to enter into any trade contracts on behalf of the company in the ordinary way of business and to do all other acts and things which they may consider necessary or conducive to the interests of the company." Clause 4, in actual practice, gave Johnson personally (after Lynn's death) complete control of the relations between the company and Johnson &Lynn Ltd. as well as between the company and other persons to whom it sold or from whom it bought anything. Clause 5 (a) of the managers' agreement provided that during their employment it should be the duty of the managers to keep proper record books and books of account and to make (inter alia) therein true entries of all moneys received or paid by them in the course of the business of the company. Thus, it is plain that under the managers' agreement there is an obligation resting upon Johnson in respect of the period while he was manager, that is, up till 16th September 1929, and of Johnson &Lynn Ltd. at all subsequent times, to render true accounts of their dealings in and about the moneys of the company. Further, clause 5 also provides that it shall be the duty of the managers to pay all moneys except petty cash into the West Australian Bank daily to the credit of the account of the company there and to make every payment in excess of £1 requiring to be made in the business by cheque drawn upon that account. This obligation was not performed. By the direction of Johnson a system of journal entries was used which made it possible to pass credits to Johnson &Lynn Ltd. or to Johnson or to other persons in such a way that the list of cheques drawn which was submitted to the board of directors would convey no idea whatever of the real transactions which lay behind the figures which alone the directors were permitted to see. Accordingly, an examination of the minutes of directors' meetings and of the lists of cheques drawn which were submitted to them and approved by them does not make it possible to obtain any just or proper view of the actual transac- tions of the company.

60 CLR 220

It is urged that, if an account is ordered in respect of the period during which Johnson &Lynn Ltd. was the manager and Johnson

PENINSULAR the managing director of the colliery company, it should be ordered

only against Johnson &Lynn Ltd. and not against Johnson, who during that period was the managing director. But Johnson occupied a peculiar double position. He was one of the principal directors of Johnson &Lynn Ltd. and apparently controlled the business of that company. He was also the managing director of the colliery company. He owed duties directly to the latter com- pany as well as to the former company. If in fact he has dealt with no money on account of the colliery company, he will be put to no trouble by rendering an account. If he, as distinct from Johnson &Lynn Ltd., did control or handle any of the property of the colliery company, then that company is entitled to know about it. It is SO impracticable to distinguish between Johnson and Johnson &Lynn Ltd. in the transactions relating to the colliery company that if an order for an account is made it should go against both parties. As I have said, Johnson &Lynn Ltd. is very plainly an accounting party and, in my opinion, justice requires that an order for an account should be made also against Johnson. Johnson must accept the consequences of failing to distinguish between his positions as an individual, as a director of Johnson &Lynn Ltd., and as manager and managing director of the colliery company.

Order XXXII., rule 2, of the Rules of the Supreme Court of Western Australia provides as follows "The court or a judge may, at any stage of the proceedings in a cause or matter, direct any necessary inquiries or accounts to be made or taken, notwithstanding that it may appear that there is some special or further relief sought for or some special issue to be tried, as to which it may be proper that the cause or matter should proceed in the ordinary way." Subse- quent rules make it possible to mould an order to suit the circum- stances of a particular case.

In this case, in my opinion, justice can be done only by a thorough inquiry into the dealings of Johnson and Johnson &Lynn Ltd. under the managers' agreement and the agency agreement. The plaintiff is not in a position to make complete and precise allegations as to the particular suspected defaults. Some defaults have been

60 CLR 221

60 C.L.R.]

OF AUSTRALIA. proved. The circumstances are such as to suggest that there may be others, and accordingly there should be an appropriate order for a general inquiry with a full disclosure of all relevant documents. Fraud has been definitely proved against Johnson and against Johnson &Lynn Ltd. The circumstances are such as to justify the application to this case of what was said in Clark v. Tipping 1

: "No credit is due to the agent's accounts and the principal is not bound to abide by them." In Williamson v. Barbour 2 it was held that where accounts are impeached and it is shown that they contain errors of considerable extent both in number and amount, whether caused by mistake or fraud, the court will order such accounts, though extending over a long period of years, to be opened, and will not merely give liberty to surcharge and falsify." Jessel M.R. said in his judgment that " 'where fiduciary relations exist and a less considerable number of errors are shown, or where the fiduciary relation exists and one or more fraudulent omissions or insertions in the account are shown, there the court opens the account and does not merely surcharge and falsify " 3. In Allfrey v. Allfrey 4 an administrator's account which had been settled was opened because an entry was shown to have been fraudu- lently made, notwithstanding a lapse of forty years since the death of the intestate and seventeen years since the settlement of the account. I therefore have no doubt that the court has power to direct the whole of the accounts to be opened in the present case. The fullest inquiry should be made possible, but only SO far as necessary.

