[COURT OF APPEAL]

HUTTON v. WEST CORK RAILWAY COMPANY.

[1883 H. 918.]

Company - Management - Powers of General Meeting - Gratuities to Servants - Remuneration to Directors for past Services - Companies Clauses Act, 1845 (8 & 9 Vict. c. 16), ss. 67, 90, 91 [Revised Ed. Statutes, vol. ix. pp. 576, 580].

A company carrying on business has power, by the vote of a general meeting, to expend a portion of its funds in gratuities to servants or directors, provided such grants are made for the purpose of advancing the interests of the company. But this does not apply to a case where the company has transferred its undertaking to another company and is being wound up.

A railway company which had no provision in its articles for paying remuneration to directors, and had never paid any, sold its undertaking to another company at a price to be determined by an arbitrator. By the Act authorizing the transfer it was provided that on the completion of the transfer the company should be dissolved except for the purpose of regulating their internal affairs and winding up the same and of dividing the purchase-money. The purchase-money was to be applied in paying the costs of the arbitration and in paying off any revenue debts or charges of the company, and the residue was to be divided among the debenture holders and shareholders. After the completion of the transfer a general meeting of the company was held at which a resolution was passed to apply £1050 of the purchase-money in compensating the paid officials of the company for their loss of employment, although they had no legal claim for any compensation, and £1500 in remuneration to the directors for their past services:-

Held, by the Court of Appeal (dissentiente Baggallay, L.J.), that the resolution was invalid, as the company was no longer a going concern, and only existed for the purpose of winding-up.

Hampson v. Price's Patent Candle Company (1) and Taunton v. Royal Insurance Company (2) distinguished.

Per BAGGALLAY, L.J.:- The vote was within the powers of the company as it still retained the power of regulating its internal affairs.

Per FRY, J.:- Remuneration for past services of directors cannot be voted at an ordinary general meeting unless special notice be given of the intention to propose such a resolution.

BY the Act 42 & 43 Vict. c. clxxxvii. (Cork and Kinsale Junction, Cork and Bandon, West Cork and Ilen Valley Railways Act,1879), the Cork and Bandon railway Company was empowered to purchase the undertaking of the West Cork Railway Company

(1) 24 W. R. 754.

(2) 2 H. & M. 135.

at a price to be fixed by arbitration. The sections referred to in the argument were as follows:-

Sect 5. For the purposes of this Act and of the West Corktransfer the undertaking of the West Cork Company shall consist of and be deemed to include their railway, stations, sidings, approaches, buildings, machinery, stores, plant .... and all the land and all other property, estate, moneys, and assets, with real or personal rights, powers, authorities, privileges, obligations, contracts, and liabilities, which on the 1st of January, 1880, belong or attach to or are vested in the West Cork Company (except cash in hand or with bankers, book debts, credits, and sums received or due on credit or revenue account, and except any profits then to be divided, and except the amount of the West Cork purchase-money hereinafter mentioned). ... Provided always, that the Bandon Company shall not, nor shall the undertaking of the West Cork Company, after the West Cork transfer, be or continue in any way subject or liable to any claims or demands whatsoever on the part of any of the mortgagees or other creditors of the West Cork Company, or of any other persons or person in respect of any bond, mortgage, debenture, stock, share, or other security or debt whatsoever of the West Cork Company, but the same shall be paid and discharged in each case by the West Cork Company prior to the dissolution of that company as hereinafter provided.

Sect. 12. The West Cork Company shall apply the amount of the West Cork purchase-money received by them from the Bandon Company to the following purposes in the following manner, that is to say:-

(c.) with respect to each such class by the arbitrator, but so that whilst the holders in each such class shall have distributed among them some part of the said balance of purchase-money, the arbitrator shall have regard to the priorities of the respective classes of holders.

Sect. 14. From and after the completion of the West Corktransfer, and the payment to them of the West Cork purchase-money, the West Cork Company shall be dissolved, excepting for the purpose of regulating their internal affairs, and winding up the same, and of applying the said purchase-money in accordance with the provisions of this Act.

At the time when this Act passed the West Cork Company was being worked under a scheme of arrangement sanctioned by the Court of Chancery on the 31st of May, 1873, whereby certain classes of debenture stock were created for the purpose of paying off the existing liabilities of the company, and it was provided that the holders of the debenture stock should vote at all general meetings of the company, and should have one vote for every £100.

The arbitrator appointed under the Act fixed the price for the purchase of the undertaking at £141,934, which was paid to the directors of the West Cork Company; and the directors then summoned a general meeting of the company, notice of which was given in the following terms:

"Notice is hereby given that a general meeting of the proprietors of the West Cork Railway Company will be held at the company's offices on Monday, the 26th of February, 1883, at two P.M., for the purpose of receiving the directors' report and statement of accounts and for the transaction of general business."

The report of the directors contained a paragraph which so far as material was as follows: "The directors propose with the view of enabling the proprietors to receive a final payment without delay, to take over the sum of £4000, out of which they will provide for certain law costs (which were specified in the report) and any further establishment expenses, retaining the balance for compensating the company's officials and their own remuneration."

The meeting had been duly advertised, the advertisement being

in the same form as the notice appended to the report, and a resolution had been passed by a large majority at the meeting adopting the report of the directors and authorizing the proposed application of the £4000.

The directors proposed to apply £1050, part of the reserved sum of £4000, in compensating the managing director and other paid officers of the company for the loss of their employment, and the remainder (after payment of the law costs and expenses), which they estimated at about £1500, in remuneration for the past services of the directors, who had never received any remuneration.

There was no clause in the company's articles of association authorizing any salary to the directors. The directors had never asked for any remuneration for their services before the transfer; and the paid officers had not complained of any wrongful dismissal.

The present action was brought by a holder of debenture stock of the West Cork Company, who dissented from the resolution, for the purpose of restraining the company from applying the £4000 in the manner proposed. The Plaintiff now moved for an injunction till the hearing. The motion was heard before Mr. Justice Fry on the 15th of March, 1883.

