COUNSEL: Davey, Q.C., and Mulligan, for Gover's demurrer.

Chitty, Q.C., and Levett, for Norton's demurrer

Cookson, Q.C., and Bond Coxe, for the Plaintiff.

 

SOLICITORS: W. F. Nokes; J. D. Gover; E. Norton.

 

JUDGE: Jessel, M.R.

 

DATE: 1877 March 5.

 

 

Practice – Company's Authority to sue – Company – Secret Contract – Action by one Shareholder on behalf of himself and others – Company Defendant – Name of Company, Right to use – Demurrer – Mistake of Law – Rules of Court, 1875, Orders XVI., r. 2; XXVIII., r. 8 – Making Company Plaintiff without Consent – Charges of Fraud – Costs.

 

A shareholder in a company brought an action on behalf of himself and the other shareholders against the company's solicitors and vendor to set aside an alleged secret and fraudulent contract, and to recover a large sum of money for the company from their solicitors, the company being joined as Defendants instead of Plaintiffs.

 

A demurrer to the statement of claim by the Defendants, other than the company, on the ground that the action could only be maintained by the company, was allowed, but the Plaintiff obtained leave under Rules of Court, 1875, Order XVI., r. 2, to amend his writ and statement of claim by adding, the company as Plaintiffs, the production by him of any authority from the company to sue in their name being held to be unnecessary.

 

As the Plaintiff charged fraud against the demurring Defendants, the question whether their costs of the demurrer should be paid by him was reserved till the trial of the action.

 

“Bonâ fide mistake” in Order XVI., r. 2, of the Rules of Court, 1875, includes a mistake of law as well as of fact.

 

DEMURRERS to statement of claim.

 

The action was instituted by Sir G. F. Duckett, “on behalf of himself and all other the shareholders of the Alton Coal, Coke, and Iron Company, Limited.” The statement of claim alleged that the company was started in 1873 for the purpose of purchasing the Alton Colliery, the property of the Defendant Nicholls; that the Defendants Gover & Norton, acting as solicitors for and on behalf of the proposed company, agreed with the Defendant [*83] Nicholls for the purchase of the colliery for £27,000, payable partly in cash and partly in debentures and shares of the company, but at the same time entered into a secret written agreement with Nicholls that the purchase-money should be represented as £34,000, instead of £27,000, upon the understanding that the £7000 difference should be paid to them, Gover & Norton, as a bonus or douceur for procuring the purchase; that the company, having been duly registered, purchased the colliery for £34,000, which was paid to Nicholls partly in cash and partly in debentures and shares of the company, as stated in the prospectus; that the prospectus, which was prepared by Gover & Norton, and printed under their direction, did not disclose the existence of the secret agreement; that Gover & Norton, without the company's knowledge or sanction, received the £7000 from Nicholls in cash, debentures, and shares; and, moreover, that Gover & Norton had, in the course of certain loan transactions conducted by them on behalf of the company, appropriated various sums of money to their own use and had never accounted for the same to the company.

 

The Plaintiff claimed to have the secret agreement between the Defendant Nicholls and the Defendants Gover & Norton declared fraudulent and void as against the company, and set aside accordingly; to have an account taken of all moneys received by the Defendants Gover & Norton in respect of the loan transactions, and to have repaid to the company all moneys which on taking such account should be found due from such Defendants; and to have the cash, debentures, and shares representing the £7000 paid and delivered up to the company.

 

The company were made Defendants in the action, but the statement of claim alleged no reason why they had been made Defendants instead of Plaintiffs, nor did it contain any allegation that the Plaintiff was unable to join them as Plaintiffs.

 

The Defendants Gover & Norton demurred separately to the statement of claim, on the ground that the Plaintiff was not competent to sue on behalf of himself and all other the shareholders of the company.

 

Davey, Q.C., and Mulligan, for Gover's demurrer:–

 

The matters complained of by the Plaintiff, if true, are wrongs [*84] to the company, of which they, and they alone, can complain, and therefore the action should have been brought in their name, according to the well-known rule laid down in Foss v. Harbottle (1), and followed in Gray v. Lewis (2) and MacDougall v. Gardiner (3).

 

[They were stopped by the Court.]

 

Cookson, Q.C., and Bond Coxe, for the Plaintiff:–

 

We do not dispute the general rule, nor do we contend that we are within any of the exceptions to it recognised in Russell v. Wakefield Waterworks Company (4). The objection that the company should have been named as Plaintiff instead of Defendant is a mere technical one, which, under the present practice, the Court will disregard. All parties being before the Court, it is not suggested that justice cannot be done if the action is allowed to proceed in its present form.