Doubtless there will be many matters which will be quite clear and undisputed, and, if a complete account in the ordinary form were ordered in respect of the period since September 1928, the preparation and examination of such an account would result in very great delay and expense. The order should provide for full power to call for and examine all books and documents belonging to the colliery company or to Johnson or to Johnson &Lynn Ltd. and power also to examine witness upon oath. There should be power to make inquiries and to require particular accounts to be

1(1846) 9 Beav., at p. 292; 50 E.R., 2(1877) 9 Ch. D. 529. 3(1877) 9 Ch. D., at p. 533. 4(1849) 1 Mac. &G. 87 41 E.R. 60 CLR 222

rendered by the defendants in respect of any dealings or transactions under the managers' agreement or the agency agreement since 12th September 1928. The order, subject to the variations which I have already suggested, should provide for accounts in relation to the specific matters already dealt with, namely, Lindsay Blee com- missions, sales of coal to harbour authorities, commissions received from the Texas Co. and Stewart &Lloyd Ltd.

This is a case in which the provisions of sec. 50 of the Supreme Court Act may with advantage be utilized. Minutes of an order have been prepared for the purpose of giving effect to the judgment of this court, and the parties will be given an opportunity of speaking to the minutes.

In my opinion success and failure upon the appeal and cross- appeal are fairly evenly divided between appellant and respondents, and there should be no order as to the costs of the appeal or the cross-appeal. There is no reason for disturbing the order of the Supreme Court as to the costs of the action. The costs of further proceedings will be dealt with by the Supreme Court.

An application was made by the plaintiff to transfer the hearing of the appeal to Sydney or Melbourne. The costs of this application were reserved to be dealt with by the court on the hearing of the appeal. The application failed, and the ordinary rule should apply. The appellant should pay the costs of this application to the respondents.

DIXON J. In dealing with this appeal it is important to keep in mind the frame of the action out of which it arises. The plaintiff is a shareholder in a limited company called "Amalgamated Collieries of W.A. Limited." The defendant, Walter Johnson, is a director of that company who is now the general manager. The defendant, Johnson &Lynn Ltd., is another company of which he has the management and of which he is a director. It also is a shareholder in the Amalgamated Collieries company. The plaintiff sues on behalf of itself and all other shareholders of that company who do not stand on the other side of the record. The Amal- gamated Collieries company is joined as a defendant.

60 CLR 223

The purpose of the action is to obtain the enforcement of rights said to exist in the latter company against the defendants Walter Johnson and Johnson &Lynn Ltd.

The company itself is, prima facie, the proper plaintiff in an action to enforce rights vested, not in the shareholders, but in the company. An action cannot be maintained by a shareholder for the purpose of securing the enforcement of rights against others, vested not in himself but in the company, unless, speaking broadly, the failure of the company itself to pursue its alleged rights is attributable to an attempt on the part of the directors to further some interest at the expense of the company's or to some other mala-fide, fraudulent or ultra-vires conduct on their part or on the part of members of the company in a position to exercise control (See per James L.J. in Gray v. Lewis 1 and in MacDougall V. Gardiner 2, and per Lord Davey in Burland v. Earle 3 ).