Cookson, Q.C., and Seward Brice, for the motion:-

An ordinary general meeting had no power to vote this remuneration to the directors retrospectively: Dunston v. Imperial Gas Light and Coke Company (1); Companies Clauses Act (8 & 9 Vict. c. 16), ss. 67, 91. At any rate, a more specific notice should have been given to the proprietors that it was intended to ask for a vote for retrospective remuneration of the directors.

Cozens-Hardy, Q.C., and Beale, for the Company:-

The object of the meeting was sufficiently indicated by the notices, and it was within the province of the general meeting to vote retrospective remuneration.

FRY, J., stated the facts, and said:-

It is said in the first place that there is not power in the

(1) 3 B. & Ad. 125.

general meeting to award this sum to the directors at all. It appears that the 91st section of the Companies Clauses Consolidation Act, 1845, provides that one of the powers of the company which shall be exercised only at a general meeting of the company is that of determining the remuneration of the directors: I think therefore that it is plainly competent to a general meeting, if it be duly called, to vote the remuneration of the directors. But it is argued that under the circumstances of this case the general meeting had not that power, because the vote was retrospective and proposed to remunerate the directors not for future but for past services. It appears to me there is nothing whatever to prevent a general meeting from so voting remuneration for past services. To hold otherwise would preclude directors from foregoing their right to remuneration when a company might be in trouble and difficulty, and asserting their moral right to remuneration when the company had become prosperous by reason of their services. Of course if the majority of the shareholders present think it undesirable or improper to vote remuneration for past services, directors can have no claim whatever; but in case the majority think it reasonable and fit to vote a sum of money for past services, it appears to me a matter in which the majority can bind the minority.

Then it is suggested that the power is taken away by this circumstance; that the ultimate balance of the purchase-money is to be distributed amongst the debenture holders, and it is said they are not to be bound by the retrospective action of the general meeting of the company. But the Act subjects them to all the revenue charges and revenue debts, and if the company had the power of voting this remuneration to the directors, that is a revenue debt or a revenue charge. In passing I may observe that it does not appear to me that the payment is confined to those debts or charges of the current year only. I think that any arrears of such debts and charges would be payable before the ultimate sum which would become distributable among the debenture holders could be ascertained. But in the present case there is one circumstance to be observed upon, which makes it more than usually easy to arrive at that conclusion, namely, that by the scheme of arrangement under

which the debenture stock was issued, the debenture stockholders were themselves made capable of voting at general meetings, so that they had a voice in the voting of this charge; and if the Plaintiff had thought fit to attend and persuade his fellow-shareholders and fellow debenture holders, that sum might never have been voted. I think, therefore, that it was within the competence of the general meeting so to vote.

Then arises the second question, which is this: whether the general meeting has so voted as to bind the minority? Now it appears that on the 10th of February an advertisement and a notice of the general meeting were issued referring generally to the directors' report and their statement of accounts, but not stating that it was intended to ask for a vote for retrospective remuneration for the directors. [His Lordship read the notice.] Then the 67th section of the Companies Clauses Consolidation Act, 1845, provides, "No matters except such as are appointed by this or the special Act to be done at an ordinary meeting shall be transacted at any such meeting unless special notice of such matters have been given in the advertisement convening such meeting." The Act does provide for certain matters which are to be done at ordinary meetings; as for instance, the election of directors and the appointment of auditors, and I have no doubt that there are other matters specially provided to be done at ordinary meetings. But the Act does not provide that remuneration of directors shall be voted at an ordinary meeting. As I have already pointed out the 91st section provides that that is a matter to be done at a general meeting, leaving it undetermined whether the general meeting is to be an extraordinary or an ordinary one. I think it is not shewn that this is a matter that can be dealt with without special notice, and I think that the more because in the present case the vote is intended to have a retrospective effect - to remunerate the directors for past services, and this was a vote of more than ordinary importance, determining the final winding-up of the accounts of the company.

There is one other observation which I feel I ought to make, which is this - that the remuneration of the directors is of a particular description in this case, because it is proposed to give

them a sum of £4000, out of which they are to pay the law costs, the compensation to the managing director, and the estimated expense of the winding-up of the company, and therefore the amount of remuneration is uncertain. It appears to me that there is nothing whatever to restrain the company making such a vote. They may make the amount contingent upon events which are brought to their attention, and in the present case it is eminently reasonable that such a vote shall be made, because it would enable the directors to declare a final dividend amongst the shareholders and debenture holders, and prevent a delay which would otherwise be inevitable in the receipt of the money coming to those persons. I think that would be within the competency of a meeting.

I must grant an injunction until the vote be submitted to a general meeting properly called.

C. W. C.

Notice of an extraordinary meeting was accordingly given for the 19th of April, 1883, "for the purpose of passing resolutions relating to the application of a sum of £4000 mentioned in the directors' report of February, 1883, as proposed to be retained by them to provide for payment of law costs and establishment expenses and the compensation of officials and remuneration of directors, thereby enabling them to divide the ultimate balance and for the determination of such remuneration accordingly."

At this meeting the resolution proposed by the directors was carried by a large majority.

The Plaintiff appealed from the decision of Mr. Justice Fry.

The appeal was heard on the 29th of May, 1883.

Cookson, Q.C., and Seward Brice, for the Appellant:-

We are entitled to an injunction notwithstanding the resolution passed at the recent meeting of the company. A general meeting whether ordinary or extraordinary has no power to expend the money of the company in the manner proposed. With respect to the remuneration to the directors it might have been given them by a formal vote under the 91st section of the Companies Clauses Act while the company was a going concern; but this was

never done, and the directors volunteered to give their services gratuitously. It is too late now when the company has ceased to carry on business to grant remuneration for past services: Dunston v. Imperial Gas Light and Coke Company (1). By the 14th section of the Act of 1879 the company has ceased to exist except for the purpose of winding-up. The 12th section limits the objects for which the company can now apply the funds, and this is not one of them.

The same objection applies to the grant for compensation to the officers who have lost their employment by the transfer of the undertaking. They received the proper notice for the termination of their services and are entitled to no compensation at all. Neither this nor the remuneration to the directors is a revenue debt or charge within the meaning of the 12th section of the Act of 1879.

