Cox v Dublin City Distillery (No.2)

• Jurisdiction: Ireland
• Judge: Barton J.
• Judgment Date: 28 June 1915
• Court: Court of Appeal (Ireland)
• Docket Number: (1905. No. 125.)
• Date: 28 June 1915

Cox

and

Dublin City Distillery (No. 2).

Barton J.

Appeal.

(1905. No. 125.)

CASES

DETERMINED BY

THE CHANCERY DIVISION

OF

THE HIGH COURT OF JUSTICE IN IRELAND

AND BY

THE IRISH LAND COMMISSION,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL.

1915.

Company — Debentures — Quorum of Directors — Resolution to issue Debentures — Interested Directors voting — Validity of Debentures issued to Directors — Validity of Debentures issued to Outsiders without notice of Irregularity — Right of Holder of invalid Debenture to rely on Trust Deed securing Debentures — Estoppel — Res Judicata — Test Action.

By a deed executed in 1895 property of a company was conveyed to trustees for the holders of second debentures to be thereafter issued. The articles of association of the Company provided that no director should vote in respect of any matter in which he was individually interested. They fixed the quorum of directors at two.

At a meeting of directors held on the 12th May, 1903, at which three directors (two of them being D. and K.) were present, it was resolved that certain second debentures should be issued in trust for D. and K. as security for advances made by them to the company, which debentures were subsequently issued.

Held, by the Court of Appeal, affirming the decision of Barton J., that as D. and K. were interested parties, there was no quorum competent to vote on the resolution, and the resolution was invalid.

In re Greymouth Point Elizabeth Railway and Coal Company, Limited; Yuill v. Greymouth Point Elizabeth Railway and Coal Company, Limited, [1904] 1 Ch. 32, followed.

At a meeting of directors, held on the 16th May, 1903, at which five directors (including C. and T.) were present, each of the directors present agreed to advance a certain sum to provide new plant, and it was resolved to issue certain second debentures in trust for those making such advances, as security for the same. At a meeting of directors held on the 25th June, 1903, at which C. and T. were not present, these debentures were issued.

Held, by the Court of Appeal, affirming the decision of Barton J., that the resolution of the 16th May was invalid, and that the debentures issued to C. and T., having been issued in pursuance of that resolution, were void, notwithstanding that C. and T. were not present at the meeting at which the debentures were issued.

At a meeting of directors held on the 20th January, 1904, at which K., D., and H. were the directors present, it was resolved to issue certain second debentures in trust for persons making advances to the company, as security for such advances, and in pursuance of this resolution second debentures were issued in trust for C. and T. (directors). In pursuance of the same resolution second debentures were also issued to K. and D.

Held, by the Court of Appeal, affirming the decision of Barton J., that the resolution of the 20th January, 1904, was invalid, and that the debentures issued to C. and T. in pursuance of it were void.

Held, also, by the Court of Appeal, affirming the decision of Barton J., that the holders of the void debentures could not claim the benefit of the trust deed of 1895.

The effect of the decision in Doherty v. Kennedy, [1912] 1 I.R. 349, 363; [1914] A.C. 823, as to the right of a holder of invalid debentures to rely on the trust deed securing them, considered.

In pursuance of the resolutions of the 16th May, 1903, and 20th January, 1904, certain second debentures were issued in trust for persons who were outsiders, and had no notice of any irregularity in the resolutions.

Held, by the Court of Appeal, affirming the decision of Barton J., that such debentures were valid, and that their validity could not be questioned either by the company or the holders of other second debentures.

County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Company, [1895] 1 Ch. 629, followed.

Mowatt v. Castle Steel and Iron Works Company, 34 Ch. D. 58, distinguished.

In the course of the present action, which was brought by a holder of first debentures, D. and K. applied to the judge for liberty to institute a joint action to establish their rights in respect of (inter alia) the second debentures issued to them. An order was made on this application, giving D. liberty to proceed with an action against the trustees of the second debenture holders and the company, for the purpose of establishing the rights of the applicants. The action was brought by D. in his own name alone, and dealt with his own rights only. It resulted in a judgment in his favour as regarded his debentures. The validity of the debentures issued to K., C., and T. having been challenged in the present proceedings by the other second debenture holders and by the liquidator of the company:

Held, by Barton J., that the judgment in D.'s action could be relied on by K., but not by C. or T., by way of estoppel.

Held, by the Court of Appeal, reversing the decision of Barton J., that K. could not rely on this judgment by way of estoppel.