A curious feature of the present case is that the statement of claim contains no allegation of the facts constituting the plaintiff's title to put in suit causes of action vested in the company, and, on the other hand, the defence raises no objection that, in the absence of such facts, the action cannot be maintained by the plaintiff. The writ was issued on 9th June 1936, and at a meeting of the directors of the Amalgamated Collieries company held on the following day a member of the board who acted also as the company's solicitor is reported by the minutes as having explained that the P. &O. S. N. Co. had commenced proceedings in their own name on behalf of all the shareholders of the company with the exception of Walter Johnson and Johnson &Lynn Ltd., and had nominated themselves as the proper party to protect the interests of this company. It appeared that this action was taken on the assumption that the present board of directors would not protect their interests against Walter Johnson and Johnson &Lynn Ltd. whereas the board had never been consulted. As he will be involved in this action as a director, he was of opinion that it would not be proper to act as legal adviser, and thought it advisable that the independent members of the board should decide what action the company

In the present case no attempt has been made to show that the Amalgamated Collieries company made a loss on the whole transac- tion. Indeed, payment of the profit made on the resale or, alter- natively, an account is the only relief claimed in the prayer of the plaintiff's statement of claim. In my opinion no relief should be given in respect of the sale of the plant, machinery and other things bought from the receiver of the assets of the Ravensthorpe mine.

(6) The last of the complaints raised by the plaintiff's statement of claim with which the appeal is concerned arises out of the receipt

1(1913) 114 L.T. 640, n. 2(1885) 29 Ch. D., at p. 812. 3(1885) 29 Ch. D., at p. 809. 60 CLR 251

60 C.L.R.]

OF AUSTRALIA. by Johnson &Lynn Ltd. of some profits which are said to arise out of that company's agency and to be unauthorized and undis- closed. The profits consist, first, in commissions obtained by Johnson &Lynn Ltd. upon the purchase of supplies for the Amal- gamated Collieries company and, secondly, in a percentage remunera- tion derived by Johnson &Lynn Ltd. as representatives in Western Australia of the insurance company with which the insurances of the Amalgamated Collieries company were effected. As for the first, the unauthorized or undisclosed commissions, I do not think that it is necessary to state the facts. Two different suppliers of com- modities allowed the defendant Johnson &Lynn Ltd. rebates or commissions on goods that company ordered on behalf of the Amalgamated Collieries company. The defendants Walter Johnson and Johnson &Lynn Ltd., after the delivery of their first defence, repaid to the Amalgamated Collieries company what they calculated as the amount of the commissions received, together with interest, but the directors did not see fit to accept the payment in discharge of the cause of action. The judgment of the Chief Justice declared that the two defendants were liable to account for such commissions and ordered an account to be taken. In his reasons the Chief Justice acquitted the defendants of fraud. He took the view that the receipt of the rebates or commissions had not been concealed and that many commercial men were unaware that they were unlawful. The question whether Walter Johnson was aware or considered that the rebates or commissions were improper does not seem to me very material. They clearly were improper. In any event, I do not think that he would be deterred from allowing his company to receive such a profit by any such consideration of moral principle.

The question which calls for decision under the head of complaint now in hand is whether the defendants Walter Johnson and Johnson &Lynn Ltd. are accountable for any profit in relation to the insur- ances. It appears that at the end of the year 1928 Johnson &Lynn Ltd. were appointed by the London Assurance Corporation chief representatives of the corporation for Western Australia. As understand it, the duties of the chief representative included the regular conduct of a branch insurance business under the direction

60 CLR 252

of the head office in Australia of the corporation. Johnson &Lynn Ltd. were paid £250 a year for office expenses and a remuneration

PENINSULAR consisting of a commission or percentage of the net premiums on

insurance introduced by Johnson &Lynn Ltd. and accepted by the corporation. The percentage rate varied with different classes of insurance. After the appointment of Johnson &Lynn Ltd. the insurance of the Amalgamated Collieries company, except workers'- compensation insurance on miners, was effected with the London Assurance Corporation and, of course, the premiums were taken into account in calculating the remuneration of Johnson &Lynn Ltd. It is to be inferred that the directors individually were aware that the insurances were made with the London Assurance Corpora- tion and that Johnson &Lynn Ltd. were the representatives in Western Australia. It is, of course, well known that such representa- tives are remunerated by a percentage on net premium income. If the board of directors had formally resolved upon insuring with the London Assurance Corporation through Johnson &Lynn Ltd.,