If the vote of £1050 for the officials is void it follows that the vote for the directors is void also; for it was the residue of the sum of £4000 after satisfying the costs and the vote for the officials, and it could not have been intended that if the vote for the officials failed the directors were to have the whole sum except the costs.

Cozens-Hardy, Q.C., and Beale, for the Company:-

If the company had been carrying on business in an ordinary way there would have been no question that these payments would have been within their power. A company has always power to remunerate its directors for past services and to make gratuities to its officers or servants; indeed where the remuneration is not provided for by the articles the grant to the directors for the past year must be retrospective: Lambert v. Northern Railway of Buenos Ayres Company (2); Hampson v. Price's Patent Candle Company (3); Taunton v. Royal Insurance Company (4). The only question would have been whether the vote was made bon‰ fide.There has been nothing in the present case to deprive the company of this power. Under the express words of the 14th section

(1) 3 B. & Ad. 125.

(2) 18 W. R. 180.

(3) 24 W. R. 754; 45 L. J. (Ch.) 437.

(4) 2 H. & M. 135.

of the Act of 1879 the company still exists for the purpose of "regulating its internal affairs." There is a great deal of business still to be done before the winding-up is completed, and the remuneration to the directors had reference to their services in the winding-up, which is still going on, as well as to their past services. The remuneration to the directors is a "revenue charge" within the meaning of the 12th section. The expression refers to the Railways Regulation Act, 1868. If the vote for the officials fails the vote for the directors may stand. The resolution is divisible: the officials were to have £1050 and the directors £1500 or thereabouts.

Seward Brice, in reply.

COTTON, L.J. :-

This is an application by way of appeal from Lord Justice Fryfor an injunction to restrain the Defendant company from dealing with a sum of £4000 in accordance with a certain resolution that was passed at a general meeting of the company on the 19th of April last. Lord Justice Fry had in the then state of things granted an injunction because no meeting had been called at which a resolution could be passed in accordance with what he thought were the powers of the company in general meeting assembled; but he intimated an opinion, adversely to the present Appellant, that if a meeting were duly called and a resolution duly passed that meeting would have power to deal with the £4000 in the way in which it has been proposed by the resolution to deal with it. The Plaintiff now applies by way of appeal for an extended injunction, the injunction of Lord Justice Fry being only until a resolution was passed by a general meeting authorizing the application of the money.

The case is this, the West Cork Railway Company, who are the Defendants, are a company who under an Act of Parliament have sold their undertaking to the Bandon Railway Companyand received as the purchase-money a sum settled by arbitration at £141,934. One of the sections of the Act of Parliament, sect. 12, upon which the question mainly turns, was a section which provided how that sum of money was to be dealt with when

it was paid by the Bandon Railway Company, and the real question is - whether, having regard to that section, it was in the power of a general meeting to direct that the £4000 should be applied in the way proposed. It is not necessary, I think, to go in great detail into the sections of this Act of Parliament, some of them are not very intelligible. [His Lordship read the 5th section, and proceeded:-] It is clear that the proviso in this section contemplates that there will be some money debts which shall not be undertaken by the purchasing company - the Bandon Company - but shall be paid by the West Cork Company and shall be paid prior to its dissolution. In my opinion the probable meaning of the proviso is that all debts for a sum certain, including claims for damages established by judgment before the 1st of January, 1880, were to be paid by the West Cork Company;but other liabilities, including claims for damages not established by judgment before that day, were to be undertaken by the purchasers, the Bandon Company.

But then we come to the 12th and 14th sections. [His Lordship read the sections.] What has been proposed to be done is this: There was a sum of £4000 which was set apart, and it was proposed that out of that certain costs should be paid, and then out of the balance it was estimated that there would be enough to give £1050 as compensation to the managing director and other officials, and then that there should be a sum paid to the directors which was estimated to amount to about £1500. The question is whether that can or ought to be done under this resolution.

As I understand, the state of things has been this:- The officials for whom the £1050 is proposed to provide were paid as long as they continued in the service of the company, and there is no evidence at all that they made any claim for a discharge without due notice, or that they have any legal claim against the company for not being continued in receipt of their salaries. It must be dealt with upon that footing. Therefore, as regards them, this sum of £1050 must, in my opinion, be considered not as a payment made to them in respect of any legal claim which they have as against the West Cork Company, but simply as a gratuity to them for their not being continued in the receipt of that

remuneration which, had the company lasted, and had they continued in its service, they would have received.

Then, as regards the directors, the matter stands on a somewhat different footing. The present directors apparently have never received any remuneration at all for their services whilst the company was carrying on the undertaking, and before the Bandon Company took possession of the railway. The evidence, I think, is that neither the present nor any other directors of the company ever did receive anything, and there is no evidence that there was any resolution in any way fixing the remuneration to be paid to the directors.

Under those circumstances there are two matters to be considered. Of course there can be no objection at all to so much of the resolution as provides for payment of the costs and expenses which are to be provided for out of the £4000. But can the resolution be considered as intra vires as regards the two other matters? I will take first that which provides for compensation to the managing director and other officials. It was said that it is within the powers of the directors of a trading or business company to grant gratuities to its servants, and that this case comes within that principle, as the directors of this company retained such powers as were incident to a company of this kind, notwithstanding that its railway had been handed over to the purchasing company - the Bandon Company. I think that the directors did continue to have powers, so far as they were necessary for or incidental to the winding-up of the company. But, in my opinion, they had not such powers as only are impliedly given to general meetings or to directors because they are carrying on a business for the purpose of carrying on its business, and for the purpose of making a profit from it. Cases were referred to in which the late Master of the Rolls and Vice-Chancellor Woodhad determined that matters which were not under the powers expressly given to the directors or the general meeting were within the powers of the directors of a going concern. One was Taunton v. Royal Insurance Company (1), where it was held that an insurance company might pay losses arising from lightning, which were not within the loss which they professed to insure

(1) 2 H. & M. 135.

