Wheal Ellen Gold Mining Company v Read - [1908] HCA 58

THE WHEAL ELLEN GOLD MINING

COMPANY, NO LIABILITY READ Company-Promoter - who is-Secret profits-Amount recoverable.

One who brings a company into existence by taking an active part in form- MELBOURNE,

ing it or in procuring persons to join it as soon as it is technically formed is Sept. 4, 5, 7,

a promoter of the company.

In an action by a mining company against the defendant to recover the profit made by him as a promoter of the company, which profit had not been disclosed to the directors or to the shareholders,

Held that, on the evidence, the defendant was a promoter, and that the company was entitled to recover from him his net gain from the transaction as a whole, including the value when issued of shares in the company issued to him which had become worthless, but not including money paid, and shares issued, to him, and paid and transferred by him to others for services rendered him in the formation of the company.

7 CLR 35

TRIAL of action.

The plaintiffs, the Wheal Ellen Gold Mining Co., No Liability, a company formed and registered in Victoria to purchase and work a gold mine in Western Australia, brought an action in the High Court against the defendant, James Stroud No Read, a resident of Perth, Western Australia, the only claim which was tried being one to recover the secret profits made by the defendant as a promoter of the company on the sale of the mine to the company, and interest thereon.

The action was heard before Higgins J. The facts and arguments sufficiently appear in the judgment hereunder.

Starke, for the plaintiffs. Duffy K.C. (with him Woolf), for the defendant. The following authorities were referred to during argument :- Manson's Law of Trading Companies, p. 53 In re Coal Economizing Gas Co. Gover's Case 1; In re Cape Breton Co.; Cavendish-Bentinck v. Fenn 2; Ladywell Mining Co. V. Brookes 3; Burland v. Earle 4; In re Olympia Ltd.; Gluck- stein v. Barnes 5 In re Lady Forrest (Murchison) Gold Mine Ltd. 6 In re Leeds and Hanley Theatres of Varieties Ltd. 7; Seddon v. North Eastern Salt Co. Ltd. 8; Glass v. Pioneer Rubber Works of Australia Ltd. 9; In re Caerphilly Colliery Co.; Pearson's Case 10; Buckley on Companies, 6th ed., p. 410; In re North Australian Territory Co.; Archer's Case 11.

Our. adv. vult.

HIGGINS J. read the following judgment :- This action is brought by a Victorian gold mining company formed to work a mine in Western Australia; and the defendant

11 Ch. D., 182. 229 Ch. D., 795. 335 Ch. D., 400. 4(1902) A.C., 83, at p. 98. 5(1898) 2 Ch., 153 ; (1900) A.C., 6(1901) 1 Ch., 582. 7(1902) 2 Ch., 809. 8(1905) 1 Ch., 326. 9(1906) V.L.R., 754 ; 28 A.L.T., 105 Ch. D., 336. 240, at p. 249.

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1908] HCA 58
Decision Date: 18 September 1908

CaseChat Overview and Summary

The High Court of Australia heard an action brought by the Wheal Ellen Gold Mining Company, No Liability, against James Stroud Read. The company sought to recover secret profits allegedly made by the defendant as a promoter of the company in connection with the sale of a gold mine to the company. The claim for damages for false representation and rescission of the contract had been abandoned, leaving only the claim for undisclosed profits.

The legal issues before the court were whether the defendant qualified as a promoter of the company and, if so, the extent of the company's entitlement to recover the profits made by the defendant that had not been disclosed to the company's directors or shareholders. The court was required to determine the net gain made by the defendant from the transaction as a whole, considering all amounts paid and received, including the value of shares issued to him.

Higgins J. found that the defendant was indeed a promoter of the company, having taken an active part in its formation and procurement of members. The court reasoned that a promoter owes a fiduciary duty to the company and must disclose any profits made. The defendant was held liable to account for his net gain from the transaction. This included the value of shares issued to him that became worthless, but excluded money paid and shares transferred by him to others for services rendered in the company's formation. The court ordered the defendant to pay the company £750, representing his net profit, with interest, and also awarded costs to the company, with a partial exception for costs related to the abandoned claims.

Orders