I should have thought that the transaction would have been covered by article 65. That article, however, does not do more than authorize a director to act in the transaction and protect it from voidability on the ground that it was entered into by a director. If an undis- closed or unauthorized profit is received in connection with the transaction, it remains recoverable by the Amalgamated Collieries company. Further, in the present case the question arises whether the position of Johnson &Lynn Ltd., as general sales managers, may under the terms of the managing agreement applicable involve that company in a fiduciary duty in hac re. If this question should be answered that insurance fell within the powers of the general sales manager, then I should think that the profit would be recover- able from it, unless the transaction were sanctioned by the directors with sufficient knowledge. The rule against a fiduciary agent receiving or retaining an undisclosed and unauthorized profit by means of his position cannot admit of exceptions. But, if the matter depends altogether on the fact that Walter Johnson was a director and general manager, I feel some difficulty in seeing how Johnson &Lynn Ltd. can be made accountable for the full profit of that company in respect of the insurances. However, I have reached

60 CLR 253

the conclusion that the board of directors did sanction and authorize the insurances with the London Assurance Corporation, knowing full well that Johnson &Lynn Ltd. obtained the commission or PENINSULAR percentage on premiums as their remuneration. It appears clearly from the shorthand notes of the cross-examination of Walker that the directors passed accounts for quite large sums for the premiums and also passed the corresponding cheques. They all knew that Johnson &Lynn Ltd. were the representatives carrying on the insurance business, and the mode of remuneration is SO notorious that a vehement presumption arises that they were well aware that the premiums would be reflected in the remuneration of Johnson &Lynn Ltd. (Cf. Great Western Insurance Co. v. Cunliffe 1 ). I agree, therefore, in the decision of the Chief Justice that no liability in respect of profits on insurance rested on either the defendant Walter Johnson or the defendant Johnson &Lynn Ltd.

I have now dealt with all the specific complaints contained in the plaintiff's statement of claim with which this appeal is concerned. It remains to state my opinion upon the two contentions advanced as to the consequences in the relief which should be granted to the plaintiff.

It is first contended that misconduct is disclosed which deprives the defendant Johnson &Lynn Ltd. of its right to the remuneration of 3d. a ton since 16th September 1929, when it succeeded to the position of general sales manager, and of 2s. 6d. a ton since 12th January 1921. These dates express, of course, the extreme conten- tion of the plaintiff, which depends upon the gravity of each alleged piece of misconduct and SO acquires strength with the progress of time up to the last piece of misconduct proved. It is also con- tended that the defendant Walter Johnson should lose his or his and Lynn's remuneration of 3d. a ton before 16th September 1929.

In my opinion this contention presses the law laid down in Andrews v. Ramsay &Co. 2 altogether too far and misunderstands its application. In a general employment involving continuous services specific acts of misconduct do not go to the entire con- sideration. In the present case the remuneration is dependent under each agreement upon the quantity of coal sold. In Hippisley

1(1874) 9 Ch. App. 525. 2(1903) 2 K.B. 635. 60 CLR 254

v. Knee Bros. 1 and Nitedals Taenstilffabrik v. Bruster 2 the

principle is explained under which an entire remuneration for an inseparable service is forfeited for misconduct in the course of an agency. Before the remuneration can be held forfeited, an inter- dependence must be found to exist between the act of misconduct and the performance of the work or the fulfilment of the condition upon which the right to remuneration arises. In the present case the only matter in which such an interdependence or connection may plausably be suggested is in the overcharge of 2s. 6d. a ton upon coal sold to the various harbour authorities. But even there the connection does not appear sufficiently close. The overcharge is,

SO to speak, an ex post facto attempt to obtain an excessive remunera- tion from the principal after the real remuneration of 3d. a ton has been earned. In my opinion the plaintiff has not shown that either of the two defendants has forfeited any of his or its remuneration. In any case I do not think the statement of claim covers the forfeiture of remuneration.

The second contention remaining is that there should be an order for a general account. The plaintiff has not made clear what pre- cisely it means by this claim for relief. As I have already pointed out, the defendant Walter Johnson, as a director and a general manager, is not an accounting party. Under the management agreement up to 12th September 1928 he and Lynn were accounting parties and then, until 16th September 1929, he became one. There- after Johnson &Lynn Ltd. was the accounting party. Under the selling-agency agreement, it had been an accounting party since 12th January 1921. The suggestion is that such a case of dishonest practice has been made out that some form of general inquiry is required into the dealings of the defendant Walter Johnson and Johnson &Lynn Ltd. with the affairs of the Amalgamated Collieries company. If that company by a proceeding in its own name applied for such an account, I think that, subject to the discretion of the court as to the manner of taking the account and the terms upon which it should be ordered, the circumstances are such as, prima facie, to entitle the company to some order which would result