against; and the other case, Hampson v. Price's Patent Candle Company (1), where the Master of the Rolls held that the directors of Price's Patent Candle Company were at liberty to make, and could not be restrained from making, a gratuity to their servants when there had been a very good year, by giving each of them who was in their service and was of good character a gratuity equal to a week's wages. In my opinion those cases went on a principle which is not applicable to the existing state of this company, from the time when it handed over its railway to another company, and existed only for the purpose of winding-up the concern. The principle of those cases, as I understand, is this, that where there are directors of a trading company, those directors necessarily have incidentally the power of doing that which is ordinarily and reasonably done in every such business, with a view to getting either better work from their servants, or with a view to attract customers to them, as in the case of an insurance company. In the last-mentioned case the Master of the Rolls refers to this - that although it is said that nothing of this kind is to be expected again, yet when such a gratuity is given to servants in a good year, the servants then in the company's service, whom the directors may reasonably expect to stay, naturally look forward, not as a matter of right but as a matter of liberality, to this, that they will probably be dealt with in a similar way if by their exertions they get a good profit, and that, therefore, that was a reasonable mode of carrying on the business of the company for the purpose of making it most profitable. But that assumes that it is a going concern, that it is a continuing business, and it is with reference to the effect upon the continuing business that the directors are said to have that power incidentally. And so in the case before Vice-Chancellor Wood. There it was shewn that what the insurance company did was a reasonable way of conducting the business of an insurance office, in order to attract customers, by paying losses which were not strictly within the terms of the policy, and therefore could not be said to be legally enforceable against the company. But here the company was gone as a company carrying on business for the purpose of making profit, and the sums paid, therefore, to its officials and managing directors, could not be

(1) 24 W. R. 754.

looked upon as an inducement to them to exert themselves in future, or as an act done reasonably for the purpose of getting the greatest profit from the business of the company, but must be looked upon simply as a gratuity, perhaps reasonable in itself, but without any prospect of its in any way reasonably conducing to the benefit of the company. In my opinion, therefore, under these circumstances, neither the directors nor the general meeting had any power in the circumstances which are before us, as I understand the facts of the case, of granting that compensation to the officials and other servants.

Then comes the question as to the directors. I was not quite satisfied that the vote for compensation to the officials would not alone prevent this resolution from being acted upon, because I have some little doubt whether the £1050 is a sum set apart for compensation, or whether the whole thing is a sort of estimate which was made. There was a good deal in what Mr. Cooksonargued that if the £1050 was a sum which the persons invited to the meeting had to look upon as one which could lawfully be granted, they might have thought it not worth while to come and oppose the grant to the directors. I am not at all satisfied that the Court would sanction it if it had been voted in this way - take a sum of £4000, out of that pay certain expenses the amount of which can only be estimated, and then let the remainder be distributed amongst the directors by way of remuneration in a case where remuneration could be granted to them of an amount reasonably suitable for the services which they had rendered. It might be quite right to say that if the services were estimated at £1500 they should have any sum not exceeding £1500 out of the balance of the sum provided. But I do not think that if it ever comes to be considered such a resolution would be a resolution which would be approved. But I do not dispose of it at all in that way. What we have to do is to consider this Act of Parliament and the state of the company. I do not propose to lay down any general rule as to how far a general meeting could under the powers of sect. 91 of the Companies Clauses Act in a going concern and where they are not bound by any special clause in their articles as to the application of their funds, give remuneration to directors not only for the current year or for the first

year, but for past years during which they have acted apparently without intending to receive any remuneration at all. But here what we have is this - that for all the duration of this company the directors have never received any remuneration at all, and there has been no resolution saying that they shall have any. I quite agree with what Mr. Hardy said that during the first year of a parliamentary company which comes under the Companies Clauses Act directors must be acting without any fixed salary, but merely in expectation of receiving such a salary as the general meeting may grant them, and that therefore it must be in expectation. But then I think that would negative the idea that they had agreed to act without any remuneration. They were agreeing to act for such remuneration during that time at least as the general meeting at the end of the first year should grant them. But when directors have for many years gone on without it even being suggested that they should have any remuneration, and we have this Act of Parliament which contains this clause sect. 12 (b) - that the purchase-money, after providing for the costs of the Act, shall be applied in paying off any revenue debts or charges of the West Cork Company so far as the same shall not already have been paid out of revenue - although undoubtedly it enables the purchase-money to be applied in payment of any charges constituted by a resolution of a general meeting or otherwise as charges which under the Railways Act, 1868, would properly come as against revenue - yet in my opinion it was not competent to a general meeting to deal with this fund when it came to distribute it in providing for any remuneration to the directors for those services which they had been giving during the time the company was a going concern without any remuneration, and without any resolution of a general meeting or other stipulation which entitled them to remuneration.

I do not however mean to decide - in fact my opinion is rather the other way - that a general meeting of this company could not in the winding-up, and in exercising for the purpose of the winding-up the powers given by sect. 91 of the Companies Clauses Act,give to the directors what may be considered a fair remuneration for their services to the company after the railway and the undertaking had been taken over by the Bandon Company, and all that

was being done was being done for the purpose not of carrying on the railway as a going concern but for the purpose of doing that which was incidental to and connected with the winding-up of the company. If it had been shewn that this such was given to the directors really as a payment to them of a proper sum for their services during the winding-up in the interval from the 1st of January, 1880, to the present time, my opinion would have been that that could not have been attacked. But I think on the evidence the necessary inference is that this sum of £1500 was agreed to or voted to be paid to them not as a reasonable sum for remuneration for their services during that term, but as a sum which might with reasonable generosity be paid to them taking into consideration the fact that they never received anything during the years when they carried on the railway. That, I think, was beyond the powers which the company preserved under sect. 14, and the powers of the Companies Act incidental to carrying on the winding-up of the company, and therefore would be ultrˆ vires.

In my opinion, therefore, though the two cases are different, yet neither as regards the compensation to the officials nor as regards the vote of £1500 put in that way for the directors, can this resolution be considered as one within the powers of a general meeting held under this Act. I have not gone into the question - I understand none is now raised - as to whether the meeting was properly called, I have dealt with the case upon the footing that the Plaintiff here stands in no better position than the shareholders would, that is to say, he is a person, who by the vote of a general meeting of the company, acting within its powers, would be bound, and could not object simply because he thought the resolution unreasonable, or that it was too large a sum to vote.

