Peninsular and Oriental Steam Navigation Co v Johnson

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

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

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

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