What is necessary to constitute a test action, considered.

Memorandum from Chief Clerk submitting for the considertion of Barton J. the following question:—

Whether the resolutions of the directors of the defendant Company, passed on the 12th and 16th May, 1903, respectively, and on the 20th January, 1904, are invalid and of no effect, by reason of the meetings at which such resolutions were passed not being properly constituted for the purpose of passing same, and if so, whether the second mortgage debentures set out in the schedule hereto, which were issued in pursuance of said resolutions, are void and of no effect, and do not create any security in favour of the holders of same.

SCHEDULE.

Name of present Holder.	No. of Debentures and amount.	Debenture Nos., both inclusive.	Amount of Principal.
Frederick Hans Kennedy, as Trustee for Frederick Kennedy.	38 of £100	191 to 212 256 to 261 281 to 290	£3800
Frederick Hans Kennedy, as Trustee for Percy Bence Trower, deceased.	20 of £100	231 to 240 271 to 280	£2000
Frederick Hans Kennedy, as Trustee for Percy Vardon Churton, deceased.	20 of £100	244 to 252 291 to 300	£2000
Frederick Hans Kennedy, as Trustee for Alfred W. Howes.	2 of £100	254 to 255	£200
Frederick Hans Kennedy, as Trustee for Adam S. Findlater, deceased.	5 of £100	266 to 270	£500
Frederick Hans Kennedy, as Trustee for William Findlater.	5 of £100	213 301 to 304	£500

The Company was incorporated in the year 1890 for the purpose of carrying on the business of whisky distillers. By the articles of association the directors had power to create and issue debentures, or borrow money by mortgage of the assets of the Company. In 1890, a sum of £35,000 was raised by the issue of first debentures. On the 5th October, 1895, the directors authorized the issue of £25,000 second debentures. These second debentures were secured by a trust deed, dated the 9th November, 1895. By this deed certain freehold and leasehold premises, the property of the company, were conveyed to Frederick Hans Kennedy and William Findlater as trustees for the second debenture holders, and the company covenanted with the trustees to pay the principal moneys and interest secured by the second debentures, and that the same should be a charge on the mortgaged premises.

Second debentures to the amount of £13,570 had been issued for cash prior to the year 1900.

The debentures in question in the present proceedings were isued in pursuance of resolutions passed at meetings of the directors held in the years 1903 and 1904. The following are extracts from the minutes of the meetings of the directors authorizing the issue of these debentures.

Minutes of meeting of directors held 12th May, 1903: “Present—Frederick Kennedy, Edward Doherty, A. J. Howes.” “In consideration of advances made by Frederick Kennedy and Edward Doherty to the Distillery for the purpose of carrying on the business, a large portion of which advances are made without security, It is resolved that second debentures to the amount of £4000 be issued to Frederick Hans Kennedy as trustee for the said Frederick Kennedy and Edward Doherty, the understanding being that when all advances made by the said Frederick Kennedy and Edward Doherty are paid, with interest at 5 per cent., the debentures shall be re-transferred to the company.”

Minutes of meeting of directors held 16th May, 1903: “Present—F. Kennedy, P. V. Churton, P. B. Trower, Edward Doherty, and A. J. W. Howes. Minutes of last meeting read and confirmed.” After referring to an agreement for the adoption of a certain process of yeast-making which would necessitate the erection of new plant, the minute proceeded: “The estimated probable expenditure on the new plant was read as likely to be from £1500 to £2000, and the directors present agreed to advance the following sums on account:—Messrs. Trower, Churton, and Kennedy, each £300; Mr. Doherty, £150; and Mr. Howes, £100. As security for such advances made for the purpose of installing the proposed yeast-plant, it was resolved to haud £4000 second debentures to Mr. Frederick Hans Kennedy as trustee for those making such advances, £100 debentures to be held against each £50 advanced, and on the understanding that, when all such advances are repaid with interest at 5 per cent. per annum, the debentures shall be re-transferred to the company.”

Minutes of meeting of directors held on 27th May, 1903: “Present—F. Kennedy, Edward Doherty, A. J. W. Howes. Minutes of last meeting read and confirmed.” “The issue of 40 second debentures of £100 each, numbered 191 to 230 inclusive, to Frederick Hans Kennedy as per resolution of 12th May, and confirmed at full board meeting of 16th May, was duly made, and the debentures sealed and signed.”

Minutes of meeting of directors held 25th June, 1903: “Present—Edward Doherty, A. J. W. Howes. Minutes of last three meetings read and...