Therefore the injunction, which I think ought to be granted, will be confined to this, to restrain the company from applying any part of the £4000 in accordance with the resolution of the 19th of April otherwise than in payment of the costs and expenses which are resolved to be paid thereout. That, I think, would be the form of injunction which should be granted, and of course it is perfectly right to add that it is not to be considered as preventing the company in general meeting from voting any sum out of the purchase-money as a reasonable remuneration for

the services of the directors during the period subsequent to the 1st of January, 1880.

That is my opinion; but I think I ought to say what I think is the meaning of clause (b) of the 12th section. The general debts had to be provided for by the resolution, but the provision in sect. 5 clearly does consider that some other debts still remain to be paid by the West Cork Company. What I think is this, that it was intended that all the debts and charges which would be incurred in winding-up or which would be incurred since the time when it was dealt with by the scheme of 1873, should be practically revenue debts and charges. I think it cannot be considered that that is confined to revenue debts and charges incurred or become such at the time when the company was a revenue making company by means of its railway. In my opinion all those charges which would necessarily or properly be incurred in winding up the company would be charges which by the General Act of 1868 would come in the schedule of revenue debts and charges; and even if there was such a case as that which occurred to my mind, as a claim for an accident which had ripened into a judgment before the 1st of January, 1880 - that is mentioned specially in the Act in the revenue account and not in the capital account. So that I think the clause means this, that all the charges incurred previously to the complete winding up and distribution of the money will be in the nature of revenue debts and charges; those are to be provided for and they shall be provided for out of this capital sum to prevent any difficulty being suggested that under the general Act they can only be paid out of income. I think that this section (b), intends to provide for all charges properly payable by the company before the distribution of the purchase-money.

In my opinion, therefore, the injunction should be granted in the way I have mentioned.

BOWEN, L.J. :-

I am of the same opinion. I need hardly say with what hesitation I differ from the view of Lord Justice Baggallay and Lord Justice Fry, and I unfeignedly say that I would rather trust their opinion than my own, but unfortunately the law does not

allow me to do so. I am bound to form an opinion for myself, and I am bound, therefore, in respect to their great authority to say why it is that I take the view which Lord Justice Cotton has taken.

Now the directors in this case have done, it seems to me, nothing at all wrong. Let us clear the ground, because my sympathies are rather with the judgment of Lord Justice Fry, if one could really exercise sympathy in a case where questions of law have to be decided. Not only have they done nothing wrong, but I confess I think the company have done what nine companies out of ten would do, and do without the least objection being made. They have paid, perhaps liberally, perhaps not at all too liberally, persons who have served them faithfully. But that, of course, does not get rid of the difficulty. As soon as a question is raised by a dissentient shareholder, or by a person standing in the position of a dissentient shareholder, sympathy must be cut adrift, and we have simply to consider what the law is. In this particular instance the Plaintiff is a person who stands prim‰ facie in the condition of those who are bound by the vote of a general meeting acting within the powers of a general meeting, but he complains that the majority propose to expend certain purchase-money which the company are receiving from the Bandon Company in two ways which he thinks are beyond their powers. In the first place he says that the majority are going to spend money in compensating the managing director and other officials, who are being extinguished by this transfer to the Bandon Company, for the loss of their places. Now the compensation which is to be awarded is not compensation for any legal loss they have sustained: because I understand that these gentlemen could always have been discharged, and have received notice amply sufficient to prevent them from having any cause of legal grievance, and they simply have been asked in the usual way to cease to serve the masters who have no further cause for their services. In the second place, the Plaintiff complains that money is sought to be paid for remuneration of the directors. The facts there, again, deserve to be shortly summarized. They are directors who for many years have served the company for nothing, and I cannot help thinking that down to the time this purchase-money was

to be received it was always understood that they were going to serve the company for nothing. I see no reason to think, at all events, that they ever meant to put forward any claim. But, after this arrangement of transfer to the Bandon Company, and after the company is wound up, or towards the close of its winding-up, it is proposed to pay them a lump such, the measure taken not being the measure of service they have rendered in the winding-up, but a general view which the company entertains of their past merits. Now can a majority compel a dissentient unit in the company to give way and to submit to these payments? We must go back to the root of things. The money which is 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 fides 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 bon‰ fide yet perfectly irrational. The test must be what is reasonably incidental to, and within the reasonable scope of carrying on, 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 within very narrow and easily defined limits.

But, first of all, let us consider in what kind of way one would deal with the case of an ordinary railway, because this has been said and pressed upon us by Mr. Hardy in his most able and clear argument. Mr. Hardy has pressed upon us the fact that it is amply within the powers of an ordinary company to pay away money for the remuneration of its directors in the past. I do not say it is not so, within certain limits. But what is the remuneration

of directors? I think it is pretty clear that, like the compensation for loss of the services of the managing director, it is a gratuity. A director is not a servant. He is a person who is doing business for the company, but not upon ordinary terms. It is not implied from the mere fact that he is a director, that he is to have a right to be paid for it. In some companies, not in railway companies, perhaps, so often as in other companies, but in some companies, there is a special provision for the way in which the directors should be paid; in others there is not. If there is a special provision for the way in which they are to be paid, yon must look to the special provision to see how to deal with it. But if there is no special provision their payment is in the nature of a gratuity, as was pointed out in the case cited by Mr. Cookson of Dunston v. Imperial Gas Light and Coke Company (1). Directors, under those circumstances, often do get money. But whenever they get it it is in the nature of a gratuity voted. That does not get rid of the difficulty, because one must still ask oneself what is the general law about gratuitous payments which are made by the directors or by a company so as to bind dissentients. It seems to me you cannot say the company has only got power to spend the money which it is bound to pay according to law, otherwise the wheels of business would stop, nor can you say that directors who have got all the powers of the company given to them by sect. 90 of the Companies Clauses Consolidation Act, are always to be limited to the strictest possible view of what the obligations of the company are. They are not to keep their pockets buttoned up and defy the world unless they are liable in a way which could be enforced at law or in equity. Most businesses require liberal dealings. The test there again is not whether it is bon‰ fide, but whether, as well as being done bon‰ fide, it is done within the ordinary scope of the company's business, and whether it is reasonably incidental to the carrying on of the company's business for the company's benefit. Take this sort of instance. A railway company, or the directors of the company, might send down all the porters at a railway station to have tea in the country at the expense of the company. Why should they not? It is for the directors to judge, provided it is a matter which is reasonably incidental to the carrying on of

(1) 3 B. & Ad. 125.

the business of the company, and a company which always treated its employŽs with Draconian severity, and never allowed them a single inch more than the strict letter of the bond, would soon find itself deserted - at all events, unless labour was very much more easy to obtain in the market than it often is. The law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.

