9911796707
TMI Blog1962 (6) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ter to Lord Rothermere. It is then suggested that the men accepted the offer of compensation by continuing to work, and so became legally entitled to it. I cannot accept this submission. The whole thinking of the defendants over the previous months had been along the lines that any payment to the men beyond their legal entitlement was to be ex gratia , and the last thing they ever intended to do was to create any legal obligation to make the payment. In his statement at the meetings Mr. Crosfield was, in my judgment, saying no more than this: "We have no legal obligation to pay compensation, but nevertheless we propose to pay it, and the extent to which you will benefit depends on your co-operation in the takeover." Moreover, there is no evidence that any employee did anything that he was not already bound by his contract of employment to do, on the strength of any promise made on the Daily News side. Accordingly I reject this plea. The next matter I propose to consider is the defendants' plea that the defendant company is contractually bound to Associated Newspapers to make the payment. In the first place it is, in my opinion, clear that before October 6, 1960, there was no c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e position in law would have been any different and if so, in what respects. It is the plaintiff's submission that in these circumstances the proposed payment of compensation is gratuitous and ultra vires the defendant company. Mr. Finer, on behalf of the plaintiff, referred me to a large number of authorities, but it will be sufficient for me to refer to two or three of them. The first is the well-known case of Hutton v. West Cork Railway Co. [1883] 23 Ch. D. 654 CA. That was a case where a company had transferred its undertaking to another company and was going to be wound up. After completion of the transfer, a general meeting of the transferor company Was held at which a resolution was passed to apply (among other sums) a sum of 1,000 guineas in compensating certain paid officials of the company for their loss of employment, although they had no legal claim for compensation. It was held by the Court of Appeal (Baggallay L.J. dissenting) that the resolution was invalid, as the company was no longer a going concern and only existed for the purpose of winding up. On the facts, of course, it differs from the present case in that (among other things) here the defendant compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s going to be spent is not the money of the majority. That is clear. It is the money of the company, and the majority want to spend it. What would be the natural limit of their power to do so ? They can only spend money which is not theirs but the company's, if they are spending it for the purposes which are reasonably incidental to the carrying on of the business of the company. That is the general doctrine. Bona fide s cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company, and paying away its money with both hands in a manner perfectly bona fide yet perfectly irrational. The test must be what is reasonably incidental to, and within the reasonable scope of carrying oh, the business of the company. Applying that kind of view, what is the character of these payments ? First of all, I ask myself what is the kind of touchstone or test to apply if the company was an ordinary going concern ; and, secondly, whether this company is still in the same position as an ordinary railway, or whether it has not become a railway company of a very limited kind, a business adventure of a very exceptional sort, and its business contracted accordingly wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral dealing with servants eases the friction between masters and servants, and is, in the end, a benefit to the company. It is not charity sitting at the board of directors, because as it seems to me charity has no business to sit at boards of directors qua charity. There is, however,.a kind of charitable dealing which is for the interest of those who practice it, and to that extent and in that garb (I admit not a very philanthropic garb) charity may sit at the board, but for no other purpose." Then a little later Bowen L. J. repeats [1883] 23 Ch. D. 654,674: "the ultimate test is not bona fide s, but what is necessary for carrying on business. That is the test which Fry L.J. has not applied to this case. Such is the general view of the law I should take about a company which was a going concern. Now let us see whether this company is a going concern in the same sense, and whether we have the same limit with regard to the payment of money." After considering that matter Bowen L.J. said: "Compensation, and gratuity for past services generally, without reference to such services as were rendered during the winding up, can no longer be charges or expenditure reasonably incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a company at a time when it was a going concern by which it granted a pension of 500 per annum to the widow of a former managing director. Eve J. said [1932] 2 Ch. 46; 51; [1932] 2 Comp. Cas. 588,591: "But whether they be made under an express or implied power, all such grants involve an expenditure of the company's money, and that money can only be spent for purposes reasonably incidental to the carrying on of the company's business, and the validity of such grants is to be tested, as is shown in all the authorities, by the answers to three pertinent questions: ( i ) Is the transaction reasonably incidental to the carrying on of the company's business? ( ii ) Is it a bona fide transaction? and ( iii ) Is it done for the benefit and to promote the prosperity of the company ?" In the event, the conclusion (or one of the conclusions) which Eve J. reached is [1932] 2 Ch. 46; 52; [1932] 2 Comp. Cas. 588 ,592: " The conclusion to which in my opinion such evidence as is available irresistibly points is that the predominant, if not the only, considerations operating in the minds of the directors, was a desire to provide for the applicant, and that the question what, if any, benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking of the one to the other, the purchasing company agreed to pay, in addition to the sum payable to the selling company, a substantial sum to the directors of the selling company as compensation for loss of office, and the agreement was made conditional upon its adoption by the shareholders of the selling company. The notice convening the meeting of shareholders to consider the agreement described it simply as an agreement for the sale of the undertaking. The selling company was governed by the Companies Clauses Act, 1845 : "Held, (1) that the provision in favour of