1(1905) 1 K.B., at p. 9. 2(1906) 75 L.J. Ch. 798, at p. 799 ; (1906) 2 Ch. 671. 60 CLR 255

in an inquiry of a judicial nature into the dealings of the managing agents and selling agents, at all events over some portion of the period. The company would be, prima facie, entitled to such relief because there would have been proved a sufficient number of instances of improper dealings on the part of the fiduciary agents, at any rate after the period in which the defendant Walter Johnson undertook the sole direction of the two agencies, to justify an inquiry. The prima facie title of the company itself to relief of the nature stated might be met by evidence that investigation by way of independent audit or inquiry had already been had, putting the company in possession of all the facts and information which the relief is designed to elicit, if that were SO. But in a proceeding by the company, until the contrary appeared, it would be presumed that those respon- sible for the conduct of its affairs bona fide believed that in the interests of the company it was necessary or desirable to invoke the process of the court. The present action, however, is not instituted by the company, and the same considerations do not determine the question whether any general account should be ordered at the suit of a shareholder. The locus standi of a shareholder to obtain the redress of wrongs suffered by the company or the enforcement of liabilities incurred to it by its officers or fiduciary agents or others depends upon what Lord Cottenham described as " the reason why the corporation does not put itself in motion to seek the remedy (Mozley v. Alston 1 ). Its inaction must arise from a control exercised by the directors or a majority of the shareholders not lawfully and bona fide in the supposed interests of the company, but mala fide and for the protection of the person liable in his appro- priation of property or advantages belonging to the company or in his failure to pay what is due to it or otherwise for the furtherance of his interests or for some fraudulent, improper, or ultra-vires pur- pose. The shareholder's ability to maintain an action in such circumstances is described by Lord Davey as "a mere matter of procedure in order to give a remedy for a wrong which otherwise would escape redress (Burland v. Earle 2 ). It is apparent that, when the relief sought by a shareholder is a general account or inquiry

1(1847) 1 Ph. 790, at p. 800 41 E.R. 833, at p. 837. 2(1902) A.C., at p. 93. 60 CLR 256

for the purpose of investigating the dealings of an agent of the com- pany who has been shown in particular instances to have been guilty of improprieties, a determining consideration in granting or refusing the relief would be the court's view of the conduct of the board of directors in relation to the accounting party. If it appeared that at the time of the action the directors were not stifling investigation where it was demanded, were not refusing to cause examination and inquiry where ordinary prudence suggested that a scrutiny of past dealings should be made, and were not guided by a desire to assist in the suppression of further improprieties where they might be suspected or feared, the court might refuse a general account, notwithstanding that in respect of one or more specific matters the plaintiff had shown a state of affairs giving him a locus standi to put the company's rights in suit. But it is just at this point that, owing to the course taken by the parties, the court is left almost entirely in the dark. Whether after the matters dealt with earlier in this judgment became known to the directors of the Amalgamated Collieries company any and what steps have been taken by that company to investigate the dealings and transactions of Johnson &Lynn Ltd. with it nowhere appears. The shorthand notes contain some chance references to inquiries by at least one Royal Commission which seems to have touched upon the relations of the companies, and they contain also a statement in argument by counsel that an offer was made on behalf of the Amalgamated Collieries company to allow an inspection of its books by the plaintiff which was not accepted. But no evidence was given that any sufficient investiga- tion of the dealings of Johnson &Lynn Ltd. with the Amalgamated Collieries company had taken place out of court or that facilities for one had been offered. The minute book of the proceedings of directors was put in evidence, but it discloses nothing to suggest that an examination or inquiry was authorized or even mooted. As has already been stated, the whole question of the reason why the company did not put itself in motion to seek redress against the defendants Walter Johnson and Johnson &Lynn Ltd. has been by common consent excluded from pleading and proof in spite of its materiality to the plaintiff's title to maintain the action.