Now that I think is the principle to be found in the case of Hampson v. Price's Patent Candle Company (1). The Master of the Rolls there held that the company might lawfully expend a week's wages as gratuities for their servants; because that sort of liberal 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 qu‰charity. There is, however, a kind of charitable dealing which is for the interest of those who practise 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. In the same way may be put the past remuneration of directors. A company could not always go on if the moment the directors had served six weeks or months, or a year, they insisted on their immediate remuneration for the past period. That is not the way to do business. The past remuneration of directors seems to me like the gratuitous wages in Hampson v. Price's Patent Candle Company, to be justifiable, provided it is within the scope of the business of and secures advantage to the company.

I add one word more about compensation for dismissal of employŽs. I am by no means prepared to say that directors might not, and that a company might not, when a meritorious servant is leaving their service, present him with a £5 note, I should be very sorry to decide anything of the kind; but I say that there must be a limit, and the limit is what is necessary in the reasonable management of the affairs of the company.

Is there anything in the 91st section of the Companies Clauses Act, 1845, which alters that view of the law as to the remuneration

(1) 24 W. R. 754.

of the directors? Sect. 90 is a section which deals with matters which are within the powers of the company, and gives the directors power generally to do all that the company may, but does not give them power to do more than the company may.

Sect. 91 limits their powers as regards their own remuneration, because as regards their own remuneration the amount must be sanctioned by a general meeting. That does not enlarge the powers of the directors with regard to their remuneration.

Then take Lord Justice Fry's judgment, and what is the passage on which his view seems to turn? It is curious that Lord Justice Fry has not dealt in detail with the question of compensation for dismissal, and I should have been glad to know what his view was; but this is what he says with regard to remuneration for past services of the directors: "It appears to me, there is nothing whatever to prevent a general meeting from so voting remuneration for past services. To hold otherwise, would preclude directors from foregoing their right to remuneration when a company might be in trouble and difficulty, and asserting their moral right to remuneration when the company had become prosperous by reason of their services. Of course, if the majority of the shareholders present think it undesirable or improper to vote remuneration for past services the directors can have no claim whatever; but in case the majority think it reasonable and fit to vote a sum of money for past services, it appears to me a matter in which the majority can bind the minority." If that is meant as a simple test, I confess I do not agree with it, although I need hardly reiterate the respect I have for the opinion of the Lord Justice. If it means that within certain limits that is the test, I agree; but the ultimate test is not bona fides, but what is necessary for carrying on business. That is the test which Lord Justice Fryhas 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. This particular company had been sold to the Bandon Company, and the purchase-money was to be assessed, and it was part of the scheme that at the time of transfer and payment of the purchase-money

all capital debts of the company should be and were extinguished. The company remained alive, as Mr. Cozens-Hardy has pointed out. That is true, but it remained alive only for certain purposes. It was not a going concern in the full sense of the term, nor was the venture any longer the ordinary venture of a railway company. It had a special and limited business, and that business was to preside at its own funeral, to wind itself up and carry on its own internal affairs until it had distributed the purchase-money in the way the Act of Parliament prescribed. If that be so, when one is applying the general test whether what has been done is incident to the business of the company, we have this further matter to recollect - what the business of this company is - and we have to ask ourselves whether these payments were necessary for that kind of limited business or could reasonably be said to be part of the business. Now the three material sections of the Act of Parliament are the 5th, 12th, and 14th. Sect. 5 defines the undertaking of the West Cork Company, which is to be transferred to the Bandon Railway Company. All the assets of the West Cork Company, with certain limitations that I need not deal with at the moment, are transferred to the Bandon Railway Company, and go with the undertaking. But further, and besides that, certain liabilities were part of the undertaking, and what those liabilities are, I think, is to be seen by referring to two matters, first, the fact that it was part of the scheme that all debts should be wiped off except revenue debts and charges strictly speaking; and, secondly, the proviso which reserves and attaches to the selling company (the West Cork Company) all debts properly so called, that is to say, liquidated sums due, as well as mortgage and other securities. The liabilities which were to go over, were such liabilities as had accrued and had not become debts. I do not say there were not many other kinds of liability which would not satisfy the word "debt," but there was this particular kind of liability suggested by Lord Justice Cotton during the argument, which is an important one. A railway accident may have occurred upon the day before the transfer and a man been killed, and the railway company would be liable to compensate the injured man's family. There would be that liability, and it would pass over to the new railway company, because it had not

ripened into a debt; but if at the time of the transfer it had ripened by verdict and judgment into a debt, it was attached to and still remained a burden upon the selling company. That section says nothing at all about such current expenses as might be incurred after the time of the transfer and during the limited operations of the company while winding itself up and directing the apportionment of the purchase-money, nevertheless the company was to survive for those purposes under sect. 14, which I refer to next, and which says that "from and after the completion of the West Cork transfer and the payment to them of the West Corkpurchase-money, the West Cork Company shall be dissolved, excepting for the purpose of regulating their internal affairs and winding-up the same, and of applying the said purchase-money in accordance with the provisions of this Act." There must be some expenses connected with that dissolution. How are they provided for? They are provided for nowhere unless they come within the words in sect. 12, "revenue debts or charges." The purchase-money was to be paid over, and sect. 12 directs how it should be applied. In the first place, it is to go in paying their proportion of the costs of obtaining the Act, and incident to the arbitration and award that fixed the price to be paid; secondly, in paying off any revenue debts or charges of the West Cork Company, so far as the same may not already have been paid out of revenue, and subject thereto; and, thirdly, in distributing the balance of such purchase-money to and among the respective classes of debenture stockholders and preference and ordinary shareholders. The West Cork Company would have no money to pay these expenses incident to the termination of its own existence, unless they could be taken out of the purchase-money as revenue debts or charges under sub-sect. (b) of sect. 12 of the Act. I think that is an answer to a difficulty which I felt, but abandoned during the argument, as to whether these words "revenue debts or charges" could apply to anything but the revenue debts and charges which existed at the time of the completion of the transfer. If the company could expend the money for certain purposes, I think it must be held to include that. Mr. Hardy pointed out with great force that "revenue debts or charges" were probably words introduced not without reference to the Railways Regulation Act, 1868,