the directors did not render the agreement ultra vires , but (2) that the notice, by reason of its omission to refer to this provision, did not fairly disclose the purpose for which the meeting was convened, and did not comply with section 71 of the Companies Clauses Act. Per Vaughan Williams L.J.: Semble, if the money payable under this agreement to the directors was a bonus to them in consideration of their facilitating the contract, the agreement would not be binding upon a dissentient shareholder." I am not at the moment concerned with the question of the sufficiency of the notice, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do so. It has been strenuously contended that it is an agreement ultra vires and an illegal agreement an agreement illegal in the sense that the company cannot enter into it even if the shareholders, wish it. I am not prepared to say that. I do not think there is any principle of law or any authority which goes that length. If the shareholders of the selling company choose on proper notice to confirm this agreement, I cannot conceive why they should not. Observe what it is. It is an agreement for the sale of the company's property upon terms which may or may not be advantageous. It cannot be fairly regarded as a mere agreement to pay the directors a certain sum of money. It is not like the case of Hutton v. West Cork Railway Co. 23 Ch. D. 654 , where there was nothing to be done except to vote remuneration for the directors, and the company being wound up, the court said that that could not be done. The broad question to be considered here is whether, having regard even to that clause about payment of directors, the terms upon which it is proposed to sell the business of the Croydon Tramways Co. are not so advantageous as that a majority of shareholders at a properly con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res or not, I have not a word to add." But the Lord Justice then went on to say that the expression might be used in different senses. He said: "It is plain that if you speak of something as being ultra vires of the company, and something else as being ultra vires of the directors or officers of the company, you have not exhausted all the possible cases, because there is another case which may arise, and frequently does arise, that is to say, the majority of the shareholders meet together, and they by resolution purport to bind the minority to do something as to which it is not competent for the majority to bind the minority. Now, such a resolution is not ultra vires in the sense in which that word is properly used it is not ultra vires in the sense in which counsel for the plaintiff asked us to say that the words of sections 85 and 86 of the Companies Clauses Act made this resolution ultra vires , because when anything is ultra vires in that sense the vote of all the shareholders, every one of them who were present assenting, would not make the matter one which it was competent for the company to carry through. There is another sense in which it might be said that a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding the case upon another ground, that is to say, upon the ground that the company there had already gone into liquidation, do one and all affirm this proposition which I have been attempting to state here that is, that there are matters which are intra vires, but yet are of such a character that the majority cannot bind the minority, even though the notice might itself be in due form." The report of the case concludes with this postscript: " It was arranged that in the event of the agreement being sanctioned by a further meeting of the shareholders the money payable to the directors of the selling company should be paid into court." Sir Milner Holland points out that in Kaye v. Croydon Tramways Co. [1898] 1 Ch. 358 the contract was conditional on the approval of the shareholders; they could approve or disapprove. When the matter came before the court, the company was not contractually bound unless the members approved the terms. He submits that there, as here, the plaintiff was asking the court to say that the shareholders could not approve the contract because it would be ultra vires , in that it involved giving away some part of the purchase price to persons who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y judgment, provide its own justification. At this point Mr. Finer submits (in my view rightly) that the onus is on the defendants to justify the proposed payment of compensation on Lee Behrens's case ( supra ) principles if they can; that no defence on these lines has been pleaded (subject to paragraph 19, which I will deal with in a moment), and that the defendants have not really attempted to discharge the onus which would have been on them had the matter been raised by the defence. He points to the fact that, apart from Mr. Crosfield, no director of the defendant company was called to give evidence. Mr. Finer submits that in a case of this sort where the plaintiff had no independent knowledge of the matters in issue, the defendants should be held strictly to their pleading. In my judgment this is to a large extent a valid point, but at the same time I think that I ought to state my findings of fact on the question of motive first because Sir Milner Holland's argument on the question of ultra vires , if correct, is, I think, brutum fulmen unless it is demonstrated that the arrangement made by the defendants was made in order to benefit the company. As I have just said, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am not satisfied that the decision to distribute this enormous sum of money was taken simply in the interests of the company as it would remain after the transfer of the newspaper enterprise. That the decision to dispose of the newspaper business before it became insolvent, so as to leave the other assets intact, was a decision taken in the interests of the shareholders I have no doubt. But the decision embodied in the formula, and I quote it again : "Subject to the inevitable costs arising to devote the whole of the purchase price to our stafi and pensioners by giving compensation or pension benefits as well as the notice money that every employee will receive" was a different decision which was, in my judgment, motivated by other considerations. Predominant among such other considerations was, I think, the desire to treat the employees generously, beyond all entitlement, and to appear to have done so. I reach this conclusion not only from a perusal of the correspondence and other documents that I have already read but also from the evidence given in the witness-box, limited as it was, and it is right that I should give one or two instances which I have not hitherto mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