60 CLR 257

The claim to a general account was added by amendment at the trial, but none of the defendants was denied an opportunity to raise or prove any matter which might be considered to be made relevant by the amendment or to have become important. No objection, however, was taken that, until proof of some wrongful conduct on the part of those in control of the company in failing to seek an account, no order for a general account should be made at the suit of the plaintiff.

In all these circumstances it is not easy to decide what course the court should take in exercising what in some measure is a dis- cretionary power. But the facts which have been proved or admitted in reference to the misapplication of the £2,000 on 25th October 1928, the charging prospectively and retrospectively of 2s. 6d. a ton on coal sold to the harbour authorities and the sale of the Ravensthorpe mining machinery to the company, when considered with the commissions taken on the purchase of commodities and the unfair allocation of rates, power, lighting and water charges and office expenditure, leave me with a strong impres- sion that the interests of the Amalgamated Collieries company and its shareholders call for an inquiry into the dealings of the agents under the sales-management agreement and the selling-agency agree- ment since, on the death of Lynn, Walter Johnson took control.

To take a general account of those dealings before the Master in the ordinary way would, I think, involve a very cumbersome and, perhaps, an oppressive proceeding, a great part of which would serve little or no useful purpose. Special directions given under Order XXXII., rule 3, of the Rules of the Supreme Court of Western Aus- tralia might, perhaps, be framed which would lessen this difficulty. But the case appears to be one where the power given by sec. 50 of the Supreme Court Act 1935 might suitably be exercised. I should be disposed for my part to refer to a qualified auditor and accountant to be appointed by the court for inquiry and report the question whether in the course of, in connection with, in consequence of, or incidentally to, the execution of the powers, duties and func- tions (a) belonging to them under the management agreement, the defendant Walter Johnson from 12th September 1928 until 16th September 1929 and the defendant Johnson &Lynn Ltd. thereafter,

60 CLR 258

and (b) belonging to the defendant Johnson &Lynn Ltd. under the selling-agency agreement after 16th September 1928, those defen- dants or either of them have obtained, received, retained or procured any moneys, credits or other benefits to which such defendants or defendant were not entitled as against the Amalgamated Collieries Co.

company without duly accounting therefor to the company, except the matters specifically dealt with by the declarations and orders con- tained in the judgment of the Chief Justice of Western Australia. If this course were adopted, directions might be given authorizing the referee to take an account or accounts if he thought necessary but without verification or vouching except where for special reasons he should SO direct and, in any case, to proceed by an inspection and examination of the books of account of the three defendants, which should be prima facie evidence of the matters therein contained. The referee should be appointed from among persons proposed by the respective parties, and the order should authorize him to take evidence on oath and require the attendance of witnesses and the production of documents. The report would be made to the Supreme Court, to which the cause would be remitted to deal with all questions arising thereout, including any question depending on lapse of time in relation to any fresh liability disclosed.

Subject to such an order, I think that the result of the appeal and cross-appeal should be as follows :-

60 CLR 259

is appointed, I would also vary the orders for the particular accounts by substituting him for the Master as the person to take them.

The question of costs is one of difficulty. On the whole, I think the best exercise of our discretion, having regard to the extent to which each side should, in my opinion, fail and succeed in the appeal, is to make no order as to the costs of the appeal. The costs of all further proceedings would, of course, be disposed of by the Supreme Court.

McTIERNAN J. I agree that the appeal should be allowed in part and that the cross-appeal should be allowed in part, and that the judgment of the Chief Justice of Western Australia should be varied in the manner stated in the order to be read by the Chief Justice. The judgments of the Chief Justice and my brother Dixon have elaborately dealt with all the questions with which the appeal and cross-appeal are concerned, and the divergence between them is not such as leads them to different conclusions as to the order to be made. There is nothing that can be usefully added, and, as I agree substantially with the reasons of my brother Dixon, it is not necessary for me to add another judgment to the two preceding judgments, which are necessarily lengthy.

LATHAM C.J. The members of the court all think that the circum- stances of this case show that the very divergent interests of the various parties to the suit have this at least in common: their interests will, although for different reasons, be much better served than they would by proceedings in the Master's office, if a skilled auditor and accountant be appointed as referee with sufficient power to make an adequate investigation of the matters which, according to our decision, must be inquired into. During the hearing of the appeal in Perth we suggested the possibility of it becoming desirable to appoint such a referee, but it appeared that some difficulty in the selection of an acceptable person was apprehended.