 

At all events, if we have been wrong in making the company a Defendant, we have acted under a bon‰ fide mistake, and we therefore ask leave to amend our writ and statement of claim by adding the company as Plaintiff, under Rules of Court, 1875, Order XVI., rule 2; we undertaking to amend within fourteen days. If the demurrers are allowed, the demurring parties are not entitled to the costs of their demurrers, as they are charged with fraud: Hodges v. Hodges (5).

 

Chitty, Q.C., and Levett, for Norton's demurrer.

 

JESSEL, M.R:–  It is clear that the company should have been made Plaintiffs, and therefore the demurrers must be allowed. I only wish to hear you, Mr. Davey, on the questions of amendment and costs.

 

Davey, in reply:–

 

As our demurrer is allowed, I submit that we are entitled to our costs. The Plaintiff is not entitled to any indulgence, for he has acted in defiance of a well-settled rule of law. This is, therefore, not a case of “bon‰ fide mistake” within Order XVI., rule 2, so as

 

(1) 2 Hare, 461.

 

(2) Law Rep. 8 Ch. 1035.

 

(3) 1 Ch. D. 13.

 

(4) Law Rep. 20 Eq. 474.

 

(5) 24 W. R. 293. [*85]

 

to justify the Court in granting the Plaintiff leave to amend: Clowes v. Hilliard (1).

 

[JESSEL, M.R.:–  He has made a blunder on a point of law. A blunder is a “mistake.”]

 

The rule applies only to a mistake of fact, as where a Plaintiff, having only an equitable title, has inadvertently omitted to join the holder of the outstanding legal estate. Before the Plaintiff obtains leave to amend, he should shew that he is authorized by the company to sue in their name, or that they are willing to be joined as Plaintiffs.

 

[JESSEL, M.R.:–  That is not necessary.]

 

JESSEL, M.R. :–

 

I am of opinion that I ought not, on the present occasion, finally to dispose of the question whether or not the Plaintiff should pay the costs of these demurrers.

 

Now, what is the practice of the Court? Order XXVIII., rule 8, says that “where a demurrer to the whole or part of any pleading is allowed upon argument, the party whose pleading is demurred to shall, unless the Court otherwise order, pay to the demurring party the costs of the demurrer.” Therefore, the Court may “otherwise order.”

 

The case is this: It is an action by a shareholder of a company against the solicitors of and a vendor to the company, charging gross fraud. I do not say that the charges are true: they are only admitted for the purpose of pleading. If they should turn out to be true, the company will recover a large sum from the Defendants, the solicitors. Therefore, though not technically, yet substantially, the company is a trustee for the shareholders, and the shareholders are cestuis que trust of the company. By a mistake of law – as I am assured at the bar, and as I also believe, from the fact that the demurrers have been allowed to come here for argument – the Plaintiff has made the company Defendant instead of Plaintiff, and he now asks leave at the bar to add the company as Plaintiff, preferring that his name, as the original Plaintiff, should remain on the record, and he will give an undertaking to amend within fourteen days.

 

(1) 4 Ch. D. 413. [*86]

 

Can I allow this to be done? He says I can do so under Order XVI., rule 2, which provides that “where an action has been commenced in the name of the wrong person as Plaintiff, or where it is doubtful whether it has been commenced in the name of the right Plaintiff or Plaintiffs, the Court or a Judge may, if satisfied that it has been so commenced through a bon‰ fide mistake, and that it is necessary for the determination of the real matter in dispute so to do, order any other person or persons to be substituted or added as Plaintiff or Plaintiffs upon such terms as may seem just.”

 

Now that unquestionably extends to a mistake in substance, and in nine cases out of ten if there is a mistake in substance it will be found that there is a mistake in law. Why should it not include a mistake in law? In my opinion it does.

 

Then the Court may order a Plaintiff to be added “if it is necessary for the determination of the real matter in dispute so to do.” Well, the question in dispute here cannot be determined at all without the company, and as the action cannot be maintained except by the company as Plaintiff, all I have to consider is upon what terms it is, according to the words of the rule, “just” that I should order the company “to be added as Plaintiff.”

 

Now, if this case of fraud is ultimately established, it would be wrong to make the Plaintiff pay the costs of these demurrers. I also consider it would in no way be right to make the demurring parties pay the costs, for they have succeeded on their demurrers; but if fraud is established against them I shall not give them any costs.

 

I will therefore give the Plaintiff leave to amend, and reserve the question whether the costs of the demurrers should be paid by the Plaintiff.

 

The demurrers must therefore be allowed, with liberty for the Plaintiff to amend his writ and statement of claim within fourteen days by adding the company as Plaintiffs. If the Plaintiff does not amend within fourteen days, the action will be dismissed. The costs of the demurring parties are reserved till the trial of the action.