which deals with the administration of railway accounts, and which divides the capital account from the revenue account; and he urged upon us as a consequence that this would be a revenue charge, and that whatever would naturally fall under revenue charges and be properly charged to that particular account under the Railways Regulation Act might lawfully be paid under sub-sect. (b). I agree that if he could make out that this remuneration or compensation of the directors is a charge at all, it might properly be paid under sub-sect. (b), because it would be a revenue charge if a charge properly made. But with all respect to his argument the point where to me it seems to break down is this. 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 to the carrying on - not the business of the old company - but what the business of the company would be for the purposes of its continued existence. It was moribund, and would only want to die in peace and distribute its assets, and it would not, as it seems to me, be proper to carry to the revenue account of such a company the money it voted to directors in a liberal spirit for what they had done in past years, or to a managing director for the disappointment and vexation of being deprived of an office for which he had been amply paid. The revenue debts and charges of the company must be viewed with reference to the qualified nature of its existence still left.

That being so, I think the resolution as to compensation is clearly wrong. The directors have no right to give it. It might in some instances be worth the while of a company to compensate a meritorious, but dismissed officer, but that kind of justification cannot exist in the case of a dying company. I think that makes the resolution bad, and I think it also renders it necessary to pass some fresh resolution, because I agree with Lord Justice Cotton that if the meeting has given over to the directors generally a surplus on the assumption that £1050 can be expended upon officials (which is not a correct assumption), and that the surplus would accordingly have to be increased by the £1050, it does not at all follow that it meant the directors to have that £1050. It seems to me, however, that the meeting has

not considered it in the right view, and not measured it in the right measure.

I do not understand Lord Justice Cotton to say that no remuneration can be granted to the directors out of the purchase-money which is reasonably measured by the services they have rendered in winding up this company and in connection with the completion of the dissolution and transfer; but this resolution is couched in much wider terms and is evidently based upon the idea that they might be charitable with reference to past services done for the company at the time it was a going company, and I think a willing majority has no right to bind a dissentient minority by any resolution so conceived.

BAGGALLAY, L.J. :-

As the opinion which I have formed as to the manner in which this appeal should be dealt with is different from that formed by my colleagues, I should entertain considerable doubt as to the soundness of the conclusion at which I have arrived, were it not that the decision at which I have arrived is in accordance with that expressed by Lord Justice Fry at the time when he made the order from which this appeal is brought. Inasmuch as my decision can have no effect as regards the order which will be pronounced upon the present appeal, it will be sufficient if I simply indicate the outline of the grounds which appear to me to support the conclusion at which I have arrived.

At the time when the Act of Parliament was passed which authorized the Bandon Railway Company to purchase the undertaking of the West Cork Railway Company, the latter company was a going concern. The Act of Parliament was passed in the summer of 1879, and it gave power to the Bandon Railway Companyto purchase the undertaking of the West Cork Company,and it authorized the price being regulated by arbitration. The agreement for the purchase was entered into between the two companies in the autumn of the same year, and the whole purchase was to be completed before the 1st of January, 1880. The price was ascertained before that day, and upon that day all the undertaking of the West Cork Company passed to the Bandon Company, but there was a proviso in the Act that when that

property had so passed the Bandon Company should not be liable for the claims of mortgagees and other creditors against the West Cork Company, all of which were to be paid and discharged by the West Cork Company. Then the 14th section was as follows:- [His Lordship read the section.] That is to say, the company was dissolved quoad, outsiders, and it was to remain a company for the three purposes mentioned, namely, regulating its internal affairs, winding up the same, and applying the purchase-money in accordance with the provisions of the Act.

Now in my opinion the formation of a company and the winding-up of its affairs are portions of its business; its affairs are not concluded until the winding-up is at an end. I think that the purpose for which the company was to be treated as a living company, namely, the regulation of its internal affairs, extended to the regulation of all its internal affairs, whether such regulation was to be carried out through the medium of the directors, or through the medium of the shareholders, and that all its powers continued until the winding-up was completed.

Then the question arises, which is the substantial question here, whether during the interval between the time when the company was dissolved quoad outsiders, by reason of the undertaking being transferred to the Bandon Company, and the time when it should complete its affairs by distributing the balance of the purchase-money, which time has not yet arrived, it would be within the right of the company in regulating their internal affairs to fix the amount of remuneration to be paid to its directors and to fix the amount of compensation to be paid to its officers. I do not propose to enter into any detailed argument in support of the decision which I have formed. I adopt unreservedly the view expressed by Lord Justice Fry in his judgment as reported, but I would just direct attention to the 90th and 91st sections of the Companies Clauses Act, 1845. The latter provides for remuneration of the directors, and they are under the general head, "With respect to the powers of the directors and the powers of the company to be exercised only in general meeting." A company has the same powers of dealing with its affairs as an individual has, subject only to the restrictions imposed upon it by the terms of its incorporation. Some of those powers are to be