The minutes of an order will be read which the court is prepared to make in default of immediate agreement by the parties upon a person or upon some other course. But we all think that it is desirable to afford the parties an opportunity both of agreeing upon

60 CLR 260

the referee and of speaking to the minutes before they are pronounced as a final decree.

At some suitable time and place the court will hear the parties upon the form of decree and will be prepared to adjourn into chambers the discussion of any details which the parties would prefer to deal with in chambers.

Allow appeal in part. Allow cross-appeal in part. Judg-

ment of Northmore C.J. varied as follows :-(a) In the declaration contained in the judgment relating to the commission charged on coal supplied to the Fremantle, Bunbury and Geraldton Harbour Works and the Fremantle Harbour Trust insert the words or retained by after the word "to" and before the words "the defendants Walter Johnson and Johnson &Lynn Ltd." (b) Dis- charge that part of the judgment which orders pay- ment to the defendant Amalgamated Collieries of W.A. Ltd. of the sum of £2,000 with interest (being the sum found to have been misapplied on or about 25th October 1928). (c) Discharge that part of the judg- ment which orders an inquiry and account in respect of rent, electric light and power, water and municipal rates, stationery, cleaning and clerical work cast upon the defendant, Amalgamated Collieries of W.A. Ltd., and orders payment of the amount found due. Order that a qualified auditor and accountant be appointed under sec. 50 of the Supreme Court Act 1935 (W.A.) as a referee to inquire into and report upon the matters hereinafter referred to him. Let such referee be chosen by the agreement of the parties, or, in default of their agreement, by the Supreme Court and let the parties be at liberty to propose the names of qualified persons ready and willing to act as such referee. Let the rate and method of remuneration of such referee be agreed between him and the parties, or, in default of agreement with him by both parties, let the same be prescribed in the order appointing him and let the total amount thereof be fixed on the completion of the reference by or under an order of the Supreme Court. Let the plaintiff appellant in the first instance be responsible to the referee for payment of

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such remuneration and let the plaintiff during the course of such reference make such periodical or other payments to the referee on account of remuneration as the Supreme Court may direct by the order of appointing him or by orders made from time to time. Let the remuneration of the referee SO paid form part of the costs of the reference and be subject to the reservation herein contained of costs for the Supreme Court. Refer to such referee the taking of the accounts and the making of the inquiries which by the judgment of Northmore C.J. as hereinbefore varied are ordered to be taken before the Master and let the said judgment be varied accordingly by substituting such referee for the Master. Refer to such referee for inquiry and report the question whether in the course of in connection with in consequence of or incidentally to the execution of the powers, duties and functions which under the "management agreement" belonged to the defendant Walter Johnson from 12th September 1928 until 16th September 1929 and belonged thereafter to the defendant Johnson &Lynn Ltd., and of those which under the "selling-agency agreement " belonged to Johnson &Lynn Ltd., those defendants or either of them have since 12th September 1928 obtained, received retained or procured any moneys, credits or other benefits to which such defendants were not or such defendant was not entitled as against Amalgamated Collieries of W.A. Ltd. without duly accounting therefor to such company; excepting, however, the matters specifi- cally dealt with by the declarations and orders contained in the judgment of the Chief Justice as hereinbefore varied. Let the referee be at liberty for the purpose of such refer- ence to take such account or accounts as he may think necessary and to give any directions to the parties or either of them as to bringing in accounts or otherwise that may appear desirable or requisite for the proper taking of such accounts. Let the accounts ordered to be taken by the judgment of Northmore C.J. as hereinbefore varied and any account directed by the referee be taken without verification or vouching except in so far as for any reason the referee shall otherwise direct and both in

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the taking of accounts and in carrying out the reference let the referee proceed by inspection and examination of the books of account and documents of the defendants Walter Johnson and Johnson &Lynn Ltd., and Amalgamated Collieries of W.A. Ltd., and let such books and docu- ments be treated as prima-facie evidence of the matters therein contained. Let the referee for the purpose of the matters and accounts referred to him be empowered to take evidence on oath and to require the attendance of witnesses and have and exercise the powers which are or may be conferred by law on a refereee appointed under sec. 50