exercised only by the directors, and others are only to be exercised under the power or control of a general meeting. The 90th section provides in general terms that the directors shall have the management and superintendence of the affairs of the company, and may lawfully exercise all the powers of the company, either under the Companies Clauses Act or under the special Act incorporating it, subject to the control and regulation of any general meeting; and sect. 91 is merely an exception from the general powers which sect. 90 confers upon the directors, and it says, as regards the particular powers therein mentioned, that they are only to be exercised at a general meeting of the company. Lord Justice Fry was of opinion that the general meeting of the company, as referred to in that section, though not so indicated there, should be an extraordinary one; that is to say, a meeting summoned with the formalities of an extraordinary meeting, and for that reason he thought it necessary to grant an injunction until an extraordinary meeting had been called and another resolution passed. Then a meeting was held and a resolution to the same effect as before was passed. One of the powers to be exercised by the general meeting as distinguished from the directors is the remuneration of the directors, auditors, treasurer, and secretary. They are all put in the same class there. It is not said there that the directors may receive a gratuity, and the auditors, treasurer, and secretary may receive remuneration. Although the directors cannot be called the servants of the company they are all persons entitled to have remuneration from the company in respect of services rendered to the company. I can see no difference as regards the provisions of the 91st section between a director and any other servant. It may be said, and I think very properly said, that until such time as a general meeting has fixed the amount of remuneration of the directors or of the treasurer or secretary, or any other officer, the person so indicated has not any right to demand his remuneration; but the power of granting remuneration is the same as regards one or other of the parties named, and having regard to the words of the section it can hardly be disputed that at any time before what I may call the dissolution of the company quoad outsiders, that is the first dissolution, it was in the power of a general meeting to

fix the amount of remuneration of the directors and of any other of the servants of the company. Having regard to the ordinary practice in these matters, with which we are all more or less acquainted, and having regard to the absence of any case in which remuneration voted to directors in respect of their services has been called into question and disallowed, I am of opinion that it was within the powers of the meeting at any time when the company was a going concern to pass a resolution and vote a a sum to the directors for past services as well as for future. As has been pointed out in the course of the argument, the first allowance of remuneration made to directors must be for past services, because no allowance can be made until after the first general meeting.

Am I then right in thinking that the company have the same powers after the first dissolution down to the time when the final dissolution takes place by reason of the affairs being completely wound up? Reading as I do sect. 14 of the Act so far as regards the power for regulating the internal affairs of the company, I think the power continues the same as it ever was down to the time when the purchase-money is to be ultimately divided according to the provisions of the Act; and that the same power of remunerating the directors for past services remained, and was a power of the company to be exercised by such one of its two bodies as had the duty imposed upon it of exercising that power.

But it is said that the business of the company is at an end; that the undertaking having been handed over to the Bandon Company, there is no longer any business to be done. A great deal remains to be done if I am right in saying that the winding-up of a company is as much part of the business of a company as its formation. It is asked what have the company to do in winding-up their affairs; they have to provide for the costs of and incident to the obtaining the Act, and also for the costs of and incident to the arbitration and the award, which could not take place until after the Act passed. Then they have to pay off any revenue debts or charges of the West Cork Company, so far as the same have not already been paid; and then subject

thereto to distribute the ultimate balance. It can hardly be disputed that there may have been a number of debts and charges remaining at the time this Act of Parliament passed, which had to be paid off: and no other authority, no other persons, were appointed by this Act to carry out all those proceedings after the time when the Act became the law of the land. Nobody remained to conduct the business of the company except the directors, who are subject to the control of the general meeting. Many things yet remained to be done; there was a substantial amount of business to be carried on in various ways before the final dissolution could take place.

Then it is said that it would be a hard thing that a vote of this kind should be passed. But all the shareholders were represented at the meeting. If this had been the ordinary case of a company being wound up, where merely the ordinary shareholders would be the persons entitled to attend and vote, they might not possibly care how much of the money of the debenture holders might be paid in gratuities to officers or directors, or any one else; but here, under the scheme of arrangement, every one of the debenture holders had an opportunity of attending this meeting like the ordinary shareholders, and they attended and voted according to their qualifications. At this meeting the resolution was carried by a decided majority. It is suggested that there were only two opponents - the Plaintiff in the present action and his brother. However that may be, there is no suggestion that the meeting was not properly convened and properly held, or that the resolution was not properly passed, if the meeting had power to pass it. It is not, therefore, a question of hardship; it is not a question of how much business remained to be done; but it is simply and solely a question of whether the company was an existing company in respect of the regulation of its internal affairs. If I am right in that, the vote of remuneration to the directors is beyond all question. I am free to admit that there may be some question as regards the compensation to the officers for the loss, or supposed loss, of their places. The argument upon that has rather turned on the magnitude of the gift than on the principle. It is said that you must not be too nice as

regards a little matter: a small present of a few weeks' wages to a man who has done his work well is not important; but a large amount of compensation to men who have been faithful in the positions they occupied and who have done their work well for years, is not within the powers of the company. It is difficult to measure a case of the kind by the magnitude of the sum voted. Here there are officers who have discharged their duties and served the company well for a length of time; and is it beyond the powers of the company to vote a reasonable amount of remuneration to them for the services so rendered, and which, it is admitted, have been valuable services, when they are about to be deprived of the offices they hold? I should be very sorry to hold that it is beyond their powers. My only doubt is whether it was not within the power of the directors without the assistance of the shareholders. However, the mere fact of the shareholders at the meeting having passed the resolution is of no importance if that is so.

The only other matter to which I need allude is the £4000, out of which the directors were to pay a certain sum for expenses, a certain sum for compensation of officials, and a further sum by way of remuneration to themselves. The question has been raised whether, if the vote for giving £1050 as compensation to the officials is bad, the whole resolution is not bad. I should prefer taking it as a resolution in three parts - a resolution giving so much in respect of law expenses, so much to the officials, and so much to the directors.

For the reasons I have stated I think the conclusion Lord Justice Fry arrived at is the correct one, and I am sorry that my learned colleagues do not take the same view.

COTTON, L.J. :-

The order will be this, that the Plaintiff continuing the undertaking as to damages, there will be an injunction restraining the directors from paying or applying any part of the £141,934 in manner directed by the resolution of the 19th of April, 1883, otherwise than in providing for the costs and expenses therein mentioned.

The order should also be without prejudice to the right of the general meeting to vote and of the directors to retain and apply any reasonable sum for the remuneration of the directors for their services since the 1st of January, 1880, in the winding-up of the company.

Solicitors for Plaintiff: Robins & Cameron.

Solicitors for Defendants: Norton, Rose, & Co.

M. W.